We’ve said it before: in most cases, foreclosure should be the final option exercised when resolving a breach of obligation. It might seem unusual, considering that foreclosure processing is an essential part of our business, and one that we do well. There is of course a human element in making the decision to avoid foreclosure and seek other remedies to delinquency - no one wants to remove a home or business owner from their property. But there are pragmatic reasons to avoid foreclosure unless it’s absolutely necessary. Here is a look at the downside of foreclosure for lenders.
Foreclosures are Time-Consuming
In some states, the foreclosure process can be initiated and completed relatively quickly. Texas non-judicial foreclosures, for example, can take as little as 41 days to complete. But that’s the exception. Judicial foreclosures in California can take anywhere from 8 to 24 months to complete; in other states, the process can take significantly longer. During this time, lenders must devote energy, resources, and money to the work - and those costs add up.
Foreclosures are Complex and Demanding
Regulations and laws surrounding foreclosures vary from state to state, but they all have one thing in common–failure to follow them can cause delays, and may expose the lender to liability. Making things more complicated, the ongoing economic fallout from the COVID pandemic has resulted in additional legislation aimed at protecting borrowers who’ve been affected by the downturn. Lenders may find themselves needing to enlist the services of real estate lawyers who specialize in their state’s foreclosure laws to provide counsel and oversight, which only adds to the overall cost of foreclosing.
Selling the Property Isn’t a Guarantee Against Loss
There are a few pitfalls if the lender is looking to recoup their losses by selling the foreclosed property. First, that in itself - from dealing with the auctioning process to working with outside real estate firms - becomes an additional process that involves time, energy, and money. Second, the property itself may be in poor condition, lessening its value or the property may be subject to substandard notices or other liens which do not get wiped out in the foreclosure. Finally, the shifting nature of property values may work against the lender; the market value of the property may be less than what it was at the time of financing, making the property unattractive to purchase at a foreclosure auction.
The practical reasons to avoid foreclosure are worth considering before making the decision to move forward. That doesn’t mean that there aren’t other options available. There are alternatives to foreclosing on borrowers that we at Total Lending Solutions have recommended to our customers - ones that may benefit everyone involved, and reduce liability for the lender.
If you’re dealing with a borrower whose loan has gone into delinquency, Total Lender Solutions can help. At Total Lender Solutions, we advocate for lenders looking to maximize recoveries on defaulted loans. For over 15 years, our team of highly experienced real estate professionals and legal experts has transformed complicated processes into clear resolutions for institutional and private lenders. We work as a vigorous extension of your team to provide comprehensive solutions and seamless communication, from pre-foreclosure and notice of default to the final sale phase. Our dedication and persistence when it comes to the foreclosure process ensures that our clients feel confident in reaching a successful outcome. Contact us today.
