In Upside DownYour neighbors were great.  They moved two or three years ago into the house next door that’s nearly identical to your own. They kept the lawn  mowed, their dog didn’t bark too much, and they once loaned you a router to edge the new table you built.  However, you learned they had some financial troubles when their mortgage jumped about $400 a month.  Normally they could’ve handle the added expense, but gas prices also increased their monthly expenses by another $100 and grocery prices rose as well. 

Your neighbors lost their home to foreclosure.  The lender just wants enough money to pay off most of the loan regardless of what it’s worth.  The house could go for $150,000, but the bank sold it for $125,00 just to get rid of it.  When all is said and done, you lost your good neighbors.  But you also lost 16% in your home’s value.  After several years - if you stay in your home - the value will return.  However, if you plan to move soon, you won’t get as much for your house as you would’ve a year ago.

According to MSNBC, foreclosures definitely hurt the neighbors.

In a study of foreclosures in Chicago in the late 1990s, Georgia Tech associate professor Dan Immergluck found that each foreclosure on an urban block lowered property values by an average of nearly 1 percent, and about 1.4 percent in low-income neighborhoods.

The silver lining is that if you sell and move to a new house, you should be able to recover the value of the home you’re selling through the savings of the one you’ll buy.

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