First banks can do anything until they own the property......Secondly, once the lender has taken possession of the property, placing a renter in place greatly increases the difficulty of actually selling the property. Showing need to be scheduled around the occupants and renters tend not to care about the home's presentation.
This is an example of a good thought only until you understand what is really involved.....
A report published on May 30, 2013, "Joint Report on Federally Owned or Overseen Real Estate Owned Properties By U.S. Department of Housing and Urban Development Office of Inspector General and the Federal Housing Finance Agency Office of Inspector General". These two Inspector Generals note that in addition to Fannie Mae's and Freddie Mac's sizable inventory of REO properties, these two GSE's currently hold over 1.9 million mortgage loans which are in excess of 90 days delinquent. (That's just the GSE's, it doesnâ€™t include the REO and delinquent mortgage inventories currently held by banks and other mortgage investors). These Inspector Generals are concerned about how the GSE's will handle this very large "Shadow Inventory" in the future.
Carrington Mortgage is one of those lenders to date who has rented out foreclosed homes. The idea is good on paper with having someone in the home vs. having an empty home that could get vandalized while sitting vacant. But I think CMS has had a change in mind when now faced with renting out vs. just getting the home sold as quickly as possible.
Because the banks are not in the business of owning property it is their goal to get them on the market and sold as quickly as possible. While renting the property on a short term basis makes sense on some levels in the long run it is not practical for the banks.
There are many reasons.
The main thing is that they don't want to keep these homes as inventory very long. Very few renters are willing to rent short term and have to show the home at the same time. So they don't want to take 6 month renters for instance. They are also not interested in the process of finding qualified renters and handling rental issues, such as repairs and deposits.
The other problem is getting the renters out when you sell the home. There is a chance that they might have to evict them and that adds cost and difficulties which banks simply don't want to deal with.
If someone is renting a home and it is foreclosed upon, often the bank will work with the existing tenants to continue maintaining the home, but to put new renters in....too much work for a bank.
It is a way to offset some of their losses and risks because they donâ€™t have to worry about vandalism to the property. Yes, some banks are opting to rent some of their non-conforming assets but banks are not in the business of renting but rather lending. I really sure hope, they stay away from that option and continue to place the homes in the market and make it available for first time buyers or investors. Our economy will be healthier if the real estate industry boosts up and stabilizes sooner.
Victoria Always, REALTOR
I am seeing an increasing trend of banks investigating this option, but I am not sure the trend will catch like wildfire.
When speaking with the rep on the phone he noticed that the home was placed in the HFR program. He didn't even know what that was so he looked into it. He found out that HFR stands for Hold For Rent. Apparently, many of the homes they have listed are not going to be placed on the market for sale. Instead they are going to rent them out until the values of the homes recover.
I found this interesting and this is the first that I have heard of it so I wanted you to know!
What others have said are totally true, but this might change. As mentioned earlier, banks are not in the business to rent. Also, the homes sell too quickly. We receive REOs from 4 different lenders, and all get multiple offers and are off the market within days. This is partly due to availability. REOs are always available for show, no calling before and asking the tenant when one might show.
Now what is changing, is that the government is trying to dig their hands deeper into the private sector and make banks rent back homes to the owners. Now this may be ok on a case-by-case basis, but on a grand scale, this will prohibit the market from correcting itself as quickly. Now I don't know about you, but my wife and I are in the market as she is expecting and we need more space. I'm not in the market to buy a home someone else will live in and rent back from me after I buy it off the bank. I am buying for the soon-to-be 3 of us. Many of these homes will be priced in the first time home buyer range, yet this plan is more investor friendly, defeating the point of first time home buyer programs and aid.
Long story short, let's hope the banks and lenders minimize the property management aspect and focus on lending and liquidating not liquid assets such as homes.
Seven Gables Real Estate
Banks are really in the business of loans and they are not set up to act as property managers. Additionally, most properties would need repairs and maintenance. They rather sell today and make money lending money.
Victoria Always, REALTOR
There are a number of reasons. You cannot believe the process and paperwork there is involved with a bank property. A tenant would only add the to mix. The bank has just gone through the process of getting the property from the owner. A tenant who refused to show the home or worse not move out when it was sold would only create more problems. I have seen tenants in bank properties when they were existing tenants when the home was forclosed on, but that is rare.
Prudential CA Realty
There's really no need for the bank / owners to do so. The problems associated with qualifying renters, utilities liabilities, repair issues, condition of property, liability insurance etc. would cause more issues for the bank / owners than it's worth. They can list the properties at aggressive prices (vacant) and get offers quickly which will close faster vacant than occupied.
Eviction is another problem in California where it takes much longer to evict someone here in CA than it does anywhere else in the USA - and - if it's the City of Los Angeles for example, the property is subject to "rent control immediately-upon-foreclosure".
A tenant with all good intentions to move out upon notice, typically does not do so which causes closing issues and more liabilities.
It's a great thought, just not practical especially here in CA.
Best of luck !
Broker / REALTOR
Orange County, CA