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Wednesday, June 24, 2009

Bank Owned in Key West - My Thoughts

I'll probably get yelled at for writing this, but I don't care. I'm as mad as hell and I'm not going to take this anymore!

Well, maybe that is a bit of an overstatement. I do want to share my thoughts about local banks in Key West and how they are selling bank foreclosures. I'm not singling any one locally owned bank (local as to South Florida) because they all do pretty much the same thing.

Banks sponsor different events in the community to build up good will. Both lenders and operational employees in banks are members in all kinds of service groups and organizations. They make donations of time and money to put a good face forward in the Key West community.

Banks sponsor events for Realtors in Key West such as monthly Realtor luncheons, educational seminars, Realtor caravans, Chamber of Commerce and the Key West (gay) Business Guild functions, etc.

Banks and bankers everywhere do the same thing. They do it to court business and to make money.

Banks woo Realtors to bring customers to their bank so that bank can make new loans. I encourage my buyers to work with Key West lenders to get a loan. Local bankers know the Realtors, appraisers, attorneys and/or title insurance companies, insurance agents, surveyors, and home inspectors. Local lenders may know some of the history (Key West drama)that goes with the property or contractors that may have worked on the property. That knowledge can be a good thing or a bad thing depending on who the contractors were or what kind of event may have occurred at the property. A local lender can very often speed things up and make things happen a lot more efficiently than some mortgage broker sitting behind a computer screen far away.

I appreciate the ability to call a local lender on the phone or to walk a potential borrower into the bank to discuss financing availability. That access can often make a deal occur that might not be possible with an out of area lender. The Key West real estate market (especially Old Town properties) is truly unique, and local lenders are essential to getting many deals done.

The symbiotic relationship between Realtors and bankers is essential in making real estate transactions work smoothly.

Yet, when Key West banks foreclose on mortgages and become the reluctant owners of houses or commercial properties that could not get sold, many banks try to sell the foreclosed "assets" on their own. Most local banks have Special Assets departments that market the distressed properties.

Some banks do not set an asking price. Instead they solicit offers. The banks want buyers to make the first move. Banks usually will not make a counter-offer. Rather, banks will request the buyer to make a "best and final" offer.

Some banks have bank owned foreclosures listed on their website. Banks may even offer "bank financing". One local bank offers "95% Financing Available" on its website. I recently discussed a bank owned property with a bank officer. I specifically asked about the 95% financing and was told something to the effect that the offer of 95% financing did not apply to "that" particular property. I then asked what amount of a loan the bank would finance and what the interest rate would be. I was told the amount, rate, and terms are negotiable. The bank officer would not disclose the "asking price". I was told my buyer shuuld just make an offer.

Banks are required to comply with the TRUTH IN LENDING laws enacted by Congress. Just because a bank is a seller does not give the bank an excuse for not obeying the law. Disclosure is required and failure to disclose is a violation of the law. Advertising an interest rate that is not available is actionable in my opinion.

I used to manage the special assets department for a big bank in Denver. Part of my job involved the sale of bank owned properties. But my primary job was to minimize bank loss through doing loan workouts and managing bank litigation. I had to use the bank's money to avoid losing more money. I had to use my time efficiently and allocate the bank's resources wisely.

I was never known for giving anything away in litigation or in selling bank owned properties. But I knew this much: the bank's good name is at stake in every deal I made and in every action I took. You do not litigate to teach borrowers lessons. You do not foreclose on real estate to create an empire or preserve your job. You foreclose when other solutions are not available. Then you go after the bad guys.

Banks are required to have a current appraisal on file that supports the book value of each bank owned asset acquired through foreclosure. (A six month old appraisal in Key West is outdated.) Banks should market foreclosures at book value and not play games with the public. Banks should market bank owned assets by listing properties with local and knowledgeable Realtors rather than "in house". Marketing properties widely and openly avoids the appearance of impropriety. Banks should not give preferential deals or treatment on the sale of bank owned properties to insiders or customers of the banks. Instead, banks should to do everything possible to keep the bank's name and reputation above reproach in the sale of bank owned assets. I am not suggesting that any local bank is doing anything like that. I am saying that banks ought to do the right thing and not take actions that are self-serving.

Local banks in every town across the country have boards of directors that supervise the governance of local banks. Just as Wall Street investment bankers came under fire for big bonuses, local bank directors should insist that their particular bank should dispose of bank owned proprieties openly and honestly. They should insist that bank assets be listed with local Realtors and that asking prices and financing packages are clear and unambiguous.


Anonymous said...

Well, this should lead to an interesting discussion! I look forward to hearing comments.


flipper said...

Hey Gary, I don't get it. I know banks can be slow to react but they are usually pretty good at finding ways to maximize profits (various service charges, creative products, etc.) Why would they not ensure that the disposal of foreclosed properties was done as efficiently as possible, especially these days, when every penny counts, and with all the scrutiny they are under? I can't believe there is no oversight. Would the banks respond that they can improve their margins by marketing the properties themselves?

Anonymous said...

Gary- the thing I like about your blog is the candor. Few people in your business are willing to ruffle feathers like this.

Are the banks allowed to keep things on their books forever at a fantasy price so long as they avoid putting up a number in a listing? And did you happen to see a recent WSJ article about the battle between condo associations and the banks over unpaid assessments? I think you've written about that before.

Skokie, Il.

Gary Thomas said...

Flipper, the FDIC does have rules on how owned real estate must be treated for accounting purposes, but not on how assets are marketed or sold.

Some local banks have set up subsidiary corporations to own foreclosed properties. Most Prying Eyes can't find them in the county appraisers records because they don't know where to look. Then the banks try to find someone to buy the properties.

One local Realtor told me of bank interference in his attempted sale of a commercial property. The bank ended up getting the property and voila the place the Realtor could not sell for months on the market got sold within a couple of days of the bank taking title.

George, if I wrote some of the crap I knew I'd get assassinated.

Key West is no different than anyplace else. The really big bank I worked for in Denver had lawyers sitting on the board. They got the lion's share of the bank legal work--until I got there. Same thing goes on everywhere. The problem is our tax dollars are now helping bailout the practices that kept good ole boy "business as usual" created and that continue right now.



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Gary Thomas in a Nutshell

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Key West, Florida, United States
I first read about Key West in a magazine called "After Dark" sometime in the mid 1970's. But it wasn't until March 1984 that I made my first visit to the island that would become my home. I had two weeks for a vacation and reserved a room at Colours Guesthouse (now Marrero's Guest House) for one week. I thought that if I didn't like Key West, I could always go back to Miami or Ft. Lauderdale for the rest of my trip. But after a couple of days in Key West, that was no longer a consideration. But when I wanted to extend my stay for the extra week I found there was no room at the inn. The guesthouse owner did find me a room at LaTeDa, the infamous guesthouse/restaurant. That's a story I'll write another day. But those two weeks in Key West gave me the realization that I had found Paradise. Key West has been my home since 1993 and my only regret is that it took me so long to get here. I am a full time Realtor at Preferred Properties CRI. Let me help you find your new home or business in Paradise. Living in Paradise is not a slogan, it's a way of life.