South Orange County Blog from Bob Phillips

RealtyTrac: Foreclosures Down 16% Over Past 12 Months

Foreclosures : September 2012

Foreclosure volume continues to slip.

According to foreclosure-tracking firm RealtyTrac, in September, the number of foreclosure filings nationwide fell 7 percent from the month prior, and fell 16 percent from September 2011.

RealtyTrac defines a “foreclosure filing” as any of the following foreclosure-related events : (1) A default notice on a home; (2) A scheduled auction for a home; or, (3) A bank repossession of a home.

September’s 180,427 foreclosure filings mark the lowest monthly total in more than 5 years. It’s a signal that the U.S. housing market is in recovery, while also reflecting the success with which banks and homeowners have found alternatives to the foreclosure process, including the short sale.

Based on data from the National Association of REALTORS®, short sales now account for 45 percent of “distressed” home sales nationwide/ As recently as April, the percentage of short sales was just 39 percent.

Other noteworthy statistics from the September 2012 foreclosure report include :

  • Default Notices fell 12% between August and September 2012
  • In Q3 2012, quarterly foreclosure filings fell for the 9th straight quarter
  • The average time to foreclose on a home rose to 382 days nationwide, the highest since early-2007

In addition, in September, Florida posted the top foreclosure rate nationwide for the first time since April 2005.

Foreclosure starts moved higher in the Sunshine State for the 11th straight month and bank repossessions are now up 23 percent as compared to September 2011. 1 in every 318 Florida homes received some form of foreclosure filing last month.

The national average was 1 in 730.

Whether you’re a first-time home buyer or an experienced one, homes in various stages of foreclosure have allure. They tend to sell for lower prices compared to non-distressed properties, for example. Buyers should look beyond just the “list price”, as distressed properties are usually sold as-is which means that homes may be defective and uninhabitable.

This might render the home un-lendable, too, for buyers who require bank financing.

If you’re looking to buy – or sell – a distressed property in South Orange County, be sure to engage a distressed property specialist – like me. As a CDPE ( Certified Distressed Property Expert.) agent, I am both trained and experienced in these type of transactions.

Comments Off on RealtyTrac: Foreclosures Down 16% Over Past 12 Months

Loan modifications and short sales are gaining traction in California

Posted in Foreclosures, Loan modifications, Real estate, short sales by southorangecounty on May 16, 2010

ForeclosureRadar: Cancellations up 174% year-over-year

Foreclosure cancellations in California skyrocketed 174 percent year-over-year in April, according to a report by foreclosure data company ForeclosureRadar.

At the same time, foreclosure filings in the Golden State fell month-to-month for the first time since January. Notices of default fell 41.2 percent year-over-year and 16 percent month-to-month, while notices of trustee sale were down 3.1 percent year-over-year and 10.3 percent month-to-month.

Cancellations jumped 11.4 percent month-to-month and 174.4 percent since April 2009.

“The steady rise in cancellations leads us to believe that loan modifications and short sales are gaining traction,” said Sean O’Toole, founder and CEO of, in a statement.

“I’d caution, however, that cancellations also occur due to filing errors and extended postponements, which require the notice of trustee sale to be re-filed. In fact, 14.6 percent of new notice of trustee filings in April were on previously canceled foreclosures.”

Cancellations are one of the three possible foreclosure outcomes ForeclosureRadar tracks. The other outcomes — the property’s return to the bank as an REO and sale to a third party — also shot up year-over-year: 19.5 percent for REOs and 158.6 percent for third-party sales.

Total foreclosure inventory — which includes preforeclosures, properties scheduled for sale and REOs — was down slightly: 2.2 percent month-to-month and 2.5 percent year-over-year. Properties scheduled for sale rose about 50 percent while preforeclosures and REOs fell nearly 20 percent each.

