Posted by: The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

15 responses to “Foreclosures Fall Off Even More in February”

  1. Kary L. Krismer

    We’re getting golly close to “normal” levels. I wonder if at some point the legislature will remove some of the additional process they added.

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  2. mike

    I spotted an interesting “foreclosure” in my neighborhood this week. The owner has been missing payments for 3 years according to the NTS and owes another $100K+ on top of the loan value in payments, interest and penalties. Interesting thing is at current list price, it’s not even close to being a short sale, IE even with all that debt outstanding there is apparently equity in the house. Last year, maybe not so much but based on recent comps the owner will likely break even, after living free for 3 years and paying the taxes/commissions on sale.

    Not a bad deal for the owner.

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  3. Kary L. Krismer

    RE: mike @ 2 – Keep in mind sometimes listings are priced to avoid a short sale.

    Ignoring that, if there is equity I’m not so sure that three years of default interest is a great deal! Might be good if you consider the tax consequences–not sure.

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  4. mike

    RE: Kary L. Krismer @ 3 – The price on this one doesn’t seem too unrealistic given the estate sale across the street went under contract in 2 days at a similar price.

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  5. Macro Investor

    RE: mike @ 2 – You obviously have no idea what you are talking about. If there’s equity, then he’s certainly not getting anything free. Likely paying through the nose for collection fees and default rates.

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  6. mike

    RE: Macro Investor @ 5 – Saving $90K in mortgage payments over the past 3 years, having the “short” condition corrected through appreciation, and still walking away from the sale with a little cash is WAY better than what would have happened if they’d sold a year or two ago when the house was under water.

    Look at it this way, yes, they piled up penalties and interest, but appreciation MORE than made up for it over the same time. In a round about way, it’s just another means of ‘equity extraction’ – don’t pay your mortgage and have appreciation make up the short fall. In this case, it looks like the loan was probably an option ARM that recast sometime in 2009-2010. Had they been able to refinance it into a low fixed rate in 2012 that would have been preferable obviously. But you can’t say they got a bad deal overall. In fact, if they’ve been banking the missed payments, they have as much cash saved up as Erik and probably a similar credit score ;)

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  7. Kary L. Krismer

    RE: mike @ 6 – I would look at it slightly differently. I alluded to the tax consequences above. Just pulling some numbers out of my butt . . .

    Let’s say the payments would have been $2,000 a month and that he would have had to earn $3,000 a month to make that amount. That would be saving $108,000 of income (he could have earned $108,000 less and been just as well off).

    Then, when the property is foreclosed, assuming the transaction is treated as cancellation of debt, I don’t believe that accrued interest is counted as income. That’s even better than deducting it over either one year or three years, particularly given the fact that you’d have to use up three standard deductions to do it over three years.

    Don’t get me wrong. I’m not saying this is a good idea to do. It has a lot of downsides. A hit on credit and any gain on the sale being non-taxable being the main ones. I’m just saying it might not be all that horrible of a result, even with default interest and collection costs. I will add though that I really haven’t given this that much thought. I’m just expanding on the thought I had when I wrote the last sentence of post 3 above.

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  8. Erik

    RE: mike @ 6
    My credit score is actually excellent. Last time I looked, my fico was 760 or something. I got that short sale default penalty removed from my credit score. Well, not totally removed. It does say I missed a payment on my Experian report.

    I did save money, but I could have saved a lot more by foreclosing and riding the hampster wheel for 5 years like Ray Pepper advises people to do. I was only not paying for 9 months, which was a very expensive mistake. I could have kept it much longer and made made a lot more. I missed out on atleast $60k i’m sure. :(

    I ended up doing pretty well cause I bought that condo at the bottom before I defaulted. I could have done better though if I would have ridden it out that foreclosure. If corndogs is right about that karma thing, maybe I will do better since I only kept the short sale 9 months.

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  9. sam

    What caused the # of households receiving NTS go down in 2011 and then go back up in 2012?

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  10. Tim Deerhawke

    We all heard that there is a huge foreclosure overhang that represents a tremendous amount of “shadow inventory” . According to the shadow inventory theory, it was all supposed to work its way through the system at the same time and get dumped on the market causing a major price decline.

    Now it looks remarkably like foreclosures are heading back down toward normal levels. Banks seem immune to government pressure and public opinion, but have absorbed the lesson that it costs them a fortune to foreclose. As a result, they seem much more willing to renegotiate loans. Homeowners seem more willing to stick it out and make their payments if they see that prices might at some point allow them to get their heads back above water. While many of these homeowners may be stuck in place for a while, this still acts to keeps that inventory from coming onto the market. Maybe that is another reason why inventory levels are so low.

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  11. mike

    RE: Tim Deerhawke @ 10 – With the possible exception of neighborhoods that are selling above peak prices. In those areas, it’s likely only people that cashed out more than 100% equity near the peak. Even then, if they spent it on value adding renovations they may be in the black as well.

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  12. Kary L. Krismer

    By Tim Deerhawke @ 10:

    Banks seem immune to government pressure and public opinion, but have absorbed the lesson that it costs them a fortune to foreclose. As a result, they seem much more willing to renegotiate loans.

    They’ve been given a lot of incentive to do that. The National Mortgage Settlement, for example, where the state AG’s sued mortgage processors, resulted in a lot of renegotiated loans or approved short sales. The banks didn’t care where the money went once they agreed that they had to spend it.

    By sam @ 9:

    What caused the # of households receiving NTS go down in 2011 and then go back up in 2012?

    Not sure about that timing, but there were two amendments to the deed of trust act after the peak which affected the timing of foreclosures. The second was much more difficult than the first to determine when the impact would occur.

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  13. Kary L. Krismer

    By Kary L. Krismer @ 12:

    The National Mortgage Settlement, for example, where the state AG’s sued mortgage processors, resulted in a lot of renegotiated loans or approved short sales. The banks didn’t care where the money went once they agreed that they had to spend it.

    Speak of the devil. http://www.latimes.com/business/money/la-fi-mo-national-mortgage-settlement-20140318,0,6235161.story#axzz2wLqYgH9b

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  14. mike

    RE: Kary L. Krismer @ 7 – If it sells within ~90% of asking, it won’t be short and there will be no debt cancellation based on the info available in the NTS. I don’t see any second liens either – but here’s the APN if anyone wants to verify my assessment: 1380800025.

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  15. Corndogs

    RE: Tim Deerhawke @ 10 – There is nothing remarkable about anything. . All went like clockwork. Where’s that shadow inventory boys?!

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