We’re all aware of the stories in the mainstream media about the instances of unconscionable behavior exhibited by rogue servicers, lenders, brokers or service providers during the foreclosure process. This was especially pronounced in the early days of the housing meltdown in 2008, but the images and perceptions linger today. The stories were easy to tell — compelling, albeit revolting.
Lawmakers reacted aggressively at all levels — as politicians are wont to do when faced with a seemingly unified public outcry. The demonization of the foreclosure remedy became even more pronounced during the pandemic of 2020, as officials scrambled to delay or prevent the process under almost any circumstances.
Yet, well-intended as the changes were, the expanded web of legal obstacles to a justified foreclosure on a significantly delinquent mortgage has actually served to hurt our communities. Lenders and servicers, hamstrung by well-intentioned but hastily assembled requirements, have been forced to adhere to arduous timelines or hurdle impractical obstacles throughout the foreclosure process.
Most times, this has only further delayed the inevitable, or even dissuaded lenders from foreclosing on properties at all. In so doing, they’ve been forced to roll the extensive costs of compliance, property management and other services they never intended to be involved with into the price paid by those who are able to take on mortgage loans.
The aggressive scrutinizing of our foreclosure process has had another unintended consequence on our neediest communities. Lenders and default managers, unable to reintroduce as many defaulted assets as possible into the housing market, are prevented from helping to address one of the biggest challenges facing the housing industry right now.
We’re facing a shortage of available, affordable housing. First-time homebuyers are struggling to find houses. Increased occurrences of deferred maintenance or “zombie foreclosure” are contributing to the blight of struggling neighborhoods, which in turn are burdened by declining property value across the board. There’s quite a bit of inventory out there that would have otherwise been returned to the market but for unduly harsh political theater. If anything, the vast majority of residents in such neighborhoods would likely support a faster foreclosure process.
Please don’t mistake this for a “blame the victim” type of argument. Foreclosure is not a matter to be taken lightly. It’s obviously not a welcome event for anyone involved. Lenders don’t make mortgage loans to become property owners themselves. Many of those in foreclosure are there because of dramatic life changes or traumatic circumstances. But foreclosure is an effective legal remedy to a real problem. Yes, it should be reserved for appropriate circumstances. Yet, increased and sometimes unnecessary compliance requirements have chilled the exercise of that right, and not always for the better.
Let’s not forget about the defaulted borrower, either. The stress that comes with enduring a seemingly endless process can be unbearable. An efficient process would empower these people to start over and provide them with the resources to start down the path of homeownership once again.
There are other, more effective ways to improve the foreclosure process beyond delaying or downright prohibiting it. Yes, egregious malfeasance should be punished. But the best default and REO professionals — whether real estate brokers, asset managers or other service providers — prefer to find ways to keep homeowners in their homes, or at least help relocate them with compassion. There are many different forms of education and counseling routinely made available to home owners at risk for foreclosure — a much better way to maintaining an owner occupancy rate than prolonged process delays.
“Foreclosure” is not a word most in the real estate industry like to say or hear. It means a solemn contract has been compromised and that someone’s version of the American Dream has failed — this time, at least. But it has morphed, as the result of unintended consequences, into what is now unjustly perceived as some sort of predatory practice. Foreclosure is merely a legal consequence designed to address an egregious and prolonged failure to fulfill the terms of a contract. Borrowers are not entered into default because of a missed payment or two.
Foreclosures have always required independent judicial oversight and an extensive time period to introduce the potential of modifications and work outs. But where counseling and negotiation still fall short or, far more often, when borrowers fail or refuse to accept mitigation options, foreclosure is a necessary part of the home buying cycle.
Let’s have another look at what can be done to ensure foreclosures are undertaken equitably and compassionately without adding yet another layer to compliance requirements. Let’s at least acknowledge the thousands of dedicated professionals working to return dormant or abandoned inventory to the housing market — especially in communities riddled with abandoned properties awaiting resolution. And let’s put more focus on the homeowners in these terrible situations. Let’s provide more resources to help them through their challenges and help restore their dignity with fresh starts as well.
