Quality Service, Knowledge and Reliabilty Christi Rainey
Christi Rainey
Monday Aug 01, 2011
How Long Does it REALLY Take to Foreclose on a Home?
Five years ago, the word “foreclosure” was on the dust heap pile of daily lingo, surrounded by the likes of “8 track and cassette tapes”, “black & white TV’s”, “Walkmans” etc. The problem is that while the latter will not be making a comeback any time soon, the word “foreclosure” has catapulted back into vogue and looks like it’s here to stay a while.
Any newly licensed Realtor can tell you that the law says that a foreclosure takes 111 days to complete. A delinquent homeowner has 90 days to make up any back payments, and then an additional 21 days to pay the loan off completely if they can’t come up with the money owed (anyone ever wondered how a homeowner who can’t find 90 days worth of payments is supposed to now pay off the entire loan balance?). However, I digress. The salient point here is that a foreclosure, by law, takes 111 days.
Anyone want to know what is happening with foreclosure times in the real world, and not the one in the legal books?
In the State of California, as of June of this year, the average time for a foreclosure is (drumroll please)…317 days! That’s right…just a little short of 1 year…and that is the average, which is, as we all know, is made up of some that take less time, and some that take more. In Nevada, it is about the same…319 days.
How about the longest? That would be our good friends in the great State of New York. The state that brings you massive deli sandwiches and the Empire State building also goes big with foreclosures, because in that state, the average time is…(bigger drumroll please)…960 days. Yes, that is not a typo…it takes over 2.5 years, on average, to foreclose on a home in the land of the Big Apple. Amazing, isn’t it?
And the shortest? That would be the cowboy State of Texas. I have never spent much time in Texas, but rumor has it that our Southern neighbors don’t mess around, because the average time to foreclose on a property in Texas is 92 days. That’s right…if you can’t (or won’t) make your house payment…no problem…but the bank is not going to mess around with your plight. You are supposed to pay, and if you don’t, then start packing.
There is a moral to this story…and here it is. Guess which state has had the lowest drop in residential housing prices since all this housing “mess” started in 2007?
I know, it’s too easy…but God Bless the people who shoot straight in Texas…because they have the lowest percentage of housing price loss in the country. Some may call this a coincidence…others a cause and effect. Hard to say. We’ll let you decide…but come on…2.5 years to get someone out of a home that they are not paying on? Welcome to the Bizarro World of real estate, where truth is far stranger than fiction.
So dazzle your friends at your next gathering with this new found information…and watch the ones who are making their house payments choke on their drinks.
Westcoe Realtors, Riverside California…My goodness. All we here about today is the media rambling on about all the bank REO’s (stands for “real estate owned”…means the same as repo, foreclosure, etc) that are out there in America, waiting to hit the market. Mind you, they are not here yet, and have been promised for almost 2 years…and if we in the business hear the term “shadow inventory” one more time (the favorite media term for all the bank repos supposedly heading our way), our heads will spin like Linda Blair’s in the Exorcist movie (very scary…rent it with a friend).
The theory goes something like this. There are a massive number of REO’s the banks are hoarding, more on the way, and when the number of homes that are worth less than what is owed are figured into the mix, the amount of REO”s and potential REO’s are staggering. So…if we accept this most talked about opinion, then that begs the obvious question…
…Where are they? We have been hearing about this huge surplus of REO’s headed our way for over 2 years, and they have yet to show up…and so our clients ask us all the time…Where are all these REO’s they keep hearing about?
Well, let’s shed some light on that…and as usual, the answer is not so simple, nor can it be summed up in a 10 word sound bite ideal for the national news.
Remember the old TV show, Let’s Make a Deal, where contestants got to pick from Door’s numbered 1, 2 and 3? In the case of the missing REO’s, there are about 5 doors from which you can choose.
Door #1…Behind this door, the banks actually have their repossessions ready to go…they are just waiting for the best time to sell them. Mind you, with the exception of the really depressed areas of the country (not our Riverside area), they are not waiting out of a concern for the neighborhood. They really don’t care about us that much. What they are waiting for is the best time to take the loss on their books and report same to Wall Street…because the DO care about that. So…they parcel these properties out when it is best for them.
Door #2…Behind this door are the properties that the bank has foreclosed upon, but cannot take possession of because they are currently occupied by the former owner or tenant. In this case, because the government has passed so many new rules and regs that are designed to “protect” the occupants of a foreclosed home, it can take another 6 months or more to get the home vacant for sale. Those who side with the occupants feel that this added time beneficial to the former owner, and those that side with the banks think it is just a costly delay of the inevitable. Ours is not to judge, but to merely report…but there is no doubt that the time it takes to get an REO to the market for sale has doubled or tripled in the past 12-24 months. You be the judge of whether that is a good thing or a bad thing.
Door #3…In two words…”Bulk Sales”. If a particular bank has a lot (I mean a lot) of REO’s in the pipeline, there are large investment groups that will buy hundreds at a time from this particular bank. From the banks viewpoint, they get to dump a lot of properties in one swoop and eliminate the hassle of selling them all one by one. From the bulk buyers viewpoint, they get both the benefit of some really reduced prices on these homes (volume discount), and the opportunity to purchase them first. Yes, they get the headaches that come with the properties, but in theory, the end result is worth it. And what happens to these properties? Mostly they get fixed up, rehabbed, and return to the market place for sale as a standard sale. Therefore, what was once a repo is now a home with new carpet, paint, etc. for someone to buy.
