Are banks changing their way of thinking about investment foreclosures?

By
Real Estate Broker/Owner with Respect Realty LLC 200311024

 

Today I got a strange phone call on one of my short sale listings. This listing is a rental property with along term renter in it and the lease now doesn’t expire again until June 2010. But, the owner is no longer paying the mortgage, they are still collecting rent, but not paying for the house.

Well, today I got a call from a property management company asking me about the property and if they could go see it. I told them it had a RMLS lockbox and if they wanted to see it, feel free. I then asked if the owner was thinking about hiring a property management company to increase the rent on the property. The person said “No, I’m a property manager working on behalf of the bank and they are thinking of foreclosing and to continue renting the property as a way to recover thei rlosses. I was giving them a report to how much they can make over the next 5 years.”

house for rent


WOW, the bank wants to become a landlord?

I did the math and on that home at $1400 a month, it would take the bank 11.7 years to recover the amount they are still owed by the seller. That wouldn’t include interest, but if I had a choice between just recovering what I lent and a $50,000 loss, I too, would be happy just getting my money back.

So, has anyone else heard of this happening? Are you an owner in a situation where you may need to sell your investment property? Give me a call or drop me an email, I would love to hear your stories or help you sell your investment property.

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Rainer
118,327
Ginger Moore
Wilkinson & Associates Realty - Gastonia, NC

I have not heard of this previously; but I do agree it makes a lot of good sense to keep a good renter in the house, to generate cash flow for the bank. This is a win/win situation. It helps a family have a place to live, and helps the bank with cash flow.  nice blog.

Sep 13, 2009 04:53 AM #42
Rainer
8,760
Deeba Khader
Harry Norman, Realtors - Marietta, GA

I have experienced this in the atlanta market. It has been with new construction foreclosures and when there are too many homes in foreclosure in a subdivision where I find this being practiced. One property I have shown had been leased for 2years and then listed for sale, by the looks of it the agent had done some cleaning and painting to bring it to showing condition.

Sep 13, 2009 06:30 AM #44
Rainmaker
1,566,419
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
Your real estate writer

A friend of mine lives next door to a property in foreclosure. The tenants had been paying rent to the owner and then learned that she wasn't passing that rent along to the mortgage, so they quit paying and have been living there for well over a year, rent free.

These tenants keep saying they're "buying the place - going to close any day now." The former owner says she doesn't know anything about it - she lost the house when she filed bankruptcy.

Meanwhile, my friend has gone 3 times to the title company to hopefully bid at the sale, and 3 times it has been postponed. We're wishing we could figure out what's going on there...

The occupants aren't paying rent, and the foreclosure is not yet finalized, according to the title company.

Anyone else heard of this happening?

marte at http://www.copybymarte.com

www.copybymarte.com

 

Sep 13, 2009 06:43 AM #45
Rainmaker
222,108
Jirius Isaac
Isaac Real Estate &TriStar Mortgage - Kenmore, WA
Real Estate & loans in Kenmore, WA

I have never heard of this, but think it is great.  Tenants get to stay in the house, bank loses less of our money, and there are less homes on the market.  I hope they really start doing it.

Sep 13, 2009 07:14 AM #46
Rainer
44,830
Tom Meyer
Exit Advantage Realty - Dallas, TX

I understand that banks hold the loan for the property but should banks own, managed real estate where is the line own, managed, lease property, lender? 

We the tax paer bailed out the Banks. 

I have a customer where their credit card rate went up to 27% when they have been making payments on time never a late payment the rate was 9%.  The bank respond promote saving?????? Why because they can!

 

Sep 13, 2009 08:23 AM #47
Rainmaker
1,559,139
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

I have heard of this when the owner/landlord is not making the payments but still collecting rent.  When they(bank) finds out there is a tenant in there, they make the tenant sign a new lease WITH THEM and they collect all the money.  I've shown one recently where the tenant could use some staging & housekeeping tips!  Alot of the landlord agencies are suggesting that payments not be made on the investments and then are whining about the tenants getting the foreclosure notices or the sheriff's visits.  They (tenants) are the innocent ones in the middle here.  Without a lease from(with) the bank, I'd move out.

Sep 13, 2009 09:58 AM #48
Rainmaker
150,468
Eric Boyd
Step One Realty, LLC, 904-469-6335 - Jacksonville, FL
FL Licensed Real Estate Broker / Property Manager

As a PM, I wonder if I should start trying to contact a few of these lenders to handle their properties for them?????  Then, my next ponderance would be, "I wonder if the bank is a good landlord."

Sep 13, 2009 10:14 AM #49
Rainmaker
291,304
Kate Bourland
Marketing with Kate - Redding, CA
Onlilne Marketing Mobile Marketing

It's about time that the banks started thinking like a business.  I personally believe that the banks have a hidden agenda to displace independent real estate agents by accumulating inventory and using it as a foot in the door to be able to sell real estate directly, but that's a different topic.

This would be good for many markets and would help real estate recover faster.

Sep 13, 2009 11:08 AM #50
Rainmaker
325,871
Esko Kiuru
Bethesda, MD

Todd,

That's encouraging news in some way. Banks are starting look at other alternatives to hopefully one day to recoup their losses.

