Upcoming Foreclosures

Questions about carrying costs for a bank-owned foreclosure property?

I can’t find any internet sources on this so hopefully someone here can help. I am more than willing to do the calculations myself if someone has a formula for this. If a bank foreclosed on a mortgage that was somewhere between $150-160,000, what would it cost that bank per month in carrying costs? If you can’t give me a number, can you at least define "carrying costs?" I understand that it’s the cost of owning the home until it sells, but what items/expenses make up the actual cost? Is it just the foregone mortgage payments? Thanks so much in advance!

Public Comments

1. No way to tell there is no set formula but here is what happens in a foreclosure. Besides the amount of the loan there are foreclosure costs and lost interest on the amount the lender had to place in a special account from their reserves which is what is used to determine the book value of the lender's stock, so all those costs have to be considered and then extrapolated into what interest or what money lost in the inability to use those funds for investments usually done with those investments. Every lender and or investor uses different formulas.
2. for the most part, the Carrying Cost is the mortgage and interest being paid for property. Most of the time, in commercial real estate, properties are purchased with IO's interest only mortgages for a short period of time with the principal due at maturity. So in this case, the carrying cost would be the interest. With out rambling on for too much longer, the Carrying Cost is the amount being paid each month to carry or own the property. I hope this helps.
3. You don't have enough info to give you a definite answer but this may help. If the bank foreclosed on a 150,000 mortgage you will not know the actual amount owed ( down payment and months or years in home).Holding or carrying costs are back unpaid expences, taxes,water sewer,fire if applicable and all other municipal taxes. Now add all these per month that it is held by the bank and it gets hard to guess what the charges will be.
4. The bank's carrying cost is a combination of actual costs and unrealized profit. Costs will be a combination of insurance and taxes they are responsible for while they own it, which is fairly easy to figure out based on tax records and generally the cost of insuring an unoccuped house. There are also legal and marketing costs of the loss mitigation department as they process the foreclosure and try to sell it. This varies to how the bank does the post-foreclosure sale. The second part is the fact the bank has thousands of dollars tied up in the house, and they are making no money while the house is on their hands. There is no formula for this, it depends on the banks normal profitability for loaning money, although it would be based on the value of the house.