DEAN GRAZIOSI: DEAN GRAZIOSI BLOG - REAL ESTATE BLOG BY DEAN GRAZIOSI

Oct 16

Foreclosures Cost Money

Real estate tracking companies and economists have been compiling information about foreclosures for years. Many analysts began to see dangerous trends developing as early as 2003. Typically, delinquent homeowners feel pressured at the beginning of the foreclosure process, which actually commences when the first payment is late.

When a payment is missed, a series of triggers is activated and the lender begins to prepare the foreclosure transfer. Usually foreclosure sales are completed within 6- 9 months. The lender then becomes the reluctant owner of the property.

Only investors like foreclosures. Banks lose money, homeowners lose their home and suffer embarrassment and communities brace for the worst. A 2005 report entitled “The Municipal Cost of Foreclosures” reported that each foreclosure cost municipalities as much as $34,000. These costs include inspections, court costs, police and fire oversight, unpaid water, trash and sewer fees.

On the other hand, banks usually lose a minimum of $0.20 per dollar. The average loss is actually considerably more, ranging in the $0.40 per dollar range. Prior to the recession, lenders reported average losses of $50,000 per foreclosure. Since the recession, the losses are much more severe.

Delinquent homeowners are often surprised by the lender’s willingness to discuss modification and even forbearance. What many homeowners do not understand is that the company they are communicating with is not the owner of the mortgage. Instead, the voice on the phone is a service company.

Delinquent homeowners must aggressively pursue the lender. The only way to arrange modification is by working directly with the mortgage holder, not the service company.

Meanwhile, mortgage holders are beginning to build relationships with investors. Investors who have relationships with mortgage holders can often put package deals together. Much like the homeowner, the investor’s challenge is to locate the right lender. Lenders who make connections, present their investment plan and qualifications will be welcomed.