Lenders Shying Away From Evicting Foreclosure Victims

April 8th, 2008 | Tags: Foreclosure Victims

The attitude today of lenders is different – they want the house owners of foreclosed units to stay on. This is because they are sinking under the weight of rising number of foreclosed houses.

The delinquencies rose by 3.6% by the end of December – this being the highest in 5 years. The numbers of those not being foreclosed upon are not being disclosed but eventually they will be suffering the same fate. At that point there will be a glut in the market with a flood of foreclosed units. Already the market has reached a satiation point. Because of the delay in foreclosing the magnitude of the problem is not being understood. Residents of defaulting houses continue to stay until somebody knocks..

Why are the lenders shying away from foreclosures? Firstly this judicial process is money, energy and time consuming. There are legal fees, cost of maintaining vacant units, insurance and taxes that might calculate up to 15% of the value of the property. After all this effort when the foreclosure process finally ends with the auction, the banks are finding that they are still not free from the headache as in most cases the houses fail to attract buyers. The bank has now to become a landlord and manage the property either by selling or renting. Invariably the houses on which they finally lay their hands on are vandalized and that means more repair expenses. Sometimes bulldozers have to be called in to do the cleaning up of worthless rubble.

There are many who are staying on even after the last cheque had been paid in last July. The lenders do not want the houses to be abandoned – especially in areas noted for crime.

Another reason for banks not wanting to take back the house is the falling real estate market. For instance what will they do saddle with a house worth $750,000 on which a loan of $1 million had been taken out? Banks are selling houses at a heavy discount and even then buyers are hard to come by. The rate is often down by 31%. The problem has become worse because of the excess value of the houses shown previously because then there was a hurry and scurry among agents to get as much loan sanctioned as possible. Today the value of the units has been cut down to size.