Jeff Adams: Foreclosures – The Harsh Reality

The decade just gone by was a tumultuous period for the housing market in the U.S. history. The period between the years 2000 to 2006 experienced a tremendous boom in the property prices.  Because of the ready availability of home loans at subprime interest rates homeownership became affordable to lower-income families.

Busting of the Property Boom
But soon after the boom came the doom.  Millions of homeowners fell by the wayside unable to find resources to pay the monthly installments on their home loan mortgages.  Sensing the repayments crisis, the banks became desperate to recover the home loan dues. The foreclosures increased dramatically. In some suburban and metropolitan areas the foreclosures rate was much higher than in other areas. Very soon the trend became a widespread phenomenon and reached critical proportions in 2007.

The property prices nose-dived as fast as they rose during the previous few years.  The large scale foreclosures became too hot to hold for the lending institutions.  In an effort to sell off the mounting foreclosed properties and realize the outstanding dues, the financial institutions passed on these properties to auction houses for quick auction sales.

Large Scale Foreclosures and Proliferation of Auction Houses
Earlier the news of any foreclosure in the neighborhood used to be sensational and used to spread quickly in the gossip circles like some unmentionable scandal. Now the news media vie with each other to advertise auction sales en-mass. The recent advances in Computers, Communications and IT Technology have made possible the proliferation of online auctions affording fast, convenient and cost-effective auctions on a much larger scale.

The Hounds of the Hedge Funds Ville
In these troubled times of crumbling economy and lack of planned growth, the well regulated cash flow mechanism of the entire society breaks down. All of a sudden pockets financial vacuum get created leading to stormy weather and chaos causing otherwise financially healthy and stable families to be uprooted and thrown into the swirling winds. A lot many good, attractive properties belonging to these families end up at auction sales at very cheap prices.

It is the scent of quick and easy money that attracts large hedge funds to swoop down on these auction sales to choose their pick.  The hedge funds constitute a group of high net worth investors expressly come together to make quick money.  The lower participation limits, imposed by the Federal Government’s financial watchdogs, restrict the ordinary investors to get sucked into this greedy game.  The hedge funds have huge financial muscle and, unlike the fully accountable mutual funds, they have unrestricted freedom to invest where they want and in the way they want.  Their only aim to enter the property market is to buy-and-sell in a rapid cycle when the going is good.

May be you have come across sometimes Jeff Adams’ very popular online columns on real estate investments.  He wonders why some of us with neat stacks of money still sit cool and do not venture out fishing in the muddy waters when the ponds are all getting dried up.  It does not mean you have to be reckless with your hard-earned money.  For the cautious investors it is the right time to seize some good money making opportunities.

The Harsh Reality
The economy goes through periodic readjustments or recessionary cycles in order to correct haphazard diversion of funds into economic activities and sectors in a callous and unplanned manner.  It is also the sign of a nation’s economy falling sick because of the failure of the regulatory bodies in taking stern action against rampant greed and corruption creeping into the very circulatory system of the society.

Foreclosures impact the affected families and, in turn, the whole communities in an adverse manner.

Impact on the Families

  • The affected families are forced to move to poorer and more affordable neighborhoods.  They are compelled to make a fresh beginning by down-scaling their accustomed living standards.
  • They have to cope up with lesser assets, net-worth and lower credit rating, which means financial insecurity coupled with economic hardship.
  • All this leads to personal and family stress resulting in stress-related illnesses and aggravation or total disruption smooth relations amongst the family members.
  • The most harrowing impact is on the older individuals and couples who are ill-equipped – physically, mentally and financially – to make a fresh start in life.

Impact on the Communities

  • The physical deterioration of a large number of foreclosed properties and surroundings lead to decline in the valuation of the properties in the entire area or the district.
  • A large number of vacant houses along with the flow of migrants, in and out, can invite increased criminal activities.  The strangers in the town may not get readily integrated into the new community and will be less inclined to have a deep commitment towards it.
  • The community as a whole will have to bear the additional administrative cost in providing increased maintenance services, fire and police protection.  All this will put a severe strain on the community’s resources.


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