Why would a bank buy a house for more than it is worth at foreclosure, then immediately try to sell it for less?A house was sold for 700K to a person in 2010. The house was foreclosed on in 2012 and the bank bought it at auction for 1.5M.? The same bank then turned around and tried selling it for 1M in 2013.? WHY would the bank do this?
Logic (< often not followed) would dictate that the lender contract with a BPO agent or appraisal company and get a good valuation of the property before determining the opening bid. If the ‘full debt’ owed on the loan (‘published bid’ at time NTS is filed) is $1.5 million, and the property could only (now) be sold for $1 million, then it might make sense to for the lender to post an opening bid around $900K to $930K to see if a 3rd-party investor might take it off the bank’s (lender’s) hands … and the bank thereby avoids holding costs, marketing expenses and potential UD expenses (< if there is a non-cooperative holdover occupant, who does qualify for protections under PTFA).?
But consider that many lenders who foreclose are NOT the original lender. Loans are often assigned/sold to another institution, and commonly (esp post 2008) sold at a deep discount. So the lender who is foreclosing at full debt bid ($1.5 million in your?example), may have acquired that loan from another institution at discount (e.g. $850K) … and by taking the property ‘bank-owned’ (via a ‘full debt’ bid) and selling @ $1 million, they stand to make a healthy profit.
Lastly, lending institutions’ asset manager decisions are usually rational, but since we are not privy (and never will be) to their complex and ever-changing economic + political/regulatory pressures + balance sheet issues, we sometimes just have to shake our collective heads in disbelief at their seemingly strange opening-bid, postponement or cancellation decisions.
Kalr – to clarify a bit … the lender that is foreclosing does not ‘buy the property’ they put up for trustee sale … rather they put the loan that is ‘in default’ up for sale at a ‘trustee sale.’ The lender can put the loan up for sale (an ‘opening bid’) for no more than the ‘full debt’ that they are owed at the time of the sale. They can of course choose to open the bid below (discount) the full debt. If no 3rd party investor chooses to bid above the lender’s bid at the trustee sale … then the property goes ‘bank owned.’?
As I noted in my prior answer, many lenders who foreclose are actually not the original lender. It is possible that a foreclosing lender acquired the ‘in default’ loan at a discount from the full amount owed. Yet that new loan owner can put the loan up for sale at trustee sale for the ‘full debt’ owed by the borrower. Consequently, what on the surface looks like a loss for that lender (new loan owner) may in fact be a nice profit. All depends on how much of a discount they received when buying the loan from the previous loan owner.