Foreclosures Rebound in CA, as Legislative Impact Passes

It appears that California is now following in the footsteps of Massachusetts. Despite recent legislation in the state that added 45 days to the borrower notice period for defaults, impacting foreclosure activity during Sept. and Oct., new data from ForeclosureRadar finds that November saw significant activity increases across all stages of foreclosure. From October to November, filings of Notices of Default increased 28 percent; Notices of Trustee Sales increased 10 percent, and properties sold at auction increased by 14.8 percent. In other words, the extra notice period appears to have only stalled defaults, at least to some extent, not prevented them. Despite these significant gains, however, foreclosure activity is still well below the peak activity level reached before California’s SB 1137 legislation took effect. The holidays are likely helping to slow the return to pre-legislation levels, as well. After all, it’s not unusual to see double-digit increases in properties sold at auction in January, after the November and December holidays. For example, from December 2007 to January 2008, properties sold at auction increased 55 percent; and that was without the compound effect of an expiring involuntary moratorium on foreclosure activity. Compounding the likely increases after the holidays, ForeclosureRadar suggested, is the fact that the number of properties currently scheduled for auction is near the peak levels reached in July 2008, while actual foreclosure sales are 44 percent lower. “As a percentage of the properties scheduled for auction foreclosure sales are far below historic levels,” says Sean O’Toole, founder of ForeclosureRadar. “The combination of SB 1137 and typical holiday delays appear to be creating an unprecedented backlog going into 2009.” ForeclosureRadar found that properties taken to sale at auction in the Golden State increased by 14.8 percent from October, to 16,125 sales, with a combined loan balance of $6.9 billion. This represents a 31 percent increase from year-ago total, with 97 percent of the sales tied to delinquent first mortgages. Of the mortgages sold at auction this November, 97 percent were first mortgages. Lenders still managed to take back 94 percent of the 16,125 properties sold at auction, with a combined loan value of $6.5 billion heading into REO inventory during the month at various lenders and servicers. Third party purchases at least increased 16.2 percent from October 2008, an increase of 195 percent from Nov. 2007 — still not enough to offset what appears to now be a growing flood of pending REOs set to come online. Statewide, the average discount for properties sold at auction in November was 38.6 percent, compared to 11.5 percent from the same time last year. Discounts of 50 percent or more were offered on more than 38 percent of properties statewide in November 2008, ForeclosureRadar reported. For properties sold at auction in November, the average time to foreclose has increased 25 days over the previous year, to 163 total days — reflecting the effect of the recent legistlation. The time between the Notice of Default filing and the Notice of Trustee Sale filing is now 116 days, with 47 days from the Notice of Trustee Sale to the property being sold at auction. A rise in foreclosures in California after the effects of a new 45 day notice period are priced into lenders’ collective default timelines is telling, and may make the Golden State the second such case study suggesting that moratoriums don’t accomplish much beyond drive up costs and increase losses. Massachusetts implemented such a 90-day stay on the foreclosure process earlier this year with telling effects. The number of foreclosures shrank for a few months until the stays began to expire; the state saw a more than 400 percent increase in foreclosure volume months after the moratorium went into effect, suggesting little action was taken on severely delinquent loans during the pause. Write to Paul Jackson at [email protected].

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