What is a Foreclosure?
Before we go over the impacts of foreclosure in the residential real estate market, it’s important to know the basics of it.
Foreclosure refers to the legal process that happens when a mortgagor fails to meet their mortgage payments, and the mortgaged property is being taken. This process involves a borrower who’s unable to keep up with the payment, forcing a lender who’s burdened of the intent to recover their balance of a loan from the said borrower, including the asset/s that was used as collateral.
Generally, is it either by an operation of law or through a court order that a mortgage lender can obtain a termination of the right of a mortgage borrower to have the equitable right of redemption. Usually, the lender gains access to a security interest from a borrower who mortgages or has the intent to pledge an asset. It is then a standard protocol of the courts of equity to provide a mandate to grant a borrower the equitable right of redemption in the event that the person who has borrowed the loan eventually can pay the debt. This takes place whenever a borrower defaults and a lender attempts to repossess the property.
Even though this equitable right exists, the lender still can’t be sure that they can completely repossess any property. Through this process of foreclosure, the lenders that would seek a foreclosure in order to have the equitable right of redemption immediately get terminated and have both legal and equitable title to properties in fee easier.
Usually, a violation of a mortgage is always a default when payment is made with a promissory note. This is secured by a lien on a property. If the lien desires, the lender has the option to sell all properties and keep the proceeds that would pay off any legal costs and its mortgage the moment the entire process is done. In the event that there was a promissory note, the mortgagee has the option to file a claim for a deficiency judgment if ever sales won’t bring enough to pay the existing balance.
Whenever the number of foreclosure reaches high, it can imply serious consequences in neighborhoods. In most cases, there will be a need for the titles of the property to be transferred back to the services. Lenders would then have a powerful incentive to avoid prolonged deterioration or vacancy.
Sometimes, some lenders try to get residents to move out without a proper and formal eviction by offering them with something called “cash for keys,” which would then translate the property into a property that’s in legal limbo. When this happens, real estate agents and other buyers would then consider this as a potential decline in property values or even neighborhood distress. Negative effects also affect real estate in a sense that these unattended properties are more likely to host vandals, squatters, or even small drug businesses.
One or two foreclosures may not have a devastating effect or cause much disturbance. However, if the number rises up even at least to a few dozens, this may become a more serious problem that can be very hard to aid and correct at in the future.
With that said, one needs to understand that some foreclosure sales seem to self-perpetuate. In other words, as soon as one homeowner settles into default, others might follow. In the event that a homeowner in default abandons their property, it would slump from that point forward. One of the drawbacks when buying foreclosures is the fact that people have no guarantee of the condition of that property.