The length of time you can stay in your home after defaulting on your mortgage is directly influenced by the cost of your home. The more expensive your home is, the longer you will likely stay. Many people today are still in their homes two years or more after receiving the notice of lis pendens or notice of a pending foreclosure action.
I spoke with a Florida short sale professional who specializes in luxury properties and luxury beach properties in Florida. This person reported that his clients generally 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 wrongdoing by the lender. He said negotiations are generally fairly 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 we consider that banks are regulated in terms of the amount of debt they can carry and the amount of loans they can carry, 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 greater 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 happens if the full amount of the loss is not displayed or recorded? Lenders are more likely to pass up a loan on a more expensive property—that is, leave it at its original value—rather than upset 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 bad loans on properties that are valued in the hundreds of thousands or millions of dollars.
Foreclosure Radar Executive Director, 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 to foreclose does not diverge until the government intervened in the foreclosure market in early 2009, with, for example, changes to the Federal Accounting Standards Board’s rule on adjustment to market.”
Other sources have suggested that when Treasury Secretary Paulson announced the TARP in September 2008, he indicated that he believed banks should be exempt from recording reduced values for 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 what they currently owe, an expert in the foreclosure process or short sale process should be consulted. Unfortunately, many real estate agents and lawyers do not deal with this situation on a regular basis and are misinformed about what can be achieved. The big 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?
