The End of Foreclosure Profits

Posted on September 29th, 2009 by Samanta Parks

foreclosure

During the bubble of real estate, traditional urban neighborhoods throughout the nation, from Sacramento to Atlanta to Cleveland to Baltimore and endless communities in-between, became victim to the horrible plague of mortgage fraud and predatory lending.

This was allowed by the bottomless appetite of Wall Street for financing the loans of homes, lax standards of lenders, and overall corruption that appraisers and mortgage brokers had. Borrowers are set up by brokers with several subprime mortgages and the knowledge that they were far too high to pay off, as organized fraud of mortgage convinced lenders that issuing mortgages for more than the homes were actually worth, kept the profits, and left behind the boarded-up homes in foreclosure.

However, this bubble still hasn’t brought about any relief to neighborhoods that are suffering. In fact, communities that have already been hit hard by fraud of mortgage, as well as subprime foreclosures, now go through a wave of profiteering, which refers to the selling of foreclosed and empty real estate for speculators.

Several buyers are doing services by fixing up foreclosures to rent them out. However, too often of the time, foreclosed homes remain empty and derelict while they are sent from one particular buyer to the next.

Within areas which have bottomed-out markets of real estate, prospectors see chances to gain profit out of devastation. Homes are re-sold at huge mark-ups of sometimes more than a thousand percent under contracts that are “rent-to-own” and whose holders are responsible homeownership but not a lot of rights. Such foreclosed homes are bought in bulk, unseen by companies of investment that are too far from the actual community.

The companies that sell real estate in foreclosure are now middle men under the name of mortgage servicers. While the bubble of real estate went on, banks of investment bundled mortgages to securities. Now, servicers work for investors within those securities, gathering payments by month from borrowers to distribute the profits. However, when the payments stop arriving, servicers foreclose – and the minute the property empties out, they choose what should happen after that. The majority opt to sell it as fast as they can instead of shelling out significant sums for the upkeep – and to advance these payments by month.

Within zones of foreclosure that were hit hard throughout the nation, servicers get a lot of real estate to get rid of that they end up auctioning them off in bulk for so little – several thousand per property. Such fire-sale prices oftentimes attract buyers that show very little concern for their neighborhoods or neighbors. A foreclosed home in Atlanta actually burned to the ground sometime last year; however, this didn’t stop Florida servicers from selling the scorched remains to Utah speculators for a thousand dollars.

This transaction would not be the only exception. All throughout the country, there are servicers dumping uninhabitable properties that are a hazard to the neighbors.

While these wreckages accumulate, crime and garbage dumping do, too, which sends neighborhoods of high foreclosure into downhill spirals. Residents don’t know where to get help from. Servicers work hidden within shadows and their names cannot be searched within public records. Plus, the minute a property is sold, their upkeep obligations are done. Their sole responsibility would be to maximize investor profits within mortgage-backed securities.