South Florida Filings Dropped 41% in 2010 Due to Bank's Foreclosure Freeze

According to a new report from Condo Vultures, lenders abruptly pulled back and filed less than 60,000 foreclosure actions in the tricounty South Florida region in 2010, a year after initiating nearly 100,000 notices of default in 2009.

Administrative irregularities in the foreclosure process that surfaced in late September 2010 created a "foreclosure freeze" that forced lenders to file 61 percent fewer notices of default between October and December 2010 compared to the same three-month period in 2009, says the Condo Vultures report.

"The 'Robo-Signing' controversy tied to the administrative irregularities in the legal process has basically forced lenders to downshift their efforts from fourth gear to first gear until the situation can be resolved," said Peter Zalewski, a principal with Condo Vultures, LLC. "Lenders filed 14,000 fewer foreclosure actions in the fourth quarter of 2010 compared to a year earlier. As a result, 2010 ranks behind 2009 and 2008 in terms of the foreclosure activity.

"The unknown is whether foreclosure filings will spike when and if the foreclosure freeze is eventually resolved."

The number of foreclosure filings in the year 2010 - 58,000 properties - ranks as the third lowest number of actions initiated since 2007 when the real estate crash began in South Florida. Lenders filed 33,000 actions in 2007, 76,000 actions in 2008, and 98,000 in 2009, according to the report.

It is unclear whether the number of foreclosure filings will increase in 2011 as Massachusetts' highest recently ruled that two of the nation's largest residential lenders - Wells Fargo and US Bancorp - "failed to prove they owned the mortgages when they foreclosed on homes," according to the New York Times.

It is unclear what this ruling will do to investor confidence given concerns that the purchase of a bank-owned property could lead to title issues in the future, industry watchers said.

Even before the concerns about the legality of thousands of bank repossessions surfaced in the second half of 2010, lenders had already started to slow their foreclosure efforts due to the rising costs and difficulty involved with repossessing properties from borrowers in default.

Prior to the real estate crash, lenders generally expected the foreclosure process to take about six months to complete at a cost of about $40,000 in loss of debt service, unpaid taxes, damage, court fees, and attorney costs.

With nearly 265,000 notices of default filed against borrowers between 2007 and 2010, the South Florida court system was overwhelmed with foreclosure actions. In South Florida today, lenders now plan for an 18-month repossession process with a cost of about $100,000 per property, industry watchers said.

In the end, bank-owned properties offered on the open market generate a lower average price than properties that are sold as shortsales. In 2010, the average shortsale price was $173,700 per residence compared to an average of $110,900 for a bank-owned property.

The strategy shift by the lenders has led to a 49 percent spike in shortsales, reaching nearly 16,800 transactions in 2010. Simultaneously, the number of bank-owned properties transacting in South Florida in 2010 decreased by six percent to 19,800 single-family houses, condominium units, and townhouses, according to Condo Vultures.

In line with that, 4,500 bank-owned residences - 1,989 single-family houses and 2,519 condo units and townhouses - are currently on the resale market in Miami-Dade, Broward, and Palm Beach counties. Compare that to nearly 18,000 residences - 7,600 single-family houses and 10,300 condo units and townhouses - openly marketed as shortsales in South Florida, says Condo Vultures.

Distressed properties represent 35 percent of the nearly 64,600 residences - 26,900 single-family houses and 37,700 condo units - on the resale market in South Florida, according to the analysis based on data from the Florida Association of Realtors.

 

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