The High Cost of Foreclosure

Many people don’t bother to attempt a home mortgage loan modification because they simply think their lender would never approve such a request.  They think that they have been in debt for too long or that their home is too close to foreclosure to avoid it.  While it is true that failure to act quick enough could result in undesirable consequences, homeowners who are wise enough to pursue a modification early on have a much higher chance of success. 

In 2008, the Joint Economic Committee of Congress issued a report that detailed the true cost of foreclosure.  Many would be surprised to learn that not just borrower and lender are affected when a home mortgage loan modification is denied and a property is allowed to foreclose.  In total, the committee estimated that a foreclosure can cost almost $78,000, while a home mortgage loan modification costs just over $3,000. 

When a home forecloses, a borrower can expect to lose $7,200, which can include a loss of equity, late fees, the cost of moving, lost hours at work, etc.  Lenders stand to lose the most with upwards of $50,000 being spent to foreclose on a home, which may include maintenance, filing fees, payment of staff to find qualified buyers while dealing with the former owners, etc.  Local governments also take a hit, losing out on an average of about $19,200 in tax revenue and other fees when owners leave their homes and when new owners purchase the homes, usually at a lower price than the first owners, reducing the amount of taxes that the local government can collect.  Even the neighbors living in the vicinity of the foreclosed property could notice a drop in their own property value of about $1,500.  All of these numbers, some small and some large, add up to cost an average of $78,000.  With stats like that, it is hard to imagine why any lenders wouldn’t do everything they can to modify struggling loans.  Different lenders have different policies, but one thing remains true in most circumstances, the sooner the borrower can request a modification, the more likely they are to be granted the assistance.

One major contributor to the lack of motivation of lenders to modify loans is simply a matter of numbers.  Times are tough and homeowners across the country are facing foreclosure left and right.  Lenders are just too busy reviewing applications from homeowners requesting a home mortgage loan modification to offer their assistance voluntarily.  Even though modifications cost everybody less money than foreclosures, lenders are forced to decide between which homeowners get assistance and which don’t due to staffing issues and much more scrutiny from the federal government.  This is why it is so important for homeowners who think they may need a home mortgage loan modification to request assistance as early as possible.  Consult with an attorney to ensure that everything possible is done to increase the odds of being approved for a modification, since being unjustly denied can only increase the amount of time a homeowner has to wait for assistance.