Why Do Foreclosures Harm My Neighborhood?

While leaving your neighborhood all of a sudden a house catches your eye. The lawn is a little long and there is a red paper tapped to the front door which are all signs of a house that is going into default. You know instantly that if the house isn't already, that it will, be going into foreclosure soon and you wonder what it is going to do to your neighborhood. Most people think that the homeowner and the bank are the only ones that lose when someone cannot avoid foreclosure. Your neighbors also suffer.

Do Foreclosures Really Hurt An Entire Neighborhood

It is not definite that a foreclosure will hurt a neighborhood. Sometimes a foreclosure is not a big deal. Not all financial institutions will put papers on the front door so your neighbors might not even know that you are in the pre-foreclosure process. Maybe a moving truck came in one day and all of the sudden the current homeowners have left. A foreclosed home is auctions off after a certain time which results in a quick home sale. If the house is sold right away to a new owner there is not time for the house to fall into disrepair. Any repairs that are needed are done quickly when the new owner moves in so to the neighbor's it is just like any normal move.

When the foreclosure process is done and over with quickly there is a smaller chance of the neighborhood being adversely affected. Even when a house is sold through short sale or foreclosure if there are only a few outward signs for a prospective home buyers will not have a chance to judge a neighborhood poorly because of it.

When foreclosures hurt

On the other side of the topic, foreclosures hurt the most when there is a long drawn out process or when there are several foreclosures going on at the same time in the same local market. Property values are adversely affected by three main reasons: low appraised value, higher HOA fees, or low popularity.

Neighbors often wondered whether having foreclosures in their area will decrease the appraisal value of their own home. Again, the answer of yes or no is not always so cut and dry. If there are few houses in the neighborhood that are in foreclosure or short sale status, then an appraiser will often not choose these home as comparable ones to gauge the price of a home. Appraisers do not like choosing foreclosures or short sales as comparable properties because they are not true indicators of current market value. However, they will choose foreclosure properties if the majority of the homes in your area are foreclosures and short sales. In such cases, the sheer amount of these defaulted homes affect the market value of all homes, and thus, neighbors will a decrease in the appraisal value of their own property.

Secondly, homes that have missed mortgage payments will also have missed HOA dues as well. In these agreements, HOAs have the right to take actions towards foreclosure because of missed dues, though few ever do so. Very few HOAs have the money or the time to follow through with their own foreclosure efforts, but these missed dues will make an HOA run low on funds. With several homes going into default, an HOA may easily run out of money to manage the appeal of their own neighborhood. Thus, neighbors will have to the price with a temporary hike in fees.

While having one or two houses missing their dues will not usually have a big effect on things but having a few houses in very bad disrepair may make a prospective home buyer's view of the area change. A lot of the times home buyers will steer away from foreclosed homes because they are typically sold "as is" and are usually in bad disrepair. This is when this type of upkeep is vital because it can be such an eyesore that it will give a bad impression of the entire neighborhood and make everything look poor and run-down.

Comments? Questions? Email Here

© HowtoAdvice.com

How to Advice .com