The High Cost of a Foreclosure Process

by Monica Dillon

    A foreclosure process can have a long-lasting and wide-reaching impact on your ability to seek credit in the near future. The cost of a foreclosure can reach well into thousands of dollars to the lender. To the borrower, a foreclosure can cost just as much in secondary costs like damaged credit and lost home equity. With a hefty price to you, the lender and surrounding community, a foreclosure continues to be the worst-case alternative to modifying a delinquent mortgage.

    Foreclosure Costs To The Lender

    Lenders who move forward with the foreclosure process on borrowers behind on their mortgage stand to lose big. Reported findings from Standard and Poor's say the lender stands to lose approximately 30 percent of the value of the loan in the foreclosure process. A 2008 study by a Joint Economic Committee of Congress put the cost of the average foreclosure near $78,000. The cost of foreclosure often includes months to years of unpaid mortgage payments, penalty and legal fees, maintenance costs to keep the home in good condition, municipal property tax payments and the cost to eventually sell the property with a real estate broker.

    How the Borrower Loses In The Present

    Borrowers faced with foreclosure lose in the present and in the future. Losing a place to live and hard-earned equity in the property are just two of the major ways foreclosure affects borrowers. In addition to being behind on mortgage payments, the lender may also add penalty fees and interest each month escalating the cost to bring the loan up to date, as well as legal fees associated with the foreclosure proceedings. The farther along in the foreclosure process a borrower is, the more costs are added to the balance, making it harder to get current again.

    How the Borrower Loses In The Future

    A borrower suffers long-term effects from a foreclosure too. For example, missed mortgage payments and a default or foreclosure can remain on a borrower's credit report for seven years. While consumer advocacy groups are seeking legislation to shorten the impact of qualifying for a mortgage in the future, the impact on a borrower's credit can make it harder to buy anther house. In addition, since the IRS views foreclosures as an unpaid debt unless the home was a borrower's primary residence, a foreclosure appears as additional income and create an additional tax burden.

    How Communities Lose

    Communities disproportionately surrounded by foreclosures suffer as well. The average home near a foreclosure may lose from seven to 13 percent in value just by being in the proximity. Additionally, communities lose out on additional property tax revenue and suffer from the effects of vacant property which often becomes blighted and a neighborhood eyesore.

    About the Author

    Monica Dillon has more than 10 years experience in real estate sales, marketing, investing and appraising. She specializes in energy efficiency building practices and renewable energy. Dillon has been syndicated by the National Newspaper Publisher's Association. Her work has also appeared in the "Journal Of Progressive Human Services."

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