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Banks Profit From Foreclosures Through Booming Rental Market

Despite the fact that banks are supposed to offer solutions to distressed homeowners – either through home loan modification or interest reductions – there appears to be strong incentive for these firms to push these properties into foreclosure.

The latest reason our Miami foreclosure lawyers have noted is the booming rental industry. Lenders have effectively created another market for themselves. The roughly 7 million foreclosures that have occurred in the last few years have left many people homeless and with poor credit. They aren’t in a position to buy again. So what do they do?

A number of companies have cropped up to help banks facilitate the transition of a property from owned to rented. Investors such as the New York-based Blackstone Group LP hires a host of professionals to conduct necessary repairs and updates and lease the properties out. So far, Blackstone alone has purchased 41,000 properties in more than a dozen metro areas over the last several years. The vast majority of those properties that had been through the foreclosure wringer.

While many banks remain reluctant to lend to individual home buyers, they are eager to lend to investors snapping up anywhere from tens of thousands of rental properties to less than a dozen. While most started out paying cash, banks are now beginning to offer these companies extended financing.

It’s estimated right now that some 100 million Americans live in rented homes. The fact that foreclosures are now being turned into rental properties means there will be fewer homes on the market. Those that remain will be expensive.

Long-term, this has the effect of putting home ownership sharply out of reach for most homeowners, especially those who are minorities or under the age of 40.

Some have voiced concern that when investors drive up prices on these properties, it creates the possibility that there could be another housing bust.

In the short-term, there is worry that these long-distance owners have little incentive to keep properties well-maintained – or at least as well-maintained as an individual homeowner would. A recent study by economics researchers at Pennsylvania State University found that homeowners are more likely than renters to do property maintenance, become involved in community groups and vote with greater frequency. Overall, this shift to a greater number of renters could result in a reduction of property values.

Right now, investors are snapping up Miami foreclosures that are routinely valued at less than 50 percent of its actual value. Short-term interest rates being near zero, investors are eager to pounce.

Although single-family home rentals represent just 10 percent of the overall market, that is beginning to change as many families forced from their homes in the midst of the housing bubble are looking to get their family back into a house. They would prefer to buy, but many have been blocked out of the market.

Home ownership for black Americans is down to about 43 percent – 7 percent less than where it was prior to the crash. Considering that home ownership is the No. 1 vehicle through which people build wealth in this country, it further sets people at a disadvantage.

Some would-be borrowers report putting in multiple offers on homes, only to be ultimately out-bid by the investors.

If you’re battling foreclosure in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday from 5 p.m. to 6 p.m. on “Mortgage Wars,” discussing foreclosure topics that matter to YOU.

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