Legislation-Induced Foreclosure Spike Begins to Wane

Time for our June update on Foreclosure activity in King, Snohomish, and Pierce counties. First up, the Notice of Trustee Sale summary:

July 2009
King: 1,248 NTS, up 71% YOY
Snohomish: 620 NTS, up 75% YOY
Pierce: 803 NTS, up 48% YOY

The effect of the new state law that was passed in April (Senate Bill 5810) began waning in July, as the number of foreclosure notices backed off their insanely-high June volumes.

The new law essentially makes it more difficult for a lender to foreclose on owner-occupied homes with mortgages minted from 2003 through the end of 2007, and adds an extra 30 days to the process. Since a notice of trustee sale comes 30 days after the notice of default, a surge in default notices filed before the bill became law in late July could result in a continued surge in notices of trustee sale through this month.

After that, it is likely that we will see a lull in apparent foreclosure activity for a month or two as the newly-legislated time in the pipeline fills up. My guess is that by the end of this year we will probably be back to a more “normal” post-bubble foreclosure level of ~1,000 notices of trustee sale per month.

Frequent commenter Kary L. Krismer also explained the situation with SB 5810 over on the SREP blog last week.

Here’s a simple look at how July’s foreclosures compare to the same month last year in each of the three counties:

Notices of Trustee Sale

To give the numbers some more context, here’s a comparison of July closed sales reported by the NWMLS and July notices of trustee sale:

Notices of Trustee Sale & Closed Sales

We’re back to more people buying homes than losing them in all three counties, at least.

Next let’s look at the percentage of households that received a Notice of Trustee Sale (based on household data for each county from the American Community Survey, assuming linear household growth between surveys):

Households per Foreclosure

King County came in at 1 NTS per 630 households, Snohomish County had 1 NTS per 424 households, and Pierce had 1 NTS for every 370 households (higher is better).

According to foreclosure tracking company RealtyTrac, Washington’s statewide foreclosure rate of one foreclosure for every 511 households was 13th worst among the 50 states and the District of Columbia (up from 17th last month). As usual, this was still better than the national average of 355 households per foreclosure. Note that RealtyTrac’s definition of “in foreclosure” is much broader than what we are using.

Following are the usual charts of King, Pierce, and Snohomish County foreclosures from January 2000 through June 2009. Click below to continue…

Notices of Trustee Sale - King

Down slightly from the June peak, but still the second-highest level ever.

Notices of Trustee Sale - Snohomish

Same deal in Snohomish: second-highest level of all time.

Notices of Trustee Sale - Pierce

And again, same in Pierce.

It will be interesting to see if this new law has any effect other than to simply delay the foreclosure pipeline. Based on similar actions that have been attempted in other states, I doubt anything else will happen.

Note: The graphs above are derived from monthly Notice of Trustee Sale counts gathered at King, Snohomish, and Pierce County records. For a longer-term picture of King County foreclosures back to 1979, refer to the final chart in this post. For the full legal definition of what a Notice of Trustee Sale is and how it fits into the foreclosure process, check out RCW 61.24.040. The short version is that it is the notice sent to delinquent borrowers that their home will be repossessed in 90 days.

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About 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. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

33 comments:

  1. 1
    The Tim says:

    Regarding the “lull in apparent foreclosure activity” I mentioned in the post: it would appear that it is already here. The 1st through the 12th this month there have been only 116 notices of trustee sale in King County. This compares to 399 in the first 12 days of last month.

  2. 2
    Kary L. Krismer says:

    RE: The Tim @ 1 – Some of the filings since July 26 have been notices that purport to have been signed earlier. I’ll assume that flies since they’re notarized documents. And some of them are trustee’s filing notices of continuances. There are some though that are new notice of trustee sale that are clearly after the date of the new law. I’m not sure what the basis for those being filed is–that’s something I’ll have to look into further. I know CA’s law doesn’t apply to all properties, but I’m not familiar with the limitations on our law. I suspect it doesn’t apply to multi-family, for example, but it’s not something I’ve looked at.

