Why Are Foreclosures Falling Off Sharply?

On an annual basis foreclosures have dropped 24% according to CoreLogic. Anyone who has been to a foreclosure auction lately knows that there are fewer sales of foreclosed homes coming through to market. Instead, lenders refinanced over 425,000 underwater loans under HARP in the first 6 months of 2012, the same number as were done all last year.  Short sales are up also.  According to RealtyTrac Q1 2012 short sale activity was up 25% over the year. Does this mean we’ve got the lenders on the run? 

 It appears as if lenders have finally gotten the message that it is better to resolve a distressed homeowner’s problems short of a foreclosure sale.  The five largest lenders were brought kicking and screaming into the reality of settling with homeowners with the $25 billion mortgage settlement with the state AGs.  Mid-level lenders, such as US Bank and MetLife, are also now negotiating for settlements on foreclosure irregularities.  The settlement with the big banks provides incentives for lenders to push loan modifications and short sales ahead of foreclosure, particularly over this next year.  Lenders are resorting to options short of foreclosure not because they have had a genuine change of heart, but because they are being forced to reveal their dirty linen through state investigations and a barrage of lawsuits.

 States are tightening their foreclosure laws making it more difficult for pretender lenders to foreclose, whether through a judicial or a non-judicial process. The states of Oregon, Hawaii and Nevada have passed laws that limit the rights of lenders to foreclose.  Hawaii’s law requires a face-to-face between a lender representative and the homeowner with an attorney present to verify foreclosure documentation before the lender can foreclose.  The laws in Oregon and Nevada also require documentation checks before foreclosure and make the lender go through steps to employ foreclosure alternatives first.  Other states are in the process of enacting similar laws. 

 States that have enacted homeowner foreclosure protection laws have caused foreclosures to slow dramatically.  When Nevada enacted its foreclosure fraud law in 2011 foreclosure filings fell by as much as 95%.  By mid-year 2012 Nevada had fallen from being the number 1 state for foreclosure filings to the number 6 state, but 1 in 415 homes in that state are still in the foreclosure process.

 Now is the ideal time for investors to get involved in resolving this painful problem for distressed homeowners and the lenders to purport to be owed on delinquent mortgages.  Both are stuck: lenders can’t foreclose with abandon anymore, and yet homeowners who can no longer afford to pay their mortgages are left in limbo for an ever-extended period of time.

 Getting the home resold or refinanced at current market value is the ultimate solution.  New research by the Federal Reserve Bank of Atlanta shows that one year after a distressed property has been resold the stigma that caused the home to become devalued is gone and any negative effect on the surrounding neighborhood is mitigated.

 To a large extent investors hold the key to resolving this crisis.  Investors with all cash offers can close quickly and then resell to an end buyer, rehab and rent out the home, or, when they have control of the note, can even turn around and offer a new loan to the original owner at current market value and market rates to the original homeowner.  Sometimes, all it takes is a lower interest loan at current market value to make it possible for the distressed homeowner to turn around their financial situation and to become current again on a mortgage. 

There is a cutting edge new investing model that is emerging to address exactly this situation.  Investors work to negotiate with the lender to get the fraudulent, poisoned sub-prime loans out of the picture, and then they allow the original homeowner to walk away from the home with no foreclosure, deficiency, or negative impact on their credit.  That allows the investor to pick up homes at incredible discounts while helping underwater homeowners walk away from toxic situations created by the fraudulent actions of the banks.

If the homeowner has enough income to stay in the house if a new loan is set to the current market value, investors can now offer that alternative while still picking up a nice paycheck.  Either way, the homeowner is relieved of their burden with no negative impact, and the property is returned to a productive, performing asset at today’s market value.

For more information on this awesome new strategy, give my office a call at 706-485-0162!