From time to time in my work I come across a new level of bizarre behavior on the part of lenders. I have previously written about how it never made sense to me that banks with mortgages or credit card companies would not work with their customers to try and work something out. It always seemed to be more logical for the bank/credit card company to get a deal which would give them some money rather than none.

But for many years that wasn’t even a real option for my clients. I remember bluntly telling the lenders that if they did not do something to help my clients that they’d have no choice but to do a bankruptcy and more often than not the response was basically ‘go ahead and do it’.

As the economy got worse and the housing market tumbled, some banks started to make some meager moves towards working things out but more often than not they wouldn’t do anything. At the same time the banks were finding that once they foreclosed on houses that they were suddenly liable for maintaining the property and that local governments were getting quite serious about enforcing those responsibilities.

The result was a pretty heavy burden to the banks and one of the solutions they arrived at was to tell the former homeowners to remain in the house, thus relieving the bank of a burden (IE the person in the house would keep things in good condition). I’ve had a number of clients tell me about how they or their friends had spend two or three or six months in a property before being told to get out, and this was rent free.

Recently however I heard an even more bizarre turn on this scenario. A homeowner was in trouble, could not afford their mortgage anymore and so they tried to work with the bank. The bank refused to give ground and so eventually they moved to foreclose. But they did not tell the homeowner to leave, and in fact allowed him to remain in the house for about eight months.

The next step though was completely unexpected. The bank actually came to the homeowner and asked them if they wanted to BUY THE HOUSE BACK. They offered to sell them the property for about half of what the foreclosure amount had been and helped them to secure the loan.

So this person was foreclosed on but never left the house and now they have a mortgage payment that is about half of what the old payment was.

I can see where it was a reasonable deal from the bank’s perspective. Rather than renting the property they now passed all responsibility to the new owner and they didn’t have to go through the costs and time of putting up for sale and paying a realtor.

But the obvious question is why didn’t they simply start at the beginning and modify the original mortgage ? That would have saved them the cost of the foreclosure and any costs of redoing the loan, etc.

I would like to think that the banks are getting smarter about things but I am starting to suspect that this may just be the first of many such sales.