Contrary to popular belief, banks aren’t thrilled at the prospect of foreclosure any more than the homeowners being foreclosed on. That’s because homeowners aren’t the only ones that lose in foreclosure. Banks lose as well. When a borrower can no longer make mortgage payments and after other avenues have been exhausted, foreclosure is the lender’s last resort. Essentially, the bank cuts its losses and tries to get back as much as it can through foreclosure.
Foreclosure costs rise with housing market
Since 2011, home prices have risen nationally by 14%. You might think that with rising house prices, banks would no longer be losing very much through foreclosure, but that isn’t accurate. One explanation for this is that the foreclosure process has been lengthened in recent years to protect homeowners’ interests. Because the responsibility of maintaining the property of a foreclosed home until it can be sold falls on the bank, the longer process equals higher costs. Today, a home is in liquidation for twice as long as it was in 2008 when the housing crisis began.
What it all means
All of this boils down to favorable circumstances for homeowners behind on mortgage payments. Though many borrowers mistakenly believe that their bank is out to get them, in the vast majority of cases, foreclosure is not a bank’s preferred outcome. They would much rather the borrower to catch up on their mortgage, even if that means lowering the interest rate or extending the repayment period.
If you are behind on your mortgage and nearing foreclosure, don’t assume that your bank is unwilling to work with you. Chances are your bank is anxious to find a solution with you. At worst, you can pursue a short sale in which your property is sold off for less than it’s worth. You get out from under your mortgage and your lender saves on foreclosure costs. In many cases your lender may be able to grant a loan modification to make mortgage payments more affordable.
Remember that the worst thing you can do is cut off all communication with your lender. Keep a line of communication open and both you and your lender may benefit from it.
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