What is a Trapped Property?

When the commercial lending market was in it's hay day, banks were lending on inflated property values - a fact we all know now.  With the market correction, it makes sense that the bank should be willing to cut the loss and sell for today's value, right?  Wrong!

Take the instance of a 10 Acre tract of waterfront property that was leveraged at $1,000,000 per acre but is now only worth $500,000 per acre.  Today's buyer is still willing to pay $5,000,000 for the property, but the bank won't even talk about it.  Why are they being so unreasonable?  In most instances the bank simply can not tolerate the loss. The bank's survival depends on recouping the entire principal, and therefore they extend loans, accept partial payments, and do whatever it takes for the asset to perform in some way (through rental income or through modified payments) until the property can be sold for the original balance.  

That's going to take awhile.

Investors shouldn't think that going "straight to the bank" is a good idea.  If the bank was able to sell the property for less than what was owed, they would put it on the open market in order to get the most money.  The only reason not to put it on the open market is to hope that some sucker will come along and by it at a price above it's true value.  

Most of the time if you learn of a foreclosure property that is not on the open market, it is because the property is "trapped" in a value situation such as the one above.  They aren't selling it because to do so would break the bank.

The FDIC has no intention of selling most of it's foreclosures until the market corrects itself.  They would rather become landlords.   For more information about investing in foreclosure properties, call Shoreline Properties 281-942-9301.