Updated property valuations may just be the key in reducing crime, decreased property values and additional costs to local governments related to servicer-abandoned foreclosures, according to the U.S. Government Accountability Office report, “Mortgage Foreclosures: Additional Mortgage Servicer Actions Could Help Reduce the Frequency and Impact of Abandoned Foreclosures.”
Servicers, such as banks, have walked away from foreclosures once they realize the cost to complete the procedure is much higher than the anticipated proceeds from the property’s sale. When these foreclosures are abandoned, communities are often clueless because the servicers don’t have to tell the community the property is abandoned. Befuddled homeowners find out the property is still in their possession along with responsibility for paying the debt, taxes and maintenance.
If mortgage servicers were provided with updated property valuations before initiating a foreclosure on a property, lower-value properties or those in areas more likely to face steep declines in value could be saved.
Abandoned foreclosures are often rare, according to the government report. They made up one percent of vacant homes between January 2008 and March 2010. These foreclosures are typically concentrated in economically-distressed areas and involve loans made to borrowers with lower quality credit. Vacant homes are often associated with abandoned foreclosures. They’re costly for the local government to maintain and demolish and often attract crime and decrease property value.
Communities try to mitigate the effects of these desolate properties but face delayed action. Some resolutions community groups have tried include increased counseling to prevent borrowers from leaving their homes too early and asking servicers to list properties that are vacant on a centralized registry so they know where to focus their attention. They’ve also created land banks to increase incentives for servicers to complete instead of abandon foreclosures.
However, these efforts, according to the report, require funds, may not be appropriate for all communities and may just encourage the servicer to walk away.
How do you think updated property valuations will help the abandoned foreclosure issue?
Photo Credit: scottchan / FreeDigitalPhotos.net (http://www.freedigitalphotos.net/images/view_photog.php?photogid=1701)