Are Banks Afraid to Foreclose on the Rich?

[Hannah Bell]

I got this report from an attorney who is doing work in one of the top five foreclosure states. I’m relying this account in a somewhat sanitized form; he provided far more in the way of specifics.

One of his colleagues has a monthly mortgage payment considerably above $20,000 a month. He has not made a single payment in over 18 months. He has also not received a foreclosure notice or even as much as a call from his servicer.

He knows of 20 people personally in his community who have mortgages of over $20,000 a month who have not made a payment in over a year. As with his case, there has not been a peep from the bank about the failure to pay. Some are nevertheless freaked out, concerned that the sheriff will show up any day, and have moved out.

The only theory my contact could come up with is that the high end appliances in these homes would make them particularly attractive targets for stripping, and the banks figure it’s cheaper to keep the nominal homeowner in place rather than pay for security. Another possibility is that the market for $5 million and over homes in this area is so thin (as in non-existant) that they are afraid to take over and put any homes on the market out of concern for revealing where prices are now.

(Writer asks readers to report whether they are seeing the same thing....)

http://www.nakedcapitalism.com/2010/12/are-banks-afraid-to-foreclose-on-the-rich.html

[SoCalDem]

1. Rich people can get access to lawyers

Poor people cry & pack up their stuff & move

[HillbillyBob]

11. To the nearest relative if they have any or under the nearest

bridge..been there done that. Not as a foreclosure, just job/health loss, you cannot get ANY help until you are destitute, jsut to make sure you have NO bargaining power or resources to help you deal. Then its your fault for not saving enough to live on for a year while earning minimum wage or less.

[glowing]

2. No, Its the way that the mortgages are financed on these homes.

Multiple lenders have to back the money on million dollar homes. So who pulls the first note. AND if you are foreclosing on the high-ended properties, you may lose millions on an investment. Its much better to wait and hope they pay or push for an actual sale of the home.... Or wait until the homeowner declares bankruptcy and let the courts sort out the debts.

Also, many times someone with a hefty mortgage payment has a bill paying service. The banks may talk to these finance people, rather than the actual "owner".

[old mark]

3. If you have a lot of money, you get different services...even police treat the very rich

better than the broke.


mark

[dkf]

4. Someone told me when the banks put houses in foreclosure they need to put

Quite a bit into their reserves. And it makes sense if the market is soft to hold off til things get better like they are expecting.

[rhett o rick]

5. I heard a bank employee on the radio say that the bank bent over backwards to help renegotiate

business loans but not home loans which are mostly middle class. The rich always get a break.

[madrchsod]

6. vanilla ice--ya the white rapper has a house flipping show..

the million dollar house in florida he`s rebuilding was stripped of everything that was in the house and outside the house. the only thing left was the walls,driveway stones,the the swimming pool.

that could be why they let them stay...someone has to keep the house in livable condition.

[Statistical]

7. Very difficult for really rich (not just pretend rich) to get away from that kind of debt.

If you are rich (not just pretending to be rich and buying more house than you can afford) you have significant assets. Assets that are exposed in Bankruptcy court. Thus the banks interest is rather well protected.

The ultra high end real estate market lacks a lot of liquidity even in a good year. Right now nobody is looking to buy a $5 mil or $10 mil home. Why? Because without liquidity price discover is very hard. Say your "fair price" analysis is off by 20%. On $10 mil home that is $2 mil in wealth that vanishes in an instant.

So if bank were to seize the home and sell it at foreclosure, the redemption rate (% of loan bank recovers) will be very low much lower than more mainstream distressed properties. The difference needs to be made up with cash. Even while the bank is in foreclosure the difference between loan amount and expected sale price needs to be reserved on the balance sheet.

Risk vs Reward. Moving quickly = very little reward and huge risk. Waiting it out = higher reward and lower risk.
So it makes sense for bank to simply wait.

[Tsiyu]

8. Where I live

10,000,000 x .02 = 200,000



Morning Math snark.......

[Statistical]

9. Typo. I fixed it. Volatility in price discovery is more like 20%.

[lonestarnot]

10. Nothing different about this and richie rich paying his bills 5 or 6 months

in arrears and still having unblemished 800 credit scores. Hmmmmf motherfuckers.

[DirkGently]

12. It's even better for those who own multimillion-dollar commercial buildings. "Let's negotiate."