I’m actually curious about a specific situation within that, when a LOT more is owed on a property than it’s worth. Let’s say there is a property that is reasonably worth $100k but there is over $200k owed on it to the bank via non-payment, interest, whatever. What does the bank do then? There, in theory, will NEVER be a buyer for that property at that price. What becomes of it then?
In: Economics
The bank doesn’t want to own real estate; they want cash.
If the property is worth far less than the remainder of its mortgage, then the bank loses money. There’s no clever trick here. ;p The bank auctions off the property, gets as much money for it as they can, and…that’s it.
This is why the banks assess risk before giving out a loan, and give higher interest rates to riskier loans (because with a higher risk of the property getting foreclosed on, they want to get more money back more quickly).
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