Sunday, September 27, 2009

Mortgage foreclosures - a catalyst for real estate fraud?

There are indications that a new wave of mortgage foreclosures may soon hit the already weak economy. The impact of those (and previous) foreclosures reaches far beyond the houses that are actually being foreclosed upon. As we have all learned, foreclosures tend to depress the price of all real estate, as lenders end up dumping large amounts of foreclosed real estate on the market in an attempt to cut their losses. The price effect of a few foreclosures spreads throughout the entire real estate market.

But prices fall slowly. Sellers are reluctant to lower the price of their house, as they harbor long held expectations of what their house is worth. Rather than lower the price of their house, many sellers will resort to misrepresentation and fraud in order to unload their property. There is hardly a characteristic of a house that a seller will not misrepresent. Fraud comes before price concessions.

We are told that the current real estate market is a “buyer’s market.” We are led to believe that buyers can obtain good deals by taking advantage of depressed prices. That theory is true only for those buyers who can withstand the gauntlet of misrepresentation that awaits anyone who attempts to obtain a bargain.

While specific cases of misrepresentation will have to await future posts, suffice it to say that buyers should assume that the road to a good bargain is paved with hidden costs. There are many ways for buyers to protect themselves, but they won't get this protection unless they assume the worst in each case. Stay tuned for details . . .

update -
Home inspections as a possible solution.

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