Why Banks Don't Deal on Foreclosed Homes

My friend Laurel, who is currently renting a house, was told about a foreclosed home in a neighboring community. She did some investigating on Zillow and found out the home was valued at $240,000 and through a network of friends determined the mortgage owed on the home was $350,000.

Being a determined potential homeowner and strong personality, she reached the bank that held the title prepared to offer them $200,000 in hopes that they would gladly want the asset off their hands. Not only did she receive a strong rebuff from the asset manager, but she was told they were not willing to consider less than $270,000 for it! She was flabbergasted and scratched her head when she came out of the bank.

As she was describing the scenario to myself and another friend over dinner, her main questions were:

"Why wouldn't the bank take my $200,000 and be done with it? Why wouldn't they make a deal?"

I didn't know the answer to these questions until I did a little investigative reporting of my own and spoke to a Foreclosure Legal Expert from Pulvers, Pulvers & Thompson. Here are the 3 major reasons banks don't conduct fire sales with foreclosed homes.

Reason #1: Foreclosed Homes are Assets on the Bank's Balance Sheet. 

The home is listed on their balance sheet at a value they have the property appraised at. Sometimes these appraisals may be outdated and tens of thousands of dollars off. If they dumped these properties onto the market in a big way, they could have lending problems because they would have less assets. However, it is not unreasonable to ask for a 20-30% discount on the appraised value, especially if the home has been sitting vacant for a long period of time.

Reason #2: If Thousands of Foreclosed Homes Hit the Market for Purchase, All Home Prices Would Fall. 

Think of supply and demand. According to Trulia, currently there are 13,744 homes for sale in New York City. Of which 353 (or 3%) are in foreclosure. Think if all 353 were sold tomorrow at a fraction of their value. What do you think would happen to the other 13,391 housing units? You got it! Their value would diminish, having a trickle down effect on your home, even if it is not currently for sale.

Reason #3: Banks are Trickling the Foreclosed Homes onto the Market in Order to Keep Market Prices High. 

It is estimated that only 10-15% of all foreclosed properties are on the market.

When it looks like there are not too many foreclosed properties available in an area, it helps stabilize housing values. When housing values are stabilized, market prices have the opportunity to go up. When market prices go up, the foreclosed values are higher. All of this benefits the seller and the bank when they decide to dispose of the property.

So there you have it. The banks don't deal because it is good for you, me, and them. Buying a foreclosed home is still a good idea. Just don't automatically expect a huge price reduction.



Pulvers, Pulvers & Thompson, LLP has been practicing law for over 70 years and is dedicated to providing high quality legal services to the Greater New York City Area. They assist purchasers and sellers in Residential and Commercial transactions and represent various clients in a wide range of real estate litigation matters. Contact their legal team for a FREE consultation at (212) 471-5129.

5 Fresh Fixes to Protect Your Home's Value in Foreclosure Times

Here's a hard cold fact:

"Since 2008, more than 2 million households  have either lost their homes or going to lose their homes to foreclosure in the coming years." 

And even more bad news:

According to a survey from Yahoo! Real Estate and Harris Interactive, 22% of homeowners are somewhat concerned about the possibility of foreclosure due to their inability to meet their monthly mortgage obligation. 

I have been a homeowner in the same house for the last 20 years. Our neighborhood of 60 homes has had 2 go into foreclosure over the last 12 months. In my small town of 25,000 individuals, there are currently 272 homes for sale of which 75 are in foreclosure! The homes in foreclosure represents 28% of the total homes on the market.  


So, what can a homeowner, like myself, do to protect their value? Here are 5 simple steps any household can take:

1. Invest in curb appeal. Invest in fresh paint and landscaping. Trim the bushes. Weed the gardens. Make certain the lawn is cut every week. Have your friends who are real estate agents come by and give you tips on how your home can look more inviting. When you are ready to sell, the hard work will be completed and in the meantime, you will have a home you are proud to own.
2. Form a neighborhood watch to observe foreclosed properties. Make sure there are no vandals or squatters in those homes. Call the police if you see suspicious activity.  Banks will board up homes that are vandalized and they will consider a fire-sale, just to get that property off their books -- which will greatly impact your own value.
3. Think of your home as a long-term investment. Home ownership helps create inter-generational wealth. It is the one asset that will grow over time. At some point the housing market will come around and you will be in a good position to sell your home at a fair price.
4. Don't panic. Yes, there will continue to be foreclosures for the near term. Now is not the time to sell your home just because there are foreclosures. It is like making a panic run to the bank. If everyone does it, house pricing will continue to destabilize. If you think you may be approaching foreclosure, contact an attorney for advice.
5. If you must sell your home, consider doing the following items to keep your home's selling price high: 

• Throw in some extras.  Furnishings and appliances are always good selling incentives. You can sell your place as "move-in" ready. Deck furniture, art, throw rugs are also good add-ons.
• Offer something new -- if they buy. Installing new granite tops or finishing hardwood floors can be attractive to a buyer because these things will be new or fresh to them.
• Pay the buyer's closing costs. It cuts into your profits, but you should be able to negotiate keeping the selling price high.

Pulvers, Pulvers & Thompson, LLP provides free consultations regarding all matters pertaining to New York Real Estate Law including, but not limited to the following: Residential Closings, Real Estate Litigation, Foreclosures, Real Estate Contracts & Lease Agreement and Private Note Holder Representation. Contact them at 212.471.5129 begin_of_the_skype_highlighting            212.471.5129      end_of_the_skype_highlighting  for a free consultation!