Even if you are not defaulting on your mortgage, you still may be feeling the effects of other mortgage foreclosure in real estate markets. It's estimated that multiple foreclosed homes in your neighborhood can affect a 1% drop in price, however, some neighborhoods in the states with the highest foreclosure rates have dropped significantly more than that. Is it all because of mortgage foreclosure in real estate or something more?
Additional Factors In Foreclosures
In addition to the loss for a lender, the reason most prices drop in neighborhoods is not strictly because one or two foreclosures. It's mostly because of the perception of loss that is associated with mortgage foreclosure in real estate. Foreclosures are sometimes easy to spot as the bank with board up the house and eviction notices posted on doors. Once that happens to one owner, others may follow and that's when it can become a neighborhood problem.
When there is a mortgage foreclosure in real estate, the owner who occupied the home often abandons the home or is evicted. Once they are gone, the mow doesn't get cut and the house starts to deteriorate from lack of maintenance. If the house remains empty for a long period of time, it can attract squatters and vandals. The copper piping might be stripped and the house damaged, reducing it's market value even further. Once there is more than one house that looks this way, nearby houses in the market can be seen as less desirable too – because the neighborhood has become less desirable on whole.
Effects Of Mortgage Foreclosure In Real Estate For Homeowners Associations
Another, often overlooked, effect is that the homeowners are no longer around to pay homeowners dues to the homeowners association. This means that as the homeowners association fund gets drained trying to keep up with foreclosed homes, other homeowners in the association may be asked to make up the difference. This can put a strain on the entire community and eventually, if the homeowners dues get too large, they can be a source of default too.
In terms of comparable market value, most realtors will use homes in the same neighborhood to estimate the value of your home, especially if they are part of the same homeowners association group. Once there are multiple foreclosures in the area, this can begin to drag down the value of the homes within the same homeowners association group. Even with their ability to foreclose on properties that fail to pay homeowner dues, this would be considerably more expense than most homeowners associations can afford.
When homeowners use the Federal Housing Administration (FHA) to underwrite the mortgage on their home, they will get a mortgage similar to everyone else's conventional mortgage with some limitations. So, even though they bought an FHA home, it doesn't mean that they can't end up in foreclosure. When that happens, the FHA will pay off the lender, and then the home's ownership is transferred to the Housing and Urban Development (HUD) program. These are called HUD foreclosure properties, real estate. To bid on HUD foreclosure properties, real estate, the process is much different than buying it at auction or in a preforclosure sale. There are some pros and cons when compared to other types of foreclosures.
Pros of HUD Foreclosure Properties, Real Estate
Unlike foreclosures on the regular market, you may not be able to see the inside of the home or do an inspection on it before it goes to auction. That's some of the risk of buying at auction. With HUD Foreclosure Properties, real estate, you can get an appointment to tour the inside of the home with a local realtor and even order a home inspection if you are interested in bidding on the home.
HUD will also mark down the price of the home automatically, according the amount of repairs needed to bring the HUD foreclosure properties, real estate, up to market standard. So, you don't have to try and negotiate downwards or bypass a house that is priced too high to recoup your investment. That is already factored in.
The bidding process may be a bit unfamiliar, but it's not too complicated. You have to submit sealed bids to HUD. When they receive multiple bids on the home, they will automatically take the highest bid. If it doesn't get enough bids during a specific period, they may wait a bit and accept bids after the initial period.
Cons of HUD Foreclosure Properties, Real Estate
Since the bidding process is different than an open auction, you have to be a bit more savvy about when a home you are interested in is going to be open for an “offer period.” If you miss the offer period, you might not get your bid in on time to be considered. You will want to look on the HUD website for HUD foreclosure properties, real estate, in the area you are interested in purchasing.
There are restrictions that keep out investors from buying HUD homes, like they can only be sold to those who intend to reside in the premises. They are not meant for speculation purposes, from the government's point of view.
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