So Cal Defaults Up Again & What It Means

Default Research, Inc. has posted their California county by county foreclosure numbers for March, and So Cal county numbers are pretty much up across the board to the highest numbers yet for the current downturn.

This report is made up primarily of Notice of Defaults (NODs), the first step in the 4 month foreclosure process. It sounds like the number of bank owned (REO) homes coming on the market will continue to increase well into fall throughout Southern California.

Bear in mind that filing for bankruptcy can add several months to that 4 month process, and additional time is required by the lender to gain occupancy and then make any needed repairs. So these NODs reported for March will be coming on the market as REOs no earlier than July, and well into fall. Of course, not all NOD properties end up foreclosed. (For tips on buying foreclosures, click here: “Foreclosure Tips.”)

But there’s a big “if.” One of the unknowns is what will end up in the Housing Relief Act currently working it’s way through Congress. If Congress gets it right, that could dramatically reduce the number of homes actually taken back by the banks.

We’re hoping Congress and/or the lenders come up with a reasonable program to allow qualified owners to hold onto their homes, but we’re not exactly holding our breath, either. We think debt relief for qualified buyers primarily provided by their lender in exchange for concessions by Congress and the borrower could significantly mitigate the impact of all these foreclosures on the market, but I’m starting to sound like Bernanke, which is really scary!

So I’ll leave what Congress might do for another post, except to say two things:

1. Some home owners who bought with subprime 100% liar loans that really have no business owning property.
2. We are at some risk of another Great Depression caused by the current crisis, and if some unworthy homeowners and lenders are helped in the process of saving the rest of us, so be it. When my lifeboat’s sinking, I prefer to focus on bailing it out rather than arguing about who got us into the mess. “Blessed are the merciful. . . ” wasn’t my idea, but it saves a lot of grief in the long run.

Bottom line: Looks like the bottom for prices is still a ways off, maybe a long ways. Like Freddie Mac’s Chief Economist told us last October, we’re in uncharted territory, and nobody really knows what’s going to happen next (see “How Low Will Prices Go?“).

That said, we’re still sticking to our best guess that prices are most likely to hit bottom either this December or next (see our most recent projections post, “A Change in Our Projections?”

BTW, this market is troubled, but not dead. We just put our last listing into escrow in 3 days last week. Like we keep saying, it’s not rocket science (see “How to Sell Your So Cal Home for Top Dollar in 30 Days“).

Default Research uses actual visits to the court houses to collect their data, which should make it more accurate and more timely than most other foreclosure reporting services. If you want to look directly at their charts for every county in California going back to 2006, just click here. We also have a direct link to their “California N.O.D. (Foreclosure) Stats” under “Great Links” near the top of our right sidebar.

You will see each Southern California county had a new record for NODs in March, with one anomaly. Most lenders do not file NODs over the Christmas holiday period. (I’ve been told that’s because lenders really aren’t total Scrooges, but I suspect it may also be because they take some time off then.) So you will notice NODs were down about 50% across the board for December, but up about 50% for January. That’s why some counties show higher numbers for January than for March–but not if you average the two winter months.

Stay tuned for more breaking news as our adventure in So Cal real estate continues. . . .

Foreclosure Tips

This week the Sacramento Bee ran a pretty good article on buying foreclosures. It reminded me of my experience with a HUD auction during the last recession, in the early 90s.

I teamed with a fellow Realtor and friend to research and bid on a major HUD auction of repossessed properties. From experience, we knew there would be lots of bidders and lots of competition, so we decided to focus on the least desirable, most plentiful segment: Compton repos.

We spent several days researching about 50 Compton properties prior to the auction. Available comps, physical inspection of each property, etc. When we showed up, it was like a circus! Every property got bid far above similar homes that were in better condition that were available through the local M.L.S. We were far outbid every time.

At these auctions, each segment of the audience is worked by a smiling, tuxedoed Texan. At one point I commented to one of them, “These homes are going for way above market value.”

“Oh no!” he said, between prodding buyers to up their bids. “That means most of these deal will probably fall out and not close.” Even auction buyers apparently get remorse and realize they overpaid.

Our conclusion: There are buyers who are willing to pay any price for a foreclosed “bargain!”

From the Bee article, and others in local papers, I don’t think much has changed!

Now here’s a summary of what the Bee says you need to know in advance about buying bank-owned properties:

– First-time buyers will need to be pre-approved by one or more lenders.
– Don’t be surprised if the bank that owns the home requires that you finance your
purchase with them.
– Expect competition. Many buyers bid on multiple properties.
– Banks won’t accept offers that are contingent on selling your home.
– The best deals generally are those homes with the longest time on the market.
– Bank-owned homes typically sell for 10 to 20 percent less than their listing price.
– Be sure to pay for an inspection and consider the cost of repairs or damaged or
missing appliances when bidding on a foreclosure.
– The bank is likely to make a counter-offer. Be sure to consider this when submitting
your first offer.
– Some banks will not accept an offer unless it is submitted by a REALTOR®.
– Banks generally are looking to close quickly, within two weeks to 45 days.

Note added 4/9: From today’s release of SoCal stats on homes beginning the 4 – 8 month foreclosure process in March, it looks like we’ll have lots more foreclosure auctions in the months ahead. (See “So Cal Foreclosures Up Again & What It Means“)