News from the Trenches and Looking at the Future
Posted March 14th, 2008
I don’t know about you, but presently I am negotiating short sale transactions in which the homeowners have not made payments for almost a year. The most interesting thing is that these clients are not yet in foreclosure. As you know, I am in Portland, Oregon. In Oregon, the foreclosure process lasts 120 days. This means that if the creditors start foreclosing today, these homeowners will have at least one third of a year to live at the property for free. Banks must not want to foreclose!
As you already know, I present the Short Sales A-Z seminar all over the west coast. Many of the investors and agents who attend my classes have noticed the same. This is something new. Last year, banks would have started foreclosing right away. Nowadays, it is very common for creditors to wait almost a year to actually begin foreclosure.
This phenomenon is definitely increasingly common. Here is a non-scientific calculation that I just did. Lets look at the neighboring Santa Clara and Mateo counties at the south end of the San Francisco Bay area. This is a good area to analyze because it is one of the most affluent and even-keeled areas of the United States but also where real estate values escalated astronomically in the early 2000’s.
This analysis comes from information found at www.rapidforeclosuredata.com and www.foreclosure.com. Rapid Foreclosure Data tracks and sells pre-public record default data. This data lists people in default but not yet in foreclosure. Foreclosure.com keeps track of and sells notices of default lists. This data is extracted from public records and has the list of properties that are already in the process of being foreclosed.
From Rapid Foreclosure Data, as of today, July 25, 2007, Santa Clara County has a total of 4,135 properties 30 to 120 days in default. San Mateo County has 1,635 properties. The total for both counties is 5,770 properties. Normally, most banks start foreclosing at between 90 and 120 days of default. So the vast majority of these properties are not yet in foreclosure or entered into any public records.
Also, from Rapid Foreclosure Data, as of today, July 25, 2007, Santa Clara County has a total of 5,123 properties in at least 30 days of default. San Mateo County has a total of 2,025 properties that are at least 30 days in default. This total is 7,128 properties.
By subtracting the first group from the second group, we infer that as of today, July 25, 2007, Santa Clara County has 988 properties that are over 120 days in default. San Mateo County has 390 properties over 120 days. In theory, the majority of these properties should already be in the legal process of being foreclosed. Properties in the process of being foreclosed are widely referred to as pre-foreclosures. Rapid Foreclosure Data does not count properties above 150 days in default.
I don’t like to mix data sources because the lists are sometimes not totally compatible. But given that these are the cards that I have to play with today, and that this is not scientific, I’ll forgive myself. Hopefully, the next time I can do better.
According to Foreclosure.com, as of today, in Santa Clara County there are 1,755 listings of pre-foreclosures. San Mateo County has a total of 465 properties listed as pre-foreclosures. The total for both counties is 2,220. These properties are listed in public records. Public records are the source of information Foreclosure.com uses. For the most part, this data does not overlap with the data from Rapid Foreclosure Data.
By adding both data sources, we can see that in Santa Clara County there are around 6,878 properties in default. In San Mateo County, there are around 2,490 properties in default. Based on this, the default total for both counties is 9,368 properties.
There are several imprecisions in this calculation. I have mixed data sources. There are some duplications because properties with double mortgages get reported twice. There is some additional duplication because some of the properties listed by Rapid Foreclosure Data as being over 120 days late may also listed in the Foreclosure.com list. What makes up for this is that there are a large number of properties that are several months in default, but not yet in foreclosure. To be conservative, one can subtract the number of properties over 120 days in default given by Rapid Foreclosure Data from the number of pre-foreclosures obtained from Foreclosure.com. However, this will not add much precision, because as you know, trustee sales are postponed so often that pre-foreclosure numbers keep increasing because what should have been foreclose remains in the list for weeks. So I will leave it there.
This non-scientific calculation suggests the following:
- The number of properties in default but not yet in foreclosure is a few times larger than the number of properties actually being foreclosed (pre-foreclosures). There are 7,128 properties in default but not yet being foreclosed, versus 2,220 publicly recorded pre-foreclosure. This is an over a three hundred percent difference.
- Given that real estate in not appreciating as before and that a large number of those properties were 100% financed with adjustable rate mortgages, the majority of the properties entering default will become pre-foreclosures, and if nothing positive happens, they will become R.E.O.
- The numbers are so large that either banks can’t keep up with the defaults or are trying to not end up with more R.E.O. by procrastinating with the foreclosures.
Please do not hold me to any scientific standards. This is just a better than eyeball calculation. Make your own conclusions. I selected two very similar counties in a part of the country were real estate is supposed to be relatively stable. I am using this information to make my own investing decision in my own part of the country.
Who loses:
- Creditors who made bad loans.
- People who invested in those banks.
- Homeowners who paid too much for properties.
Who Wins:
- This is definitely a buyers market. Consumers and investors will have the chance of their lives. Someone said that in real estate you make money when you buy and you get paid when you sell. Well, this is it.
- Anyone who can provide a solution that mitigates the losses of those who are losing. This includes short sale experts, real estate and bankruptcy attorneys, and astute lenders.
Written by Oscar Morante, of Advanced Real Estate Concepts, LLC.
