Foreclosures Dropping…But Not Why You Think

Westcoe Realtors, Riverside California…The number of foreclosed properties in the Riverside-Inland Empire area will decrease over the next couple of months, but not for the reason most homeowners hope.  While a decrease in the volume of foreclosures is a highly anticipated event that will eventually occur in our real estate marketplace, the sole reason for this drop in the next few months is because of new state law that took effect on October 19, 2008 that adds approximately 30 days to the time frame that must be followed before lenders can officially foreclose on a property.  This new law will temporarily create a back-log of forecloseable properties…which will lead to a short-term decrease in the number of recorded foreclosures.

This new law (SB1137) requires that the foreclosing lender make a number of attempts to contact each individual homeowner who is in default and attempt to mitigate the homeowners situation, or modify the loan if possible.  If these efforts are not successful, then the lender must wait 30 days to before continuing the foreclosure process.  Most analysts contend that large scale loan modifications on California properties is simply not possible, and that all this legislation does is lengthen the process, as opposed to eliminating foreclosures.  It has also been noted that if lenders were to modify, or forgive, large remaining loan balances to those homeowners who are behind in payments, that this would simply lead to additional homeowners falling behind in an effort to have their loan balances reduced as well.

While this legislation did not take effect until October 19, many foreclosing lenders began this process in September, in anticipation of the changes mandated by the October 9 deadline.  As a result, foreclosures dropped from their previous levels.  According to the website ForeclosureRadar.com, the number of notice of defaults filed in California for September 2008 dropped 61% from the previous month of August. 

Obviously, the danger in the media reporting the drop in foreclosures is that the general public may be mislead into thinking that the drop is a result of an improving foreclosure market, instead of a simple administrative delay in filing said default notices.  Therefore, Westcoe advises that all people be aware that any nationally reported foreclosure statistics reported over the next few months are almost rendered meaningless…and that is you want the real pulse of what is happening with bank repossessions, call us.  Our agents are working with many banks on a daily basis, and we keep a very good handle on the pulse of the foreclosure market..and of this date, our lenders assure us that unfortunately for many sellers, the pipeline of potential foreclosure properties coming shows no sign of decline.