Selling at distressed prices is never a good decision. Only when there is no other choice and its the only decision available, this should be followed. What I said earlier that banks will turn to REITs was not entirely sarcasm. Sporadic foreclosures can be good for a number of reasons. But massive foreclosures are not good at all. When a bank proceeds towards foreclosure is already underwater, and just tries to minimize losses. Given that foreclosures typically offer opportunities to buyers to acquire the same asset at below market prices, foreclosing massivelly now, will a) f*ck up the overall property market, b) make big losses, eg -50%, certain and realized. When you are already at the -50% level, going to -60% within a year or two, doesnt change things a lot, but going to -20% is a significant improvement. Even if those two outcomes are equiprobable, the payoff is quite assymetric. Critical success factor, to have adequate liquidity and of course patience.

The key question for banks is: will bank-owned houses appreciate fast enough to cover the costs? First, if a bank keeps the home, then it needs to pay the cost of capital on the house, property taxes (about 1-4%/ year), maintenance, and insurance (or an equivalent loss rate). At the very least, a house would need to have a risk-free appreciation rate of 6-10% per year just to break-even on waiting.Second, in the US, buyers prefer "owner-occupied" homes because they think the previous tenant will have taken good care of the home. In contrast, rented and unoccupied houses are less attractive. And the longer a house sits unoccupied, the greater the chance of vandalism, damage, and deferred maintenance that will further lower the price of the home.Third, if the banks think other banks will dump their foreclosed houses, then all banks will rush for the exits. And since I doubt banks have the labor or skills to become REITs, I suspect they would prefer to get the house off the books as quickly as possible (especially since banks know they are holding the least desirable of houses).Fourth, banks must wonder what interest rates are going to do in the coming years. If rates stay low and mortgage capital remains freely available, then holding the house will be fine. But if rates rise significantly or the Fed withdraws QE money, then houses will become less affordable and prices on these foreclosed houses will fall further. (The political fates of Freddie and Fannie will also affect the availability of mortgage capital and the price of real estate).

A good description of how most of mortgage trading are being settled in the US. It explains well how very reasonable changes conflicting with multitude of local laws, that may be outdated but still are in force, are causing the current mess with foreclosures - of more generally, with real estate property titles and similar.Supreme Judicial Court of Massachusetts voided yesterday a couple of foreclosures. Not a big deal, except it sets a precedent, that according to the first article above, applies to 90% of mortgages - at least in the state, if not US country wide. Is it Dura Lex Sed Lex - or an extreme case of jurisdictional stupidity? (there is a better expression, something like "let the world be lost, but a law triumph" - but I do not recall it in Latin nor could find fast).

Quote"let the world be lost, but a law triumph"Fiat Justitia Ruat Caelum p.s.: thanks for the links.

QuoteOriginally posted by: acastaldoQuote"let the world be lost, but a law triumph"Fiat Justitia Ruat Caelump.s.: thanks for the links.Indeed! Note well that no one disputes that these borrowers didn't, in fact, borrow large sums of money and fail to pay them back.At least the lawyers get full employment out of it.

"May justice be done though the heavens fall." I used to knew, in Russian translation, only a similar saying: Fiat justitia et pereat mundus - "Let there be justice, though the world perish." Found in Latin and English with your help. Thanks a lot, acastaldo!the same court ruling is discussed on a Reuters' blog. A quote: if you bought a Massachusetts home out of foreclosure, you should be very worried. You might not have proper title to your home, and you risk losing it to the original owner. It might be worth dusting off your title insurance: you could need it. And if you ever need to sell your home, well, good luck with that.

Just quotes. Click here for the full article about MERSQuoteMERS, which stands for Mortgage Electronic Registration Systems, [is a] ... private mortgage registry [that] has all but replaced the nation?s public land ownership records.QuoteThe Arkansas Supreme Court ruled last year that MERS could no longer file foreclosure proceedings there, because it does not actually make or service any loans. ... in Utah, a local judge made the ... decision to let a homeowner rip up his mortgage and walk away debt-free. ... the judge did not recognize [MERS] legal standing. ... on Long Island, a federal bankruptcy ... This court does not accept the argument that because MERS may be involved with 50 percent of all residential mortgages in the country,? ... ?is reason enough for this court to turn a blind eye to the fact that this process does not comply with the law.?