Rental Property Investor · Saint Louis, MO · Member since 2012 · 115 posts · 42 votes
Hi,
I was wondering if anyone knows the answer to this?
What are the consequences of banks foreclosing on a house and then just holding on to it? The reason I ask is I am looking into bidding on a bank owned property by a small local bank. The property is not yet on the MLS but I know an agent who is trying to get the listing and says the bank has accepted offers before actually listing it in the past. There is currently a tenant in the property who is paying the bank rent and keeping the place lived in. Landlord got foreclosed on, not tenants fault. Since the bank is currently making money on the property, what incentives do they have to try and unload it quickly? I thought I had heard something about they get audited and it looks bad to have houses on their books/they are not allowed to foreclose and just hold onto the property? Anyone know anything about this?
Thanks! Daniel
No information we give will help you determine if the bank will be willing to sell you the property prior to listing. The only way to know that is to ask -- either directly by speaking with the asset manager at the bank or through the agent who will be listing it (though directly is a better bet if possible).
Most people here believe that the "smart" thing for banks to do is to get properties off their books as quickly as possible, but banks don't always do the smart thing (or perhaps they have some agenda that doesn't seem smart that we don't understand).
To keep it simple, Banks lend money. They loan out money with interest and make money off a margin. How they get a hold of loans to hand out to clients are by the same way their clients get loans. They leverage the cash/bonds/assets in their portfolios and acquire the loans in which people borrow. Now when an loan goes under, it is now non-performing, regardless of rental income. It is now considered red in the books and they need to get it off the books because it effects their borrowing power. They're systems are not set up to operate as landlords. It goes against how they acquire loans and use leverage.
No information we give will help you determine if the bank will be willing to sell you the property prior to listing. The only way to know that is to ask -- either directly by speaking with the asset manager at the bank or through the agent who will be listing it (though directly is a better bet if possible).
Most people here believe that the "smart" thing for banks to do is to get properties off their books as quickly as possible, but banks don't always do the smart thing (or perhaps they have some agenda that doesn't seem smart that we don't understand).
Federal and state chartered banks are prohibited from owning real estate other than as collateral taken to statisfy a debt which must be disposed of or for the bank's own use, like a main and branch facilities. They are not allowed to be in the real estate business.
They may have affiliate companies. Real estate, insurance and even travel companies are affiliated with banks. However there is a strict seperations of such entities and conflicts of interest are examined.
Any collateral taken for the satisfaction of a debt must be disposed of to credit the debt outstanding. Lenders take title with a collateral interest only and not in tenancy. An exception is taking a deed in lieu of foreclosure where the outstanding debt is cancelled for what ever the value of the property might be. Such properties aquired in that manner could be held as bank property if utilized for banking operations, otherwise it too must be disposed of.
Don't worry about banks competing in the rental markets for very long. There are automatic write down requirements for properties held and it is not in the best interest of the bank to let a property sit on the books as they keep writing values down.
Bill,
Can you explain a little about how the write down requirements work? If this is a smaller local bank does all of this still apply?
I understand how banks work and they are wanting to make interest on the loan, not take back the loan. I am trying to understand the bigger picture in terms of what kind of pressure they are to get rid of these properties they have taken back given they aren't suppossed to be in the rental business. I am meeting with a bank representative this week, trying to figure out my offer. I figure if they can sell it to me sooner rather than holding onto it, listing it and then waiting to sell it that is a big advantage I have. I just want to understand how big of an advantage it is from the banks perspective to get rid of it sooner so I know how hi/low to make my offer. Time is money, but how much?
Again, these are pre-MLS properties so I am also saving them time/hassle of having to go through listing them and possibly paying two agent commissions (there is one in my situation)
Bill gave you the skinny on the bank regulation. Make an offer and send it in. The only folks who might be in a better spot could be the tenants, if they expressed interest in purchasing the property the bank may not list and give the tenants a chance to purchase.
Thanks Dion, I have heard most of the tenants are worried they will be kicked out depending on who buys it, none are interested/able to buy it so I am not worried about that and plan on keeping the tenants in place. Will be putting in an offer this week, it will include several properties. I have a range down for my price, just keep going back on forth of the exact number trying to understand the banks perspective to know if I should go with my higher or lower range.
Thanks for your responses!
Any major write down will come after one year on the books, that gets into inter-bank regulatory areas that is not public knowledge for obvious reasons. Your best bet is make your offer based on your valuation and investment needs, not how badly the bank is hurting. The people making the decission only have a job,it's not his/her property and they will sleep well regardless of what the bank sells it for. Their job is to dump it not keep it, so long as they don't lose their job over it. In fact, the property manager folks may not even be aware of how the bank's books will be adjusted, that's not their job.
As Dion mentioned, submit your offer before someone else does....good luck.