Put yourself in the situation of a bank / lender. You have a piece of property in the City of Buffalo. It was purchased in 1991 for $39,900. You have a mortgage note of $57,378 on it and have foreclosed. The property has a present value of $12,000. If this wasn’t backed by HUD, making the lender whole, would you want to take this in?

The ratio of the property value to the mortgage obtained on the property is not unique to this home. I picked this at random and it was the first property that I selected to run the numbers. The numbers are very typical of inner city properties. This one is a bit unique since the home was purchased more than 15 years ago. You will find many more instances where the property was purchased within the past 5-7 years.

In this case, the note is $57,378. “How did it get that high?”, you might ask. Lenders were all too willing to lend when money was easy. The banks and mortgage companies were marketing heavily and appraisal companies would generally comply with the “value” a property needed to reach in order to justify the loan. How much business do you think a lender would send your way if you appraisals didn’t justify their valuations? If valuations weren’t justified, money wasn’t lent. If money wasn’t lent, fees weren’t earned. Get it?

The New York Times just did a story regarding situations where the banks are giving up on properties. It is a tough market and economy.