For high-end, luxury, or executive homeowners, there is typically more time to work out a foreclosure alternative with lenders, whether it be a short sale, a loan modification, a forbearance agreement, or deed-in-lieu. Additionally, some lenders will even pay cash to the homeowner of up to $30,000 (this only happens in a short sale, and it actually happened to my cousin). There are several reasons that luxury homeowners have these options.
First, lenders really don’t want to foreclose on high-end homes. Why? Because once the bank forecloses, the bank still needs to sell the home, which is now an asset that they don’t want on their books. According to a recent article in The Wall Street Journal, only 28% of homes worth over $1 million that received default notices last year were eventually foreclosed, compared to 85% of homes valued under $1 million.
One reason banks don’t want to foreclose is that luxury homes are not affordable for most of the population, so they typically take more time to sell. And investor-landlord buyers in the Asheville area are not usually interested in such homes, as they don’t typically provide positive cash flow as rentals.
Additionally, the bank will incur high carrying costs after foreclosing on a luxury home; property taxes and insurance, homeowners’ association dues, and maintenance costs are all higher on larger, more luxurious homes.
This means the foreclosure process is more likely to drag out, sometimes over a year, giving the homeowner more time to come to an agreement with the bank. In a few cases, a loan modification or a forbearance will provide the homeowner with the necessary mortgage relief they need to keep their home. For homeowners considering such an option, an attorney who specializes in these arrangements should be hired to review all bank documents. However, it should be noted that these arrangements are the exception, as most luxury homeowners in pre-foreclosure will need to sell the property in a short sale or work out a deed-in-lieu; in other words, the owner will not be able to keep the home.
If necessary, luxury homeowners can often afford a foreclosure defense attorney, who may be able to delay the foreclosure process even longer. This can provide valuable time to attract buyers, negotiate deficiencies, and settle large second mortgages. During this time, the owner is able to stay in the home.