Because...
...Owners of real estate have decided that payment on their loans is no longer possible and the
bankruptcy filing is considered
an act of default.
...Bankruptcy filers usually will not reaffirm their loan if the value of the real estate is less
than the mortgage pay-off, particularly
if the debt obligation is compounded by
the presence of second mortgages.
...Lenders face the following problems after the bankruptcy filing:
- DELAY
The need to foreclose with attendant delay and expenses. You can easily determine how much time is required to complete a foreclosure in your state. The longer the delay, the more problems for the lender. Such problems are easily understood when you consider that months may elapse and the real estate might become vacant and vandalized. Therefore, it can be expected that the value of collateral decreases under such circumstances. Decrease in the value of collateral increases the possibility of greater loss to the lender. If over-lending on real estate has occurred, the losses compound even more. - EXPENSES
The lender will usually obtain title to the premises through the mortgage foreclosure sale process. The process requires the payment of attorney fees, the amount of which will vary from state to state. For instance, attorney fees in the state of Ohio will usually average $2,800.00 per case. This does not include court cost charges, which could range into the area of $1,500.00 or more. More expenses can occur if the lender does not desire to wait until the bankruptcy is closed. Legal expenses begin with retained counsel to obtain a relief from stay in the bankruptcy and may cost more than $1,000.00. The above total of $5,300.00 is just the beginning. If the lender acquires the property and it becomes REO status, expenses mount because of the necessity to secure and maintain the property at some level. Bankruptcy has denied the lender its right to a deficiency judgment and the only value remaining is the collateral real estate itself. The lender is burdened by being required to pay real estate taxes, insurance, and real estate commissions when a buyer is found. Second mortgage holders usually receive little or nothing and become easy to deal with.
