One of our readers asked the following question about the cost of foreclosures.

• "I would like someone to explain where the costs of a foreclosure go. It was reported on TV that the average cost is $75,000.00 per house. Why so much and can someone breakdown who gets the money. Legal, recording fees, advertising, etc."

A report by the Joint Economic Committee of Congress estimates that the average cost of a foreclosure, to the homeowner, lender, local government, and neighbors (whose homes decline in value), is $78,000. By contrast, preventing the foreclosure would cost $3,300 per home on average. Here's how the report breaks out that figure among various "stakeholders":

• Homeowner: $7,200
  Lender: $50,000
  Local government: $19,227
  Impact on neighbor's home value: $1,508
  Estimated total cost of foreclosure: $77,935

Homeowner: To me these costs might not even include everything, it might be more. The homeowner had the cost of moving in and moving out. Some disruption to normal working hours (and pay) if they still have a job and the loss of equity might be far greater. If you only lost 2% of a $400,000 home, you would have lost $8,000.

Lender: The lender is going to have to find a "qualified buyer" in a tough market, and the credit worthiness is going to have to be better than the first time around, with less generous terms. They will have some clean-up costs after the homeowner moves out, which could easily run $5,000 for paint, some carpeting, examination by an inspection service and repair of any minor things they find. Then they have to cover the cost of not being paid any mortgage money. If it takes 90 days to find a buyer, and there is a quick escrow period of 30 days, they have to cover for 4 months. Figure a rate of 5%, and the cost is about $2,150 per month for 4 months, $8,600.

They will have to pay at least a 4% commission, which adds another $16,000 on a $400,000 home. They have insurance costs, legal costs, processing fees, appraisal fees, and they even have to pay a gardener and service people to maintain the property while it is on the books. And there is one fee that most people would never think of but assures that the lender wants to get the property off their books. They have to keep cash reserves in the bank as a percentage of deposits and assets. This means a $400,000 asset on their books is going to reduce the amount of money they can lend, even if they have the money to lend, until they dump the property. All this assumes they sell the house for the $400,000, but they may not, if the house has gone down 10% or $40,000, quite likely in many parts of the country, now they are really taking a bath.

Local Government: They will receive some shortfall in taxes and fees they collect from homeowners, and when the home is sold again at a new lower price then the tax base shrinks. In addition, if homeowners can make a legitimate case that the appraised value of a home they bought in the past few years has gone down significantly then they may petition for a tax reduction or relief even though they are staying.

Neighbors: This figure seems just plain goofy. If my neighbor's house went down in value, then so did mine, and it is not just the guy next door who is losing equity (at least on paper), it is the whole neighborhood.

It does seem these foreclosure costs are easily substantiated. What is harder to substantiate is the government figure that they can prevent a foreclosure for as little as $3,300 -- this I would challenge. Maybe the government has thought of its own new way to leverage real estate. Besides, If you have no equity in a house that has gone down in value and you will soon have to pay a mortgage based on the higher original value, why would you do that? But it is a government report full of pontifications by senators, so everything is questionable.

Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm.