You may be doing the borrower a favour by buying his reposessed property.
The more you pay for the house, the less he will owe the banks, assuming that what you buy for does not exceed what he owes. Likewise, I presume that if the banks sell the reposessed house on the open market for more than they are owed, that the excess must go back to the original defaulter.
All the banks are interested in is getting what they are owed. They are not interested in selling the house for as much as they can. There is nothing in it for them, once their loan has been repaid.
A similar type of moral delima arose a few years ago, when people were starting to die from from AIDs. Many of these had insurance policies that paid out only when they died. The people knew that they were dying, but the only place they could get money from these policies was to go back to the Insurance company, who had originally sold them the policy, and ask them for a surrender value. Despite the fact that, they were dying, no longer capable of work, and suddenly very short of cash, the amount of money offered by their own insurance companies to surrender these policies was usually derisory. The insurance companies had the victims over a barrel. It was a case of take what we offer you now, or leave it to your estate. And by the way you must keep paying the premium or the policy will lapse. There was no choice.
A market opened up in traded endowment policies, where ordinary people could buy these policies at auction. The policies would then be signed over to the buyer. They would continue to make the payments on the policy until the person died, and then they would claim the payout.
I have seen it argued that it was immoral to buy such a policy, that you were taking advantage of a dying person, and profiting from others misfortune. My own view is the opposite, you were doing the victims a favour, by agreeing to pay the victim more that their own insurance companies were prepared to offer.
I never actually bought a policy myself, but as I said I would not have had any qualms about doing it.
In relation to buying reposessed properties, I don't doubt that with the current financial climate, there will be a glut of "distresses sales" in some of the recent foreign and domestic holiday hot spots. Having said that, I suppose that it's different buying someone's holiday apartment rather than their actual home.
Murt