All over the media, especially on TV, you would have heard about banks foreclosing on homes everywhere. What you may not have heard is it typically cost a bank 40% of the loan amount to foreclose on a property. So if you owed the bank $100,000 on your loan. It will typically cost them $40,000 to foreclose. You may be wondering how? Let me explain.

First and foremost, banks have the loss of income they could had if the loan was making money somewhere else. Meaning if they would have given the same $100,000 to someone else that could continue with the payments, whether it could be a different type of loan such as business or equipment, they would be getting a return. So the banks have a loss of not being able to do something else with same money. In addition if the bank forecloses on the home they are required in most cases to keep a 10 to 1 reserve. This means that for every $100,000 of the ten properties they have foreclosed on, they have to hold $1,000,000 in reserve until that property is sold. This is to ensure the bank has enough liquidity to cover the problems associated with taking this property back. In addition it is to ensure that the bank is stable enough to cover these "reserves"

Secondly, banks have to bear the cost of the attorney. Then they have to bear the cost of real estate agents working on commission. Then they have to bear the cost of Title Companies, Escrow fees. In addition they have to bear appraisal fee. And don’t forget about the insurance for the property they have. The banks have to hire someone to go by the property weekly, make sure there is no damage to the property, shovel the walks, cut the grass and make sure there are no leaks, and so on.

Thirdly, the banks would be required to pay back taxes to the State when they take the property back on a foreclosure. In most cases when they foreclose on a property they have to do an eviction of the people living there. Then the banks have to take everything out of the property bearing the expense of hauling it all away. Keep in mind that banks have to wait and bear all these expenses until foreclosure. In Utah it is a 4 month process to foreclose. Then up to 30 days banks have to wait for eviction, and up to 30 days for a personal property eviction. Typically the properties after foreclosure do not remain in a model-ready condition. So the banks have to spend money fixing the homes up, new coat of paint, fixing the hand rails, making sure the sinks don’t leak. Or they have to offer these houses on discounts in order to compete with those that don’t need fix ups.

Lastly, let’s talk about a word the banks hate; liability. Banks stay liable for taxes and insurance for each property they own. Plus if someone slips and falls on the property or gets hurt on the property, it will be banks’ liability.

It is conservative estimate that Banks will lose 40% on a foreclosed home. In some cases they lose as much as 50%. Due to these very reasons banks love to work with Foreclosure Assistance Companies. In this case if they lose the ownership of a property, they still save so much money by avoiding mentioned above liabilities. In addition banks make more money by doing short sales rather than foreclosing the properties.

Short sales also help local economy by avoiding rapid growth of vacant homes all over the neighborhood where the old owner moves out and a new one moves in. Vacant homes affects the local city negatively.

SaveUtahHomes advises: find a good company to help you avoid foreclosure. This will not only help you and your family but also the bank, the community and the economy as well.