As in March, the amount of time banks took to foreclose on a property jumped: 40.1 percent year-over-year and 6.2 percent month-to-month, to 239 days. It took banks 5.56 percent longer year-over-year (247 days) to resell a property in April after taking it back. For third parties purchasing properties at trustee sales, time to resell fell 17.4 percent to 162 days.

Comments Off on Loan modifications and short sales are gaining traction in California

The O. C. Market Report – This Market is Taxing!

Posted in Foreclosures, Real estate, short sales by southorangecounty on April 20, 2010

Below is the latest Orange County Market Report from my friend Steven Thomas, the President of Altera Real Estate. Steven’s reports are cited and discussed in most of Southern California’s media, as an authoritative source of local real estate information. I have slightly altered his report to make it a bit easier to read, but the context and content remains true to Steven’s report.

“The Orange County Market Report – This Market is Taxing!

Talk to an Orange County buyer, especially a first time home buyer, and you will quickly find that the real estate market is simply crazy. 

Let’s first establish that there are two different markets – below $1 million, HOT, and above $1 million, COLD. The below $1 million market accounts for 77% of the total active inventory, and 94% of demand. The lower the range, the hotter the market.  Most buyers new to the market have already formed an incorrect idea of the real estate market. They think that the market is plagued with desperate sellers waiting for a buyer to finally write an offer to purchase at a major discount and an incredible “deal” for the buyer. Instead, new, fresh inventory is scarce and buyers find that they are competing for anything half way decent that hits the market. Properties that are priced well and in good condition, garner tremendous attention and procure multiple offers.

Writing a purchase offer at the list price only to lose to three other buyers that brought in offers above the list price is common. Sales prices above list prices are common. First time home buyers losing out on properties to investors with larger down payments is common. The reality is that if a buyer is looking to bargain and negotiate, they are better off attending the local weekend swap meet. Remember, values of homes have already dropped significantly, 35% or more. Some economists have argued that values have dropped below where they should be today, which is often the case in real estate downturns. So, homes are already heavily discounted from where they were a few years ago.

Home affordability has returned to the Orange County real estate market. Interest rates are still at historical lows. Throw in buyer income tax credits and we have all of the ingredients for a major seller’s market. Buyers entering the fray in today’s market get a real quick dose of reality and, if they really want to buy, sharpen their pencils real fast. In the lower ranges and in hotter areas, homes are starting to sell for more than the last comparable sale. The only thing that is keeping values from taking off like they did before is the distressed inventory.

Housing Demand: Demand has not seen these levels since the beginning of August 2005.
Demand, the number of new pending sales over the prior month, increased by 126 homes over the prior two weeks and now totals 3,748, a 3% increase and the height thus far in 2010. Last year’s height in demand was reached in June at 3,652 pending sales. Demand is 195 pending sales stronger than last year at this time and 1,374 stronger than two years ago. It seems as if demand is beginning to hit a plateau, so we will have to watch and see if that trend continues over the coming weeks.

Developing Trends: The active listing inventory has continued to gradually increase after bottoming at the beginning of the year. Over the past two weeks, the inventory has increased by 266 homes to 9,177. We started the year at 7,165 listings and so, have added 2,012 homes to the active inventory thus far. Last year, the inventory continued to drop from mid-March to the New Year. Towards the end of last year, the drop was probably more in line with the cyclical drop in the inventory that starts in September until the end of the year.

Customarily, during the beginning of the year and into the Spring market, more and more homeowners place their homes on the market in anticipation of the strongest time of the year to sell. In the Spring market in 2006 and 2007, homeowners often tested the market and attempted to obtain values above the current fair market value. There were a ton of overpriced listings that remained on the market and which were not successful in selling – EVER.

Instead, they just clogged the inventory and it methodically grew, reaching a height in August 2007 of just shy of 18,000 listings. In 2008 and 2009, homeowners no longer tested the market and the discretionary ( “equity”.) seller disappeared. During the second half of 2009, the Orange County active listing inventory continued to shed homes and not as many new, fresh homes were placed on the market. REALTORS® in the trenches were complaining of a lack of inventory and nothing “fresh” to show their buyers.

