Nobody Likes Foreclosing on a Real Estate Note
In 2008, record numbers of Americans face foreclosure because they signed up for an adjustable rate mortgage or a subprime lending "product" designed to lure them in with easy initial payments, then hammer them with a big increase later on. In many cases it looks like the banks are a little too eager to foreclose on people having trouble with payments, especially since the real estate market is so depressed you might ask: "Once they grab these houses, who are they going to sell them to?" The fact is that banks don't like to foreclose. They get less money and have to go to the trouble of getting the property back on the market themselves.
Unfortunately, big lenders also have to contend with broad economic trends, partly to maintain standards across thousands of clients, and partly because they threw the mortgages they held into tradable investments that fluctuate with market conditions - and as of this writing, those conditions are alarming. Banks are compelled to foreclose according to a one size fits all policy, and it means that in bad economic conditions they tend to initiate a lot of foreclosures at the same time.
Private mortgage note holders don't have to worry about the direct effects of mortgage backed investments, but they do have to think of real estate market values for two reasons. First of all, these determine the prices people are willing to pay. Secondly, a neighborhood with a lot of foreclosures is one where many, many families are struggling to make ends meet. If you're holding a mortgage note that includes your borrowers, either because their other, bank-held properties are doing badly or because they have family members who need help. Worse yet, these same factors can affect you, making you less tolerant of late payments as you find the crisis affects your personal cash flow.
As a note holder you could initiate foreclosure proceedings yourself, but this can be a lengthy, costly process for a private citizen. That's one reason why the option to sell notes exists. Get a free real estate note quote from us and see how you can get cash to save against an emergency now, instead of worrying about whether your borrower can make payments, and what you'll have to do if he doesn't.
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