Sep 13, 2009 11:16 AM #51
Rainer
80,895
Gene perez
Greater Mortgage Solutions & Valley Hills Realty - Santa Maria, CA

alot of this has to do with new laws in place where so many renters were displaced literally overnight with no place to go

Sep 13, 2009 12:18 PM #52
Rainmaker
354,863
Damon Gettier
Damon Gettier & Associates, REALTORS- Roanoke Va Short Sale Expert - Roanoke, VA
Broker/Owner ABRM, GRI, CDPE

Interesting, I think we will see a lot of banks doing a lot of different things in the coming months.

Sep 13, 2009 02:50 PM #53
Rainmaker
76,436
Bridget Cella
Re/Max Connection - Sewell, NJ
e-Pro, Realtor

Interesting way of doing business.  Which bank was it?

Sep 13, 2009 03:29 PM #54
Rainmaker
199,595
Mark Velasco
Sharpstone Realty, Inc - Whittier, CA
Listing Agent-Whittier & Surrounding ciities

Wow Todd. I thought that the Banks were not supposed to be owners, but lenders. They are in the lending business and NOT in the Landowner business. Are things changing?

Sep 13, 2009 05:27 PM #55
Rainmaker
2,410,495
Charles Stallions
Charles Stallions Real Estate Services - Pensacola, FL
800-309-3414 - Pensacola, Pace or Gulf Breeze, Fl.

We have seen this to especially with CW, they have flooded the market with rentals not just keeping the tenants.

Sep 14, 2009 12:32 AM #56
Rainer
5,827
Wayne Gaddy
Chandler Gaddy Realty, Inc. Realtor® Serving Wake County, NC - Raleigh, NC

Here's the slippery slope...They've been trying to get in for a long time...Weclome the banks into the real estate industry.

Sep 14, 2009 03:32 AM #57
Rainer
74,745
John J. Woods
Big Dog Press, LLC - Winder, GA
Going where no man has gone before - wouldn't you?

As Bill Gillhespy mentions in his comment, I also thought that banks were generally prevented from being landlords.  I haven't looked it up, but that's what I've always heard.  Myth?

The bigger issue, and a strong restriction on banks, is the fact that they must keep a certain amount of reserve capital in order to keep lending money.  Typically, an 'under-performing' asset, such as a foreclosure, or 'REO', sits on the negative side of their books and too many of them will prevent the bank from being able to lend, which is where they make their money.  Even though they may be able to, and have responibility for, honoring the lease, that lease goes with the property, such as an REO, when they transfer it.  The fact that a large debt is still owed on the property keeps that 'asset' in the red on the banks books.  Not something the banks want.

Sep 14, 2009 03:47 AM #58
Rainmaker
795,789
Mike Bjork
Pinnacle Home Loan - Redondo Beach, CA

Hi Todd,

Ironically, I came across a person who work with the Lenders on their Foreclosures, which I mentioned the topic of Investment properties.  He did mention that a few will allow the renters to remain in the property, but will need to complete some paperwork.  One mentioned was Fannie Mae owned properties.  I thought it was interesting because I kept reading these articles of the renters making their rent payments and the landlord pocketing the money, as they didn't make their mortgage payment; then the lender will foreclose and evict the tenants, whom have no knowledge of the foreclosure proceedings.  It's nice to see the Renters having some protection with this mess.

Sep 14, 2009 06:52 AM #59
Rainer
19,870
Danell Merren
Providence Home Mortgage/ICCF - Grand Rapids, MI

Well, I'm in MI, one of the highest foreclosure states (after the bubble states of couse), and, yes, we're starting to see it happen. In some ways I can't blame them- perhaps eventually the market will really come back, and they might recoup a lot. But I think, why not take it a step farther and just get the renter out, state the home, and see what might happen then.

Sep 14, 2009 07:29 AM #60
Rainer
47,697
Al Dobbs
ADD Real Estate - North Chicago, IL

Banks should not be landlords. Thinking they will not be very good at it.  Too many different markets with too many different laws and rules.  Banks should lend money-something they used to do well. 

Sep 14, 2009 07:55 AM #61
Rainer
41,335
Carl Schumacher
CIDM Real Estate - Grand Rapids, MI

The reality is that banks are not allowed to show too many "owned assets" on their balance sheets. They're supposed to be in the lending business not the property ownership business. If banks were allowed to hold and manage real estate why would they ever need to lend money to someone else to do it? This is not a good idea. Had banks been allowed to do this since the 1920's everyone in this country would now be paying rent to the company store instead of holding title to their own real estate. If you don't know what paying rent to the company store means, brush up on your US labor history. Also known as "legalized slavery." Get a clue people! Banks being in the the real estate ownership business is a TERRIBLE idea under ANY circumstances despite how dreadful the economy might be at any given time. NAR has spent millions of dollars lobbying congress in the last few years exactly to keep banks OUT of the real estate brokerage business. The economy that we have now is exactly because we already allowed them to be in the capital market investment business in addition to the lending business. Look around you to see how that's turned out. Or perhaps we can just SELL the US government to them for easy terms and zero down and let them manage the country for us. Make your voices heard! There are very good historical reasons for having banks do one and only one thing, LENDING. LEARN WHY!

Sep 15, 2009 04:01 AM #62
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