We still hear that there is a lack of inventory, but behind the scenes, the active inventory is slowly but surely nudging upward, in every price range. It remains to be seen if the trend in an increase in the active inventory continues. Will the equity homeowner return or will more and more homeowners place their toe in the water, testing the market? We will have to wait and see. There are currently 1,384 fewer homes on the market today than just one year ago and 6,379 fewer than two years ago.

Expected Market Time: The lower the range, the lower the expected market time.
The expected market time for all of Orange County is currently at 2.45 months, a slight drop from 2.46 months two weeks ago. For homes priced below $500,000, the expected market time is 1.63 months, a deep seller’s market. For homes priced between $500,000 and $1 million, the expected market time is 2.84 months, still a seller’s market. For homes priced above $1 million, the expected market time is 9.44 months, the higher the range, the slower the market. For homes priced above $4 million, the expected market time is 38.44 months, or over 3 years.

Distressed Inventory: Again, not much has changed in the distressed inventory.
The number of active distressed homes on the market,  short sales and foreclosures combined, decreased by 33 homes to 2,781 and represent 30.3% of the active inventory. Last year at this time, there were 4,006 distressed homes on the market, representing 37.9% of the active inventory.  The number of foreclosures within the active listing inventory decreased by two homes in the past two weeks from 418 to 416. Yes, that is correct. With all of the talk of foreclosures there are only 416 on the market in all of Orange County. The expected market time for foreclosures is 1.01 months.

Short sales are a different story; there are plenty of short sales in Orange County. Short sales are where a homeowner attempts to sell a home for less than the total outstanding loans against the home, which requires the lender (or lenders in many cases) to approve the short sale, indicating their willingness to take less than the full payoff of a loan. Most short sales are not as  fast as their name would suggest, and, on average, take months to close. The number of short sales within the active listing inventory decreased by 31 and now total 2,365. The expected market time for short sales is 1.61 months, also a HOT seller’s market. Everybody’s looking for a deal, so foreclosures and short sales tend to fly off of the market.

The Most Absurd Tax Credit EVER? 

I am still scratching my head trying to understand why California approved $100 million towards a first time homebuyer tax credit. These are for transactions that close escrow on or after May 1, 2010. The $10,000 credit is spread out over three years. So, when will the $100 million run out? For every buyer, the state is counting $5,700 against the $100 million. That equates to 17,543 first time home buyers. Based upon the current wave of first time home buyer activity, the credit is forecasted to last less than two weeks. And, if there are buyers who are supposed to close at the end of this month – to take advantage of the $8000 Federal Tax Credit – and are looking to delay closing until after May 1st, the credit may end even sooner. ( End of Steven’s report.)

Like the former “Cash for Clunkers” program for automobiles, there will likely be a mad scramble for those credits – and a lot of disappointed buyers.

Comments Off on The O. C. Market Report – This Market is Taxing!

How To Buy Distressed Properties In A Period Of Rising Inventory

Posted in Foreclosures, Real estate, short sales by southorangecounty on April 15, 2010


Foreclosures concentrate on 4 statesForeclosure filings rose close to 20 percent nationwide last month versus February, according to foreclosure-tracking firm, and for the 13th straight month, total filings topped 300,000.

In addition, bank repossessions reached an all-time, quarterly record. Through the first three months of 2010, banks reclaimed more than 257,000 homes.

Nonetheless, 4 states dominated foreclosure activity nationwide.

California, Florida, Arizona and Georgia accounted for more than half of all bank repossessions. It’s a disproportionate distribution of foreclosures. Together, the 4 states represent just 23 percent of the overall U.S. population.

The RealtyTrac report revealed some other interesting statistics, too.

