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Foreclosure is a losing proposition all the way around.

Families lose homes and injure their ability to borrow money for years to come, if not decades.

Lenders incur legal fees, real estate fees and property management fees as they wait for sales that will only partially recoup their original investments. Property values drop further in neighborhoods where foreclosures occur.

Vacant homes attract vandals and squatters. Ultimately, the entire community is destabilized. For these and other reasons, foreclosure should be a last resort and reducing the growing rate of foreclosures is the shared responsibility of homeowners, lenders, real estate professionals, community organizations and government.

The situation is critical and is about to become more so. The Mortgage Bankers Association reported last week that nearly 10 percent of homeowners were delinquent by at least one monthly payment on June 30 this year. Add those potential defaulters to the 2.3 million homes repossessed since the official onset of recession in December 2007 and you get a good idea of the problem we face.

A report from online real-estate number cruncher Zillow.com estimated that 41 percent of homeowners in the Tucson area were “underwater” – owing more on their homes than they are worth – as of June 30. University of Arizona law professor Brent T. White has gotten a lot of attention lately with his opinion that walking away from an “underwater” mortgage is often the rational decision to make, and is morally defensible. A banker and a real estate professional, understandably, disagreed with White at a forum last week, reported on by Arizona Daily Star real estate reporter Dale Quinn.

You don’t need an ethicist to settle this argument. Foreclosure is undeniably bad for all concerned and everybody has a stake in preventing it.

That means homeowners contemplating a “strategic default” on their obligations need to take a longer view. Being “underwater” is not a good enough reason to walk away. Lenders, facing the costs and losses of foreclosure, need to entice homeowners to stay by working a little harder to renegotiate mortgages, or by allowing them to sell for a loss in a short sale. The math alone should be convincing.

A recent study of 1.83 million home sales by economists at Harvard and MIT found that sales of foreclosed homes brought in 27 percent less than unforced sales. The report, to be published in the American Economic Review, said the loss is linked to the likelihood of deterioration, especially in neighborhoods where the risk of damage is highest. So, on top of the drop in market value, the cost of foreclosure and the maintenance costs while waiting for a sale, lenders face another 27 percent drop in what they recoup from a bad loan.

That’s a powerful incentive to work things out with the homeowners in order to complete a short sale.

If you own a home with negative equity or know of someone with negative equity, please contact me at kyle@kylewylogerealestate.com for a free, no obligation consultation to discuss your options according to your individual personal and financial circumstances.  Consultations are 100% confidential and, as always, our goal is to help you determine the path that is in your best interest personally and financially, both short and long-term.

Kyle Wyloge

RE/MAX Infinity

602.790.2588

kyle@kylewylogerealestate.com

www.myarizonashortsale.com