Sep

23

Long Island Distressed Properties Update Sept. 2011

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There’s no secret that Long Island has its share of challenges when it comes to real estate values. Most homeowners know that there are “a lot” of foreclosures and short sales and homeowners are hurting. Perhaps you know a neighbor, family member or a friend that can’t make the mortgage payment? However, I’m not so sure how much the average homeowner knows about the Long Island distressed market. This article will try and bring you up to date.

74,000 Unresolved Foreclosure Cases on Long Island

In my previous article, Long Island Distressed Housing Report July 2011, I pointed out the fact that we’ve got a big challenge ahead when it comes to working through the foreclosure mess here on Long Island. So we have the number, but what does it mean?

Let’s look at how slow New York is in processing homeowner’s loans in default and what the consequences are with letting people live in their homes for extended periods of time without paying their mortgage.

The “judicial” states, where a court is in charge of processing the legalities of foreclosure, are all on the left side of the graph. New York is sixth on the list of the highest count of first-lien mortgages in default. With over 5.5% of the mortgages in default in New York, we are faced with over 100,000 homes in foreclosure and over 250,000 that are behind on mortgage payments.

What Does This Mean To Long Island Homeowners

First, as these foreclosures or short sales come to market, they will be competition for “normal” homes for sale. What this means is, the buyer pool for homes that are not distressed (perhaps your home), will shrink, as many of these first-time buyers look to buy homes at a 40% discount.

Secondly, as more of these distressed homes come to market for sale and ruin their local neighborhoods by being boarded up, lacking a manicured landscape, and worse of all, attracting thieves who vandalize or vagrants who occupy the home illegally, the value of homes in these areas, will lose value. Let’s reiterate that point.

Appraisal Values

If you own a home and in the last 90 days, 43 homes have sold and 9 of these homes are foreclosure sales, that’s a 20.9% share of the market or 1 in 5 homes. And let’s say that 7 of these sales in the last 90 days were short sales, a 16.3% share of the market. The average sale price of a foreclosure is about 40% below the “normal” market and short sales range between ten to twenty percent of the normal (non-distressed) home value.

As an appraiser, he/she will make note of these sales and because of the rate of these sales, they will have to incorporate at least one of the distressed sales, as they make up over 1/3 of the sales. It doesn’t take a brain surgeon to realize that this is not good for home values. When an appraiser uses one of these sales the appraisal of your home, it will impact the value significantly.

Bottom Line: What About Selling Now

Because of the delays in the foreclosures being processed here on Long Island (due to robo-signing and other lender/owner challenges to title issues), right now, there is a lag of these distressed homes on the market. That said, as time progresses and the courts begin processing these foreclosure cases again at a 2500 per month basis…home values are going to drop on Long Island.

The good news is, right now, today – September 23, 2011, values are remaining stable but very fragile. If you are considering a move, I can start explaining the benefits of selling now, just to capitalize on the extremely low rates, but for the purposes of this article, I’ll stick to the main point – there’s is (and has been for 8 months) a lag in the processing of foreclosures so if you want to sell anytime soon (within the next 2 years), now is a fantastic time to do it. Otherwise, you may see your home value, in an appraisal, drop like a rock.

Hopefully, you use this information in a positive way and call me so we can get started (631)881-5959.

[Note To Home Buyers: Real estate is a long-term investment. I bought my personal residence in June of 2008 fulling knowing that the value would go down. I plan to own this home for many years, both as a home to live in (now and for the next several years) and in the future (hold on to it and rent it). I have a low interest rate and I love where I live. For the past 3 years, I have had the benefit of a Mortgage Interest Tax Deduction, I've paid down my principal and most importantly, my wife and I have loved every minute of living in our home. So if you read this and don't think it's a great time to buy now - you are missing the point of home ownership and all of its benefits. Lastly, the average net worth of a renter is less than $5,000 approximately whereas the net worth of a homeowner is over $95,000. Buying now, today, is a great decision.]

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Jan

11

Are Short Sales the BIG Solution?

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The article, Foreclosure VOIDance, discussed the challenge that banks are facing in their attempt to complete foreclosures. Some courts are attempting to void the foreclosure if the bank did not properly transfer the mortgage from one bank to another. The courts are claiming that, if you didn’t ‘legally’ transfer ownership of the loan documents, then you don’t ‘legally’ own it. If you don’t own the debt instruments, you can’t foreclose on them. What does this mean to banks when they handle future foreclosures?