  • Foreclosure activity was up in 40 out of 50 states last month
  • Bank repossessions rose 9 percent versus the same quarter last year
  • For the 13th straight quarter, Nevada topped the state foreclosure rate

Regardless of where you’re buying, short sales, foreclosures, and REO are making a profound impact on pricing and product. Distressed homes are 35 percent of the overall resale market.

There’s excellent value in foreclosures out there if you know where to look, but keep these points in mind:

  1. Buying short sales homes can take 120 days to close or more. Be flexible.
  2. Foreclosures aren’t always listed for sale publicly. Some inventory is privately-held.
  3. Bank-owned homes are frequently sold “as is”. There may be defects that render the homes mortgage-ineligible.

The short sale/REO market is very different from the traditional “existing home” market.  Therefore, if you have an interest in buying such a property, be sure to talk with an experienced real estate agent first.  I have been selling properties like these for over 33 years, and would be honored to share my expertise with you.  Give me a call or shoot me an email – and let’s talk about real estate!

Comments Off on How To Buy Distressed Properties In A Period Of Rising Inventory

Years after Loan Default, Homeowners May Still Owe

Posted in Foreclosures, Real estate, short sales by southorangecounty on March 23, 2010

Homeowners defaulting on mortgages today may be surprised to learn years from now that they still owe thousands of dollars—and a collection agency is coming after them to get it.

That’s because lenders have been quietly selling second mortgages and home equity lines left unpaid after foreclosures and short sales. The buyers: collection agencies, which in some states have years to make a claim. If they win court judgments, these collectors could have years to pursue borrowers with repayment plans, and even garnish their wages, said Scott CoBen, a Sacramento bankruptcy attorney.

“The only relief a consumer will have is entering into a debt negotiating plan or filing for bankruptcy,” said Sylvia Alayon, a vice president with the New York-based Consumer Mortgage Audit Center. The firm provides mortgage analysis to lenders, advocacy groups and attorneys.

The phenomenon suggests an ominous, looming echo of today’s real estate meltdown. As debt collectors surely seek at least partial repayment of millions of dollars in unpaid home loans, some say renewed financial stresses on tens of thousands of local consumers could dampen economic recovery.

“I think there will be a lot of unhappy people when it hits,” said CoBen. “We saw this in the ’90s. This is not really new. Just when you think you’re back on your feet, you’re making money and the economy’s good, they hit you with this.”

Alayon said most people are so stressed out and exhausted by trying to save their homes today that they are unaware they could face another hit later. And many who are losing homes don’t get the advice necessary to prevent future fallout, say nonprofit loan counselors.

“You’ve got tens of thousands of people in California who have this hanging over their heads who don’t even know it,” said Scott Thompson, principal at for-profit Mortgage Resolution Services in Carmichael, Calif. He fears a new wave of bankruptcies might flatten people just starting to recover from losing their homes.

“So many of these are people with 750 or 800 credit scores who made a bad decision,” said Thompson. “Or they’re people who suffered income cuts. These are people, in terms of the economy, whom we need to participate.”

But an entire industry is gearing up to buy their debt at deep discounts and collect what they can, Alayon said. “It’s a big business and investors are coming out of the woodwork. It’s a very lucrative business,” she said. Real estate insiders and financial players know it as “scratch and dent.”

Regionally, no one knows for sure how much unpaid debt is on the line. CoBen said people who used their borrowings for a traditional loan on a house in which they lived generally have little to worry about. But borrowers may be vulnerable in years ahead—generally, those who defaulted not only on their first mortgage but also on a home equity loan or second mortgage.

In California, banks can’t collect from borrowers for primary, so-called “first-lien,” loans that go unpaid. When a house is foreclosed or sold through a short sale, the lender of the first loan gets the house back or the proceeds from another buyer.

But banks also made thousands of “second-lien” loans, including those used to finance 20% down payments during the housing boom. A separate category of “seconds” includes home equity loans and home equity lines of credit. Nationally, about 3.4% of those loans are currently delinquent, according to Foresight.

