Up until 2010, the foreclosure rate has steadily increased since the real estate meltdown back in 2007. Last year in 2011, the foreclosure rate has dropped a little bit making experts wonder the reason why. After reading a lot of information on the Internet, it seems that lenders are having problems investigating the mortgage documents when they go to foreclose on a piece of property. The last thing the bank would want would be to not have their ducks in a row and have their mortgage canceled letting the borrower own their home free and clear. I know that sounds like a stretch, but over the last year with all the bad publicity of the mortgage industry, bank owned properties have been under a lot of scrutiny by the courts. This is an extreme circumstance that is unlikely to happen but why take the risk if the bank doesn't have to. Because the banks aren't foreclosing on their properties people that are behind just get further buried on their payments and eventually will lose their home if they don't file for bankruptcy or find someone to give them a loan modification.
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After further investigation, I believe there is more to the story than just getting their ducks in a row. The banks know that if they foreclosed on every property that is in default, the already ailing real estate market might collapse. Recently, Realty Trac reported that there were 20 million homes in America that were in default or in danger of being in default. Considering this number, if banks decided to push the issue, the real estate market will be flooded with 20 million homes nationwide. People who think the value of their home is low now, would quickly find out they could drop a lot more.
What is interesting, with the real estate market in distress, people who can afford to buy are holding off because of fear that home prices might drop more. More and more people that hear the news of the large stock of homes that might enter the market due to foreclosure, hold off making this large purchase. Basically, fear is what is driving the market down further. Buyers are waiting for some sort of stability in the economy before jumping in.
Today, many American homeowners are living in their dream homes on borrowed time. If they bought at the wrong time they could be upside down as much as a few hundred thousand dollars. People that have a deficiency on their mortgage are in a position where they can't even sell their house if they wanted to. The only option they have is to apply for a loan modification or file Chapter 13 bankruptcy and try to negotiate something with the lender. Filing Chapter 13 bankruptcy is a solution for those that are caught up upside down on their mortgage to the point where they can't afford to live. When a person files Chapter 13 they will be able to, along with their bankruptcy attorney, negotiate with a lender to get caught up on back payments and possibly negotiate the balance down. Where a Chapter 13 really shows its muscle is when a debtor has a second or third and the value of the home has dropped below the value of the first. The bankruptcy attorney will ask the court to strip off the liens for the second and third making the debt unsecured because there is no value in the property to secure the loan. Most people file Chapter 13 initially to stop foreclosure and take the power away from their creditors, allowing them to negotiate something that is more affordable.
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