In many cases (especially during the last bust) the banks who now own the properties are willing to take a certain percentage of a haircut (loss) on the home– they don’t care about the home, they only care about the difference in what they have already invested in the home (the former loan amount) + monthly servicing amounts (property management, insurance, etc.) and making business decisions based on paper. Thus, a $400k house with $200k in equity is really only a $200k loan on their books, BUT a $400k home with $20k equity is a $380k loan on the books. So let’s say their guidelines say they are prepared to lose 30% of the book values of the loan, you might be able to buy a $400k house for $140k OR the same bank might only let the same property go for no less than $266k based soley on the fact that they previous owner had more equity!
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