What is going on, really.

This isn't hiding a loss.  They will still have the loss.  They could, technically, in not foreclosing, and refusing to pay the tax arrears, have it seized by the municipality, which would then be responsible for upkeep.

I can't say that I know of this bank strategy that you are mentioning though.  It is assuming a lot, such as a single bank being the primary loan issuer along one street or one neighborhood.

I think you are correct sir.  It is called shadow inventory.  Banks do not want to flood the market with foreclosed properties.  This would drive down prices even further.  Also they are not liable for anything.  They take it to Summary Judgment and then wait.  They are not liable for taxes, maintenance, insurance, etc...If the City threatens them they can always complete the foreclosure, sell the property and have the new owner pay all the back fees but how often does that happen!

They encourage former owners to live in the house until they are ready to process the foreclosure.  Cuts down on expenses and vandalism.

It is a good business strategy even though it stinks for the consumer.

Bob Burns
Freedom$oft
www.investmentpropertiesmiamiflorida.com

There could be a number of reasons why the bank is doing this. What is most likely is that the bank is currently overwhelmed with the number of properties they have taken back. Each property that is bank owned requires manpower to manage, paying utilities, property taxes, making sure the property is maintained, and coordinating the upkeep on it, etc. My assumption is that the bank feels that right now it is better off letting someone live in it for free, and maintain it, than to have to hire and train additional staff, then foreclose, then have to manage another property. The bank hasn't 'walked away' from the property, trust me, they are keenly aware that the loan is not being repayed. I would imagine once they have the capacity to handle the additional property they will foreclose. This is something that is happening more in the harder hit areas, your friend is not the exception.

yes, what you are seeing is really happening. I'm an investor, have a loan mod business (residential and commercial), and have my real estate license in 2 states. 

There is a "shadow inventory" of homes banks were waiting on dumping on the market so as to not further depress prices. They were waiting for the Toxic Asset Buyout Plan to relieve them of their junk properties and non-performing loans.

That plan didn't work out so well (despite 94% public, 6% private money) since the private investors didn't trust the government from changing the rules on them like they did with the Chrysler bankruptcy where they screwed the secured bondholders and usurped over 100yrs of bankruptcy law.

The lack of confidence in private money (smart money) stalled the plan and now banks are forced with dealing with their own junk themselves not pawn it off on the public.

They will do what they can to slowly dump inventory, but the 3 other shoes to drop are Alt-A, Option ARM's and commercial defaults which will further deprress the prices/ market.  

All markets are local, but on a national scale this will further deprress prices. CA has a high inventory of overpriced houses and Deutsche Bank predicts next year over half of homeowners will be upside down (owe more than house is worth)  States like CA which had a huge run up in prices will probably have a much higher ratio of owners upside down.

The more upside down the easier it is to walk away, further driving down prices. 

Hope that helps

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a short sale is better than a foreclosure as it will normally give a 10 to25% higher price than a  foreclosure. Aldo, the banks are not staffed to fully handle managing vacant homes nor pay a contractor to do that and some have HOA as well. Keep the responsibility with the homeowner who is behind on their mortgage loan .