Foreclosure Essay

Foreclosure

            A lending company generally forecloses a real estate property when the mortgage transaction associated with the property is put on a default condition.  For the last six years, there has been an increase in foreclosures due to a recession that occurred in 1990 and 1991.  The highest foreclosure activity was observed in 1992 in most areas and somehow significantly decreased in 1997.  In 2004, foreclosures decreased, yet the number of foreclosure proceedings increased in 2008.  It has been estimated that an average of 2.8% increase in foreclosure proceedings occurred in 2006, while only a 0.6% increase was observed in 2005.  Such number translates to a 312% increase in foreclosure petitions, because foreclosures are initiated by the property owner by filing the status in court.  Upon filing of the foreclosure document, the court clusters all petitions and then assesses whether a foreclosure proceedings will be allowed.  Given this trend in the past 2 years, foreclosure proceedings will still continue to increase in the next year.  In addition, the number of petitions for foreclosure will also continue to increase in number.

            Such increase in foreclosure proceedings is a serious concern to the real estate market, as well as buyers and owners of real estate properties.  However, it still remains unknown whether the same repercussions on the real estate market in 1990 will be observed in the next year.  Foreclosure proceedings serve as a huge blow on a family, because this translates to the loss of a family most essential asset.  Foreclosure may also affect the immediate neighborhood, street or community of that particular real estate property, because it destabilizes the real estate status and condition of the particular area.

            Foreclosure proceedings are also influenced by the age of the mortgage agreement.  Age of the mortgage is technically defined as the length of time between the mortgage date and the approval of the foreclosure petition.  The average age of a mortgage agreement was observed to increase from an average of 3 years, from the previous observed average of 1 year.  The interest rates of a mortgage agreement also influence the prevalence of foreclosure proceedings (Cagan 2006).  Other real estate property owners request for a re-financing of the real estate property in order to decrease the average age of the mortgage agreement.  This endeavor also serves as a mechanism to lengthen the time between the mortgage date and the approval of the foreclosure petition.  It generally does not resolve the expected monthly payments for the mortgage loan.  On the other hand, there are investors who also act as owners who attempt to sell the real estate property as soon as they can in order to gain a profit from such transaction.  However, recent trends in the foreclosure proceedings and petitions have made this strategy more difficult to perform.

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            Predictions on foreclosure proceedings in the next year may involve a decrease in foreclosure of owner-occupied real estate property.  The previous trend shows that there is great speculation on whether there is any profit in buying an investment property instead of just purchasing a property for simple residential purposes.  Based on previous years’ trends, there will also be an increase in the foreclosure of absentee-owned properties in the coming year, since the status of the real estate market has remained the same for the last 3 years.  Such stagnant condition influences the current and the coming status of foreclosure proceedings of the next year.

References

Cagan CL (2006):  A ripple, not a tidal wave: Foreclosure prevalence and foreclosure discount.  First American Real Estate Solutions, CA.  17 pages.