One possibility is that banks may start favoring ‘short sales’ over foreclosures in more cases. The ‘short sale’ option has already been gaining momentum. The OCC and OTS Mortgage Metrics Report shows foreclosures are up 57.5 % year over year; ‘short sales’ are up 82.9%.

Now, with courts scrutinizing the foreclosure process, it may make more sense for banks to work with the current homeowner to sell the home even if it is at a price less than the amount owed on the mortgage. Adding to this possibility is that banks could lose less in a ‘short sale’ than a foreclosure. A ‘short sale’ sells for 81% of what a similar, non-distressed property would sell. A foreclosure sells for 59% of full value.

In the past, banks weren’t concerned with the difference because mortgage insurance companies had the legal requirement to cover the majority of the additional loss. However, insurance companies are now fighting these payments claiming that the original mortgage application might have been fraduantly written. This all adds up to the liklihood that banks will look more favorably at the ‘short sale’ process.

To this point, an article in Housing Wire quoted John Vella, the chief operating officer at technology provider Equator:

“Investors usually see a 20% to 30% better execution on a short sale versus an REO sale when it comes to loss severity. With the foreclosure volume, current and pending REO inventories, servicers will be pressed to do more short sales in 2011…they could see an increase of at least 25% over 2010 in completed short sales.”

Bottom Line

For the reasons mentioned above, the banks will probably lean more toward ‘short sales’. If you are a homeowner not able to pay your mortgage, this may be a much better option then allowing the home to go to foreclosure.

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Jan

11

Foreclosure VOIDance?

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A court in Massachusetts voided two bank foreclosures this past Friday. The decision has already created a ripple effect across the banking community. Will other courts also decide to void local foreclosures? Does this put an added burden on banks when they are trying to complete a foreclosure process? What will it mean to the real estate market? Let’s take a look.
What actually happened?

Though the challenges addressed yesterday might have been brought to light by the robo-signing mess, that situation was not involved in this ruling. The question addressed here was much deeper than someone not checking paperwork. The question was whether the bank could prove they owned the mortgages they were foreclosing on.

There are set legal procedures that must be taken to transfer a mortgage from one person/entity to another. It seems that these requirements were not fulfilled by many banks over the last several years when mortgages were transferred quickly and often.

The court decided that, since proper procedures were not followed, there was no legal transfer of the mortgage to the new bank. If the new bank didn’t legally own the loan, they had no right to foreclose on it.
What does that mean to other foreclosures?

That’s the million dollar question! No one knows for sure. Will every foreclosure be voided? No. Will many? That depends on how the courts rule and how the banks react.

Bloomberg reported:

Joshua Rosner, an analyst at the New York-based research firm Graham Fisher & Co., called the decision “a landmark ruling” showing that at least in Massachusetts a mortgage “must name the assignee to be valid.”

“This is likely to open the floodgates to more suits in Massachusetts and strengthens cases in other states,” Rosner said…

Although the decision was issued by a Massachusetts state court, it will be used by homeowners in foreclosure cases in other states, said Matthew Weidner, a St. Petersburg, Florida, lawyer who represents such homeowners.

“This is a very detailed, very specific indictment of an entire industry’s practices and procedures, and it’s an indictment that is going to send shockwaves throughout the entire mortgage, foreclosure, real-estate servicing industry,” he said.

Couldn’t this cost banks millions of dollars to correct?

Actually, it could cost billions. Market Watch reported:

Bank stocks fell sharply Friday as the highest court in Massachusetts reportedly ruled that two foreclosures were invalid because banks didn’t show they owned the mortgages.

The decision is the latest setback for banks after some lenders halted foreclosures in 2010 following claims they didn’t have proper documentation.

… “These cases fall generally into the class of mortgages where origination paperwork was mishandled or poorly documented,” Mitchell said, estimating that U.S. banks face between $80 billion and $120 billion of potential liability.

What does this mean to real estate?

