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.