South Florida Foreclosures: Bonanza for Buyers, Burden for Banks

What’s more, according to the South Florida Business Journal, Department of the Treasury statistics indicate that for every foreclosure already in place, there are 9 more in process. Eventually, this new group of foreclosure homes will hit the market. But the overriding question, which the Wall Street Journal posed, is whether the banks will deliver these foreclosures to the market in a deluge or a drip.

Currently, the drip process appears to be in place. One reason is simply that there are too many homes behind in their payments. Banks can’t handle the paperwork. Another reason is that banks are struggling, without much success, to figure out which buyers fit into the mortgage modification parameters proposed by President Obama.

Foreclosure also makes banks appear to be society’s villains. No one has sympathy for an institution that throws people out of their homes. News that families are living rent free makes for better publicity than news that families are facing foreclosure. Finally, and most important, banks understand that too many foreclosure homes placed on the market at one time will cause large drops in the values of all homes.

Estimates of coming foreclosures within the next 2 years range from 4 to 7 million. If those homes are released in one large mass, the housing market will face a glut of low priced homes. This would likely create an additional drop in value in the real estate market, because supply would far outstrip demand. Banks would receive even less return on their original investments. The only beneficiaries would be those investors who bought discount homes in bulk and resold them at a profit.

With all that in mind, it is understandable why banks are not rushing to evict to non-paying homeowners. Foreclosed homes that are left empty become expensive for banks to maintain. Electricity and water must be paid for. Lawns must be mowed. If homes are not maintained, they invite vandalism, which necessitates repair costs. If air conditioning is turned off, mold and mildew form and make homes unlivable. This means either further repairs or further drops in value. Also, the legal costs of foreclosure are expensive as well as time consuming.

I know of at least one homeowner who has not paid his mortgages for more than 2 years, and statistics say there are thousands more like him. In addition, there are hundreds of thousands of homeowners across the nation who are well over 90 days delinquent on their mortgages. Nonetheless, these homeowners continue to pay for electricity and keep up the appearance of their home. This helps to maintain the value not only of their property, but other properties in the neighborhood. If foreclosure eventually occurs, these homes will have more appeal to buyers. If the nation can figure out a way to stop foreclosures from occurring, these homes will remain pleasant places to live.

In personal terms, a foreclosure represents a tragedy almost beyond measure for families who have lost their homes. In business terms, foreclosures present an opportunity to investors and first time homebuyers. For banks and the economy in general, these homes awaiting foreclosure represent questions that will remain unanswered for the next few years.

Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com / 561 / 213 – 6139
www.MarcJablonHomes.com