When a home is foreclosed and noone pays the bank for it, the bank pays a company to preserve the house untill a buyer is found. They like mow the lawn and drain out the water pipes so the water doesn't expand when it freezes and break the pipes and appliances. Instead of paying for preservation, why don't banks rent the house out untill a buyer is found? Even if the bank rented the house out for $100 a month, they'd be making money instead of losing money paying for preservation.
If renters break someting, they're liable for it. Yes, It's probably harder to sell a house that people are living in as opposed to a clean one buyers can move right into, but probably most homes are sold while lived in, or the bank can just have it cleaned before they move in.

1) If the renters break something prove it's their fault and not normal wear and tear or a defective piece of equiptment. If it's their fault try and collect.
2) If the renters aren't extremely cooperative with showings it takes eons to sell. They've also been known to say things that kill the buyer's interest.
3) Once under contract the renters may not want to move. Hence an eviction and that can drag on.
4) The property may (may???) need some renovation which would need to be completed prior to renting it out.
5) The lawn care and other property related maintenance are still the lenders responsibility. In the case of snow removal, it would need to be done almost immediately rather then at the convenience of the performing party.
6) Who collects the rent, oversees the property, interacts with the tenants, and at what cost.
7) The delays with the entire process are pre-vacancy not post vacancy. Once these properties are vacated, they're generally under contract within an accetable time frame. The expected list to under contract period is "planned" at 90 to 120 days.
8) In those cases where we've tried to sell an occupied property that time line goes right off the chart.
9) The generally accepted rule of thumb as it pertains to carrying costs is 1% of the unpaid balance per month. 150,000 loan costs the seller 1500 per month in carrying costs.
10) If a tenant slows the process by even 3 additional months that's 4500 bucks.
11) Weigh the 4500 against 10 lawn cuts at 50 each and a 250 for a winterization and the numbers speak for themselves.
12) Now factor in a few $10,000 evictions, some board of health complaints, (with possible court costs and fines) and occupant required repairs and the numbers stop speaking and they begin screaming.
13) The owners are banks, not landlords.
14) Be fair to the tenants also. 90 to 120 day sales timelines. Just enough time for a tenant to move in, unpack, get their kids into school, have their friends over and start packing since another party bought the house.
This has been considered and discarded for many more reasons then I've mentioned.
Hope this answers your question.

Oddly enough, we just did a CFK on a property that the bank plans to rent out until it's sold. This is a first for me!

Not sure if we're going to be collecting rent, maintaining the lawn, etc. or not. Guess I'm about to find out.

My biggest concern would be all the damage an unhappy tenant will do to the property. Could be much, much worse than its current condition.

There are lots of pros and cons but, as Jack pointed out, the cons far outweigh the pros.

Linda

I can give a very short answer: Because the banks can't screen applicants well.

some of the banks ARE renting their REO properties, due to the legal requirements, long holding times and bad economy. It makes sense under these conditions. the bank will typically hire a property management firm to handle it.

Older housing stock presents special liabilities . . . . liabilities that neither the Banks nor the Government are willing to absorb; little details like making certain that the property is Lead Free, devoid of any Free Form Asbestos or absent of Excessive Mold Spores.

I recently had a USDA Foreclosure (in disguise) where the government approved the conveyance to a new Owner in Lieu of Foreclosure, because they absolutely DID NOT want to be in the Chain of Title. Rather, they Quit Claimed their interest to the Estate of the Deceased Owner (at the Closing) so that the Estate could dispose of the asset. It made me dizzy; but in private, I was told that was the rationale.

These environmental requirements are okay to impose on the Private Landlords . . . . but not themselves. A bankrupt government cannot afford to comply with such Regulations; and Bank Stockholders don't care for them either.

Correct Shana. The protecting tenants act requires they offer an existing tenant a lease. That's created it's own set of headaches. I believe the question was directed more towards why not scout up a few tenants which is where I directed my answer.

I think the existing tenant has to have a lease, though. I had to evict a couple of elderly ladies last year because they didn't have a lease, after several months of trying to get them moved out. They were offered substantial CFK money and refused it. Definitely was NOT paid enough for that one.

Renting out f/c sounds so simple but its a potential nightmare and money pit...first they have to be brought up to code to rent, next the bank has to have property management services (cost $$$) to collect rent, answer my ac isnt working or I lost my parking permite issues) and each state has specific regulations regarding when you can evict a tenant etc..meanwhile tenants can damage the property, steal appliances, slip and fall and sue the owner...get the picture....tremendous liability and for what? to put it on the market in a year or 2 for its value today or 5% at best?
another step backward in moving the "shadow inventory"

[quote]they have to be brought up to code to rent,[/quote]

I think i heard about a manditory inspection before a house can sell, not rent. Is that just a law so the seller can't lie about problems, and the hosue can still sell without passing building code?

Inspection requirements would be very state specific. I believe the general rule of thumb would be that a house can be sold in almost any condition, ever severly burned as a for instance. However it must be brought up to safe, sanitary and sound, before it can be occupied. While a home owner occupant may well be satisfied with a few flaws in a home, a renter is entitled to more or less flawless. Another easy for instance. The home owner has a missing window screen..they don't care and that's the end of it. A renter with a missing screen can file a complaint with the local board of health and it must be replaced quickly. The short version. You can sell junk, but you can't rent it out.