Certain lenders have also instructed their foreclosure departments to temporarily freeze all foreclosure proceedings in disaster areas. These steps are being taken for both humanitarian and good business reasons.
Valuation has become a tricky issue. Bidders at foreclosure auctions want to get the best deal possible, but if storm-damaged homes are going on the auction block now, the values those bidders are willing to pay may be far below even post-Sandy values. That will often result in the lender being the high bidder and having to take the property back into its inventory.
Once the bank becomes the owner, it is responsible for securing the home from vandalism, future weather elements and neighborhood blight. With the cold weather rapidly approaching, banks must spend the time and money to manage these homes. For example, they must cut the lawns, remove dangerous leaves, snow, and ice and winterize these homes to prevent pipes from bursting or roofs from leaking. Banks also become liable for real property taxes, insurance and homeowner’s association dues. As a result of these legal obligations, banks have a vested interest in trying to have their delinquent properties sold to third parties at fair market values.
Will Hurricane Sandy affect interest rates?
On one hand, the decreased demand for mortgage loans from homeowners unable to meet the appraisal values will keep interest rates down. On the other hand, once values stabilize, there will be a pent-up demand for new home mortgages from those homeowners who lost their homes and need to buy or reconstruct a new home.
There will also be pent-up demand for home equity loans to make repairs, improvements or additions to homes that are damaged but fixable. Interest rates may rise in response to this increased demand. In the end, time will tell just what the “Sandy effect” will be on homeownership.
Harvey S. Jacobs is a real estate lawyer in the Rockville office of Joseph, Greenwald & Laake. He is an active real estate investor, developer, landlord settlement attorney and lender. This column is not legal advice and should not be acted upon without obtaining legal counsel. Jacobs can be reached at email@example.com.