Dramatic Increase in California Foreclosure Cancellations

October 2012 California foreclosure Cancellations were up 62.1 percent from the prior month, and 36.7 percent compared to last year. While this is not the first time Cancellations have spiked, this is the largest one-month increase since we started tracking foreclosures in September 2006. It seems likely that the increase is being driven by the Homeowner Bill of Rights legislation that goes into effect on January 1, 2013 and its provision to restrict the dual-tracking of foreclosures. Dual-tracking is the term applied to loans which are being considered for either a short sale or loan modification while simultaneously proceeding through the foreclosure process. Prior to January 1, lenders will have to cancel any foreclosure on a loan for which a short sale or loan modification is being considered, and it appears that process has likely already begun.

October 2012 California Notice of Defaults was down 8.0 percent from the prior month, and down 48.9 percent compared to last year. October 2012 California Foreclosure Sales were up 9.3 percent from the prior month, but down 38.9 percent from the prior year.

Comments from Sean O'Toole, Founder Foreclosure Radar

Sean O'Toole

Founder Foreclosure Forecast

"The California Homeowner Bill of Rights that takes effect in January 2013 is beginning to impact foreclosure trends. This is another example of where changes in foreclosure trends are driven by government intervention, and not necessarily economic recovery. While the impacts are still unclear, the elimination of dual tracking may avoid some unnecessary foreclosures, but will lengthen the foreclosure process and delay ultimate recovery. Expect further impacts to foreclosure trends in the months ahead."

Christine Papworth

The Real Estate Dr.

MAPS Coach

I personally tend to agree with Sean that this Homeowner Bill of Rights bill going into effect January 1 in California will not really aid in recovery but will, in fact, cause the recovery to take longer.

However, I have experienced an increase in foreclosure activity in my personal business recently and I believe that may also be attributed to this law going into effect. If I am a bank, why not get the foreclosure done, get it off my books, and not worry about having to stop double tracking after January 1? I think that is happening as well.

Also, the Bill itself is ambiguous, as so many legislative and government programs tend to be. In one place the bill says the banks cannot proceed with the foreclosure process only if there is a written approval on a short sale or loan modification. In another place the bill states if a new loan mod application or a new short sale offer has been accepted into the banks "program", whatever that means, the banks cannot proceed with the foreclosure process. So, is it possible the banks will just say no to a higher than usual percentage of possible short sales and loan mods so they can get these things off of their books? It may actually hinder our stopping foreclosure processes to some degree. 

We have noticed that the banks and especially Freddie and Fannie are much more hardship driven in recent months. It seems ludicrous, doesn't it? As a seller, I have decided I will have to short sale or let it go to foreclosure. I want to keep my payments up so it doesn't hurt my credit and I want to do the right thing and pay my bills... I just cannot justify keeping the over-encumbered property while sacrificing my life savings and retirement to make payments I cannot keep up once my savings are exhausted. The lender says, "sorry, no short sale because you can make the payments".  The seller says, "OK, I'll have to get behind and you'll have to foreclose and loose minimum 7.5 months worth of payments I would have made to you and I'll still be out from under the house...you, Mr. Bank, will be the big looser...and for what?...

What are the rest of you experiencing...thinking....tell me. After all...I'm the doctor. Tell me where it hurts.  Please Comment!

Short Sale a thing of the past?

SHORT SALE A THING OF THE PAST?  I recently attended a coaches training session with coaches and team leaders and mega agents from across the country in the group. As we introduced ourselves and discussed our various roles and reasons for being there, I mentioned I had been recently hired as a MAPS coach for Keller Williams, specifically to coach SHORT SALES. Depending on where people were from, I heard comments ranging from, "why coach that now when it's all over" to "Oh my gosh, that's just what we need right now!" Isn't that amazing? Here's something even more amazing...often those I was speaking to were working in the same State...sometimes in the same market!! So, is it a mindset thing or what?

Short sales have been around since the late 80's, but were largely dormant from 1995 until 2005. Were Short Sales a thing of the past them? Now short sale and loan modification are a normal part of doing the real estate business. Some areas like the Central Valley of California where I work have been and still are up to 89% hardship or distressed properties. That means most of the homeowners are either in default, underwater in value, or both. That has been the case for nearly 6 years. Many of the "sand states": Nevada, Florida, Arizona, Southern California are in that same situation where the Short Sale is not a thing of the past. Short sale is just making an entrance in pocket areas of these States but generally distressed situations abide throughout.

Yet, in other areas of the Country short sale is a fairly new concept and some are just starting the distress-cycle.

So, my opinion regarding short sale and it's future is this: The entire banking systems have now established complete divisions to handle distressed property situations. Once short sale became an acceptable alternative to foreclosure, it will always be an alternative. The days of, "you don't make your payment, we take your home" are over. We've all heard the saying, "once you do it, it becomes your job", haven't we? That is the case here. Short sale and other foreclosure alternatives are now critically important arrows in the quiver of each and every real estate professional, no matter where you live, no matter what market you are working in. We have to be proficient at diagnosing when our sellers need short sale, what the laws are regarding short sale, and how to negotiate short sale. Even as our economy improves, whether nationwide or locally, short sale will continue to be a part of the real estate landscape. As real estate professionals we have to provide short sale expertise ourselves or be prepared to outsource or refer that business to others who are prepared and proficient at this very challenging skill-set. I would love to hear from other agents, lenders, leaders of the real estate and lending world.

SHORT SALE A THING OF THE PAST?  

What are your opinions on this issue?