Lenders want to avoid foreclosure just as much as the borrower. Lenders provide mortgages for one undeniable reason - the profit (money). So, if you go for foreclosure, then they’ll lose their margin of profit on the property.
Lender are not interested to invest in the housing market just to own and sell properties. They want to gain profit by lending money. That’s why many lenders are willing to work with borrowers who decide to go for foreclosure. They even offer loan modifications and short sale options to prevent a foreclosure, and keep the money rolling.
The matter of fact is that the foreclosures are headache to lenders. They do not want to engage their time and resources with the court proceedings, the auctions, and the local laws. They are simply interested to lend money to the qualified borrowers. In return, the borrowers pay them the full amount with agreed interests.
If the foreclosure proceeding happens, then the lenders aren’t getting that money back with interest. Lenders are getting the property back, but that is not what they want primarily. Foreclosure costs the lenders a decent amount of money, and they aren’t interested in that.
So, if you work with your lender, you can prevent foreclosure easily and start an alternative payment plan or refinance existing mortgage.
The lenders try to avoid foreclosure and want that the owners to keep their homes, much more desperately than the owners.
The lenders are keen to keep the home with the owner, much more desperately than the owner is trying to keep his/her home.
So, let’s check out the reasons lenders want to avoid foreclosure:
1. Profits
A lender will provide you with a mortgage and make a lot of money, in the form of interest, over the life of the loan. Initially, in the first 10 to 15 years of a loan, the lender only gets the interest. If you choose foreclosure, the lender will miss out most of the interest part.
Till the 1st quarter of 2017, home prices have fallen and the valuation of many properties has become less than their mortgage balances. So, the lenders will likely not regain their initial investment at all.
Plus, if you are not making payments to the lender every month, the lenders might face a financial crisis and become unable to lend more to the next borrowers. That’s why most of the lenders want to avoid foreclosure at any cost.
2. Upkeep the property
Once the foreclosure has been initiated, the lender will be the new owner of the property. They will be responsible for the property and its maintenance until it can be sold. This maintenance may include heating, floor repairs, coloring, winterizing the property and also lawn maintenance. It should be done to avoid a homeowners association conflict. This is a lot of work for keeping a property while it is vacant. Lenders generally want to avoid that responsibility. So, think about hundreds of such properties that the lenders may have to care until they are sold. That’s why many lenders want to avoid foreclosures in the first place.
3. Sell the property
Once a foreclosure is finalized and the property is handed over, the lender has to initiate the process of selling the property. So, most of the time lenders appoint real estate agents for listing the property. Before doing so, they need to make repairs so the house would get a good place on the list.
A buyer should be offered a good deal since it is a foreclosure, so the lenders will often have to sacrifice a large portion on the property’s value. Plus they have to pay all of the fees associated with the sale.
By considering all of these losses, a lender might want to skip the chances of a foreclosure and avoid them at all cost.
Read more: How to recognize the foreclosed homes which is not suitable for buying