The Unforeclosed

By
Real Estate Broker/Owner with Mint Properties, Lic. #01871795 Lic. #01871795
https://activerain.com/droplet/429

The Unforeclosed

We all know the stories of the unforeclosed.  They are not an urban legend or myth.  As a real estate professional, I have met more than a few people who have been living in homes where they haven't paid the mortgage for a year or more.  Contrary to popular belief, not very many of them consider themselves "lucky," as the stress of their financial situation is typically very intense.  Some don't even have a Notice of Default filed on their property. 

Often they are moving through the loan modification process, and once complete, many will opt to begin a short sale process that could extend their unpaid stay even longer.  In reality, not all these homes are occupied.  Neighbors worry as homes sit vacant with no end in sight.  The bottom line is that there is a great deal of inventory, which by ordinary timeframes, would have already moved through the foreclosure process.  As a result, I've been hearing the prediction of a tidal wave or tsunami of inventory for about 2-3 years

Yet, I haven't seen it. In fact, in 2008 and 2009, I could have sold even more homes if the inventory in Santa Maria and Orcutt had been there.  2010 saw fewer sales in Santa Maria and Orcutt,* I think in part due to the start-stop frenzy of the extended tax credit.  But, even now I still have plenty of buyers that are waiting for the type of home they want to appear on the market. 

No one can predict the future, especially from looking at the past - we've all re-learned that over the past 5 - 6 years.  So, I certainly don't know what is going to happen either.  I continue to hear people talking about the coming flood of foreclosed homes.  However, it seems to me that whatever the banks are doing, they are doing ON PURPOSE.  You don't accidentally forget to foreclose.  True, banks haven't been too good at processing foreclosures and short sales.  But three years is enough time to hire more staff and a few more (hopefully) competent attorneys to process your foreclosures. 

We are not in a natural market by any stretch of the imagination, and I believe the "unforeclosed" inventory is a symptom of that fact.  In my view, we will be dealing with this inventory for years to come.  Why would the banks go to all this trouble to deliberately hold back inventory for three or four years, only to flood the market now?  For me the real question is not how many foreclosure filings took place and how many loans are now in default, but rather whether there will be a shift in how the banks are choosing to deal with it.  Right now, they appear committed to move slowly.

What do you think?  Will there be a flood of foreclosures hitting the market in 2011? 

*Based on the information from the Central Coast Regional MLS. The Association, the Multiple Listing Service, nor Mint Properties guarantees or is in any way responsible for its accuracy. Data maintained by the Association or its MLS may not reflect all real estate activity in the real estate market.

Copyright © Tni LeBlanc 2011 *The Unforeclosed*

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Posted by

Tni LeBlanc, Broker
(805) 878-9879 mobile/text

tni@mintprop.com
www.MintProp.com
CalBRE #01871795

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Donna Paul 01/19/2011 05:55 AM
  2. Donna Paul 01/19/2011 05:56 AM
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Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Pat Haddad - I agree there is a slow motion effect to it.  I'm kind of over the fire drill they've been running about it.  It's hard to stay on high alert for 3 years while homes come on the market slow as molasses.  Maybe there will be a flood somewhere at sometime, but I don't think it can be predicted by the amount of the unforeclosed inventory.

Gary & April - I agree, I think it would be hard for them to decide to do something and follow through with it well.  But, I do think they are capable of deciding NOT to do so something and following through with that.  LOL.  I also agree that we could sell a whole lot of these homes right now anyway.

Susan - I agree, we have to work all these homes through the system to really make a recovery.  And, I also would love to have more inventory to sell in my market.  There hasn't been enough easy to buy inventory in a long time.  The longer approval process for short sales gives many the misimpression that there are plenty of truly available homes to buy.  Many already have offers and are waiting on bank approval.

Jack Mossman - You raise a good point.  Maybe those homes are selling at auction or in bulk to investors?   We have several investors that are buying at auction in my area and making handsome profits.  When those homes hit the market, they are not "foreclosed" homes and the investors can ask for tip top dollar after they have cleaned them up.

Donne - Same in my area.  The highest end of some markets still probably has some price recessions coming.  But the other markets are on fire with multiple offers and bidding wars.  Yes, I think if we could move the short sale inventory quicker, people could see how few homes are truly available.

Jan 15, 2011 02:19 PM #12
Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Liz Lockhart - Yes. I do think there is some thought behind it.  It's gone on too long now.  Right before every Spring they tell us "Get ready" and then we have the same type Spring with not enough homes to meet demand.  Right now I think we could easily absorb a lot of that inventory.  I'm working with buyers who sat out the housing boom because they thought things got too crazy.  So, some have been waiting to buy for 5 or more years!   They are motivated and the inventory comes out like molasses.