  3. 3
    Kary L. Krismer says:

    From main piece: “Since a notice of trustee sale comes 30 days after the notice of default, a surge in default notices filed before the bill became law in late July could result in a continued surge in notices of trustee sale through this month.”

    I don’t believe that’s correct. I think the law most likely applies to any Notice of Trustee’s sale dated after July 26, 2009. Unfortunately the law doesn’t have transition provisions in it, so it’s not clear.

  4. 4
    The Tim says:

    RE: Kary L. Krismer @ 2 – Well as I mentioned in the post, it only applies to owner-occupied, and only to homes with mortgages minted 2003-2007 inclusive. I thought I read somewhere that the median purchase date of homes being foreclosed on was somewhere around 2003, which if true would mean that around half the homes being foreclosed on were outside that window anyway.

    Of course, if the 2002 buyer went out and cash-out-refi’d three times during the bubble their mortgage is in the window even though their purchase wasn’t, and I think that kind of nonsense is behind many/most of the foreclosures we’re seeing today…

  5. 5
    The Tim says:

    RE: Kary L. Krismer @ 3 – From Sec.2 (1)(a) of the bill, page 3:

    A trustee, beneficiary, or authorized agent may not issue a notice of default under RCW 61.24.030(8) until thirty days after initial contact with the borrower is made as required under (b) of this subsection or thirty days after satisfying the due diligence requirements as described in subsection (5) of this section.

    Since it specifically refers to the notice of default, I took that to mean that once the notice of default has already been sent out, the lender is outside the window of these new requirements.

  6. 6
    Raj says:

    Let me use the usual words(price low or high) of Real Estate Agents ” This is the right time to buy”
    My question is “Is this is the right time to buy?

  7. 7

    RE: Raj @ 6

    Is this the right time to buy?

    Two years ago was a horrible time to buy. Two years from now might be a better time to buy than it is now. Seems likely to me that prices will continue to drop for the next little while, but there are more “gems” out there, bargains that are seemingly priced well below comparables.

    So the answer is ” It depends.”
    If you’re planning on selling quickly, nope, not the right time to buy, unless you’re buying insanely cheaply, selling for less than market value, and know what you’re doing.
    If the mortgage will be way over what a comparable home rents for, then probably not the right time to buy.

    If the monthly payments are at the maximum limit of what you can afford, then nope, not the right time to buy.

    But if you can easily afford the monthly payments, you plan on staying in the house for a long time, it’s fairly close to what a comparable home would rent for, it’s selling for way less than comparable homes, and you really like the home, then sure!

    You’ll never hear me utter the phrase ” It’s a great time to buy” because the phrase just reeks of sleazy agent and I fancy myself the anti agent, and it’s been such an overused phrase, like ” World Class”, but there clearly are more ideal times to buy than others. Right now is not the most ideal time to buy.

  8. 8
    Scotsman says:

    RE: Raj @ 6

    This is a great time to buy- rates are low and it’s a buyer’s market! Kramer is calling the bottom… again. Even the WSJ is reporting “the recession is over.” Happy days are here again! Buy now, or be priced out forever!

    Did you know you can buy a 2/2 condo in Florida for $25-30K? This has to be the bottom.

    Save a Realtor- buy a house!

  9. 9
    Softwarengineer says:

    RE: Scotsman @ 8

    Speaking of Florida:

    These Florida RE investors from Mexico are in for a rude surprise?

    They’ll lose millions to gain citizenship as RE chronically continues its collapses IMO, as sanctuary states like Florida ramp up overpopulation, condense living space, reduce per capita expenses; thus drastically lowering wages and causing even worse than Great Depression level unemployment and poverty….the Malthus Theory is true. American economists hate Malthus because their assumption that technology will deal with population growth can’t stop slam dunk unemployment, poverty, reduced wages and more collapses in RE prices. The only solution, economists will never admit to, on propping up RE prices, is immediate depopulation in America…LOL

    These foreign RE investors are clearly going lose their shirts in states like Florida [California too], if we don’t depopulate. But I imagine they’re too dense to figure it out.

