When a bank fails somewhere across the country, its closure is good news for one new Seattle company.

Roanoke Financial Group plans to capture part of the $36 billion nationwide market for failed bank assets left behind by banks when they are shut down and sold to other banks by government regulators.

The company, launched last year by three former real estate lenders, is one of dozens that have sprung up across the country to take advantage of the financial downturn.

But it is focusing on an unusual piece of the market. Rather than buy foreclosed land and housing developments as is common, Roanoke wants to buy the loans on those properties at a steep discount and work with borrowers to make them profitable again. It's anticipating annual returns of 15 percent to 20 percent, says John Sheppard, a former commercial real estate lender and partner in Roanoke.

The market for troubled loans is sizable and growing. Three Washington banks failed in January and the number of banks closed nationally in the last two years has reached nearly 200—a number expected to rise sharply this year.

"This is an opportunistic time," says Peter O'Kane, also a partner in the company, which is based in Seattle. "The best deals are going to be had in the next three to four years."

The company's formation reflects the emerging interest in the growing market for failed bank assets. By managing the failed loans, Roanoke relieves the government from dealing with them and provides borrowers much more attention than they would get from the government, the Roanoke partners say. Local economies benefit from resolution of the loan problems. And loan-backed properties acquired from the government usually receive better care, so they don't become neighborhood eyesores.

The Federal Deposit Insurance Corp. (FDIC) takes on the assets that buyers of failed banks leave behind. Many buyers take the deposits and a portion of the loans, but leave some other assets with the FDIC. The agency estimates the total amount of failed assets it currently has available for purchase at $36 billion nationwide. That includes everything from property loans and business loans to commercial and residential real estate and even cars, says David Barr, a spokesman for the FDIC.

The FDIC wants to offload quickly the unwanted property and loans from failed institutions because otherwise it has to manage them itself. In response, a cottage industry has emerged to snap up the bad assets with the hope of long-term, or sometimes quick, profit. While the FDIC does not keep track of all registered buyers, thousands of companies nationwide are registered through the government's third-party marketing and clearing houses that handle the sales, Barr says.

But many of them are banks that already are pre-approved and not all of them buy loans.

"It's not something for the weak of heart," says Barr of the loan purchases. "You really have to know what you're doing."

The partners in Roanoke Financial are Sheppard, a former commercial lender who was laid off from Texas-based Comerica Bank; Chris Blakeslee, who is winding up a business that made residential loans; and O'Kane, who formerly worked at Washington Mutual financing multifamily projects. They think their experience will help Roanoke profit from bad assets. The partners are trying to raise about $25 million, mostly from local investors, before Roanoke will begin making large acquisitions.

Partners at Roanoke say they have been approved by the clearinghouses that handle the sales, allowing them to bid on packages of loans and bad assets that are advertised on those companies' Web sites. The company claims it is one of the only businesses in Washington that has gained such approval, which can be fairly time consuming and complicated. The FDIC wants to make sure it's allowing only qualified companies to purchase the loans, Barr says.

The discounts on failed assets can be steep. In one recent FDIC sale, for example, a Colorado investment company bought a group of bad commercial loans valued at about $2.6 million for a 73 percent discount, according to the FDIC.

After Roanoke buys a pool of loans, it plans to manage them, working with customers and developers holding the loans, says Sheppard. Sometimes those customers already will have defaulted and the loan won't be making money; other times borrowers are on the verge of missing payments. Roanoke plans to return the loans to profitability by working with the borrower to modify the loan agreement. Other times, it will simply take over the loan and re-sell it.

The strategy is all about understanding the value of the underlying loan or property, the partners says.

"There's no bad asset, just a bad price," says Sheppard.

The company also is planning to work directly with troubled community banks in Washington to take over problem loans before a bank fails, although that process can be more challenging because some banks have refused to discount their properties to the current market conditions, O'Kane says.

The company is under no impression that it will achieve a lasting business model. The financial crisis eventually will end, and the supply of bad assets will dry up. In the meantime, though, it's hoping for a solid five years.