Foreclosure
Foreclosure – Is It Ethical to Benefit From the Misfortune of Others?
By Buyincomeproperty.com
Nov 28, 2005, 17:17

Some people immediately cringe when the word “foreclosure” is mentioned. It’s a fact that many people find themselves in foreclosure proceedings and other forced sales because of misfortune. Death, divorce, illness, job loss and economic downturns can all lead to foreclosure. So what is your role as a real estate investor? You may be have faced the question of whether it’s ethical to “feed” off this misfortune, or you may even have been asked that question. But what options are there when foreclosure occurs?

The reality is that a lender is likely going to repossess property when mortgage payments aren’t met. In almost every situation of non-payment, the lender is bound by contractual agreements and stockholder mandates to start foreclosure. It’s a fact of life that some of those foreclosures occur because of death, illness or other misfortunes, just as some foreclosures happen simply because the borrower didn’t manage their finances well. Regardless of what prompts the foreclosure, the steps are likely to be very similar.

The lender is then faced with a couple of options – sell the property quickly or become involved in the real estate business. Since most don’t want to be involved in real estate, the quick sale becomes imperative. This may take place as a foreclosure sale or an auction.

But where does this leave the person who’s facing the foreclosure? Some people would say “homeless,” but the reality is that most who are facing foreclosure are dealing with more financial issues than just the loss of their home. If they can sell the home before full foreclosure comes into play, they can sometimes salvage at least a part of their financial investment. Remember that a lender has no requirement to sell the home for the full market value, or even for the amount owed against the property. That means that the person who faced foreclosure may still be responsible for payments of the property while foreclosure is in progress, or even after. A quick sale may very well be in the best interests of the person facing foreclosure as well.

The person dealing with foreclosure may very well offer the property up for sale before the foreclosure becomes official. In that case, the current owner can have some control over the selling price – perhaps even recovering the full market value of the home and getting out of the situation with enough cash to settle some other debts.

When faced with the question of ethics of investing in property involved in foreclosure, it’s easy to look at the issue only from the perspective of the person preparing for foreclosure. Even then, it’s not likely to be easy to say the investor is callous to be making the investment. It’s also easy to say that the investor is “saving” the homeowner, and should be commended for making the investment. Both are extreme attitudes, but the reality is that foreclosures are simply a fact of life, as is the practice of making investments in potentially profitable property.