This section is from the book "Practical Real Estate Methods For Broker, Operator & Owner", by Thirty Experts. Also available from Amazon: Practical Real Estate Methods for Broker, Operator, Owner.
A fifth point to be considered is that of the accumulations pending and during foreclosure, including the period of redemption, if there is one. The amount loaned on property, practically speaking, is not the face of the loan, but the amount of the debt with all its accumulations at the time of realizing on the property which has secured the debt. These accumulations are usually made up of delinquent interest, delinquent taxes (with penalties and a high rate of interest), delinquent street improvement taxes (with penalties), court costs, attorneys' fees, repairs after obtaining the property, and a real estate commission for selling which varies from 1% in New York up to 5% in smaller communities. In addition to these, there is the total or partial loss of interest from the time of commencing suit until the property is finally sold. In the aggregate these accumulations vary from 10% of the face of the loan to a maximum of 40% in cases of small loans where the laws are unfavorable to lenders. These variations in the amount of the accumulations attract attention to a comparison of the laws of the various States in regard to mortgage loans. One of the common provisions in Western States, and one which adds largely to the accumulation, is the provision of law granting to the mortgagor a period after judgment of foreclosure within which he may redeem the property by paying to the judgment creditor the amount of the judgment with interest. This provision seems to have come into existence in States where mortgage loans on agricultural property predominated, with a view to avoiding the serious effect on farmers of a single crop failure; and since such laws must be uniform in their operation, they apply to loans on city property as well. This period of redemption varies from nine months in Nebraska and a year in most of the Rocky Mountain and Pacific Coast States, to eighteen months in Kansas and two years in Alabama. The effect of this law is to prevent outside parties from buying at foreclosure sales, since they cannot be sure that the property will not be redeemed by the mortgagor by payment of the judgment and interest, and also prevents a mortgagee during the period of redemption from improving the property and obtaining larger rentals, for the same reason. Where, as in a few of the Middle Western States, such as Indiana, Minnesota and Iowa, the mortgagor , remains in possession during the period of redemption, the accumulation is much greater, since during this period the mortgagee is entitled to no rental return at all; and a further action at law may become necessary to obtain possession. Other legal features which affect the amount of the accumulations are those which permit interest to be compounded; which permit penalty rates of interest, both on delinquent principal and interest, and large contractual attorneys' fees. Obviously, the element of time is the principal one, and where a mortgage may be foreclosed and the property obtained in a short time, the accumulations will be small. In this respect the laws prevailing in the Southern States are more favorable to lenders than those in any other part of the United States. In Europe the advantage to lenders of being able to foreclose without delay is generally recognized, and the laws governing foreclosure have been in this respect carried so far that the Credit Foncier, of France, can obtain title to properties under foreclosure in eight days after default, and the Banco Hipotecario, of Spain, in two days after default.