In an article on the Medium website, Michael Nierenberg explains why foreclosures are typically a losing situation for both the homeowner and the investor holding the note. Some investors buy non-performing mortgage notes for pennies on the dollar in the hope of making a profitable exit. If the exit ends up being through a foreclosure, the homeowner loses in two ways: any equity there might have been is lost, and the homeowner is saddled with a foreclosure on his or her credit report. For the investor, a foreclosure is expensive both in terms of fees and the time needed to complete the foreclosure process.
In the article, Michael Nierenberg points out the challenges in “Judicial States.” Simply put, some states require a judicial procedure for any foreclosure. Other states – referred to as “Non-Judicial” – do not require a judicial procedure. While most investors hope to work out a deal with the homeowners to avoid the extra costs associated with foreclosures, this does not always happen. Michael Nierenberg presents data showing that the foreclosure rate in judicial states is twice as high as for non-judicial states.
Michael Nierenberg is the CEO and Chairman of the Board of New Residential Investment Corp (NYSE: NRZ). This Real Estate Investment Trust (REIT) focuses on investing in residential mortgages.
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