Door # 4…The courthouse steps. Here, savvy investors can purchase the property from the bank before the bank actually takes ownership. These sales are done every day at courthouses through out California, and either investment groups or individuals can play…but beware, it is not for the timid or uneducated. These purchases require lots of cash, research, and nerve…and there are still risks. However, they have become quite popular, and many of the potential REO’s are sold here. Some are kept as rentals to be sold many years down the road, but most generally return to the market fixed-up for sale as in Door #3 above.
Door #5…Short Sales. In the beginning of this real estate market crash (mid 2007), there were very few short sales because the banks simply were not geared-up to handle the process. Now, almost 4 years later, short sales make up a large part of the homes currently for sale. In this case, the short sale is simply a REO in waiting, so when the bank chooses to accept a short sale price, they are simply getting rid of the “potential REO” earlier rather than later. Hence, it never becomes an official REO so it will not appear on the REO stats.
While there are other spokes to this REO “wheel”, the above 5 categories are by far the largest reasons that bank owned properties are not the huge part of the real estate market the media portrays. As a matter of fact, as of today, of all the properties listed for sale in the Riverside area MLS, 31% are Standard Sales, just 17% are REO properties, and the balance of 52% are Short Sales. Some of the short sales may ultimately wind-up as REO’s if the short sale never happens, but this huge rise from only a couple of years ago certainly shows how things have changed.
The net result of all this is that if you are one of the buyers out there that is waiting to purchase until the next flood of bank owned properties comes down the river, you may miss your boat. For a while yet, there will always be some REO properties for sale, but as you can see from the stats above, they are dwindling. Time will tell if that remains the case, but for now, be aware…there are many ways these properties get to market other than as a bank owned REO.
Take care, and as always, let us know if there is any issue you would like to see addressed in our blog.
Christi Rainey with Westcoe Realtors, Riverside California…This is the time of year when most real estate companies try to out-do themselves with predictions about what will happen in the coming year…but the heck with that. They are just opinions, and no one really pays much attention anyway.
So instead, we thought it might be more useful to simply state a few facts about our local, Inland Empire real estate market as it stands today…or to quote Jack Friday from the old Dragnet series (yes, I am dating myself…you younger types can Google it)…”Just the Facts Ma’am.”
Fact #1…We are still an area dominated by two distinct real estate markets, separated by price. In arbitrarily picking a line at the $350,000 price range, in 2009 there were 4,746 closings in Riverside below this price, and only 521 above this price. This means that roughly 90% of all sales occurred at the “affordable” range, and only 10% above it…and in order for the higher price range to begin to see any significant action, there needs to be more sellers at the low prices using their equity to move up into the higher prices. Unfortunately, most of the “affordable” range sellers are banks or distressed sellers, neither of whom are looking to buy a more expensive home.
Fact #2…Available housing inventory is way down. Homes for sale in Riverside dropped over 55% from January 2009 to January 2010…from 2,385 to 1,034. This reduction is available inventory is really playing havoc with our markets, for reasons we will outline below after we lay out a few more facts.
Fact #3…Major banks are hoarding their repossessions, keeping them off the market. Why? The optimistic amongst us think that the banks are concerned about the possible negative effect of dumping their repos on the market…but when was the last time you saw a major bank care about the general public? The more cynical of us feel that the banks are actually “hiding” all their repos (and yes, reporting laws have changed and banks can indeed hide their repos) to make their books look good for Wall Street. Either way, the result is the same…and there are estimates of thousands of foreclosures in the Inland Empire that are unavailable and unaccounted for at this moment.
Fact #4…Buyer demand for “affordable” housing is higher than ever. We cannot speak about other parts of the country (or even California for that matter), but here in the Riverside area, we could easily sell every bit of the bank foreclosure inventory thrown our way. We consistently have 5-15 offers on any reasonable, “affordably’ priced home for sale, and the limited supply coupled with almost unlimited demand creates a very frenzied marketplace. Jobs and the economy aside, prices have fallen so much since 2007 that more and more people who were priced out of the buying equation can now afford to purchase a home.
Fact #5…Since the real estate meltdown of 2007, the new regulations imposed upon the appraisal industry have everyone running scared…and as a result, in our opinion, housing values are being kept artificially low by nervous appraisers who find it almost impossible to let market prices rise. Simple economics dictates that limited supply coupled with massive demand should lead to rising prices unless some outside force is acting upon the market…and in this case, that outside force is the constraints and new regulations placed upon the appraisal industry that keep prices from rising.
Fact #6…Interest rates for new hosing loans are extremely low…for now. There is a lot of pressure on the Fed to raise rates as soon as the economy shoes any consistent signs of life, so if you want today’s absolutely awesome 30 year fixed interest rates, you need to get on board that bus now…for the powers-that-be want the bus to leave the interest rate station as soon as possible in 2010.
In conclusion…Our market will weather this storm as it has all others, and the real estate sun will shine again…but when? If the banks would just let us sell what they have, then we could see our market turn around almost as quickly as ti tanked. If not, then this dual market of “affordable” price vs. “higher end” price will continue far longer than it should. That makes for a lot of very frustrated real estate professionals, buyers and home owners who are left to wade through a market that should not have to exist. However, we are stuck with what we have…for the one prediction we can make is that until banks get out of the home ownership business, we cannot have a sustained, reasonable real estate market. It’s that simple…and let’s all hope that happens in 2010.
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