No crystal ball needed here - we are about to see a sharp increase in foreclosures in the coming months.  The foreclosure report for the month of March was recently released by Foreclosure Radar.

During the final months of 2008, many lending institutions participated in a voluntary moratorium on foreclosures.  Notice of Defaults (NOD’s), the first step in the foreclosure process in California, plummeted.   The final days on the moratoriums have just passed.  Fannie Mae and Freddie Mac’s were lifted as of March 31.

And if you’ve been paying attention to my ‘Microscope on the Market’ series, you’ve noticed the drop in bank owned homes on the market - hence the second half of that headline, ‘Foreclosure Sales Drop’.  Without the new NOD’s, there’s been a dramatic reduction in bank owned homes.

Notice the following chart that tracks Notice of Defaults and Foreclosure sales.  The green line represents California’s NOD filings.  Notice the arrows - the dramatic dip in September and the sharp rise as of March ‘09.

March 2009 Foreclosure Report

With the rise in filings, we can expect the foreclosures to rise.  Will Obama’s plan help?  My guess is no for Orange County.  Why?  The loan modifications the banks are offering, by and large, don’t change the significant negative equity that many of these homeowners are facing.  Without a substantial equity reduction, many sellers (who’ve already seen their credit damaged) will opt to walk away from the property.

What does this mean for buyers and sellers?  If we see a large rise in distress inventory, this market may see some downward pressure on pricing - although in some of the lower price points, overall inventory is still low (especially if you remove the difficult short sales).  I would expect that demand for this inventory will remain high - as we have seen in recent months.

One interesting note in the Foreclosure Radar report:

The California Foreclosure Prevention Act, which goes into effect this summer, adds an additional 90 days to the foreclosure process if lenders fail to take certain actions.  It is quite possible that the dramatic rise in foreclosure notices occuring now is an attempt by lenders to process as many foreclosures as possible before this law takes affect.

If you are interested in viewing foreclosure data and bank owned homes don’t hesitate to contact me.

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This post has 2 comments.

  1. My Las Flores — All Your Las Flores Real Estate Questions Are Answered Here!
    27 Apr 09 10:47 pm

    [...] fully expecting the foreclosures to increase in the next 30 to 120 days (refer to my post on OC Real Estate Voice) and subsequently bank owned listings to [...]

  2. Esko Kiuru
    24 May 09 9:19 pm


    In hard-hit areas like OC and Las Vegas, homeowners with severe negative equity are tempted to do jingle mail. There have been a few isolated cases here where the bank has done a substantial principal reduction to keep the borrower in the house. Prices are still falling in Vegas, so more people will predictably walk away.