The tsunami of defaults on asset-based loans has burdened the banking industry with portfolios of repossessed residential and commercial properties that, in many cases, threaten a bank's very existence.
These properties not only pose a management challenge but also expose the banks to legal risks as owners. An unfortunate side issue of this situation is that banks usually lack vital documentation that could both mitigate risk and encourage investors to pay more for these properties.
Banks rely on inspectors to manage the drawdown of their construction loans through field assessments and reports, environmental reports, surveys, appraisals and feasibility studies. The inspectors did due diligence on the properties, obtained documents to make field assessments and created reports for the bank. Without the original investor or developer who provided the documents to the field inspectors, procuring these crucial documents is difficult.
Investors and developers traditionally ask the bank for money. But in today's market, they are looking to give the bank money by buying back property — at a bargain price, they hope. But investors and developers are not always giving the banks a specific checklist similar to what the banks gave them, which leaves the banks guessing. In effect, the investor can use the lack of detailed underlying asset information from the loan files as an opportunity to bargain.
Banks often find themselves, lacking this documentation, at a significant disadvantage. Prospective buyers will place low bids because there are unknown cost variables and potential risks. With comprehensive documentation, however, banks can negotiate for a fair market value and protect their capital. Investors are willing to pay more for properties with more documentation because they can better assess the risk involved.
Documents to help banks do exist, however — in city, county and other appropriate legal archives. The challenge is to find an orderly, economical and practical way to acquire, archive and share these documents. Banks need a way to automate the gathering of crucial property documents and a secure site to house them.
Such a platform helps banks manage nonperforming assets and accelerate decision-making while maximizing internal project visibility. Buyers also can then easily and securely navigate a banks' distressed assets in detail. By capturing key documents, organizing the information in an online searchable platform and sharing with buyers, banks can reduce hold times and increase bids, protecting their capital.