Why would a bank sell a non-performing loan rather than foreclosing?
Banks sell non-performing loans to other investors in order to rid themselves of risky assets and clean up their balance sheets. Sales of non-performing loans must be carefully considered since they may contain numerous financial implications, including affecting the company’s profit and loss, as well as tax situations.
Other reasons to sell include the much higher liability associated with foreclosure versus being the lender or note holder. Banks can also avoid having to pay back taxes, and they can expedite the recapture of capital for reinvestment. That’s because selling a note results in an immediate cash return versus foreclosing and marketing the house for sale as an REO asset.