Owners are generally, but not always, on the hook for the second loans left over from a foreclosure or short sale. Most investor mortgages, too, leave the borrower liable for potential unpaid debt. In many short sales, experienced real estate agents or attorneys can negotiate away debt obligations for the second-lien loan. But many inexperienced borrowers don’t know that, and sign final-hour agreements giving lenders the right to pursue them later.

“Seek advice,” counseled Doug Robinson, spokesman for national nonprofit mortgage counselor NeighborWorks America. He said nonprofit counselors can help. “Often when you work with a real estate agent, they’re not really equipped to handle the repercussions. They’re set up to make the sale,” he said.

Government forces are already moving to limit potential damage to millions now struggling with home loans. A new Obama administration short sale program aims to prevent banks that hold second-lien loans from pursuing collections from homeowners after the short sale. It goes into effect April 5, 2010 and works this way: Sellers will receive notice that their servicer has steered part of the sales proceeds to secondary lien holders “in exchange for release and full satisfaction of their liens.” This release would apply only to short sales done through the administration’s Home Affordable Foreclosure Alternatives program.

In California, Democratic state Sen. Ellen Corbett recently introduced SB 1178, which would expand California’s protections for some people who refinance and take on a second mortgage.

People who refinance, but use the funds to improve their homes or to stay in their homes with a better interest rate, would be protected. Lenders could not seek court judgments to collect from these borrowers in the event of foreclosure or short sales.

“If you refinance a property and aren’t using the money for personal reasons, you shouldn’t lose your personal protections,” said California Association of Realtors lobbyist Alex Creel. He said the idea has been around for years but has become more urgent as thousands lose income and fall into mortgage trouble. The bill would apply to all foreclosures or short sales that occur after it becomes law. It doesn’t matter when the loan was made, Creel said. SB 1178 is still in the early stages of consideration. It must clear both houses of the Legislature and be signed by Gov. Arnold Schwarzenegger by Sept. 30 in order to take effect.

(c) 2010, The Sacramento Bee (Sacramento, Calif.). Hat tip to Valerie Fitzgerald.

Comments Off on Years after Loan Default, Homeowners May Still Owe

The number of Southern California short sales increases

Posted in Foreclosures, home affordability, Loan modifications, Real estate, short sales by southorangecounty on February 19, 2010

Here’s an article from this morning’s Los Angeles Times:

Short sales grow as a cheaper alternative to foreclosure


Banks’ resistance to the tricky transactions is softening as the number of distressed properties increases.


By Alejandro Lazo,  The Los Angeles Times,   February 17, 2010 | 8:26 p.m.


Nineteen months ago, the recession took Bob Walker’s job. Then, creditors lined up to take the three-bedroom hilltop home that the computer consultant shared with his wife, Stephanie, a playwright still looking for her first break.

Avoiding the stigma and financial fallout of foreclosure became an obsession for the Walkers. They talked to the banks, found multiple jobs, put their Silver Lake house on the market and tried to stitch together a plan to repay their debts. Finally, they turned to a short sale, chronicled in a popular blog: Love in the Time of Foreclosure.

“We really thought that, worst-case scenario, we will sell the house and break even,” Stephanie Walker said. “But it didn’t work. We went into great losses.”

In a short sale the lender lets a homeowner unload a house for less than what is owed on the mortgage. The transaction recognizes that the home isn’t worth what the owner paid for it after more than two years of falling real estate values.

Such deals are appealing to struggling homeowners because they escape weighty house debts — but they don’t get away unscathed. Their credit scores will be damaged, perhaps less severely than in foreclosure, but still badly enough to limit for years their ability to borrow money. There may be tax consequences. And any money invested through down payments and renovations will be lost.

Lenders, which can withhold approval of a short sale if they don’t like the price, have resisted such sales because they are difficult to execute, particularly when multiple creditors and other parties are involved. And short sales lock in losses that might be reduced if the sale is delayed until the market improves.

