The Value of Foreclosed Property

The discount on a foreclosed property is not as great if the state allows deficiency judgments by lenders against borrowers. In contrast, the discount is larger if the property is being sold in a state that requires foreclosures to proceed through the judicial system. Lastly, appraisals seem to be more accurate for low down payment loans, leading to smaller discounts at foreclosure.

Foreclosed properties may be vacant for a substantial period before they can be sold as the legal process of foreclosure runs its course. During this period, the lender's costs of holding onto a foreclosed property increases because a property that should have been generating mortgage revenue, generates none.

In general, foreclosed properties sell at a substantial discount and this discount is larger when foreclosure occurs early in the loan's life. The magnitude of the discount varies by the type of house, borrower and seller attributes, loan types, time and locations. Because local governments, not the federal government, define foreclosure laws, variations in how long and how costly the foreclosure process is also has a substantial impact on the size of the discount.

Any borrower who provides a small down payment can end up in a negative equity position even if prices only drop slightly thus increasing the likelihood of default and the magnitude of the losses on a default.

Since defaults and losses are sensitive to down payments, especially as they become small or even approach zero, lenders are likely to be sensitive to the accuracy of the appraisal in low down payment loans.

For example, appraisers provide a variety of different types of appraisals ranging from full appraisals, which include a detailed inspection of the property, housing stock, neighborhood, and available comparables to driveby appraisals and only electronic appraisals.

If more accurate appraisal techniques are used on low equity loans then the value of foreclosed property should be higher for loans with smaller down payments.

In addition, the behavior of the property owner prior to foreclosure (during ownership) may also have an affect on the value of the property.

Not all property owners are the same. Some will more aggressively maintain the property and others will allow it to depreciate over time through a lack of maintenance.

This will lead to different rates of house price appreciation and property value.

The requirement of a judicial foreclosure process may lower the resale price of the property because it is vacant or rented for a longer period of time, which should increase the opportunity cost of holding the property under the lender's ownership.

However, this effect is probably smaller than the effects of the right of redemption, because the new owner of the property at least has a clean title. In addition, deficiency judgment provides more power to the lender and therefore may lead to a quicker resolution of the foreclosure process, providing less time for the property to deteriorate.

Again, this effect should be much less important than the right of redemption in terms of house prices and the recovery from sale.

Previous research has focused on the relationship between how much of the outstanding balance on a loan is recovered and state foreclosure loans.

State level foreclosure laws can also have impacts on the appreciation of foreclosed property.

For instance, if a loan is foreclosed in a state that allows the borrower the right to redeem the property after paying the foreclosure expenses for up to a year after the foreclosure date the discount increases.

However, the impact of foreclosure laws is different for each type of law.

For instance, if a state requires that the foreclosure proceed through the judicial system the discount also increases, but the discount is smaller in states that allow the lender to recoup any losses from other assets beyond just housing.

In summary, many factors impact the value of foreclosed property.

The simple fact that the borrower has defaulted indicates that it generally will be sold at a substantial discount relative to similar properties.

This discount is mitigated somewhat if the state allows deficiency judgments by lenders against borrowers. In contrast, the discount is increased if the property is being sold in a state that allows statuary right of redemption.

Lastly, foreclosed properties tend to follow the movement of house prices in the area but in a muted fashion.

For instance, if house prices in general increase by 100 percent then the sale price of foreclosed property will increase by 89 percent and any other discounts discussed above.

Therefore, the discount becomes larger the more prices have increased.

John Michael is the author of "Getting Started As A Real Estate Investor" "The Art Of Foreclosure Investing" "How To Do A Title Search" "Guide to Property Inspections" "Creative Investing Using Contract For Deed's". Learn how to empower yourself as an investor with this creative investor and teacher. Visit at http://jmichaelrei.com

---

Jacksonville Real Estate Listings

With over 30,000 residents, Jacksonville in central Arkansas is a... Read More

Purchase Your First Home with Confidence

If you are making the transition from renter to homeowner,... Read More

Using Transformation Psychology to Sell Investment Properties

Satisfying and lucrative real estate investment depends upon your correct... Read More

Finding the Right Real Estate Agent:: A Guide for Seniors

When considering buying or selling a home, seniors have a... Read More

Property Auction & Why You Should Run A Mile From Them

That's A Funny Thing To Say About Property Auctions; They're... Read More

Walnut Creek Real Estate

Looking to relocate to a Californian suburb with a low... Read More

For Sale By Owner - Use This Tip To Sell Your Home Quicker and At a Better Price

Your house is for sale by owner (fsbo), Along with... Read More

Why Average Sale Price Statistics are Misleading

One of the most common statistics used when gauging the... Read More

Why Selling on Lease Options is Glorified Landlording

I might upset some folks with this one, but that's... Read More

Attention To Details Helps Homeowners Sell Fast In A Buyers Market

Your boss has just given you the career opportunity of... Read More

Selling Investment Houses: Props & Profits

New Marketing and Design Psychology ideas help you stage homes... Read More

Real Estate Wealth Protection Through Short Sales

Is a sharp correction in store for the real estate... Read More

Secrets of Making Money from Real Estate - Part 2

Leverage: With real estate, people and companies will lend you... Read More

Real Estate Disputes And Partition

What if two people pooled their resources and began investing... Read More

How to Get Started in the Real Estate Game Fixing and Flipping Houses

If you're looking to get started investing in real estate... Read More

The Great Real Estate Bubble Quiz

You hear it asked on the radio, in the newspapers... Read More

Hurricane Katrina And The Impact On Real Estate Prices

In the wake of Hurricane Katrina's wide path of destruction,... Read More

Should Sellers Order a Pre-sale Home Inspection?

One of the main reasons home sale transactions fall apart... Read More

Why Should Sellers Be Absent During Showings?

If only there were a way to sell your home... Read More

Is An Old Home for You? ? The Cons

So you think you might like to buy an old... Read More

Free Tips That Will Dramatically Increase the Selling Value Of Your House (Part 1)

Did you know that it's a proven fact that a... Read More

5 Secrets for Surviving a Real Estate Market Downturn

History repeatedly serves to show us that the real estate... Read More

Termite and Moisture Damage Not Reported

I have done so many appraisals where I saw obvious... Read More

FSBO Novel Preface

PrefaceWe are For Sale By Owners, "FSBOs." We spend our... Read More

Why You Should Rent To Live And Buy To Invest

Why you should Rent a place to live in and... Read More

How to Make the Real Estate Market Work For You and Get The Most Money

How to make the Real Estate market work for you... Read More

Afford A Dream Home In Belize

Shopping for property in Belize is not as simple an... Read More

The Real Estate Cycle

The real estate cycle, like the business cycle, refers to... Read More

Houses For Sale By Owner - Negotiating Tips

Houses for sale by owner, also known as "FSBOs," are... Read More

Oh No! Something has Happened in Florida

The Florida housing market has attracted many foreigners to invest... Read More

What to Look Out For When Buying Off Plan

Buying Off PlanIt can be difficult to decide when every... Read More

Zero Down Real Estate Investing

Zero down? Why would a seller want to walk away... Read More

5 Steps To Choose the Best Cincinnati Realtor

Excluding some professional real estate agents buying a house is... Read More