I had a conversation with a fellow Realtor recently about the concept of banks renting their REO foreclosures rather than selling them outright, and you would have thought I had grown a third head!  "Banks can't do that!"  I was told, followed by a rather lengthy explanation.

Believe it or not, the fact of the matter is that banks CAN in fact rent out their foreclosed homes, and some banks are starting to do so!  I think back to the old Road Runner and Wiley Coyote cartoons, where some (seemingly) brilliant idea brought the Coyote one step closer to victory, until some unforeseen circumstance ruined the entire scheme.

In theory, the idea of renting a portion of your foreclosure portfolio can be very appealing.  It's much easier to rent than it is to sell (heck, you could rent it back to the people you kicked out!) in this market, so why not, right?  If they wanted to, they could just hold onto their property portfolio for years, renting out their foreclosures over and over again, reducing their overall loss while waiting for the market to improve.

The problem is that the properties in good enough shape to rent are the ones that have the best chance of selling, and the bank is taking on an increased risk by allowing renters into their properties.  As foreclosure rates continue to rise, banks are looking for ways to stop their books from bleeding red ink, and less people are able to purchase homes.

Here's where the bank becomes the Coyote:  They're looking for a way to shore up their losses, and they'll be able to find it through bank owned rentals, but what happens when a water pipe bursts at three in the morning after a heavy storm, or a tree falls through the roof?  It's the bank's responsibility to respond quickly to the tenants concern, and suddenly the bank finds themselves standing on thin air.  Just like poor Mr. Coyote, they have accidentally thrown themselves off of another financial cliff.

The real loser here is the renter.  It's hard to have too much sympathy for the bank, shouldn't they have known that a rocket and roller skates from ACME was a bad idea?  I've often wondered how banks can be so inept at handling real estate, and I know first-hand what it's like spending hours on the phone with the bank trying to get a simple question answered.  How can a renter expect a quick response?  Especially when they need the bank to open up their pocketbook?

It's a disturbing trend as I see more and more banks seriously considering the idea of becoming a landlord.  Perhaps the problem is that no matter how hard he tries to succeed, the Coyote has NEVER actually won!

~Jonathan Benya- Realtor
Century 21 New Millennium
9405-A Chesapeake St
La Plata, MD 20646
301-609-9000
301-653-8116
Charles County Real Estate Blog