But that resistance is softening. With more Americans losing jobs and missing mortgage payments, banks and investors increasingly are agreeing to short sales as a less costly alternative to foreclosure.

Short sales approved by Fannie Mae and Freddie Mac, which own 57% of U.S. mortgages, nearly quadrupled in the first nine months of 2009 compared with the same period in 2008. At the nation’s largest mortgage servicers, short sales soared 165% to 74,513 in the first nine months of 2009 from the year-earlier period.

Short sales are still few compared with foreclosures, but policymakers are looking at such sales to shrink the number of bank-owned homes on the market.

Late last year, the Obama administration added incentives to get short sales done if a borrower is unable to qualify for a modified mortgage as part of the government’s $75-billion effort to help troubled homeowners. Starting in April, the government will pay incentives to lenders and borrowers when a sale is completed.

Many economists view short sales as a way to address a problem that mortgage relief hasn’t fixed: properties that are “under water,” carrying more debt than the home is worth.

“Making short sales easier would go a long way to freeing up the market,” said Richard Green, director of the Lusk Center for Real Estate. “Right now, if people are under water on their house, they are really stuck.”

Short sales remain difficult. Uncertainty over home prices makes properties hard to value, lenders are understaffed and multiple loans on a home can trip up negotiations among creditors.

The Walkers faced some of these challenges. The couple paid $799,000 for their home in 2006, taking out loans from Countrywide Financial Corp. and National City Corp.

They spent most of their savings and ran up big credit card balances to redo their kitchen and landscaping. Even with her husband’s $240,000 yearly salary, they were stretched thin making combined mortgage payments of $5,000 a month, Stephanie Walker said.

When Bob Walker’s consulting contract was canceled, the couple fell behind on their house payments. They found jobs but their income suffered.

They listed the home for $875,000 but found no buyers. A foreclosure notice arrived. They were offered a three-month payment reduction from Bank of America but couldn’t afford it. A short sale looked attractive.

One factor motivating banks to go along with short sales is that foreclosures typically cost more. Foreclosed properties often sit vacant, susceptible to damage from neglect or vandals. A study by Amherst Securities Group found that prime loans took an average loss of 45% in a foreclosure as opposed to 35% in a short sale.

“The bank or the investor is going to lose money on a short sale or a foreclosure,” said J.K. Huey, senior vice president of Wells Fargo Home Mortgage. “You don’t lose as much if you sell the property when it is occupied.”

Representatives of Wells Fargo & Co., JPMorgan Chase & Co. and Bank of America Corp. said their companies had assigned more employees to handle short sales. But the sheer volume of requests has made it difficult to keep up.

“I wouldn’t call it overwhelmed,” said Matt Vernon, the executive in charge of short sales and bank-owned properties for Bank of America Home Loans. “But the volume has certainly stressed our current process.”

Then there’s the problem of second mortgages, which have proved to be a thorny impediment to the housing recovery. The loans were widespread during the boom years as people tapped rising equity or financed a down payment.

Of the 1.2 million U.S. properties in foreclosure, about 34%, or 403,670, have a second loan, according to RealtyTrac.    In California, with 280,023 properties in foreclosure, about 46%, or 128,800, have a second loan.

“Those junior liens make short sales much more difficult and they make modification much more difficult,” said Michael LaCour-Little, a finance professor at Cal State Fullerton who has studied the issue. The different banks “often have no incentive to cooperate.”

Sally Quinn’s second mortgage has complicated her short-sale attempts.

She is facing foreclosure on a Glendora town house that she bought as an investment property. Quinn said she has tried to arrange a short sale four times through her lenders, Bank of America and JPMorgan. Buyers, tired of waiting months for an answer from the banks, walked away on three occasions, and the banks rejected an offer from a fourth as too low, she said. She lined up a fifth buyer, she said, but B of A balked.

“It all came crashing down,” she said.

The Walkers also found the short-sale process to be emotionally wrenching. Weighed down with debt and fearful they would be pursued by the bank that held their second mortgage, they filed for bankruptcy protection last summer.

