Homeowners with mortgages over $1 million seem to be getting the “royal treatment” when it comes to foreclosure. In a report done by Realty Trac, 85% of homes in foreclosure that were valued less than $1million were repossessed by the lender. On the contrary, only 28% of homes in foreclosure that were valued over $1 million were repossessed by the lender.
Market Watch says the banks actually prefer not to foreclose on these ‘high priced’ properties for a few reasons. 1) The Bank would likely lose a lot more money in foreclosure for a high priced property. 2) The expenses that come with maintaining these high priced properties are significantly higher, not to mention the property taxes. 3) Since there are just fewer buyers that can afford that price of a home, it would be more difficult to sell a distressed home since buyers are typically looking for move-in ready homes, not to overlook the likelihood of a large financial loss.
John Maddux, co-founder of youwalkaway.com, a website that assists homeowners with their foreclosures says, “Lenders have more of an incentive to work out payment plans for these borrowers than with the ones whose homes may move quickly.”
Darin Blomquist, VP of Realty Trac, gives us a slightly different perspective of the truth. He says these homeowners get to stay in their homes on average more than 2 to 3 years because they can afford to hire the right lawyers. Ones that will fight every single detail of the original structure of the mortgage, delaying and postponing these cases longer than they should, and at the end of the day, the banks are willing to provide some pretty creative options specifically for these types of cases to get them settled.
In many cases it doesn’t matter whether the bank extends the term of the loan, lowers the payments, files for forbearance, or grants a lower interest rate, the payments just aren’t feasible and that leaves the homeowner with 2 options, foreclosure or a short sale.
The good news is that many lenders are offering some substantial packages with a short sale so the homeowner doesn’t have to take that 7 year, 100 point hit on their credit score, which allows them to recover sooner and move on faster as a contributing member of society.