When a homeowner faces foreclosure, the owner is not the only one who pays, and this makes the average difficult to calculate at times. In 2009, the Joint Economic Committee estimated the cost to be about $151,000 for the average foreclosure, up from $80,000 in 2007. These costs not only affect the homeowner, but also the lender, the local government and local property owners.
Costs to Homeowners
The homeowner stands to lose money in a foreclosure in two primary ways. First, the homeowner will need to move from the foreclosed home into a suitable rental property, incurring moving costs. Also, any equity the homeowner has built in the home will be lost in foreclosure. The average cost to the homeowner was reported to be $7,000 in 2009, according to Realty Times.
Costs to the Lender
The costs to the lender begin the moment the borrower stops paying. Lost interest and principle payments, as well as payments for tax or insurance for a customer who has an escrow account, still must be made, even though the homeowner has stopped paying. It usually is the lender’s responsibility to maintain the home once the homeowner is evicted. The lender also has to pay for collection efforts prior to starting the foreclosure. These costs can average around 20 to 60 cents per dollar of the loan.
Costs to the Local Government
The jurisdiction where the foreclosed property is located cannot simply ignore it. In addition to the court actions, efforts of local law enforcement to keep the property safe and back taxes on the home, jurisdictions also might need to pay for trash removal, deal with unpaid water and sewage bills or plan for a demolition of the building. This can be as much as $34,000 in costs, with an average being around $19,000.
Cost to Local Homeowners
Homeowners living near the foreclosed property can stand to lose money as a result of the foreclosure as well. When a foreclosed home hits the market, property values in the homes surrounding it tend to drop. The average drop is $75,000, with some areas reporting drops of as much as $220,000. If any property owners near the foreclosure are planning on selling in the near future, they might struggle to regain what they paid for the home.
Nicole Harms has been writing professionally since 2006, specializing in real estate, finance and travel. When she's not writing, she enjoys traveling and has visited several countries, including Israel, Spain, France and Guam. Harms received a Bachelor of Science in Education from Maranatha Baptist Bible College.