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Proposed Bankruptcy Reform Drawing Criticism, But Bankruptcies Leading to Savings for Real Estate Investors
By jason | March 6, 2008
There has been much controversy lately over a new bill being pushed through the federal legislature that would move to reform bankruptcy laws as part of a plan to fight rising foreclosures in the United States.
The Foreclosure Prevention Act of 2008 is built in large part around a measure that seeks to stem foreclosures by changing what happens legally when a homeowner declares bankruptcy. The statute would award power to certain bankruptcy judges that would allow them to waive portions of certain debts based on their discretion of the situation, in an attempt to allow homeowners facing bankruptcy to avoid foreclosure and keep their homes.
But in addition to drawing heat from Senate Republicans, there are many concerns coming from all sides about what the new bankruptcy measures will mean for homeowners, the housing industry and the foreclosures market at large. One concern is the measures banks and lenders will take to avoid losing money on loan debts that might be waived due to bankruptcy. Some lending institution figures have discussed imposing a bankruptcy premium on certain loans that are considered risky, and others are promising to fight long court battles to regain any money denied them by the new measure.
Critics also say that bankruptcy law reform should work more towards helping homeowners pay off their debts over time rather than escape them. Already, many cite the fact that homeowners are allowing their homes to go into foreclosure and walk away, while banks and other lenders are stuck with trying to sell the properties to regain the money lost on the loan. However, with the foreclosure market surging, there are simply too many bank foreclosure homes out there to have any sold at a reasonable price, and so many of these homes are simply being awarded to banks and lenders as collateral that they then attempt to sell off on their own time.
The bankruptcy surge and this phenomenon however has led to create some interesting bank foreclosure homes buying opportunities for investors who are looking to capitalize. Since selling real estate is not a primary concern of banks and lenders, they will be looking to unload bank foreclosure homes even if it means they’ll only get a good portion of the money lost on the loan to bankruptcy back. Many bank foreclosure homes are sold by lenders for 10-50% below their market value, and while this is often a loss for the lenders, it is a huge gain for savvy homebuyers and investors.
Topics: Bankruptcy |