Foreclosure activity is widespread
Foreclosures are hard for homeowners to ignore. In 2009, a record high 2.8 million properties received at least one foreclosure filing. At the end of the third quarter of 2009, 4.47% of mortgage loans were in the foreclosure process. The Center for Responsible Lending projects a total of 9 million foreclosures between 2009 and 2012.
The $7,200 in lost property values in 2009 could be the tip of the iceberg. The Center for Responsible Lending report said the figure didn’t take into account the impact of short sales—when a lender agrees to the sale of a home for less than the outstanding mortgage—or the general decline in home values caused by a glut of inventory.
The problem could snowball. Declining home values could presage more foreclosures as homeowners walk away from underwater mortgages that total more than a house is worth. Even if you’re current on a mortgage, reduced home equity due to declining property values weighs on consumer confidence. The result: Less consumer spending leading to more job losses leading to more homeowners facing the risk of foreclosure.
Top states for foreclosure activity in 2009
Properties receiving foreclosure filings
% change from 2008
Foreclosed homes can languish
A foreclosure doesn’t get resolved overnight. Foreclosure laws vary by state, but the process can drag out for months or even years. That means homes can sit unoccupied for long stretches, especially in neighborhoods experiencing multiple foreclosures. Falling property values and tight lending requirements, which make it tough for potential buyers to line up financing, add to the misery.
Blight can follow quickly. A homeowner struggling to keep up with mortgage payments likely sacrificed on routine maintenance. Bank-owned properties aren’t receiving much upkeep in situations where the lender knows a quick sale is unlikely. The local government, scrimping to save, could become lax in enforcing code violations. The result can be a collection of foreclosed homes with sagging shutters and overgrown lawns that depresses residential sales activity indefinitely.
Foreclosures can invite crime
According to an Urban Institute report, when a home is vacant and it’s clear no one is taking care of it, the property has a greater chance of being targeted by squatters, vandals, and thieves. That can lead to increased crime involving residents living near foreclosed properties.
Rising levels of crime, in turn, can prompt an exodus of residents from a neighborhood. The result can have a domino effect on the local economy. Crime could also be a red flag for potential buyers, indicating that the value of homes in the affected community will decline, according to the Urban Institute.
Local governments, HOAs bear brunt
Foreclosures mean lost revenue for local governments, which rely on property taxes collected from homeowners, not to mention the fees generated by homebuying and homeselling, to fund services. Less money comes in to public coffers as property values decline. To close budget gaps, municipalities can be forced to cut back on services that benefit all homeowners, from trash collection to street repair.
Homeowners and condo associations, private groups that provide services to residents, can suffer too. Foreclosed homes mean lost revenue in terms of dues and maintenance fees. Even remaining owners who aren’t facing foreclosure but are struggling to meet loan obligations might sacrifice dues in favor of monthly mortgage payments. Typical HOA fees run about $420 a year, while condo fees can average $2,400 annually.
In some cases, the HOA or condo association might only be forced to skip spring flower planting. But in more serious situations, major repairs can be put in jeopardy. If an HOA doesn’t have enough cash on hand, it might not be able to replace your hail-damaged roof, for instance, says Elizabeth Weintraub, author of “The Short Sale Savior.”
Recourse for remaining homeowners
You might not be able to prevent foreclosures in your community, but you can take steps to minimize the impact. If there’s a foreclosed property on your block that has an overgrown yard, mow it. Well-kept foreclosures don’t scare away would-be buyers, says Weintraub. Do consider the risk that you’re violating trespass laws, however.
If crime is your overriding concern, park your car in the driveway of a vacant home to give the impression that it’s occupied. You also might want to consider starting a neighborhood watch to rally residents, engage local law enforcement, and discourage criminals.