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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory

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To: Ramsey Su who wrote (71169)	10/6/2006 11:29:45 AM
From: ridingycurve	Read Replies (1) of 110194

Could you please expand on that thought a bit? My thinking might be outdated. Foreclosing from second position behind an 80% 1st. mortgage can be very iffy when real estate prices are falling, or at least no longer rising. Legal fees, cost to carry (including opportunity cost), taxes and insurance, and cost to market can eat up a good bit of the junior lien holder’s collateral margin. Additionally, foreclosed properties often don't bring market value, as was witnessed in the 1980's and 1990's. The buyers are often opportunistic investors.......or vultures as some would put it. There is also a good possibility that the first mortgage would be in default, and I assume that the second line holder would be required to satisfy the total indebtedness in most jurisdictions. Let's look at just the marketing cost. If we assume a $100k property with $100K of total mortgages, a 6% realtor’s fee would leave the junior lien holder with only $14k to cover all other potential expenses. If past is prolog, the junior lien holder will often not foreclose; and will ultimately realize little if any recovery. Time will tell how things go this time around.

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