Miami real estate vulture fund expecting huge discounts on troubled loans

South Florida-based banks incurred nearly $3 billion in losses over the last three years because of troubled real estate loans, according to a report by Condo Vultures, which is also predicting a steep drop in asking price for mortgage note sales. “South Florida banks are dependent upon real estate lending for the majority of their loan portfolios,” said Peter Zalewski, a principal with the Bal Harbour, Fla.-based real estate consultancy Condo Vultures, in a press release. Condo Vultures is also a big buyer of these loans. “As residential property prices plummeted by more than 40 percent in the tri-county region since 2007, South Florida banks have struggled to absorb the losses associated with real estate loans. Several of the institutions have had to raise additional capital to meet ratios dictated by the FDIC to avoid the fate of the eight South Florida institutions that failed between 2008 and 2010.” In the past, many South Florida lenders resisted selling mortgage notes at deep discounts off of the outstanding principal, preferring instead to aggressively pursue a repossession strategy using the foreclosure process. With nearly 270,000 foreclosure actions filed in South Florida since 2007, the state court system has been overwhelmed with cases, the release said. The repossession process now takes an average of 18 months to complete at a cost of about $100,000 per property. Prior to the South Florida real estate crash, lenders projected a foreclosure would take six months to complete at a cost of about $40,000 per property. In late September 2010, buyers and lenders became uncertain with the process after concerns were raised about the assurance of the titles for repossessed properties, which only added to the lengthy process. As a result, lenders filed 61 percent fewer notices of default in South Florida between October and December 2010 compared to the same three-month period in 2009, according to the release. Shortsale tranactions are selling for a higher average price on the open market than properties that have been repossessed by lenders through the foreclosure process, according to a recent report. In 2010, the average shortsale transaction price was $173,700 per residence compared to an average of $110,900 for a bank-owned property, according to CVR Realty, an analysis by the licensed Florida listing brokerage. On a wholesale end, mortgage notes in a first position secured by real estate now sell for about 50 percent of the current appraised value in the tri-county South Florida region, the release said, citing Rich Meyer of the Foreclosure Academy in Hollywood, Fla. Lenders are now accepting about 29 percent less for a mortgage in a senior position that is in default compared to the pricing schedule at the beginning of the real estate crash in 2007 in Miami-Dade, Broward, and Palm Beach counties, said Rich Meyer of the Foreclosure Academy in Hollywood, Fla. The current pricing ratio is no longer based on the outstanding principal owed by the borrower in default, Meyer said. As challenging as the climate is for South Florida banks, the situation is not much different on the state level. Florida had 247 state-based banks at the end of the year 2010 compared to 306 banks in the last year of the real estate boom in 2006, according to the report. Florida banks have lost a combined $6 billion since 2008 with losses of $2.8 billion in 2008, $2.2 billion in 2009, and $1.1 billion in 2010. By comparison, Florida banks posted a profit of more than $1.6 billion in 2006 and $673 million in 2007, the first year of the state’s real estate meltdown, the release said. Shaina Zucker is an editorial assistant at HousingWire.

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