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Foreclosures: The Equity Problem

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By : Dominic Diorio    99 or more times read
Any mention of your involvement in real estate during a conversion is certain to stir up genuine interest. Often you are asked if it is possible it could get any worse. In every instance I seemingly answer yes without hesitating. The curiosity is based on the premise every move the market makes affects all of us. When a foreclosed home or short-sale is sold in any neighborhood, a long term investment, school fund, or retirement plan hangs in the balance. You can stimulate the market and short-sale banks until the end the time, but how do you recover lost equity?

During the Great Depression President Franklin D. Roosevelt once noted the overwhelming majority of Americans are possessed of two great qualities: a sense of humor and a sense of proportion. It has become increasingly difficult for anyone to enjoy their lives as they watch their homes decline in value. Our sense of proportion is distorted when the scale is tipped to one side. The so called “short-sale experts” and banks are getting homeowners out of one jam while putting a family down the street in another. Instead of carefully drawing out a plan to cope with the economic crisis, the market is venturing into dangerous and uncharted territory.

What about equity? The lost equity of homes could take up to ten years to recover. In fact, it is impossible to accurately forecast a true time-table for the recovery. My office is located on Chicago’s “Westside” where homes have lost nearly 50% of their value in just two years. In Chicago’s Bronzeville I represented the bank in a sale of a condominium in mint condition selling for $256,000 after six months on the market. The homeowner with the exact same unit below had his unit appraised for $500,000 three years ago. How long will it take recover lost equity? The answer may be never. When a homeowner faces a foreclosure or works out a short-sale, they are walking away from much more then their home. Often they are forced to move on from their once promising investment. The status of the “American Dream” lies in a state of uncertainty as homeowners are now forced to sell and no longer enjoy the luxury of moving because they are compelled to find a new home. By the time a home has regained a reasonable amount of its value the homeowner will have been in and out of the foreclosure process. We need to ask more questions. We need to do more. The market cannot be stimulated until homeowners are convinced they are not fighting a losing battle. A comparison of current values and mortgages will tell you one thing: this is an equity crisis.

Agents who once represented buyers are now working to get homeowners out by any means necessary. I am unsure if this irony or stupidity. Understandably, it is unfair to generalize and promote ideals with blanket statements. I would contend we are in crisis perpetuated simply by poor judgment. I sell foreclosures and I do not pretend to have the answers. You can spend weeks dissecting foreclosure statistics, market times, and value trends over the previous five years. The fact remains families throughout the country have become increasingly concerned because the equity they once counted on is diminishing everyday. The antithesis of equity was once loss, but now we find ourselves juxtaposing the two together as one takes the other down with it every time a home is sold. Potential buyers are finding deals at the expense of current homeowners. The equity problem affects everybody whether they are in trouble or not. Optimism can no longer serve as the prescription to the housing crisis, and we must remember equity is also defined as “something that is fair and just.”
Dominic Diorio is real estate broker in Chicago, IL. Mr. Diorio's specializes in bank owned properties throughout the Chicagoland area.

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