Why so many foreclosures hit Georgia

If you own real estate in Georgia, your valuation likely has been rocked by the extreme number of foreclosures that have occurred in the past few years. It seems like every time our home market has tried to recover, along comes another 10,000 homes going to the auction block.

For the most part, those homes go back to the first mortgage lender, who lists them for sale with a real estate agent. As the house sits vacant, it drags down property values because of its deteriorating condition. If it sells at all, the sale is often at a huge discount, further undermining values in the neighborhood.

Why have foreclosures hit our state so hard while other states seem to be less impacted? Georgia has repeatedly topped the list of national foreclosure numbers, and there are several reasons.

Georgia is a ‘title theory’ state 

That means we have one of the strongest foreclosure laws in the nation. As a result, lenders actually prefer to include Georgia loans in their portfolio. That’s good because it makes our rates low, but it’s not good because you can lose your Georgia home in as little as six weeks.

Because the foreclosure process is prescribed by state laws, and because every state is different, time needed to actually foreclose varies dramatically.

According to LPS Solutions, the average home loan that completed foreclosure this summer had received no payments for 599 days, up 25.3 percent from 478 days a year ago.

In some states, it can actually take up to two years to lose your home, so banks there are more willing to work out a modification.

In addition, Georgia is one of the few states that allows lenders to pursue borrowers for any shortfall in payment that may exist after a foreclosure action. It’s called “seeking a deficiency judgment,” and allows lenders to sue borrowers personally for the debt.

Growth and risk

Another reason that foreclosures hit Georgia so hard is unprecedented growth.

In the past quarter century, a pro-business environment coupled with a great climate led many businesses to relocate in Georgia. The resultant housing boom propelled Atlanta into the top tiers of national growth.

As a result, there were many new homes built and sold to first-time buyers, the riskiest group of borrowers. As the recession kicked in, some of these homes began to lose value, and newer owners got hit hardest. First-time buyers tend to carry higher debt loads, meaning they are stretched thinner than their more experienced counterparts.

In addition, they tend to be employed in occupations that are more exposed to wage cuts and layoffs. When borrowers are heavily indebted, drops in income can trigger financial distress.

Mortgage fraud

Mortgage fraud got a toehold in the metro Atlanta when the strong growth and a relaxed lending environment produced too many unprepared homeowners.

Much of this fraud centers around application misrepresentation and appraisal tampering. Criminal elements learned to take advantage of the system, and federal authorities were slow to react. Fraud exploded, leaving vacant homes and devastated neighborhoods in its wake.

In 2005, Georgia ranked first in the nation in reported incidence of mortgage fraud and misrepresentation by mortgage professionals. This year, that distinction goes to Florida, while Georgia has dropped to No. 8 on the list.

While mortgage fraud is now drawing increased scrutiny from authorities, the damage from the past remains. Some neighborhoods may take years to recover.

Yes, there are other parts of the nation where foreclosures are a real problem. But there is no single metro area so devastated as the one we are experiencing here.

Even though we think of California, Florida and Nevada as areas that experienced the real estate bubble, the effect of that bubble has largely passed. Atlanta remains in the top five foreclosure markets on a persistent basis.

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