Homes “Under Water” and the Effects of Foreclosure

The unprecedented drop in the housing market has spurned the media to begin talking about a new real estate term: “under water.” The term is often used n connection to foreclosure because it’s these properties that are often the most at risk and the homeowners who have the most to lose. These are also exactly the types of properties you would want to target if you want to do a pre-foreclosure sale.

What Does the Term Mean?

When the media uses the term “under water” they are referring to property that has dropped in value so much that it is worth less than what is owed on their mortgage. You might think of the term as the opposite of equity or possibly as negative equity. Now if the homeowner of one of these properties is able to hold onto his or her home and can ride out this downturn, they’ll probably come out in good shape. The problem comes when these properties face foreclosure.

The Effects of Foreclosure

If the property goes into foreclosure, the homeowner may think having the property taken away may be the worst that could happen. Unfortunately, that’s not the case. Even though the homeowner may have been required to maintain mortgage insurance on the property which covers some of the loss associated with the default, that insurance policy may not be enough to cover the difference in what the home is worth and what is owed on the property.

That problem is exacerbated by a poor real estate market. Because the home is unlikely to pull in a high price at auction or on the market, the bank will charge the difference to the old homeowner who is now burdened with a huge debt. Avoiding this problem is one good reason why many people facing foreclosure opt for the pre-foreclosure option.

Joseph Smith has been educating buyers on the finer points of Foreclosure purchase at ForeclosureListingsNationWide.com for over five years. Click here to visit and read more advice on finding VA Foreclosures.

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