What I learnt when going through consumer law was that in any mortagee / repossession sale the lien holder must make a “good faith” effort to get the best price possible. Not sure how applicable this is to the US, or even how good my memory is, but perhaps someone more knowledgeable may like to kick in?
From what I’ve read, it also applies to foreclosures, in that when the money the bank gets from selling a property in a foreclosure sale is offset against the debt plus various foreclosure fees, the remaining debt is often written off with tax implications for the debtor, on the “can’t get blood from a stone” theory. The IRS may not have such compunctions regarding taxes owed 
One website I enjoy reading about such things (I have no affiliation with it) is “Searchlight Crusade” http://www.searchlightcrusade.net/
One post there which has a foreclosure example is What Happens To Equity During and After Foreclosure? - Searchlight Crusade, though no 1099s ensue.
Here’s a good one on short sales: http://www.searchlightcrusade.net/posts/1166245008.shtml
You could probably spend hours reading this stuff just for the educational value.
In the ‘foreclosure’ example above a requirement that on bank auction the property must sell at least for 90% of ‘appraised value’ is made (that’s probably California law); I would guess that this requirement, combined with the nature of an auction to find the market price, counts as good faith And if auction sale price doesn’t meet that 90% requirement then the bank has to hire a real estate agent to sell it.
My parents had their house repossessed in the early 80s. It wasn’t fun. I was around 12 or 13.
My Dad owned his own construction company, and the construction trade tanked in this area at this time. Still, he was doing OK. Until the bank decided he wasn’t, and called in some loans that he had signed for personally. I was a kid, so I don’t know the details, but from what my parents tell me, they had a plan in place to pay for the loans and they had work coming in. But the bank played hardball and insisted they pay up immediately or they were taking their house (along with another house they owned, and some other property. They had to get a lawyer to ensure the bank only grabbed what they could legally grab.)
At the time, the real estate market had also tanked, so my parents took a risk and decided to ride it out. They figured that in a few month’s time, they’d have the money to pay the bank and essentially buy back their house. They had a friend who had done that, and they’d consulted with a lawyer who said it was a good plan.
Except what they hadn’t counted on was that our house was nice. My Dad had planned and built it himself, and it was their dream house. The bank put a bargain basement price tag on it, and sure enough, it sold. I was the one who ran out and got the mail that day, and was “helping” my mother open it. She told me I could open the one from the bank, thinking it was a routine notice or something. Instead, it was a letter telling us we had 30 days to move.
Yes, I’m sure some of this was my Dad’s fault - poor money management and all, and he took some risks. But it was also just plain bad luck. My parents pay their bills and would have pulled out of the hole they were in. (In fact, they did. They’re doing fine now, 20 years later).
I remember the person who bought the house. I remember packing up to move. I have to sit on my hands whenever someone starts a thread about how they’re going to buy foreclosed homes to turn a profit. Sure, they’re good bargains - but to me, it’s too high a price to pay to turn someone out of their home. No matter how bad the parents are, all the kids understand is that they’re being turned out of their house…
I have a dumb question regarding Athena’s response.
“I have to sit on my hands whenever someone starts a thread about how they’re going to buy foreclosed homes to turn a profit. Sure, they’re good bargains - but to me, it’s too high a price to pay to turn someone out of their home. No matter how bad the parents are, all the kids understand is that they’re being turned out of their house…”
Isn’t the house being foreclosed upon by the bank anyway? In other words, the house is already in foreclosure. Is it morally wrong for someone to buy it at an inexpensive price? If no one were interested in the house, would the family in foreclosure be able to stay there?
Personally, having lived through something like that, I could never live with myself if I bought a house that I knew would involve forcing a family to move against their will. Is it morally wrong? I dunno. Everyone has to decide that for themselves.
When my parent’s house was foreclosed on, we were allowed to live there on a month-to-month lease until the house sold. So yes, we were able to stay there until/unless someone bought it, as long as we could pay the rent.
At the time, the real estate market in our town was in the pits. Houses, even nice ones at good prices, were staying on the market for years. Part of the reason my parents were forced into bankruptcy is that their last house didn’t sell for a couple years after they moved out of it. And this was a NICE house - I’m living in the same town now, and that house came on the market right around when I moved back. I very much wanted to take a look and probably buy it, but it sold within a couple hours of being put on the market and I wasn’t fast enough.
Given the state of the market at the time - where nice houses at low prices were taking years to sell - they had a reasonable hope that the house wouldn’t sell before they could get their finances in order and buy it back from the bank themselves.
YMMV, I think. The property next to mine was foreclosed by the bank. The people were “evicted” and the house sat empty for 4 years before it sold.
