COVID-19 has a lot of small business owners and homeowners worried about foreclosure and repossession. In fact, failing to make payments on your mortgage or other secured loan may mean the bank will look to the collateral to cover the debt. However, that is not inevitable even if you do fall behind on your payments. The truth of the matter is that lenders are not rushing to foreclose or repossess. Lenders certainly expect you to make your payments. However, your financial failures are not their get-rich strategy.
The Lenders’ Perspective
From the lenders’ perspective, foreclosures and repossessions are not economically sound strategies for collecting the money they are owed. In most cases, these are last resorts. Both foreclosure and repossession require that the lender first obtain a court order allowing the collateral to be sold. For a lender, the best-case scenario is that it takes a few months and several thousands of dollars to secure the order. Still some foreclosures and repossessions turn into litigations that last years and cost more in attorneys’ fees than the amount owed.
Even after the order allowing foreclosure or repossession is entered, the lender must then wait several weeks before the property is sold at court auction. Rarely do the court auctions result in a sale to a third party. Usually, no potential buyers show up and the lender is forced to purchase the property.
At this point, the lender is stuck with a house, equipment or other property for which they have no use. No bank benefits from a single-family home or a fleet of pickup trucks you once used for your business. Their foreclosure or repossession efforts only payoff after the asset is sold to a third party. That can take months if not years and often requires the lender to hire contractors to maintain and market the assets.
Further, rarely do the proceeds of the sale cover the debt owed and anything else needed to cash-in on the asset. A large portion of foreclosures and repossessions result in the lender only partially recovering the debt. Often, lenders are entitled to pursue the debtors for the difference between what they recovered from the foreclosure or repossession and the total amount owed. However, in my experience, few choose to do that.
Simply stated, foreclosures and repossessions are major headaches for lenders.
So, what does that mean for the homeowners and business owners worried about paying their bills?
Struggling debtors may benefit from negotiating with their lenders. Loan modifications often serve both lenders and debtors better than foreclosures and repossessions. A modification of a loan may mean that the amount of each payment is changed or that the dates and deadlines of the payments are altered. Rarely will a lender forgive the whole or portion of a debt. However, they are often willing to alter the terms of a loan so long as they get their money eventually.
If COVID-19 has you missing your payments, you may soon receive a nasty letter from your lender. However, that does not mean that foreclosure or repossession is inevitable. The lender will give you a chance to cure the default. If that is not an option, a good faith offer to modify the loan may be a win for both you and the lender.
If you have any questions or would like to discuss the topic of this blog further, please feel free to email Aleksandra E. Anderson at firstname.lastname@example.org or visit www.andersonlegalnc.com.
*This blog post does not constitute legal advice. Reading or in any way accessing this blog post does not form a client-attorney relationship between you and Anderson Legal, PLLC or any of its attorney(s).