From: gordon@sneaky.lonestar.org (Gordon Burditt)
Subject: Re: Banks + Short Term Car Loans = Scam?
Organization: Gordon Burditt
Date: Thu, 23 Jul 1992 18:55:34 GMT

>>If a bank repossesses something, it does NOT get to keep the full value
>>of that something.  It gets to keep the amount owed on the loan, unpaid
>>interest, and legal fees.  The remainder, if there's any money left,
>>goes back to the owner.  (Owners in trouble with a lot of equity left
>>in the car/house/whatever would be better off trying to sell it before
>>letting the bank repossess it - both to save their credit rating and to
>>get a better price for it.)  There might be a small profit in cooked-up
>>legal fees.  The only reasonable way for banks to profit from something
>>like this is to sell it at a little-publicized auction and have an
>>accomplice buy it cheap, then re-sell it, and pocket the profit.


>But in a declining economy, the bank has no incentive to get the owner's
>equity back, and could be inclined to an expedient third-party sale just
>to get their money back.  No accomplice needed.

BUT THE BANK DOESN'T MAKE ANY MONEY THAT WAY!  Banks don't repossess
property just to screw owners.  It has been alleged that they repossess 
to make a profit in this thread, but there isn't any profit in it.
The time when a bank should repossess is when the risk of losing their
money exceeds the risk of getting stuck with an unsellable piece of
property.  (There's also the rule on many loans that the bank can't 
repossess if the owner isn't late with the payments.  Some loans are
callable at any time.)  This is when payments are months late, not 1 day 
late.  If the owner was paying just a little bit late, occasionally, the 
bank would be better off letting him continue to pay.  

(The baseline for profit is this:  0 for just getting the principal back.
+ for interest payments made by the owner.  - for losses on selling
the property, expenses of selling, and maintenance cost of repossessed
property.)

>My original post hasn't been answered: who determines the fair market value
>of the house which indicates the owner's equity (if any).  A judge can't
>claim to be a real-estate expert.  Would the court attempt to appoint
>an arbiting assessor in such a case which was agreeable to both sides?

No estimates.  Estimates are worth less than their weight in shit.
The value is determined by an *ACTUAL SALE*.  Especially if the sale 
was a (well-publicized) auction, it is arguable that the price reached 
DEFINES market value.  

There are probably some rules that says the bank has to make an effort 
to advertise the property and not take the first low-ball offer that 
comes along (from the bank president's kid), especially if it's not sold 
by auction.

You are correct that there is a conflict of interests here; the bank
will be more inclined to sell cheap & fast than high & slow, to
protect its own interests at the expense of the owner's equity.  
The bank is probably allowed to do this.  In neither case will it make 
a profit; it will just be cutting its losses.  It WOULD make a profit 
(continuing interest payments) if it didn't repossess and the owner made 
the payments.  Owners who make one payment one day late probably just 
forgot.  Owners who are several months behind may not make the payments, 
but in a declining economy and real-estate market, it might be worthwhile 
to give them a little leeway anyway rather than repossessing.  Not to 
be nice.  Pure greed.  And they collect late penalties, too.

						Gordon L. Burditt
						sneaky.lonestar.org!gordon
Newsgroups: misc.consumers