    The news URL referenced:

    http://blogs.usatoday.com/ondeadline/2009/08/foreigners-buying-property-to-get-us-residency-.html

  10. 10
    DrShort says:

    By The Tim @ 1:

    Regarding the “lull in apparent foreclosure activity” I mentioned in the post: it would appear that it is already here. The 1st through the 12th this month there have been only 116 notices of trustee sale in King County. This compares to 399 in the first 12 days of last month.

    not to be picky, but….

    Actual foreclosures, Trustee Deeds, are higher than ever and more than twice last year’s pace. So the lull you speak of is just in the start of the foreclosure process, not actual foreclosures.

  11. 11

    RE: Scotsman @ 8

    Hey Scotsman,
    What happened to that vow of yours to be less sarcastic? Or were you just being sarcastic when you said it ? :)

  12. 12
    Softwarengineer says:

    The Rest of the Country Saw Foreclosures Horrifyingly Increase in July

    U.S. FORECLOSURE ACTIVITY INCREASES 7 PERCENT IN JULY
    [Full copy of RealtyTrac’s article snipped. I linked to this in the post, there’s no need to paste the entire thing in the comments. -Tim]

    Check the data out at: http://www.realtytrac.com/ContentManagement/PressRelease.aspx?channelid=9&ItemID=7192

  13. 13
    Scotsman says:

    RE: Ira Sacharoff @ 11

    Sorry, it was a knee-jerk reaction.. ;-) Thankfully, your answer preceeded mine, and was very good.

    The condo situation in Florida is pretty grim though. Folks won’t buy because they fear getting stuck
    with HOA assessments, etc. on all the poorly built crap. In many cases the payment is well under the
    HO dues. Kind of like the Midwest where taxes are so high on some properties the monthly tax bill
    exceeds the mortgage payment.

  14. 14
    Kary L. Krismer says:

    By DrShort @ 10:

    By The Tim @ 1:

    Regarding the “lull in apparent foreclosure activity” I mentioned in the post: it would appear that it is already here. The 1st through the 12th this month there have been only 116 notices of trustee sale in King County. This compares to 399 in the first 12 days of last month.

    not to be picky, but….

    Actual foreclosures, Trustee Deeds, are higher than ever and more than twice last year’s pace. So the lull you speak of is just in the start of the foreclosure process, not actual foreclosures.

    And because of the runup in NOTS docs filed in May-July, you’d expect the actual sales to increase over the next 90 days or so.

  15. 15
    Kary L. Krismer says:

    RE: Softwarengineer @ 12 – And as I said somewhere (apparently not here), that’s pretty amazing considering CA had their partial moratorium starting mid-June. CA has a lot of houses.

  16. 16
    Kary L. Krismer says:

    By The Tim @ 4:

    RE: Kary L. Krismer @ 2 – Well as I mentioned in the post, it only applies to owner-occupied, and only to homes with mortgages minted 2003-2007 inclusive. I thought I read somewhere that the median purchase date of homes being foreclosed on was somewhere around 2003, which if true would mean that around half the homes being foreclosed on were outside that window anyway..

    Sorry, I missed that. That’s similar to CA, and I’ve read that down there for some reason the lenders aren’t really discriminating, and applying it to more.

    The thing is though, the tenant right provisions (extended time after the sale) don’t apply to only such loans (I’m pretty sure), and I’m seeing a lot of new notices that only reference the 20 day period.

  17. 17
    Softwarengineer says:

    RE: Softwarengineer @ 12

    Thanks Tim, for shortening my blog….you do excellent work :-)

  18. 18
    Raj says:

    RE: Ira Sacharoff @ 7

    Thanks for ur suggestions

  19. 19
    cutienoua says:

    RE: Scotsman @ 8
    I am in Orlando this week.While I agree that condos are available for $20000, the location is far from great.Near the hotel I see condos for $400k,empty!

