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A Writer's Den: The Potentially Chilling Effects of a Nationwide Halt on Foreclosures

Friday, October 22, 2010

The Potentially Chilling Effects of a Nationwide Halt on Foreclosures

Recently, Bank of America, the nation’s largest bank, voluntarily halted foreclosure sales in all 50 states. Other major banks followed Bank of America’s lead, but stopped short of issuing a 50 state freeze on foreclosures. Not even two weeks later, Bank of America announced that its internal investigation into foreclosure procedures has been completed, opening the door for it to continue foreclosure sales. Now the FBI is investigating whether banks violated any laws during the foreclosure process that has left many Americans without homes.  

Although forcing banks to halt foreclosures nationwide may sound like a great idea, here are a few of the potentially chilling effects of halting foreclosures.
                                                                                                      
  • The Deaf of Property Values: Let’s say you buy a $150,000 home today. If a nationwide halt on foreclosures happens, then your $150,000 home may become a $100,000 home because when the foreclosure freeze is over, those frozen properties will flood the market and bank’s will have no choice but to lower their prices to move inventory again. 
  • Longer Imprisonment for Upside Down Homeowners: For homeowners who are trying to refinance but can’t due to underwater or upside down mortgages, another decrease in property values only lengthens the amount of time they will be trapped in those mortgages without options to refinance.
  • Buyers Market Without Buyers: Even if it is a buyer’s market, no buyer in their right mind will purchase a home that they may have to walk away from later because they unknowingly purchased an illegal foreclosure.
  • Decreased Home Sales to Non-existent Home Sales: With almost a year’s supply of real estate on the market, a halt on foreclosures would not only halt foreclosure sales but all real estate sales will be affected and the supply of real estate currently on the market will increase.
  • Banks Receiving Bail-outs to Banks Going Belly-up: Banks have given homeowners going through hardships the run around in applying for modifications and short sales in hopes of saving their homes. And although Americans have bailed out banks and many are angry that the banks aren’t returning the favor, no one bailed out banks to see them go belly up and watch more Americans lose their jobs in the process. 
  • A Real Estate Market that Never Fully Recovers: Unfortunately a mandatory halt on foreclosure sales will more than likely lead to longer recovery periods than initially predicted, and it’s possible the market will never fully recover to the level we were at prior to the housing crisis.  
There are so many different situations to consider when dealing with the issue of whether banks committed illegal foreclosures. However, we must balance the interest of homeowners that are current on their mortgage payments, past homeowners who were not in foreclosure but were illegally foreclosed upon, homeowners that purchased foreclosed homes, delinquent homeowners currently in foreclosure, and potential buyers. Without a doubt, banks should be punished for any crimes or civil violations they have committed, but we need to make sure innocent homeowners aren’t punished in the process.
credit: carterdayne © istockphoto.com/carterdayne

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