I heard recently on NPR that homeowners who feel “tricked” by nasty subprime deals are taking their vengeance on the bank by trashing the place or vacating in such a way that invites vandalism. The angle of the story was that if you buy a foreclosure sight unseen at auction, you may be getting a deal on the property as it was when the bank took possession, but you might also be buying poop in the ductwork, spray-painted vulgarities on the wall, or worse. Foreclosures can be sold “as-is” which means that damage inflicted after the closing date is between the new owner and the vandal – and good luck going after them for damages!
Yeah, that’s why banks almost always evict the foreclosees, to prevent further damage to the house. Did y’all read baout the guy who locked pigs in his house when he found out he was being foreclosed upon? What happened in Athena’s case sounds like a special situation with a local bank.
The biggest problem now is that people, using exotic loans they didn’t understand, have bought way more house than they could ever hope to afford. Or they sucked the equity out of a house without fully understanding the repayment terms. Even if you could refinance their loans to a reasonable fixed-rate loan, they still couldn’t afford the payments on their salaries. Some people were approved for loans over 10x their salaries. In some cases they were betting prices would never go down and they could turn a tidy profit, in others they were scared they were gonna be priced out forever. It’s tragic how many people were foolish about mortgages (or outright misled by unscrupulous brokers), lost lots of money, and drove housing prices out of affordable ranges.
There’s not really a good solution. Housing needs to get cheaper and more in line with median income in almost all areas of the country. But a lot of people are gonna be hurtin’ in the meantime…
'twas also 25 years ago. That obviously makes a difference.
If you look at this situation as a single point in time, then it might look immoral. However, if everyone took the same stance as you, then banks would never make mortgage loans. (they would have no mechanism for getting their money back). Think about a world where you could never get a mortgage.
My husband is a process server* and mostly deals with real estate forclosures and evictions. Our experience (because I ride along alot) has been that the place is not trashed, just not well kept. I estimate 90% are abandoned before we get there and only one home has ever had a kept lawn, clean house, and neat appearance (and these people seemed genuinely surprised at being served).
There is typically trash in the house but nothing too gross - just a left behind couch or kiddie pool. One place had a piano and TV on the side of the house on the lawn! Anyway, I’m not saying it won’t happen and we won’t come across it, I just haven’t seen that the gross, heavy-duty destruction has been the norm. It is more common than you think to see abandoned animals. Those are sad.
*My husband is actually a truck driver but the massive tanking in the sub-prime lending market has made it more lucrative at this time to work part-time locally and serve more papers. Who would have thought?
Many mortgages require an insurance which benefits the lender in case of a foreclosure- if the balance is $100K and the house is sold for $80K the insurance policy pays the $20K. In this case, is the foreclosee off-the-hook or do they owe the insurance company the $20K?
My family had well over $100,000 [by some estimates closer to $200K] worth of land seized for less than $20K in unsecured debts, but this was during a time of much higher interest rates and next to no turnover for rural farmland. At an auction on the courthouse steps that I understand nobody attended the land was sold for the exact amount owing on it (what are the chances?) to the bank itself- again, this land was worth WAY more than the amount that was owed. It seemed unkosher at the time but we wanted that chapter of our lives closed.
Twenty years later my sister with her army of lawyers pursued the matter against that bank’s current incarnation and the bank returned more than 70 acres of this land to the family that they still own (part was leased to a timber company and the other part to a cattle farmer), the other 40 acres having been sold at some point for more than the value of the loan in and of itself (this part was legal).
I’m not sure if this was implicit admission of wrongdoing at the time or just a “cheaper to give back the 70 acres we still own than fight a lawsuit over it” thing, but either way-. It makes me wonder if there is much “never mind the foreclosure behind the green curtain” stuff that goes on.
You quoted my post when you wrote this. What stance are you referring to?
You are quite right. You merely asked a question. My answer was simply that it was not immoral to purchase a house in foreclosure.
Ah, understood. I couldn’t see how it was an issue either, untill I’d read that sometimes if the bank foreclosed the person was allowed to stay there renting month to month. I could be wrong, but I suspect that’s a very unusual circumstance. I’d never even heard of it happening until this thread. My thought was “I’m not putting you out on the street, you’re already out on the street due to your bank dealings!” I assumed that people bought foreclosed houses after the occupants were gone or imminently leaving.
I think that at times it’s immoral. Obviously I have a bias. But put it this way: there are crooked banks out there, and they will prey on unsuspecting people. You think those banks out there that gave six-figure mortgages to people making minimum wage are not immoral? Sure, the people who entered into the deal should have done their homework. But that bit of logic tends to get lost when you’re the six-year-old who only understands that you can’t live in your house anymore.
Personally, I don’t want to have anything to do with such practices, whether the family is living there or the bank has conveniently moved them out so I don’t see them.
I agree that predatory lenders are immoral, but that’s not the same question as whether participating in the foreclosure process itself is immoral.
I also agree with the person who pointed out that foreclosure seems harsh in individual cases, but in general, without the possibility of foreclosure, it would be a lot harder (if not impossible) to get a mortgage loan.