Tim - Yes, this is definitely something that is common.

Ken Barker - For sure, if there is a crystal ball I don't have it.  Who knows.  However, I am starting to notice a pattern around December/January when the inventory naturally piles up a bit - I always hear about a huge influx of REO homes on the market in Spring.  In the Spring I still don't have enough homes for all the buyers and there are bidding wars and frenzied activity.  That has been the last 3 years.  Maybe it's just that what the bank thinks is a tidal wave is more like blip to us.  I'd love to have more homes to sell though.

Cynthia - I wonder if it is the same for other banks.  Of course, IndyMac has a bit of a unique circumstance too since they went through receivership.  I also think Freddie and Fannie operate a little differently as well. I will often see REOs from them when the banks don't appear to be releasing inventory.

Thomas - They should be concerned and get this inventory worked through as short sales when they can.  The City of Lompoc just had a heinous proposal that would put banks and their agents on the hook for homes that are not well maintained. 

Jan 15, 2011 02:41 PM #13
Rainer
145,195
Jeanne Kozak
RE/MAX In Action - Martinsburg, WV
REALTOR and Broker/Owner in WV and VA

I think we are already seeing more foreclosures coming faster in our area. Do you think the banks were waiting for prices to start back up before getting down to business?

Jan 15, 2011 02:48 PM #14
Rainer
11,721
Jeramie Vaine
Century 21 Carioti - Orlando, FL

As many of you have said the banks have their strategy in place, however I think it may change if and when they start expediting the short sale process.  Once the short sale process becomes more stream lined the REO properties will have more competition.  Plus in my market we are seeing a bigger buyer pool than before and the market is stabilizing in some spots.  No matter how it evolves, I know for sure I'm going with it!

Jan 15, 2011 02:49 PM #15
Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Doug - Me too!  No matter what --- this is rough landing!

Jeanne - Who knows?  I don't think they are capable of capitalizing on fast market shift.  But, I do think they have decided that they are going to take their sweet time working throught this mess, because that is exactly what they are doing.

Jeramie - Yes, improving the short sale process is a key part.  Me too!  I'm just not counting on that tidal wave this year.  Too many false alarms.  Show me the money!

Jan 15, 2011 02:55 PM #16
Rainmaker
190,566
DEBORAH STONE
Balboa Real Estate San Diego, CA - San Diego, CA

The banks are not as stupid as we think they are. They are moving slowly for a reason---they are buying time. I do believe there will be more REO's hitting the market in 2011. The banks have completely lost my respect.

Jan 15, 2011 03:05 PM #17
Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Deborah - Yeah I also think they have a plan.  But I don't think the number of "unforeclosed" homes will tell us what it is. 

Jan 15, 2011 03:10 PM #18
Rainmaker
1,115,910
Jim Frimmer
HomeSmart Realty West - San Diego, CA
Realtor & CDPE, Mission Valley specialist

I remember when the experts said the market would be flooded with that shadow inventory in April/May 2009. Nothing. So then they said April/May 2010. Nothing. Three strikes and they’re out!

Jan 15, 2011 03:34 PM #19
Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Jim Frimmer - That's what I'm saying.  Show me the money!

Jan 15, 2011 03:36 PM #20
Ambassador
1,721,102
Jon Zolsky, Daytona Beach, FL
Daytona Condo Realty, 386-405-4408 - Daytona Beach, FL
Buy Daytona condos for heavenly good prices

Tni - three thoughts here:

1. I have already see a few cases cancelled by the court "sue to lack of persecution" by the Lender.

2. I go to foreclosure auctions and the number of properties for sale is fewer and fewer

3. I think I know the future, but, unfortunately, I do not know the timing (LOL)

Jan 15, 2011 03:42 PM #21
Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Jon Zolsky - Yeah well you are cracking me up.  You and I know it is all about the timing! LOL.

Jan 15, 2011 03:47 PM #22
Rainmaker
2,754,033
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Tri - There several factors indicating banks will release more properties to the market in 2011. We are all waiting for those homes. Thanks for a very good blog.

Jan 15, 2011 04:08 PM #23
Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Hi John - I would love to hear what those factors are!  I am waiting as well! 

Jan 15, 2011 04:18 PM #24
Ambassador
758,937
Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

Tni you're fired up on this one. There is definitely motive behind the banks poor performance with regard to the snails pace at which the are approaching foreclosures. Nothing could make this more clear than the length of time it takes to complete a short sale. If ever an explanation has been offered by the banks as to why a short sale takes so long, I must have missed it. But I can't imagine that there are any VALID justifications for the lengthy process.

