It was way underwater, and they stopped paying the mortgage more than a year ago, expecting the bank to take it over shortly. They haven't yet heard a word from the bank. Obviously the bank doesn't want to recognize it. This is crazy. When the banks are playing these kind of games, there is no way they are going to be lending to anyone for a very long time. Bizzaro world.
A reason they do not want to take ownership of the property is because they have to pay the real estate taxes. They have to pay for the lawn up keep, securing the property, etc. There is a flood of homes on the market. A good majority of foreclosed homes are not even being listed because of the flood of people trying to sell their home short. Your parents should rent out the home or move in themselves and rent out the other until they get the notice.
They let the place go when their last tenent left. They might have rented it again if they knew the banks were never going to take the property. But as it is it just sits empty with nobody claiming it.
Banks can continue to recognize the revenue from the loans as long as the don't foreclose on the loan. Profit goes straight to the bottom line.
All legal per GAAP accounting.
All it does is create phantom revenues and profits that will have to be reversed at some point. Not sure where the offsetting entry for each transcation goes. One would expect the loan loss reserve to rise but it's definitely not going up as muchas the phantom profits are.
One last thing. Bank bonuses are being paid based upon these phantom profits. Talk about screwing the shareholders while not helping your customers.