Distressed Inventory Report 4-9-11

By George Thurtle

There is definitely a trend developing. There are very few foreclosed homes; just a net gain¬†of one from the week before. But the number of homes posted with a Notice of Trustee Sale (NTS)¬†is where all the action is and if you take a look at the numbers for West Bellevue you can see there was 10 new properties which went¬†NTS but only a total increase of 4 homes. There is a LOT of churning in the Preforeclosure activity and it looks¬†like lenders are gearing up and getting more proactive to make the short sales happen. ¬†¬†Last year you can see the NTS homes pile up and then go to foreclosure; not this year. There is a couple of reasons for this. The conventional one is that lenders are preferring short sales to foreclosure because they do not need to prove ownership of the note in order to have the ability to foreclose. Faulty documentation as noted in a 60 Minutes Documentary is very problematic in the mortgage banking industry.¬† Without proof of ownership of both the Note and Deed of Trust in Washington State the lender has no legal right to foreclose.¬† Some borrowers are becoming savvy to this requirement and are taking advantage of it. Also second lien holders who get wiped out in foreclosure are being much more aggressive in challenging the ability of first lien lenders to foreclose. As a matter of fact there is a home in Lakemont with a Chase first that is having to settle out with a second lien lender because of their challenge regarding Chase’s ability to foreclose. This is being done after the fact after the foreclosure has happened. The result of these requirements is that it is much easier to “release” their interest in title than to prove ownership of the loan documents in order to acquire title through foreclosure. That is the explanation everyone is putting forward for the increased short sale activity.

There is another reason in my opinion and that is monetary. I know of no case where a lender has done better going to foreclosure than doing a short sale. In the early stages of this foreclosure mess the lenders thought they should be “tough” and often turned down short sales at “ridiculous” prices only to take the home back and 18 months to 24 months later finally sell and close the home and receive as much as 50% less. In the meantime they had the cost of ownership and their own internal administration needed to take care of the property etc. so when all was said and done they might have received much less than the net proposed on a short sale. I think this is the real reason. The top managements at these bank tend to be driven by money and see the law and other requirements as not really applying to them and that has not changed. That is why there was an initial movement by the lending community to go to Congress and actually propose legislation which relieved them of their legal obligations to show ownership of the loan. Paper work is something for the “little people”, i.e. the borrower.¬† so expect more short sales but don’t count on the lenders to get those right. In general if you are the third buyer in after two failed attempts on a Chase short sale you will probably get it.

The spreadsheet is here: Bellevue Foreclosure Report 4-9-11

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