Is Foreclosure Safe?

Foreclosures impact more than just a single person or family. Foreclosures present problems for the entire neighborhood where the property is located. Foreclosures can create an unsafe environment for surrounding residents while eliminating opportunities for former home owners to have a fresh start on their financial future.

Squatting

In some cities, foreclosure squatters are plentiful. A squatter is someone that lives in a home without legal authorization. Squatters can be a nuisance to surrounding home owners since they are not required to follow Home Owner's Association regulations or tenant rules. For example, in 2009, a Bakersfield community was in uproar after a family of squatters began disturbing the neighborhood at all hours of the night. Since squatters are illegal occupants, it is impossible to predict whether or not the "tenants" are criminals, which can be unsettling for many people in the neighborhood.

Property Values

Foreclosures destabilize neighborhoods. Foreclosures are often heavily discounted to encourage a quick sale. While lenders benefit from selling the foreclosure at a discount, surrounding home values drop. Unfortunately, when other home owners attempt to sell their properties, they can lose hard-earned equity. When home values drop below the amount each home owner owes on his mortgage, the result is negative equity. Negative equity can cause other home owners to fall into foreclosure. For example, if a family needs to relocate and are unable to sell their homes for more than the balance of their remaining mortgage debt, they may be forced to pay two mortgages. The added financial burden may lead to foreclosure.

Investors

Foreclosed homes are not always purchased in pristine condition. Dazzled by the low purchase price, beginner investors may be unaware of underlying issues with the foreclosed property. Foreclosures require extensive inspection prior to closing on the home to be considered a safe investment. Lenders generally offer between 14 and 30 days for buyers to inspect the property and close on the home. Failure to do research on a property can result in extended financial and legal woes for the investor.

Fresh Start

Following foreclosure, many home owners seek to begin anew. Though foreclosures invariably remain on their credit for seven years, the process of rebuilding their credit score can begin immediately. However, home owners are often in danger of deficiency judgments rendering their financial circumstances more troublesome after the foreclosure process ends. Home owners often have little knowledge of laws regarding deficiency judgments in their state, which can lead to a surprise lawsuit from their lender years after the foreclosure process ends. Consulting with a HUD-certified foreclosure counselor or attorney helps homeowners prepare in advance for worst case scenarios by learning their rights as a former home owner.

References

• IRS.gov; Home Foreclosure and Debt Cancellation; December 2008
• "Bakersfield Now"; Neighbors Worry About Foreclosure 'Squatters'; Carol Ferguson; 2009
• "The Beginner's Guide to Investing in Real Estate"; Gary Eldred; 2008
• FOXNews.com; Foreclosure Freeze Could Drag Down Property Values, Housing Chief Warns; 2010