  20. 20
    Rack says:

    By cutienoua @ 19:

    RE: Scotsman @ 8
    I am in Orlando this week.While I agree that condos are available for $20000, the location is far from great.Near the hotel I see condos for $400k,empty!

    I was thinking the same thing, $300k would but a mansion in San Antonio in 2003 but you’d have to live in SA.

  21. 21
    Herman says:

    RE: Raj @ 6 – It seems like the median conventional wisdom on this site sums to something like this:

    * A $1,000,000 house in Seattle will be worth about $850,000 in 1-2 years
    * It will be back at the original $1,000,000 value in 5-7 years
    * After that, let’s assume normal appreciation

    Scale the numbers as needed for your price range, take a guess how long you want to live there, and decide if this means it’s a good time for you to buy.

    On the extreme end, you could believe in a Snigletian 80% collapse in home values, in which case it is unequivocally a horrible time to buy. But that viewpoint is held by a small number of people on this site, and I’m with the moderates.

  22. 22
    Kary L. Krismer says:

    By Herman @ 21:

    RE: Raj @ 6 – It seems like the median conventional wisdom on this site sums to something like this:

    * A $1,000,000 house in Seattle will be worth about $850,000 in 1-2 years
    * It will be back at the original $1,000,000 value in 5-7 years
    * After that, let’s assume normal appreciation

    I wouldn’t use that price range. Those houses already have gone down much more than lower priced houses, and are much different than what we’re typically talking about here. I was actually thinking of doing a piece over at SREP about the upper end market and how different it is.

  23. 23
    Herman says:

    RE: Kary L. Krismer @ 22 – I just used it for a round number. But let me know when you post your article, I’d like to read it.

  24. 24
    patient says:

    RE: Raj @ 6
    – Unemployment is very high and rising.
    – Consumer confidence index is very low.
    – Foreclosures are trending upwards.
    – Banks are still troubled and many are failing.
    – There are no robust signs of price stabilization in Seattle.
    – It’s unlikely that we will have price stabilization at or above historic norms after the implosion of the biggest credit bubble in history.

    Conclusion: Now is a good time to wait.

  25. 25
    spiderman says:

    Especilly if you are on east side – I think Microsoft’s best days are behind …only downhill from here. At the best Microsoft will become like IBM ( Irrelevent, moving most of the work offshore etc …)

  26. 26
    spiderman says:

    Anyone here live or any opinions about English Hill ( Redmond/Woodenwille border) ??
    This home is priced at 625K – http://www.redfin.com/WA/Redmond/13510-175th-Ave-NE-98052/home/450009
    Looking at recent sales , I think 550K should be good offer …
    I am thinking of submitting 525K offer , do you guys think seller will be offended ?

  27. 27

    […] like exactly what we expected to happen. In our July foreclosure update a few weeks ago, I said “it is likely that we will see a lull in apparent foreclosure […]

  28. 28

    […] we predicted last month, Senate Bill 5810 seems to be resulting in a bit of a lull in foreclosure activity as the extra […]

  29. 29

    […] so we can’t really read much into this particular one-month dip. And, thanks to SB 5810 (more on that here), the year-over-year numbers aren’t particularly useful right now, […]

  30. 30

    […] last spring and early summer, there does seem to still be an upward trend that has persisted since the post SB 5810 drop-off.Note: The graphs above are derived from monthly Notice of Trustee Sale counts gathered at King, […]

  31. 31

    […] data: Foreclosure DashPowered by TableauYikes! We had been at least relatively flat since the big legislation-induced spike last June, but it seems that someone opened the floodgates in March. With month-to-month spikes of 55% in […]

  32. 32

    […] misleading here, since as you can see, foreclosures saw an extreme spike in June of last year (thanks to WA SB 5810). Month-to-month, all three counties saw big surges, +26% in King and Snohomish and +10% in Pierce. […]

  33. 33

    […] extra 30 days to the process that banks must follow when repossessing a home through foreclosure.As we discussed at the time, the result of SB 5810 was a massive spike in foreclosures in the first half of 2009 as banks […]

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