My first impression is that the bank pays off the original homeowner in full, which they are willing to do because I pay back the bank over time with interest, or else they take my house. Is the real answer that they are middlemen who sell the right to foreclose my house to investors?
Edit: I asked my mom, who’s a landlord, and in America the buyer borrows money from the bank (via a mortgage) and pays an escrow company, which pays off any liens (debts tied to the property that the original owner failed to pay such as unpaid property taxes or repair costs) and then pays the original owner the remaining. Unless the owner owed $3 million in liens and the house sold for $2 million, in which case the owner would owe the escrow company $1 million instead of getting paid. This way the house buyer buys just the house without worrying about liens. A bank makes sure a homebuyer is trustworthy before lending them money; an escrow company makes sure that the seller actually owns the house and that all their liens are accounted for.
On the other hand, if you buy a foreclosed house at auction then you are in charge of paying the liens as well, kind of like how when you buy a business, any debt the business owed comes with it.
> Is the real answer that they are middlemen who sell the right to foreclose my house to investors?
this is a big part of it, where people’s intuitions go wrong is where the actual dollars come from though. e.g. ” the buyer borrows money from the bank ” where the bank actually gets the dollars.
Without looking it up:
My first impression is that the bank pays off the original homeowner in full, which they are willing to do because I pay back the bank over time with interest, or else they take my house. Is the real answer that they are middlemen who sell the right to foreclose my house to investors?
Edit: I asked my mom, who’s a landlord, and in America the buyer borrows money from the bank (via a mortgage) and pays an escrow company, which pays off any liens (debts tied to the property that the original owner failed to pay such as unpaid property taxes or repair costs) and then pays the original owner the remaining. Unless the owner owed $3 million in liens and the house sold for $2 million, in which case the owner would owe the escrow company $1 million instead of getting paid. This way the house buyer buys just the house without worrying about liens. A bank makes sure a homebuyer is trustworthy before lending them money; an escrow company makes sure that the seller actually owns the house and that all their liens are accounted for.
On the other hand, if you buy a foreclosed house at auction then you are in charge of paying the liens as well, kind of like how when you buy a business, any debt the business owed comes with it.
> Is the real answer that they are middlemen who sell the right to foreclose my house to investors?
this is a big part of it, where people’s intuitions go wrong is where the actual dollars come from though. e.g. ” the buyer borrows money from the bank ” where the bank actually gets the dollars.