On the consumer side, you have to asks what makes them want a home so bad that they would endure the level of stress that often accompanies the purchase of a short sale. And Lord knows you've got to admire agents that specialize in short sales. BUT how do consumers and agents aid in keeping the short sale fire burning. Banks are money motivated (duh) and while we may think they are losing money, they may be actually making more of it. And if that were not true, then robbing Peter to pay Paul in order to ride the wave seems to be working for them as a strategy.

Jan 15, 2011 05:48 PM #25
Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Charita - Just a little.  LOL  I am tired of people saying "Get ready!"  Kind of like an offer that never comes!  I do think there is an effort to elongate this process but hey I could be wrong.  You are right short sales actually take about two weeks to process.  We know this because smaller banks routinely approve them in much less than 30 days.  And, typically we bug the banks to look at our file for 3 months, they look at it for two weeks and then make a decision.

Jan 15, 2011 06:40 PM #26
Rainmaker
601,332
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Tni - Like others have noted, the banks are not as stupid as we like to claim they are.  They have a method to their madness and I strongly suspect they know exactly what the the plan is going to be towards their shadow inventory.  Professionally, I believe they have no intention of flooding the market with their shadow inventory that would just drive prices down lower.  By releasing them a little at a time, they may actually get median prices to start rising again.

Jan 15, 2011 06:45 PM #27
Rainmaker
3,301,462
Michael Jacobs
Pasadena, CA
Los Angeles Pasadena 818.516.4393

Tni --- the news of the shadow inventory has been around so long.   Either foreclose, modify the loan, streamline the short sale process  --- these delays  are just ridiculous!  In my area, there's not enough real inventory(willing seller, willing buyer) -- Bring it on!  The market will be what the market is . . .   we need product. 

Jan 16, 2011 02:36 AM #28
Ambassador
3,084,364
Chris Ann Cleland
Long and Foster REALTORS®, Gainesville, VA - Bristow, VA
Associate Broker, Bristow, VA

The best explanation I've ever heard for this behavior or not foreclosing is just the sheer amount of inventory the banks already have in their possession that needs to be sold.  As it was explained to me, once a bank has a certain percentage of their assets as REO, they CAN NOT lend any more money. That's reason enough to not foreclose.  Wells Fargo and Bank of America still need to be able to make new loans. And if they took in every home that wasn't paying their mortgage, they wouldn't be able to.

Again...it's just how it was explained to me by a real estate attorney.

Jan 16, 2011 03:37 AM #29
Rainmaker
414,602
Tni LeBlanc, Realtor®, J.D.
Mint Properties, Lic. #01871795 - Santa Maria, CA
Tenacious Tni (805) 878-9879

Donne - Yes, I do think there is a reason behind the current tactic as well and unless someone gives me a new reason to believe they will reverse course, I think they will continue with the same plan they have been using for the past 3 years of handling distressed inventory.  I could be wrong but we haven't seen tsunami in 3 years. 

Michael Jacobs- That's the other part of it for me.  I don't fear it because we have so many buyers that can not find what they want.  Or the process of buying a short sale is wearing them out.  Bring it on I could sell all those houses right now!

Chris Ann- You bring up an important point and I've heard the same thing.  Reserves.  It's true and it's another reason that I don't believe the status quo will change overnight, unless there is rule change or a policy change somewhere.  They have a reason for doing what they are doing.  The number of homes eligible for foreclosure is not the sole determinate of what we see on the market.  Also, for me it explains why the flow of homes from Freddie Mac and Fannie Mae seems more consistent and steady rather than the small spurts I see with the major banks (BofA and Wells Fargo).  Here they are absorbed very quickly with the buyers asking for more.

Jan 16, 2011 12:59 PM #30
Rainmaker
453,646
Allison Stewart
St.Cloud Homes - Saint Cloud, FL
St. Cloud Fl Realtor, Osceola County Real Estate 407-616-9904

Hi Tni First I have to say how much I enjoy your unqiue witty style of writing with a harmonic blend of tell it like it is. Reporting in from Florida, where we have no shortage of foreclosed homes, and many many more on the horizon, the banks know all too well if you flood the flatlands of Florida the prices flatline right along with them.  We have seen short sale home which they moved forard come back a year later at a 50% reduction off the short sale price. Do foreclosued home priced adversely affect the market here? You better believe it.  They are releasing them but not by the boatload as they did in the in the beginning. Will it change this year- in my opinion nope.

Jan 21, 2011 10:18 AM #31
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