Quantcast

Who Pays Foreclosure Closing Costs?

To figure out who will pay foreclosure closing costs you first have to ask about the foreclosure discount in your area.

In basic terms the foreclosure discount is the difference between the value of a home today and the value of a similar, but foreclosed or distressed, property.

In many markets there has traditionally been no foreclosure discount because distressed homes have been relatively rare, say about .5 percent of the housing stock. However, as the number of foreclosed homes increases (the stock of properties called REOs, for real estate owned by lenders) and as the percentage of homes available for purchase are distressed, then the foreclosure discount becomes real.

Research

A study done by Christopher Cagan, Ph.D., the director of research and analytics at First American Real Estate Solutions, found that you can actually track the size of the foreclosure discount by looking at the percentage of distressed homes actively for sale.


Cagan’s research showed that “in markets where foreclosures constitute 8 percent or more of total market sales, foreclosure discounts are likely to be particularly large — often 20 percent or deeper.” (For the full report, see: A Ripple, Not a Tidal Wave: Foreclosure Prevalence and Foreclosure Discount.)

Given that foreclosures are often a significant factor in many markets, it follows that discounts can be fairly steep. This gets us to the question of who pays foreclosure closing costs.

Leverage

The answer is this: The matter who pays closing or settlement costs is negotiable. If you’re in a market with relatively few foreclosures or with several bidders for the property then you can bet that the lender will not offer much of a discount nor take kindly to the suggestion that it should pay all or most of the closing expenses.

Alternatively, if you’re in a market which is flooded with distressed properties and with no interest from other purchasers for a given property, then the lender may well be willing to pay closing costs if only to stop the financial bleeding that continued ownership of the property represents. In such circumstances it may well make sense to make an offer which requires the lender to pay some or all of the closing costs.

Technorati Tags: , , , , , , ,

Posted in: Foreclosures

Post a Comment

*