Bank Owned Property Information

Banks own property both through foreclosure and investment purchases.

Banks own property for several reasons. The most prevalent is banks foreclose on property used as collateral for a loan. Another reason is banks are in business to make money for shareholders and depositors. Property is considered an outstanding investment avenue, and the bank will buy and sell property to increase profits. Banks also have considerable property holdings for their own branches, offices and other business spaces needed to operate and serve the public.

Liquidation

If a bank owns property through foreclosure then it must liquidate the property to recoup its investment. Buying bank-owned property is a lucrative real estate investment strategy. Since the bank is already intimately familiar with the property, securing a mortgage on the property at reasonable rates is a good opportunity. In other words, the bank will foreclose on one delinquent borrower but be apt to lend money to another more secure and trustworthy customer.

Listing

Larger banks have their own real property management offices for listing, marketing and selling bank-owned property. These offices will prepare listings of properties, sell or auction deadline dates and minimum bid amounts to secure an opportunity to buy the bank's property.

Limitations

Although banks can sell property in order to get the full amount of their loans and fees tied up in the property, they are not allowed to sell the property at prices in excess of the total due. In other words, bank can't foreclose hastily on a property in order to seize it and then sell it to capitalize on a rising real estate market.

This limit on bank liquidation means buyers can purchase potentially large amounts of equity (the difference between the amount paid and the value of the property) and resell it with no restrictions.

Maintenance

Banks are held to no special requirement to maintain bank-owned property. The bank may decide to keep all property "as-is" or pay for routine and preventive maintenance. The bank's primary concern is protecting its investment in the property. The level of investment can determine the amount of maintenance. The bank has to decide if maintenance means a better value to recoup money or if paying for paint, lawn care, cleaning and plumbing services is throwing good money after bad.

Taxes

The bank has tax advantages while it holds the property. The time between foreclosure (or actually when the last mortgage payment arrived) and when the property is liquidated is a money-losing experience for the bank. This loss is a deductible tax item. Even if the bank sells the property there is the question of whether it earned a profit on the property or broke even. If it's the former then there are taxes on the earnings. If the latter, however, then no profit means little or no taxes.

References

• Real Estate ABC: Buying Bank Owned Properties
• Community Dividend: Land Banks as a Neighborhood Recovery Strategy