The Importance of Foreclosure Analysis

As discussed in EBI’s last blog post, thousands of loans were put into 3- to 9-month forbearances shortly after COVID-19 first hit the U.S.

As we approach the fall, more and more borrowers—both individuals and companies—will reach the end of their forbearance terms and will have to determine their ability to resume making payments. Many borrowers have taken too much of a hit from the pandemic, and lenders will have no choice but to foreclose on these properties. With so much on their plate already, lenders will need to ensure foreclosure properties go up for resale and sell as soon as possible.

Taking ownership of a property that’s likely been sitting vacant for several months can be a burden on banks and other lenders, especially when a crisis triggers a high volume of foreclosures simultaneously. In addition to being responsible for getting a property resold, lenders are also faced with upkeep and maintenance of foreclosed properties until they can get it off their balance sheet.

Oftentimes foreclosure properties exhibit more damage, as they’ve sat vacant for a period due to borrower’s inability to afford property maintenance. When ownership falls to the lender, getting the property in good condition is paramount to generate income once again.

 

Traditional Property Condition Assessment vs. Foreclosure Analysis Report

When lenders begin reviewing a property before originating a loan, a Property Condition Report (PCR) assesses the current condition of the property and lays out immediate and probably future repairs. While some issues, such as those affecting occupant health and safety, are recommended to be fixed immediately, others can be repaired over time. This helps property managers spread the costs out instead of paying a large lump sum all at once. For example, if the PCR recommends roof, foundation, and MEP repairs, the owner of the property can make these repairs over a period of months or years.

In the case of a foreclosure, however, it’s usually in a lender’s best interest to fix all property issues before resale to get it closer to the original value and avoid a revenue hit. Since the chances are high that a foreclosure property will require repairs and/or maintenance, lenders ought to have a detailed property assessment performed by a highly experienced industry professional.

A Foreclosure Analysis Report is a modified Property Condition Report specifically tailored to meet the needs of clients that have taken ownership of a foreclosure property. The main goal of the report is to assist the lender in determining how best to resell the property without taking a huge financial hit. A foreclosure analysis consists of a site survey, interviews with those responsible for property upkeep, and a thorough review of all available municipal and management documents regarding maintenance, recent repairs, material code violations, or capital improvements. This is the best way to understand the true condition of the property and lays out detailed estimates of deferred maintenance costs, immediate repairs, and replacement reserves during the anticipated hold, restructure, or ownership term. Report add-ons, such as MEP, ADA, roof assessments, or elevator reports, can give even more insight into the true condition of a property. 

 

Never Cut Corners

EBI puts our clients’ needs first. Our reports are consistent, thorough, and accurate so we can equip our clients with the information they need to make the best business decisions. Our assessors are equipped with the knowledge, experience, and credentials needed to provide valuable reports every time. If you anticipate foreclosing on properties in the near term, reach out to EBI’s experts. We can help you navigate these difficult times to end up with the best possible outcomes.

 

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