In her blog, Stephanie Walker wrote that the struggle helped them focus on what was important: their love for each other.
Last month, Walker retired the blog to focus on her next project, a baby due in July, posting: “I don’t want my life to be forever tied to our foreclosure story. It’s just time for me to move on.”

Many of us local Realtors think that the next couple of years will be a huge time for short sales.  If you have any questions about short sales, either see my website – – give me a call, ( 949-643-2100.) or shoot me an email at


Comments Off on The number of Southern California short sales increases

What is a Short Sale?

Posted in Foreclosures, home affordability, Loan modifications, Real estate by southorangecounty on February 2, 2010

Short Sale Definition

A “Short Sale” is when a home seller sells his home for a lesser amount than what is owed on his mortgage, and the mortgage lender agrees to accept the lesser amount in lieu of a full payoff.

By way of example, a Short Sale may be appropriate for a home seller whose mortgage balance is $250,000 but whose home wouldn’t sell for more than $220,000.  Rather than pay the $30,000 difference to the lender at the time of sale, the seller enters into an agreement with the lender by which all sale proceeds are paid to the bank and the deficient balance is forgiven.

Short Sales are a preferable alternative to foreclosure but the process still harms both parties. For one, the seller is penalized with a derogatory tradeline on credit for not fulfilling a mortgage obligation. ( In my experience, however, that derogatory almost entirely disappears after the sale escrow has closed.)  And, two, the lender is forced to take a loss on a mortgage loan.  Versus an executed foreclosure, however, Short Sale damages are relatively limited on both sides.

For this reason, Short Sales are sometimes considered “the economical alternative” to default.

The process of getting a Short Sale approved varies from lender-to-lender and can be time-intensive. Home sellers should not go at it alone — speaking with an experienced real estate agent – like me – about the proper protocol is usually the best place to start.  And sellers should be aware of how a Short Sale on their credit might impact future borrowing.

Current Fannie Mae guidelines might prevent short-selling homeowners from obtaining new mortgage financing for a period of 2 years.

For more short sale information, visit my website and click on the “Short Sale Help” big red “easy” button.

Comments Off on What is a Short Sale?

Orange County Housing Report: Short Sales are a Nightmare

Posted in Real estate by southorangecounty on November 18, 2009

Here is the latest Orange County, California, Housing Report from my friend Steven Thomas, the President of Altera Real Estate.

Monday, November 16, 2009

Have you ever pedaled up a steep hill on your bicycle as a kid only to wonder if you were going to ever make it? That’s the same feeling that some buyers, sellers and agents get in trying to arrive at a successful close date. Short sales are homes where the asking price is less than the outstanding loan amounts. These are subject to the lender’s approval. This approval takes anywhere from weeks to months. There is nothing short about a short sale.

About a year ago, it was just about impossible for agents to show a short sale to a prospective buyer. Nine times out of ten, the short sale already had at least one offer on the home, which had been submitted to the lender for approval. However, the home remained on the market as an active listing until that approval was received. So, agents would show their buyers home after home only to find out that most short sales already had an offer submitted, which amounted to a gigantic waste of everybody’s time.

Agents then would contact every short sale to see if it was “really” available. This stemmed from the fact that an escrow is not opened until after lender approval. Escrow is not opened so that expenses are not incurred for any work completed. Inspections, homeowner association documentation, appraisals, etcetera, are all fee based and time sensitive and nobody is going to want to pick up the tab if a lender does not approve a file or if there are significant delays.

Short sale data has been cleaned up over the course of the last year. It is now mandatory for all properties that have offers submitted to a lender to be placed in “Backup Offer” status or “Pending Sale” status within the Multiple Listing Service.

I used to reference the overstated active listing inventory and the understated pending sale statistics last year at this time. The data is still not perfect, but is much improved and easier for agents and buyers to look at homes.

