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If the apparent market value of the investment property is above the mortgage balance and a foreclosure occurs, it is clear that the legal expenses and late fees are something that the mortgagee must pay out of any money from the sale after the mortgage balance is paid in full.

The normal closing costs and capital gain taxes are not a concern for this question because they would have occurred with a normal sale too.

It also seems to me that the financial institution will not be highly motivated to get the best price for the mortgagee, so that is probably a loss resulting from the foreclosure too. So here is the list of losses I see so far.

  • Late fees and penalties
  • Legal costs incurred by the financial institution
  • Any legal costs incurred in defending the foreclosure
  • Loss resulting from the financial institutions lack of motive to get fair price in the sale

Are there any other losses that can be expected beyond the above?

Also, are there any statutes or pressures to motivate the financial institution to get fair price when the property is sold?

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Are there any other losses that can be expected beyond the above?

The lender may have to invest some money into the house in order to get it in shape to sell. Also, while the lender possesses the house they are liable to the property taxes and possibly utilities.

are there any statutes or pressures to motivate the financial institution to get fair price when the property is sold?

The lender is motivated to at least break even when selling the property in order to limit losses on their investment. This means they are very motivated to seek a higher price, but they're also motivated to sell the property quickly in order to limit their losses due to property taxes. Usually the lender takes a loss of the investment if foreclosure occurs; only 10 percent to 20 percent of auctioned foreclosed houses did yield a surplus.

When the lender sells the foreclosed property using a realtor, they're motivated to sell it as quickly as possible so long as they break even. In this case there is little motivation to sell the property for a surplus. If the property is being sold via auction, then time is not a factor and the lender will just sell to the highest bidder.

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