Home Buying in Santa Rosa>Question Details

Ron Blaken, Both Buyer and Seller in Santa Rosa, CA

Where are all of the defaulted properties?

Asked by Ron Blaken, Santa Rosa, CA Thu Oct 1, 2009

My realtor is hoping to get a bunch of clunkers to sell that haven't been issued yet. She even told me she had to let 2 of her "investment" properties go to foreclosure..

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Hi Ron, your goal of buying a distressed property may be possible now, but the odds are better down the road.

There certainly is a large amount of supply that banks still have their hands on. This "Shadow Inventory", and when I believe we will generally return to normalcy, are topics I covered in this current-and-future-focused blog:
"Coming to a neighborhood near you: REO Shadow Inventory"
http://www.trulia.com/blog/steve_ornellas_mba_re_mastersgri/…


There are three primary variables that influence the Real Estate Market: Jobs (income), Interest Rates (investor demand for MBS), and Prices (level of supply). Let me touch on the current status of each:

Jobs (income):
Sonoma County currently has a 10.2% unemployment rate (all surrounding counties also have above-average rates too).
A weak local jobs market will reduce demand for local purchase housing.

Interest Rates (investor demand for Mortgage Backed Securities):
Most of the demand in MBS has been via the FED. Between now and Q1 2010 we should see an increase in mortgage rates as the FED gets out of the business of artificially holding rates down via their MBS purchasing program (to get the truth on how mortgage rates are determined see: http://docs.Steven-Anthony.com/SAR-HowMortgageRatesAreDeterm… )

As of 9/22, the FED has purchased $870B of its scheduled $1.25 trillion MBS commitment. Originally schedule to end in Q4 2009, the FED recently announced an extension of its MBS purchasing program into Q1 2010. While many thought this was good news, in fact, it means the escalation in mortgage rates will begin earlier than expected as the remaining $380B of FED purchasing will be spread over two quarters rather than one. When this program ends, many expect rates will be 1-1.5% higher than they are now if private investors do not pick up the purchasing slack.
Rising rates will reduce demand for purchase housing.

Prices (level of supply):
If the two prior "influences" reduce demand, it’s very plausible that the banks will continue to hold back on releasing their inventory in an attempt to counteract and stabilize the value of the property they hold. So far, this tactic seems to be working; however, keeping prices held at current levels when the other two variables (Jobs and Rates) are reducing demand has to eventually lead to price reductions to stimulate demand. Perhaps the Bank's "cost of ownership" (insurance, vandalism, theft, property taxes, etc.) will start to weigh on the current tactic of trickling out supply.

OK, now back to my "your goal of buying a distressed property may be possible now, but the odds are better down the road." comment above:

Not every property on the market is distressed, ask your agent to provide a percentage breakdown of distressed/non-distressed "Active" listings during September to get a clear picture of your local market. So, ultimately, it may be non-distressed sellers that force the Bank's hand a bit in certain markets. Meaning, will the Banks continue to hold backlogged property (with its inherent "cost of ownership") if they see non-distressed sellers adjusting the local "price variable" downward to increase demand? Will Realtors who list distressed properties, and appraisers who provide values, not be influenced by non-distressed sold prices when suggesting list prices and performing appraisals?

With the exception of rising interest rates, time is on your side.

Best, Steve
1 vote Thank Flag Link Thu Oct 1, 2009
Hey Ron,

Per the Obama guidelines, the banks have been instructed to work with the defaulted properties in order to give the owners a chance to keep their properties. They are trickling onto the market but at a slower pace.
I work with the Chase owned properties and they are starting to release them slowly.
I know it is frustrating but they are out there. The best thing to do is pair up with a Realtor if you haven't already done so and get on an MLS search engine to get the information as soon as it goes public.

If I can help in anyway, please let me know. It would be an honor to work for you.

Ken

Kenneth Schrier Real Estate Group
CPS Property Advocates
Cell - 707-529-4819
Email - kenschrier@aol.com
Website - http://www.kenschrier.com
Web Reference: http://www.kenschrier.com
0 votes Thank Flag Link Thu Oct 1, 2009
Hi Ron, the properties currently in default are either:

1. Short sales on the market waiting for an offer to submit to their lender
2. Short sales on the market already in contract and waiting for their lender to approve the sale.
3. In escrow with a lender approval and waiting to close escrow.
4. Not on the market and waiting for foreclosure to be finalized.
5. In the process of cleaning up their default.

Properties that have already gone thru the foreclosure process are:
1. Actively available on the market (in some price ranges these properties are gobbled up rather quickly and many times with multiple & over list price offers).
2. On the market but already spoken for i.e. in escrow.
3. Sold
4. In the stream for already foreclosed on, cleaning up title, vacating habitants of these homes, sometimes in the clean up process sometimes not.
5. the rest is everybodies guess as to where and when we will see them hit the market. My guess is we will be hand fed them to keep the pricing where it is or higher. Handfeeding them to the market will keep the buyer demand up and those multiple over list priced offers streaming in.

Lynn Bowen
Domaine Real Estate
Sebastopol CA
707-695-3814 Lynn@DomaineRE.com
0 votes Thank Flag Link Thu Oct 1, 2009
The defaulted homes are in:

1. modifiaction process
2. short sales
3. foerclosure process
4. deed-in-lieu
5. bankbrupcy

or lost in the shaffle.
0 votes Thank Flag Link Thu Oct 1, 2009
Dear Mr Blaken,
Yes, I have heard the same thing. It's hard to imagine though, as banks are desperate to get rid of these non producing assets. Why would they purposely hold back when the market is as strong as it is right now?
0 votes Thank Flag Link Thu Oct 1, 2009
The obvious answer is that the banks (the lenders who had the loans that defaulted) are holding on to the properties.
In some cases this may be caused by the banks shortage of personnel trained and capable of manuvering thru the process of selling the property.
Speculation among realtors and mortgage brokers is that the banks are releasing these properties very slowly to keep the sellng prices high and thereby minimize loses. We do see the lower priced REOs (bank owner real estate) being bid up by anxious buyers. There are a lot of potential first time home buyers as well as investors who want to buy houses priced under $300,000. More demand than supply always pressures prices upward.
I have heard recently that several local realtors have received bundles of REO properties from one lender so maybe we will have a flood of good values for this fall and winter market.
Let's hope so.

Hope that helps,,
David Pittman
707-540-4511
0 votes Thank Flag Link Thu Oct 1, 2009
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