Lenders hesitating to repossess California homes
The backlog of homes in default is growing. In July, default notices were up 12% from a year earlier but repossessions were down 40% .
By Peter Y. Hong August 12, 2009
The backlog of California homes in default, but not yet repossessed, keeps growing.
At some point, many of these properties will be repossessed and put back on the market. Until then they remain, clogging the system as “shadow inventory,” most likely to be foreclosed and sold again.
Key data points from ForeclosureRadar, an online seller of California default data:
* Default notices, which are sent when a borrower has missed several payments, were up 12% in July compared with a year earlier. Default notices are the first stage of foreclosure.
* Auction notices, in which an auction date is set, were about even with last year’s level. Auction notices are the second step in foreclosure. After a default notice is sent, and even after an auction date is set, the borrower and lender can get out of foreclosure by reaching a loan modification agreement or selling the property.
* Repossessions were down 40% from a year earlier even though default notices were up and auction notices were flat. Lenders are delaying the final step in foreclosure. This is what’s creating the growing backlog of distressed properties.
* Foreclosures scheduled for sale — that is, properties awaiting auction — increased 93% from a year earlier.
The jump in foreclosures scheduled for sale reflects the widespread practice of lenders stalling the final sale of distressed properties. There are more than 124,000 of these properties in California.