In response to so many short sales no longer counted as a part of the active listing inventory, the total pending sale inventory has blossomed. There are currently 6,838 total pending sales. 58% are short sales, only 8% are foreclosures and 33% are homeowners with equity.

There are 3,703 pending sales that have been pending for more than one month. 76% are short sales, 5% are foreclosures and 19% are homeowners with equity. There are 2,132 pending sales that are have been pending for more than two months. A stunning 91% are short sales, 1% are foreclosures and 8% are homeowners with equity.

Almost a third of the total pending sales count has been pending for more than two months and most are short sales. Even though more and more homeowners have defaulted on loans, lenders have not been foreclosing. As a result, the market has grown much hotter with an increase in successful short sales and a shift to more equity sellers.

The huge increase in pending short sales has not materialized as a huge increase in closed short sales. All of these numbers illustrate that dealing with short sales is like bicycling up a steep hill as a kid. Just because a buyer’s offer is accepted, if it is a short sale, it is going to take a long time to close escrow.

Since short sales are distressed, their pricing attracts a lot of attention from buyers. Buyers can expect multiple offers in dealing with short sales. In the end, buyers have to move quickly and compete with other offers only to wait for a long period of time for the seller to obtain lender approval.

Sometimes the process takes such a long time that the buyer walks away and looks for something else. Many of them move onto equity sellers. The Orange County real estate market and the entire state of California are at the mercy of lenders. The bottom line, the market is full of challenges and the short sale process makes the current real estate landscape even more challenging.

So, how do the rest of the numbers look? The market has continued to not change much over the past few months. Once again, the past two weeks are no exception. The active listing inventory decreased slightly by 30 homes over the past two weeks, totaling 7,719. That’s 5,539 fewer than last year and 9,514 fewer than two years ago. The inventory has dropped by 4,123 homes so far this year, a 35% drop. We can expect the active listing inventory to drop slightly for the remainder of the year.

Demand – the number of new pending sales within the past month – increased by 75 in the past couple of weeks to 3,241, a 2% increase. Last year’s demand was 684 fewer and two years ago was 1,946 fewer. The expected market time for all of Orange County decreased in the past couple of weeks from 2.48 to 2.38 months. The expected market time last year was at 5.18 months and two years ago it was at 13.31 months. For homes priced below $1 million, the expected market time is 1.87 months.

For homes priced above $1 million, the expected market time is 8.79 months. That range represents 27% of the active listing inventory, but just 7% of demand. For only the second time this year, the number of distressed properties on the market increased. The distressed inventory increased by 73 homes, or 3%. 32% of the active inventory is distressed compared to 44% last year.

There are currently only 339 foreclosures in all of Orange County, an increase of 25 in the past two weeks. Foreclosures only represent 4% of the active listing market and have an expected market time of 0.82 months. Last year the expected market time was at 1.22 months.

Foreclosures continue to be exceptionally HOT and are, on average, selling for 3% above their asking prices. There are currently 2,123 short sales on the active market, an increase of 48 in the past two weeks. Short sales currently represent 28% of the active listing inventory. The expected market time for short sales is currently at 1.72 month versus 7.08 months one year ago (this number was grossly overstated as illustrated earlier).

Homeowners with equity in their home now account for 68% of the current active inventory. If a buyer wants to avoid the many pitfalls of dealing with short sales and foreclosures, they should turn their attention to equity sellers. End of Steven’s report.

Personal note from Bob Phillips: I have been involved on each side of short sales, both as a listing agent – with great success – and as a buyer’s agent – also with excellent success. I have seen approvals from lenders in as short as a few weeks, resulting in a 60 day period from offer to close of escrow, and I have also seen approvals take more than 3 months to obtain.

If you are thinking of doing a short sale, as a seller, or getting involved with one, as a buyer, you’d be best advised to consult with a Realtor experienced with the process. ( And have a lot of patience.)

Comments Off on Orange County Housing Report: Short Sales are a Nightmare

%d bloggers like this: