The Cost of Foreclosures

Posted on August 28th, 2009 by saman

Perhaps the one fact that cannot be denied is that everything has its own price to pay. In economics, costs have two basic types: explicit and implicit costs. As their names suggest, these costs vary depending on how it affects the issue in question. As for foreclosure in brokerages, these costs extremely affect all the people involved, whether directly or indirectly: everyone gets an equal share of the costs to bear.

Awareness of the processes done in foreclosure is necessary for homeowners, lenders or investors, insurers, the government, as well as the society as a whole. The effects of foreclosure in the society cannot be taken lightly, for these costs the society to become in an unsteady state: one in which neighborhoods are less organized and that crime rates may also increase. Taking each participant in foreclosure dealings individually, they sum up to the population that is basically the whole of the society.

Homeowners, for instance, need to be aware that the costs of foreclosure explicitly affecting them are the tax benefits and the equity that they would lose upon foreclosure. Loss of property as well as emotional damage can also be directly affecting them. As for indirect costs, future possible legal fees or fines may be placed upon them, and the money they had invested in the property for upgrades will also be lost.

As for lenders, they directly bear the costs of the retraction of the mortgage of a borrower. As long as no new investor is willing to place their money on the property, the money lent by the lenders to the borrower expressly causes financial damage to the lenders. The longer it takes for a new investor to get the mortgaged property, the higher the costs this causes to the lenders. Before the transfer of ownership, the lenders would have to spend for staff and collection costs, appraisal costs, maintenance costs, insurance costs, legal costs, and marketing costs, among others.

While the costs discussed above are factors that should not be neglected, there are ways to amend the damage caused by such instances. For instance, there are insurers that can cover for the rest of the payments so that the lender may be able to lessen his losses after a foreclosure sale. Often, lenders require the borrowers to have their own insurance from institutions like the Homeowner’s Insurance and the Private Mortgage Insurance, especially when there are loans that are less than 20% in down payment.

The government, on the other hand, has taken part in protecting homeowners struggling with foreclosure. The government’s Federal Housing Administration ensures the lenders of covering for all the costs in case the borrower fails to meet his financial dues. Other agencies also assist struggling families by providing projects that would ensure the safety of the community in areas with increased crime rates because of more and more foreclosed homes.

Other families might be aware of the foreclosure process that are ongoing in a lot of homes. As responsible citizens, it is everyone’s duty to see what we can do for the country; and bear in mind that all prices might someday be ours to pay.