Why do banks want to get more than what is owed on a property for a foreclosure?

Question

This question is about foreclosed properties. I am not sure if this depends on the state (I am in California), but it is not a personal question, I'm just curious. I have noticed that many foreclosed properties, the banks will list low (a bit over what was due on the loan), but they really aren't willing to sell it at that price. They attract multiple bidders and if they don't get what they want then, they drag it out forever until they can get well over what the list price was. So where does the excess money go? Does it go to the person who foreclosed? If it does, then why do they even care about getting the extra money when they don't keep it?

Answer 1

The one thing that pops into my mind is that the bank has incurred a bit of cost to foreclose.  Therefore, besides what is owed on the mortgage, they are trying to recover, at the very least, their expenses due to the foreclosure.  They may end up having to cover property taxes as well.  There's a lot involved in foreclosure and it definitely costs the lender more than what is owed on the mortgage, besides the fact that when they made the loan, they anticipated receiving all the interest payments.

Answer 2

.  I agree with you but i have a 2nd complaint. Before the bank owned the home, they had a loan on it of $300,000 and the previous owners were not paying the payments.  At the bank foreclosure auction, the minimum bid i can make is $359,000.   I was shocked. The bank has added 12 months of back payments, 11 late charges, and $20,000 in attorney fees.  Do they really think that i want to pay for the owners' back payments.  That is crazy.  But for accounting purposes, the banks do this on every foreclosure.

The silliness continues when it is listed but it's not as bad.  Just multiple offers and i always walk away from those.  RIght now i am not buying any because they won't sell for my price. Oh well.

Answer 3

I'm not sure why, because honestly I'm not sure how often this happens.  Usually if house can be sold for more than what is owed on it most owners will sell it themselves to stay out of foreclosure.  Also a bank will usually dump a house, because they don't want the house they want money, and then if it sells for less than the amount of the loan they'll go after the person they foreclosed on for the rest.