If you are in the market to buy or sell, realize that the inventory of foreclosed properties that had been scheduled to hit the market in the first half of 2011 may be delayed. The New York Times reported:

An array of federal and state investigations into the way banks foreclose on delinquent homeowners has contributed to a sharp slowdown in foreclosures across the country…

The pace of foreclosures could be curtailed further by courts. In a closely watched case, the highest court in Massachusetts invalidated two foreclosures in that state on Friday…

If the slowdown continued through this month and into the spring, it could be a boost for the economy. Reducing foreclosures in a meaningful way would act to stabilize the housing market, real estate experts say.

Bottom Line

If you are in the foreclosure process and think your rights have been impaired in any way, you should perhaps get legal counsel.

If you are thinking of selling, this has increased the window of opportunity you have to sell before this ‘discounted’ inventory comes to market.

If you are buying, prices may not soften any further to later in the year. Many are predicting that interest rates will rise as we go through the year. If you are thinking of buying in the next six months, now might be an opportune time.

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Jan

6

What Will Impact Home Prices In 2011?

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If you’re wondering what will impact home prices in 2011, this is the article for you. The Long Island real estate market, much like most of the rest of the country will be impacted by unemployment, the “brain drain” (young people leaving the Island), and shadow inventory of foreclosures.

What is shadow inventory?

Watch this video.

Currently, the Long Island real estate market has over a 12 month supply of homes for sale. What this graph below featuring the months supply of distressed (foreclosure) properties demonstrates that these types of homes will continue to be a drag on prices through 2011. And as we progress through 2011, prices will soften with analysts calling for anywhere from 5% to 8% during the next 12 months.

If you’re interested in finding out what to expect prices to do over the next 3 to 5 years, you can read the article Demand For Housing Will Increase 2011.

Should you have any questions about the Long Island real estate market or want to schedule an appointment, please call me at (631)881-5959.

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Dec

18

How Will The Foreclosure Mess Impact Prices

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If you’re wondering how will the foreclosure mess impact prices, then this article is for you. Three months ago, it was revealed that many banks were guilty of improperly processing the paperwork on their foreclosures. Most banks at the time declared a foreclosure moratorium while they reviewed their paperwork and corrected any errors. Today, we want to give you an update on the situation and explain how the housing market will be affected.

The banks have admitted to some procedural errors. The severity and intent of these errors is still being investigated and the proper sanctions are being debated (one state attorney general is threatening jail time). However, there seems to be no evidence that families were incorrectly forced from their homes.

So what does mean to the housing market?
When this discounted inventory enters the market, it will put downward pressure on house values. Foreclosures entering the market put downward pressure on the non-distressed properties trying to sell. A foreclosure is competition to other homes as they sell for a 41% discount.

When will this inventory come to market?
Celia Chen of Moody’s Analytics on when this inventory is expected to hit the market:

The “robo-signing” scandal is beginning to show up in U.S. foreclosure data. The inventory of homes in foreclosure rose sharply in the fall, reflecting the fact that a number of large mortgage servicers placed a moratorium on foreclosures midway through October, and were thus unable to complete these foreclosures and reduce inventories. Servicers have already lifted some of these moratoriums and it is likely business will return to usual by the beginning of 2011.

…sales of REOs to third parties and other types of distress sales such as short sale or auction sale to a third party will step up in the first quarter of next year as servicers resolve the foreclosure processing issues.

What impact will it have on house prices?
Prices will be affected. The question is to what degree. Ms. Chen explains it simply:

…the larger the ratio of distress sales to normal, nondistress sales, the greater the downward pressure on prices.

How many distressed sales are out there? According to Daren Blomquist, managing editor of the RealtyTrac:

“Even with this big drop in November we do have a continuing building inventory of properties in foreclosure or REO. We’re estimating those properties plus delinquencies to equal 3 million to 4 million homes waiting to hit the market.”

Bottom Line
With the enormity of the challenge, prices can be impacted in a big way. Ms. Chen in her report said she sees a 5% decline in prices through the first three quarters of 2011.

Should you have any questions about short sales or foreclosures, please call me at (631)881-5959 or email me.

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Sep

23

Long Island Distressed Properties Update Sept. 2011

Jan

11

Are Short Sales the BIG Solution?

Jan

11

Foreclosure VOIDance?

Jan

6

What Will Impact Home Prices In 2011?

Dec

18

How Will The Foreclosure Mess Impact Prices

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