Bank costs incurred while holding an REO?

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I’m trying to get a concept how the REO process works.

I understand that when a bank initially takes on an REO, the incur these expenses: the loan balance on the property, accrued interest on the property, attorney’s fees, and all other costs associated with the foreclosure process. And of course when they sell, they have to pay out agent commissions.

So does the bank incur any additional costs over the above while holding the property other than the mortgage payments they aren’t getting? I’m guessing they’ll have to pay property taxes, but are there other costs?

Additionally, do you think a bank would be more receptive to a loss on a house if the sale occurred at the start of their fiscal year vs. the end?
To be clear, a *fiscal* year is the 365 day period a business uses to track expenses. It may or may not follow the calendar year. In my experience, it’s easier to deal with a loss earlier in the fiscal year (so it’s already factored into end of year estimates) than at the end of the year after said estimates are already in place.

  1. Reply
    January 25, 2011 at 4:02 pm

    Once the loan is qualified as a high risk the lender is required to place the amount of the loan in a reserve account this amount comes directly from the lender’s profits and it can not, unlike the original amount of the loan, come from federally borrowed funds. This money placed in the reserves affects the book value of the lender since it can not be shown as an asset in their books, used to get interest on and it can not be released until the funds are recovered through a sale. Enough of those can cause a lender to go under.

  2. Reply
    January 25, 2011 at 4:42 pm

    They have to pay insurance and upkeep. They worry about winter weather freezing pipes. They look at it as money sitting there that they can’t use so there is a loss there also.

    This time of they year the bank is probably very worried they will have to hold it until Feb or March. If you buy it now they will probably love that. However just like any retail store they also age their inventory and the price continues to go down each month it doesn’t sell.

  3. Reply
    Property Doc
    January 25, 2011 at 5:25 pm

    First, every bank is different so no, I do not think they are more receptive to offers at any particular time of year. I have seen good and bad deals for the banks at all times of the year.

    There also may be substantial and typically minimal costs associated to making the property sellable. Most foreclosures were not taken care of and need work to make them sellable. In some cases, brokers such as myself will be offered the home to move. In many cases we foot the expenses of bringing the property to sellable condition and then are reimbursed for our efforts and our commission at the sale.

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