The latest first-hand residential market has shown slight improvement recently, but the market, which includes commercial & industrial properties, luxury and shopping premises, does not display significant improvement. In this market scenario, one local bank took the initiative to repurchase a foreclosed property from its defaulting debtor, hoping to expedite the sale process after renovation so that it can avoid writing off debt from this property.
The spokesperson of this local bank explained that the repossession of this unsaleable property from a defaulting debtor is normal practice. Once the bank closes the transaction, the renovation work will start immediately. When it is done, it is likely to sell at a better price and help to minimize the potential losses.
When a bank executes a normal procedure to repossess a property that was previously held by a defaulting debtor, it becomes a foreclosed property in the market. Typically, the bank will arrange a public auction to sell the property through an auction house. Through this process, it will sell it quickly and recover part or all of the outstanding loan.
Generally speaking, banks will not purchase such properties in order not to use precious funds so as not to reduce their liquid assets. The benefit of banks repurchasing such properties is that the foreclosed property may be removed from their balance sheets. 
Once the deal closes, this previously negative asset is converted into fixed investment asset. As a result, the bank is unnecessary to do the write-off.
This bank's balance sheet appears healthier because this property was previously subjected to write off. However, the cost of this move is that the bank must use its own cash flow to complete this transaction, resulting in the bank with less liquidity coping with extraordinary expenses.
In short, a bank repurchasing its debtor’s foreclosed property does not truly resolve the problem of bad debts. Besides, it may reduce their cash flow after acquiring this kind of property, and they also will face the risk of downward spiral of the commercial and luxury residential market. As a bank repurchases foreclosed properties, the purchasing price may already be lower than the loan approved. If this property is sold later, the selling price may be even lower than the repurchasing price, resulting in the bank suffering double losses. To put it simply, a bank repurchasing its foreclosed property is an act to drink poison to quench thirst.
