Lenders are canceling more foreclosure sales in California than ever before, and new financial and political demand for short sales could be the culprit.
Lenders canceled nearly 22,000 California foreclosure sales in June, driven mostly by JPMorgan Chase. It’s a 27% increase from May, a 153% growth from a year ago, and an all-time high, according to ForeclosureRadar.com, which tracks foreclosures in the state.
Foreclosure sales can be canceled for successful loan modifications, short sales, a legal requirement, or even a filing error. In terms of strategy, a spokesperson for JPMorgan Chase said the bank has not made any policy shifts to cancel more foreclosure sales.
According to ForeclosureRadar, a certain number of the cancellations can be attributed to pending modifications and short sales, but homeowners and real estate agents have complained to the company of sales that were canceled without either. “We have seen a shift over the last couple of months where homeowners want this process to be over and they want to start to rebuild,” said a spokesperson for ForeclosureRadar.
Researchers at the company received varying answers as to why the cancellations are up. The best answer came from one unnamed REO professional. According to the source, the Home Affordable Foreclosure Alternatives (HAFA) program had the most to do with the cancellations. The Treasury Department launched HAFA in April to provide incentives to servicers for conducting short sales and deeds-in-lieu of foreclosure to homeowners who fail the Treasury’s Home Affordable Modification Program (HAMP).
“Now that servicers have systems in place to administer the program they are removing delinquent loans from the foreclosure pipeline to allow a reasonable short sale time period,” the source told ForeclosureRadar. “Predictably (also my opinion) the period would be expiring just after the November elections so there would be less political blowback as those properties that don’t conclude with a successful short sale are taken to foreclosure and ultimately, REO.”
After foreclosure activity dropped across the board in May, new foreclosure notices increased 6.7% in June, and notices of trustee sale jumped 21%. In fact, notices of trustee sales have outnumbered preliminary notices of default for the past four months. The gap really widened in June, when there were almost 9,000 more notices of trustee sale.
But this trend could become the norm as banks have to restart more foreclosures than they initiate.
“Historically it is very unusual to have more Notice of Trustee Sale filings than Notices of Default” says Sean O’Toole, founder and CEO of ForeclosureRadar. “But with skyrocketing cancellations and the possibility of failing loan modifications, this will be increasingly common, as lenders are only required to file a Notice of Trustee Sale to restart the foreclosure process.”
Lenders pushed 23% fewer properties into REO status in June and 46% less than a year ago. The amount of properties that have received a notice of default but have not yet been scheduled for sale increased 8.8% in June, but further along the foreclosure pipline, inventory remains constricted. The amount properties scheduled for sale dropped 1%, and REO inventory declined 4.8% in June.
We’ve seen the number of actual trustee sales dwindle down to the ridiculous – yesterday there was only one NSDCC house that met it’s fate on the court house steps, but it was a doozy!
This was the first oceanfront house in La Jolla to be foreclosed this year, a 3,049 square footer in Bird Rock. You are supposed to leave the cliff alone here, but doesn’t it looks irresistible to create a little walkway down to the surf?
The former owners paid $5.455 million in June, 2006, and yesterday it sold on the court house steps to a third-party for $3,248,500! A flipper? Owner-occupier?
We’re still waiting on another in La Jolla that was foreclosed in April. This 8,200 square footer was purchased for $6.8 million in August, 2007, and financed with a $7.2 million mortgage from Temecula Valley Bank – cash back at closing?
The opening bid was $4.8 million – but no takers on the ‘steps, so it went back to bene.
Back in the day (late-1980s) we used to do open house in this neighborhood, hoping to land a million-dollar sale (the developer had built a spec house while selling the lots separately). Now look at it!
osidebuyer wants a report on the lower-tier homes.
In Oceanside the cheapie SFR foreclosures have dried up, and there’s been an incremental YOY increase in $/sf pricing, with the lowest up about 15%, with those over $400,000 being flat.
Here are the first half detached sales counts by price range, and their average $/sf:
Oside
Under $200K
$201-$300K
$301-$400K
Above $400K
2009
141, $144/sf
259, $183/sf
281, $192/sf
146, $233/sf
2010
38, $165/sf
179, $202/sf
263, $209/sf
184, $232/sf
What used to buy a house in O-side two years ago, now gets you a condo with a $318/mo HOA fee:
The substitution effect can squish down values in other areas, and for the bank clerks charged with the responsibility of determining the opening bids, it is a moving target.
Here are two properties from the foreclosure list who have published opening bids – which hopefully means that this week’s trustee sales are for real. But for buyers who are paying attention, the first house pictured in the youtube below is leading the market:
Here’s a youtube tour of a few more Encinitas houses on the foreclosure rolls.
The first clip looks like it was an A.I.T.D., an all-inclusive trust deed – also known as a wrap-around mortgage. It was advertised on the MLS as a no money down deal, where the seller’s mortgage stays in place, but not assumed. The seller collects payments higher than what he owes, skimming a little interest for the remaining $400,000 extra owed on top of the loan balance, in this case.
But when the buyer quits making payments, he still has possession and occupancy, but the seller is responsible for the loan. These are a glorified lease-option, with more burden on the sellers. Here is an example of the math: Example of a Wrap
We’ve seen and heard about flippers paying more and more (too much!) in the competitive trustee-sale environment at the court house steps. With the backlog of occupants not vacating the foreclosed properties, there is bound to be some overlap.
The 3,278sf house in this video went back-to-bene in December, but only recently vacated. A few doors up, a flipper paid $810,000 on April 28th for a slightly bigger model on the same side of the street, but there you have to look through the trees to see the golf course.
Lo and behold, both hit the MLS within three days of each other, both priced at $899,000 – and the race to get out first, was on! This one was marked pending today:
More from the foreclosure tour – see youtube tour below.
It is harder to find the smoking deals when looking mid-range, and investor action has been heavy.
In the last 30 days there have been 28 successful trustee sales of SFRs in Carlsbad and Encinitas, with 14 going back-to-bene, and 14 being purchased by third-parties. There were also 39 cancellations.
The last clip on this tour of recent foreclosure contestants shows the biggest giveaway we’ve seen – to set the opening bid WaMu cut $1.4 million off the amount owed, and it still went back to bene!
There has been a rebound lately in the number of weekly trustee sales resulting in REOs, but still relatively low numbers overall, compared to where we think they should be:
Below is the quarterly chart for the last three years. Even though the foreclosure moratoriums are mostly expired, there haven’t been more properties getting foreclosed than in 2008 – but add in the cancellations and it looks to be about the same (or more) volume as 2-3 years ago. Are banks letting people off the hook, or did defaulters get their loan mod? Or were they just bluffing?
But you might be able to say that the servicers must be getting sharper on price, and/or the investors are getting more optimistic – the third-party purchases have gone up substantially since 2008.
The trustee sales have to provide some fruit someday, right?
The more you know about them, the more comfortable you might feel with pursuing a purchase there. Here is a good introduction to buying at the court house steps, done Foreclosureradar.com, and filmed at the SD County Court House:
