How long you can stay in your home after you default on your mortgage is directly influenced by the cost of your home. The more expensive your house is, the longer it is likely to stay. Many people today are still in their homes two years or more after receiving notice of lis pendens or notice of a pending foreclosure action.
I spoke with a Florida short sale professional who specializes in luxury real estate and luxury beach properties in Florida. This person reported that their clients typically stay in their homes for two to three years after making their last payment to their lenders. Meanwhile, loan documents and legal proceedings are carefully scrutinized for lender improprieties. He said negotiations are generally quite active throughout the process to reach a reasonable settlement agreement between the lender and a qualified buyer.
A well-known site that tracks home sales is Foreclosure Radar. They report that the higher the loan balance and the greater the potential loss to the lender, the better your chances of not being forced to leave your home for a long time.
This makes perfect sense when you consider that banks are regulated in terms of the amount of debt they can have and the loans they can have, relative to their assets. When a property “on the books” is considered an asset, and then the value of that property falls, this upsets the balance required when the decline in value is recorded. The higher the loss a property shows, the more likely a lender is to want it off the books, and as quickly as possible. This might suggest that lenders would foreclose on larger properties faster.
But what if the full amount of the loss is not shown or recorded? Lenders are more likely to pass up a loan on a more expensive property, that is, to leave it at its original value, rather than alter their accounting by recording its reduced value. Once the foreclosure process has begun and new appraisals are ordered, it is no longer possible to continue listing the property at its original value. This helps explain why lenders are more likely to procrastinate, or seemingly ignore delinquent loans on properties that are valued in the hundreds of thousands or millions of dollars.
Foreclosure Radar CEO, Mr. Sean O’Toole commented on a recent survey they conducted. “Specifically, we were wondering if banks took longer to execute larger loans, where there tend to be larger losses, than smaller loans. The answer is clear: yes. The size of the potential loss is absolutely important. Not only that But the time foreclosure did not diverge until the government intervened in the foreclosure market in early 2009, with, for example, changes to the Federal Accounting Standards Board’s rules on mark-to-market.”
Other sources have suggested that when Treasury Secretary Paulson announced TARP in September 2008, he indicated that he believed banks should be exempt from recording reduced values of such properties. He also indicated that banks should not be held responsible for selling off properties at unfavorable prices.
Foreclosures can be stopped, postponed, or prevented in many ways. When someone’s home is worth much less than it currently owes, an expert in the foreclosure or short sale process should be consulted. Unfortunately, many real estate agents and attorneys do not deal with this situation on a regular basis and are ill-informed about what can be achieved. Large lenders have strong legal teams that know all the ins and outs of the foreclosure process. Individual homeowners are often at the mercy of these institutions. Isn’t this another setup for lenders in these situations to take advantage of inexperienced homeowners and their representatives?