As we are all seeing this foreclosure play unfold, it seems that another act has been written that most have not seen or even thought about. What happens when the decline in value is so steep that the option of foreclosure is too expensive for the bank to undertake? Would you spend $100.00 to collect $99.00? Would you spend $100.00 to collect $50.00? Well banks are running the numbers and now it seems that the market has turned so GOOD that even the banks are simply walking away.
If you have knowledge of foreclosures and the foreclosureprocess, you know it can be pretty costly. Even in non-judicial states. It has been stated by the Tower Group and other thinktanks that the average cost of a foreclosure costs a bank or mortgage lender in excess of $58,000.00. And that’s BEFORE they take possession and have to maintain the properties as a bank owned home. (REO)
The New York Times recently reported about this phenomenon. It seems as the banks begin seriously taking a look at the big picture, they are realizing that it just isn’t worth it to pursue foreclosure. After all, it’s not like the banks are in this for a big land grab. No, the ONLY reason to foreclose is to try and recoup a lost investment. However, it becomes painfully obvious that there comes a point when it is not viable to pursue collection. This point of diminishing returns must involve what amounts to be a BPO on steroids.
The bank knows their cost to pursue foreclosure, but now must add in the costs, liabilities, and expenses of extended homeownership in an inventory glutted market with continuing declining values. Suddenly, some foreclosures begin to look like the proverbial cat who is chasing his own tail. Pretty stupid financially that is.
For instance, here in the Fort Lauderdale real estate market, we have had a substantial increase in home values followed by a steep decline that continues. We often see properties that were mortgaged to the tune of $300,000 or more now selling for $45,000.00 or LESS.
You don’t have to be Warren Buffett to realize that this isn’t a good deal. So the banks are now realizing this and opting out.
Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal – from legal fees to maintenance – exceeds the diminishing value of the real estate.
Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law believes we are seeing some kind of pre-cursor to another Tsunami. Lind said, “It is what some of us think is the next wave of the crisis.”Â
I don’t want to get too technical but any real estate agent involved in short sales and REO properties would have already seen this coming. When we perform our short sales we know how to talk to the banks. It amazes me when I see listing agents play the “what would you take game”. I would really love to play poker with those loser agents. I sure hope if you are in foreclosure that you don’t have that kind of agent.
When we do our short sales we KNOW that it costs a bank at least $58,000 to follow through with a foreclosure. We KNOW that based upon their actuarial projections that they EXPECT to typically lose 40 percent to 50 percent of their investment on every foreclosure. This is called Loss Severity and we use this information to have our short sales approved.
Now we are learning that some banks are willing to walk away altogether if the numbers don’t make sense. This is wonderful news for those of us who are experts in short sales. It’s another arrow in the quiver and I intend to use this information to the fullest possible extent in my negotiations with the banks. Does your agent actually negotiate with the bank? You might want to ask.
If you are in foreclosure, make sure you speak with an attorney or real estate agent who actually has been successful in short sales. This is not a part of the real estate business that many have had experience with and as you see, it is continually evolving.
Before you lose your home find out if the agent you have called has any clue what they are doing.
Related posts:
- Fort Lauderdale Real Estate | Bank Owned Homes Are A Bargain!
- How To Buy A Bank Owned Property Fort Lauderdale
- The Worst Bank Owned Property In Fort Lauderdale
- Have You Thought About Buying A Foreclosure Or REO Bank Owned Property In The Fort Lauderdale Real Estate Market Or South Florida Real Estate Market
- Fort Lauderdale Real Estate Short Sale Tips, How To Do A Short Sale Tip 1
- How To Ensure That The Short Sale On Your Fort Lauderdale Home Is Approved
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