Can a bank legally profit from a repossessed property?

As banks are foreclosing hundreds of thousands of properties across the country, the question continues to arise: “Can banks make a profit on foreclosed properties?” The simple answer is yes, but it takes some special circumstances to make it happen. If the owner knows how to protect his equity, he may get paid even if he loses his house to the bank.

If the lender convinces the homeowner to give up their property in exchange for a deed instead of foreclosure, the bank can make a profit on the sale and not have the added cost of foreclosure. It is generally accepted in the banking industry that a foreclosure costs an average of more than $ 40,000. These costs include loss of interest, loss of additional borrowing power, increased Federal Reserve requirements, costs of sale, property maintenance, and commissions to a sales agent.

The key to knowing if the bank can make money depends on the property having equity. Probably 20% to 35% of the time when foreclosure takes place, there is equity in the property and there are no secondary or secondary ties. Many homeowners simply walk away from their homes believing they have no equity or cannot sell their home while it is in foreclosure.

If the bank takes the property to foreclosure auction and extinguishes the junior bonds, they will create capital in a matter of minutes. However, if the property has minor ties, the lender will not accept a deed in lieu of foreclosure because the minor ties will remain tied to the property. So be careful, if a bank offers the owner a deed in lieu of foreclosure, there may be value in the property.

Once the property goes to auction and the bank purchases it, the deed to the property is transferred to the bank after a redemption period. At this point, the bank can sell the property for whatever price it can get. If there is a profit, the bank is entitled to it.

In short, once the bank forecloses on a property, you are entitled to make a profit. Before owning, they cannot sell the property, only the owner of the deed (owner) can sell it. This happens in short sales all the time, as the bank has to agree to the sale price, but the owner must sign the transfer of the deed. In these cases, the bank takes a substantial discount on your mortgage to sell the property off its books. If the bank is out of bidding at the auction, which is close to their final judgment amount, they are owed the money but lose any fringe benefits.

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