The California Foreclosure Prevention Act, which established a 90-day moratorium on foreclosure that went into effect June 15, ends today. What does this mean for property values and the coming sales activity? Will there be a flood of new properties that come to market? What have lenders learned?

Opinions vary. But, those on the ground are expressing some concern, especially because properties need to be marked to the market. Some glimmer of hope exists -- RealtyTrac’s report for August shows foreclosure activity is down from the same time last year—9% from a year ago and 15% from the previous month. However, what people are questioning is whether there will be a flood on new properties in the months of September, October and November. That’s what happened earlier this year after the federal government’s moratorium on foreclosures came to an end.

Lenders are being much more prudent than in years past. They’re first line of attack is do workouts with borrowers. Secondly, they plan to bring properties to market in a trickle. But the problem with the later scenario is that they can not hold on to REO properties too long or else the regulators will start breathing down their necks to boast their reserves. If too many REO’s begin to flood their portfolios then they’ll have to flood the market with REO properties. So, if the economy behaves and works in their favor, then it could prove to be a trickle of new supply, which will send a number of REO’s into the rushing river. If the economy worsens then it could be a tsunami scenario with devastating consequences.

The commercial REO market and the corresponding lenders are gearing up for a minimum of a rushing river scenario, but I don’t think they are staffed for a tsunami scenario. If this is the scenario then will be problematic. The areas destined for difficulty are Los Angeles, north Orange County, San Bernardino, and Riverside Counties. San Diego is experiencing some fallout now, but is less likely to be hit hard.

The REO asset sectors that are predicted to come online first are retail and offices, with apartments and industrial close behind. Unless consumers start spending then REO retail will come online like a locomotive after the Christmas selling season ends. Depending on how many single family homes are released to the market by lenders is really the test of how apartments will fare. If a flood of single family home reach the market, then people will have the choice between living in a home with multiple family members and friends or venturing out to an apartment. Apartment REO’s in San Bernardino, Riverside, San Diego and Los Angeles will become prevalent if a flood of single family homes come to the market. This scenario will swoop up the demand for renters. Apartment brokers are concerned about this scenario, but remain optimistic that the lack of new construction will help over the next year or two.

By Michael Duhs, Managing Broker of East West Commercial at (949) 939-8352, specializes in apartments for sale, retail, and senior housing in the counties of Los Angeles, Orange County, San Diego, Riverside and San Bernardino. East West Commercial is seeing its Commercial REO and Apartment REO business increase in southern California. Contact http://www.EastWestCommercial.com, http://www.CommercialREOs.tv (Commercial REO’s), or http://www.REOapartments.tv (REO Apartments) for your source for commercial properties for sale or coming to market. For Michael Duhs’ blog, go to http://michaelduhs.wordpress.com, http://activerain.com/blogs/michaelduhs, http://www.blog.EastWestCommercial.com