We had a house down the street go into foreclosure because the woman couldn’t sell it for the going market rate since it was less than what she owed. She had a number of offers that were close but the bank wouldn’t let her sell opting instead to wait until she stopped paying on the mortgage so they could take posession and sell it themselves.
Idiotic from the banks standpoint because instead of losing just a few thousand they will now lose upwards of $20,000 - $30,000 because it sat on the market so long.
The bank finally put the house on the market a few weeks back. They’re asking $250,000, and so far I’m the only person who’s looked at it. I offered $225,000, which they turned down. I’ll wait a couple of months and offer it again. If the market keeps dropping here in Northern California, my next offer might be even lower.
Only a fool offers the asking price in a dropping market, and only a fool turns down a reasonable offer when the markets bottom is still unknown.
In the meantime, the front yard has become a desert, the pool is a dark green pit, and someone broke in and stole the fixtures. The house has no power and no HVAC, and winter is rapidly approaching. If nothing happens soon, humidity and temperature drops are going to irreparably damage the house and drop its value even lower.
And then I’ll get a REAL deal on the land!
The bank holds the paper. The paper has a value to them which may not be the current market value.
They keep the value up to keep their financial balance sheet looking good. If they allow a sale at a loss, they have to record the loss on their books and explain it to their shareholders.
If they take back the house they can keep the value of the house at the paper value they originally loaned it out for. So it benefits them to keep the house, touch it up a bit and sell it when the market is ready to pay the price they want.
The banks are the true owners.
When we ‘buy’ a house via a mortgage, we are not really buying the house but buying an option to one day own the house. Until we own the house, the mortgage lender is the true owner.
There was a case where a couple bought a home on two platted lots that had been consolidated as one tax parcel. One lot had the home constructed on it and the other was vacant. They took out a mortgage on the entire property for $547,000. The property was in a prime area and more than doubled in the eight years they lived on the property and paid the mortgage. The vacant lot portion of their property which they had landscaped into a garden was separately appraised at $650,000 and they decided to file with the city to subdivide the property. They got approval and decided to sell the vacant lot.
The mortgage bank stopped the sale saying the mortgage had to paid off first before any portion of the property could be sold unless the entire property were sold. The homeowners told the mortgage bank they would be paid off in escrow of the sale of the vacant lot. But the mortgage bank (Chevy Chase Bank) said that the entire property must be sold.
Long story short; couple got a lawyer who reached agreement with the mortgage bank. The bank had feared the subdivision would leave them holding a lesser property for the same mortgage amount even though the lot with the house on it was also appraised at a higher value than the mortgage. They agreed when a lawyer got involved because that gave them assurance their asset would be protected.
That’s how banks think. It’s their asset and not the asset of the person who signed the mortgage.