this post was submitted on 11 May 2026
1076 points (98.7% liked)
me_irl
7631 readers
3736 users here now
All posts need to have the same title: me_irl it is allowed to use an emoji instead of the underscore _
founded 2 years ago
MODERATORS
you are viewing a single comment's thread
view the rest of the comments
view the rest of the comments
Banks do not make a profit on foreclosure. If the house sales for more than the bank is owed (including foreclosure fees), then any surplus is given to the original owner.
So the bank gets the money they are owed?
Not necessarily. There is no guarantee that the house will well for enough. Normally this works fine, but sometimes a loan can be underwater, and have a larger balance than the house is worth; or it could not have enough equity to cover the cost of foreclosure and flipping. This is why the US requires mortgage insurance for mortgages with less than 20% equity.
You could imagine a scenerio where banks find a loophole to skirt the PMI requirements causing a real estate bubble to drive up the purchase price of houses. Them a recession causes widespread defaults, further triggering a collapse of home prices, forcing financial institutions to be unable to recoup the cost of loans. Loans which, incidentally, were rated as very unlikely to default due to other financial schenenagans. We call this scenerio 2008
*sells
This ignores the market manipulation they can do by just selling to "totally not related to out bank.. blackrock or something".
Are they not required to sell it on the market? So if a related company bids low, anyone else can just swoop in and take it.