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Short Sales in CT > Blog > Why Don't Banks Care How Much Money They Lose in Foreclosure or Short Sale?

Why Don't Banks Care How Much Money They Lose in Foreclosure or Short Sale?

May 29, 2013

     A common question many people have when trying to avoid foreclosure and work out a short sale is about the sheer lack of common-sense and reasoning of the banks which leads them to lose tens-of-thousands or hundreds-of-thousands of dollars.

     Sometimes the losses come from wasting 6-12 months 'processing a file' while more taxes are due and a property becomes further distressed.  Other times they will refuse a short sale offer, only to sell it as a bank owned property for $30,000 less 6 months later.

     So, the question again is .. Why don't banks care how much money they lose in foreclosure or Short Sale?

     .. and the answer is simple.   It is usually not their money!

     Banks are in the business of making loans, charging points & interest and then selling those loans to investors in bundles.  The bank will then 'service' the loans which includes collecting payments and the servicing of the short sale and foreclosure processes.  Once the loan is sold, the banks financial interest turns into making as much money as possible 'servicing' loans.  The longer they 'service', the more money they make.  The more money they make, the better the managers and executives look in the eyes of the company executives and share holders.

     Of course there are are some limits to how far they can go before getting into trouble, but for the most part they are limitless.   Some loans are backed by FHA/HUD, Freddie Mac or Fannie Mae and with the right escalation contacts, those loans can sometimes get pushed forward despite the servicers 'resistance' to get anything done in a timely manner.

     The unfortunate fact of life is that most of these banks are 'too big too fail' and they are often the only ones 'big enough' to handle the sheer volume of files that hit their desk on a daily basis.  Factor in unfit employees with too little training and low moral, and you have yourself a disaster.

     The end result of the servicers negligence and losses turns into profits for the servicer and major losses for the investor.  And with the tax payers investment in Freddie and Fannie, the loses are often passed down to the tax payers.  Loses to the Tax Payer equals more Profits for the Banks.

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