Effects Of Mortgage Foreclosure In Real Estate

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.