A recent report by the Center for Responsible Lending, A consumer advocacy group, reports that homeowners who are concerned about the value of their homes should be concerned with foreclosures among their neighbors.
This year, millions of homes have suffered price declines due to nearby homes being foreclosed. The decline in property value could total $500 billion.
As the foreclosure crisis continues to worsen, property values of every home in the community are affected. It is no longer safe to just say that those foreclosures are hurting some else. It affects every homeowner in the community. Studies have shown that homeowners who lived within 300 feet of a foreclosed residential property experience drops of 1.3 percent in home values while those living 300 to 500 feet of the foreclosed home see drops in value of 0.6 percent. These drop in values affect the financial flexibility of the affected homeowners. If the homeowners had counted on using the homeowner’s equity to finance their business, cover tuition fees, make purchases or pay their medical bills, these options may no longer be available.
This situation becomes worse when we talk of condo owners who have common areas and shared responsibilities. When people buy condos, they expect their monthly fees to cover many of the responsibilities that would otherwise fall on single-family homeowner like: maintaining the lawns, paying for common-area utility bills, security, painting fences and so on. The downside, however, to owning a condo is that your fate is tied with maybe 100 other condo owners a number of whom may already be in foreclosure proceedings and who may no longer be making their monthly fees.
Same with single-family homeowners, many condo owners are also facing foreclosure problems. The number of condos being foreclosed on a condo association greatly affects the valuation of all the remaining condos in the property. Moreover, when a condo owner faces foreclosure, that person may also stop paying the monthly fees. This results in a shrinking collection of monthly dues from condo owners. The condo associations are then forced to defer maintenance of common areas: paints are peeling, roofs are leaking, lobby is not maintained, security may be reduced, grasses don’t get cut, batteries for smoke alarms may not be replaced, and so on. The whole condominium property then becomes less desirable and results in individual condos not being not being as attractive thus contributing to the downward spiral in the valuation of these properties.
You, as a homeowner, may need to beware of your neighbor’s home foreclosure so that when it comes to selling your house or planning for your next home, it may be necessary that you be a nosey neighbor.
