Collection companies may be next to take advantage of real estate downturn

Collection companies may be next to take advantage of real estate downturn

Our current real estate downturn has led to a demand for new services that are taking advantage of the situation. While Mortgage Brokers, Realtors, Title Agents, Appraisers and others are clear losers in the downturn, many have re-made themselves to position themselves in these difficult economic times.

As the volume of foreclosures and short-sales rise, new niches have sprout: REO Specialists, Loan Modification Agents, Foreclosure Defense, etc. The Mortgage Broker who put you in that loan that you cannot (and probably never could or would) afford is now your Loan Modification Agent, trying to negotiate and navigate a lender's bureaucratic maze in order to modify your loan. The Realtor who sold you that house and promised that you would sell it for a profit within 2 years is now listing it as a Short-Sale and probably works in the Short-Sale Department or in REO Department of their Real Estate Brokerage. The Attorneys who were minting money just writing Title Insurance policies are now advertising foreclosure defense, where through motions and filings they aim to delay the actual sale date of your property for as long as possible (and as long as you pay them their monthly fee).

One major industry conspicuously absent is the Collection Agencies. But could a new opportunity for them to cash in the real estate crash be near? As many owners face foreclosure and lenders repossessed 95,364 properties last August, lenders may have a right to sue for a deficiency judgment. In simple terms, after a lender forecloses on a property, if the sales price is not sufficient to cover the lender’s lien(s) and costs, they have the legal right to go after the defendant for the difference. Such judgment can allow the lender to come after your wages, bank accounts and other properties.

Here is where the collection agencies come in. As the volume of foreclosures and repossessions has increased, lenders will have a hard time pursuing all their allowable claims and collecting on them. Thus collection agencies maybe on a sweet spot where they can sift through all the lender’s files of successful foreclosures, analyze those whose borrowers may have assets that they can come after and buy the right to collect on the deficiency for a discount on the face value of the deficiency. They will earn high profits when they collect in full or partially if they settle with the defaulted borrower for a fraction of the deficiency.

For lenders it will mean they will get a venue to receive extra cash from an unfortunate experience but for the collection agencies the opportunities have just started.