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Drop in foreclosures called ‘very scary’

Lenders’ actions show they think properties are not worth pursuing.

A new crisis: Lenders abandon properties

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By Ken McCall, Staff Writer 9:00 PM Saturday, October 17, 2009

Nobody is sure exactly how many bank walkaways are occurring. For various reasons, they can’t be identified in searches of public real estate and court data without individually pulling case files, experts say.

But nobody questions that they are on the increase.

David Rothstein, a researcher with Policy Matters Ohio, summarized the way they occur like this:

• The lender files a foreclosure, gets the foreclosure judgment in court, takes the property to sheriff’s auction but doesn’t bid on it if no one else does.

• The lender files as above, gets the judgment, sets the sheriff’s auction, then cancels the sale at the last minute.

• The lender files as above but then never requests a sheriff’s auction.

• The lender doesn’t even bother to file foreclosure.

All of these actions leave the foreclosed property in the hands of the original owner who, in many cases, has moved out and is unaware the lender hasn’t taken it.

One indicator of the trend in walkaways is the gap between the number of foreclosure filings by lenders and the number of properties actually sold at sheriff’s auction.

A Dayton Daily News analysis of Montgomery County records found that, through September, foreclosure filings are on a pace this year to decrease by 8 percent. Meanwhile, foreclosed properties sold at sheriff’s sale will be down more than 21 percent. Over the three years an average of 2,500 foreclosure filings have not made it to sale at auction.

A foreclosure filing may not make it to auction for a number of reasons, including owners coming up with the money or lenders working out deals with them. But, Rothstein said, the growing difference between filings and sales suggests walkaways are playing an increasing role.

“When we look at the numbers, it’s not like thousands of people are getting loan modifications that would lift them out of the foreclosure process,” he said. “So what’s happening to those other properties?”

Another indicator is the falling number of properties that banks are repossessing, said Daren Blomquist, a spokesman for RealtyTrac, Inc. Data from RealtyTrac shows that bank repossessions, called REOs, have been steadily declining in Montgomery County over the last three years. The 2009 monthly average for repossessions is only 43 percent of what it was in 2007, a newspaper analysis of the data show.

“There’s something happening once the properties enter foreclosure that is at the very least slowing down the process,” Blomquist said. “Maybe not to that (Montgomery County’s) extreme, but we’re seeing a similar pattern nationwide.”

Another indicator is the number of canceled sheriff’s sales, said Chuck Rodersheimer, a Dayton attorney who specializes in bankruptcy and foreclosure cases. ZIP codes like 45405 and 45406 northwest of downtown Dayton illustrate the problem, he said.

A newspaper analysis of sheriff’s sale data found that 45406 had 721 cancellations since 2006, by far the most of any county ZIP code. The 45405 ZIP was second with 594 cancellations.

Some of those neighborhoods have a lot of old, deteriorating housing stock, many of which are for sale or vacant, and accumulating unpaid taxes. The cost to the bank for taking responsibility for those properties, he said, is going to far outstrip anything they could hope to get out of selling the homes.

The sheriff’s sale cancellations in those neighborhoods, Rodersheimer said, are unlikely to be a result of negotiations between the owner and lender. “It’s going to be the fact that the bank didn’t want the property any more.”

In some instances, lenders don’t even bother to file a foreclosure. Figures by RealtyTrac released this week show foreclosure filings in the greater Dayton area are down almost 21 percent.

John Carter, housing inspector with the city of Dayton, finds the decline in foreclosures “very scary,” because houses are continuing to go vacant.

For every 100 houses that he orders boarded up, he said, 40 to 50 properties have a mortgage but no foreclosure filed. When he contacts the banks, they sometimes tell him they have no plans to foreclose.

“That makes it look like the foreclosure numbers are going down, but in actuality the banks are not even starting foreclosure,” Carter said. “So there’s no number to track now.”

Contact this reporter at  (937) 225-2393 or kmccall @DaytonDailyNews.com.

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One reason the banks suddenly stop the foreclosure is due to a short sale. Investors who have a contract to buy a home will at the last minute ask the judge and lender for an extension to work out a short sale. What I have seen happen is that the home in question goes to the bottom of the pile, so to speak and/or a short sale will occur.

jaycee
11:04 AM, 11/9/2009

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I don't know the situation in Ohio, but one significant reason in CA/FL is banks that don't foreclose, don't have to recognize the loss.

With the change in accounting rules from "mark to market" to "mark to model" banks now have the flexibility to not recognize losses (if their "models" say so); however, if they foreclose, then they must book the actual loss.

Therefore, don't foreclose, don't recognize the loss, report great "earnings" and pay yourself a nice bonus

dan_mn
8:53 PM, 10/20/2009

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If you want to buy a house and want to rent it out most insurance company's are asking for a lead certificate now.
no cert no insurance

then you are stuck with a house that cost to much to abate and you cant sell it

let the towns and banks the keep the problems

ed
8:24 PM, 10/20/2009

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When you buy a house they have every rule they can possibly give you just to get in a house.

Then when you insure your house it same thing
They have all kinds of rules and pick and choose who they want to insure

Plus your house is a piggy bank for town taxes out of control
they go up all the time and a lot of that goes to welfare

It’s a system out of control and Joe homeowner
Is the one being held hostage for many years.

The American dream is now the American scream

ed
6:37 PM, 10/20/2009

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Hey Greg Fielding where do you get your economics from? LOL If I had an apple that I didn't want and I wanted to sell it however nobody wants to buy it
is this apple an asset? Your incredible analogy is that since you own it on the books it is an asset?

centerville buckeye
3:40 PM, 10/20/2009

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