June 24 average daily rates in Orange County for 30-year fixed loans with one-point fee: Conforming up to 6.078%, Jumbo up to 7.446% and Conforming-Jumbo up to 7.208% (Note: conforming-jumbo rates are for loans from $417,000 to $729,750, while conforming is up to $417,000 -- both types are sold to GSEs. Jumbos here are $730,000 or higher and not sold to GSEs.)
Source: Newspaper Chart Services 
Few buyers for foreclosures in O.C.
October 10th, 2007, 3:00 am · 32 Comments · posted by Matt Padilla, Register Reporter and Blogger
I visited a foreclosure auction at the Santa Ana courthouse steps on Oct. 3, as part of my ongoing effort to learn more about why foreclosures are rising and how they may impact local neighborhoods.
Out of 34 properties auctioned that day, all but one went back to the bank because no one bid. (Thanks to Graphrix of Irvine Housing Blog for going with me and sharing info on the auction process.) I don’t know why there was only one bidder that day. However, buying at an auction entails risks, including other claims on the property aside from the lender’s as well as potential property damage from an unhappy homeowner.
I selected 10 of the properties in different cities and looked on the web site ForeclosureRadar to see how many foreclosure filings exist around each one. This provides a rough idea of what areas are seeing foreclosures ramp up.
To the right you can see all filings and REOs within one mile of a property in Garden Grove at 12251 Corvette St.
The green markers are notices of default (NOD), which a bank will send to a homeowner who has missed three or more monthly loan payments.
The blue ones are notices of trustee’s sale (NTS), when a bank announces the property will be auctioned. Legally, three months must pass after the NOD before the NTS is filed. Both documents are recorded at the Orange County Recorder’s office.
The red markers are REOs, or real estate owned, and refer to when a bank takes possession of a home because no one bid enough at a foreclosure auction. The bank then puts the home up for sale, after hiring an asset manager and a real estate agent to market the property.
Now look at another screen grab (on the left) from ForeclosureRadar for filings and REOs around a home at Coto de Caza (22 Via Andorra) that did not sell at the Oct. 3 foreclosure auction, and will become REO.
Clearly, there are less foreclosures in the area, which is what one would expect (it’s a pricey town with sparse housing). My bit of research suggests foreclosures are hitting older central county cities such as Santa Ana, Garden Grove and Anaheim the hardest.
In fact, below is a table with each property and the total # of foreclosure filings (FF) within one mile of it that I got from ForeclosureRadar. So the first map we saw of Garden Grove had 109 other properties around it in some stage of foreclosure, including REO, and you can see that in the table.
I also broke out REO figures because they are added to the inventory of homes for sale and could eventual depress market prices, experts say. However, so far banks are holding out for market value, or close to it, and they are taking several months to sell most REOs, or so I hear.
By the way, the property in Garden Grove is the one that sold at auction, so it’s the only true sale price in the “sold” category. The other nine figures are really the minimum bid by the lender. Since no one else bid more, the minimum bid became the “sale price.”
In some cases the minimum lender bid was greater than the debt owed and other costs in the “owed” column. But there were also some steep discounts. For example, for the property in Huntington Beach the lender would have accepted $119,000 less.
Expect these nine properties (all but Garden Grove one) to quickly show up as REOs, if they haven’t already. But I doubt the same steep discount will be accepted once these become REOs. At that point the lender should have evicted the former homeowner, spruced up the property and cleared the title. Still, experts recommend getting a full title report and insurance whenever buying an REO or a property in any other stage of foreclosure.
| Address | City | Owed | Sold | FF 1 mile | REOs |
|---|---|---|---|---|---|
| 22 V. Andorra | Coto de C. | $756K | $716K | 7 | 1 |
| 901 N. La Reina ST. | Anaheim | $396K | $411K | 73 | 16 |
| 1410 Starbuck St. | Fullerton | $810K | $817K | 59 | 16 |
| 12251 Corvette St. | Garden G. | $495K | $513K | 109 | 20 |
| 20191 Norcroft L. | Huntington B. | $747K | $628K | 34 | 7 |
| 14881 Athel Ave. | Irvine | $725K | $666K | 20 | 4 |
| 22396 Caminito Tecate | Laguna H. | $376K | $379K | 39 | 8 |
| 2616 N Dunbar St. | Orange | $659K | $642K | 46 | 6 |
| 2739 West Camden Pl. | Santa Ana | $469K | $450K | 132 | 19 |
| 12624 Newport Avenue | Tustin | $471K | $394K | 50 | 11 |
Note: K = 1,000s
October 10th, 2007 at 5:26 am
Nice work Matt.
I would be interested in continued follow ups along this line of inquiry.
Thanks.
October 10th, 2007 at 5:36 am
This is good stuff………………. I learned a lot just by reading this post.
October 10th, 2007 at 6:23 am
Lenders aren’t likely to give properties away, particularly in real estate markets if prices continue to rise. However the opposite might occur if prices are dropping fast . And homeowners in financial distress may be difficult to deal with, particularly early in the foreclosure process. Also, identifying multiple possibilities that cast a wider net on potential investments is also recommended. The keys to a successful foreclosure property purchase are diligence and patience.
Often times, the best savings can be made at the pre-foreclosure stage, where home owners can avoid a foreclosure and lenders can save the time and cost involved in going through the process. Another critical point in the process is immediately prior to the auction date, when all parties might be most open to a last-minute solution. Significant savings of the market value on a foreclosure property is usually the case. An educated buyer—one who knows how much is owed on the property and what its market value is—can usually come up with a realistic offer; one that offers significant savings, while meeting the requirements of the lender.
http://www.contactherrick.com
October 10th, 2007 at 6:34 am
Wow, the huntington beach house listed is just a few blocks from my sons school.I found this article fascinating.I am curious if anybody out there knows, when you buy one of these at auction I am assuming you need all the cash up front?
October 10th, 2007 at 6:54 am
To Termite Guy,
Yes, I should have mentioned that to buy at a foreclosure auction at the courthouse one must bring cashier’s checks or an equivalent for the full price. I’m sure that deters some potential bidders.
-YOUR BLOGGER
October 10th, 2007 at 8:06 am
Matt, great writing, great graphics. Clear, concise, super informative. Thx!
October 10th, 2007 at 8:09 am
Foreclosures are almost always bought by professional investors. Right now Investor money has been reduced to a trickle, so most are sitting on the sidelines. Foreclosures have to be sold to them for below market prices, in order for them to flip for a profit. (risk is priced in there too). If you don’t know what you are doing you will get burned. Duh.
October 10th, 2007 at 8:20 am
Dear Sir, Holding an auction during the work week in the middle of the day on courthouse steps is the oldest trick in the book. Those who would like to buy are at work and there is no place to sit or write
anything down. When the properties go back to the bank because no one bid on them, those who have favors with the bank can pick them up for even less. Signed, Jaundiced.
October 10th, 2007 at 8:23 am
It’s nice to see a blog with useful information as opposed to the hate spewed on Irvine Housing Blog. That site is run by and published for..bitter renters.
October 10th, 2007 at 8:23 am
all these foreclosure buyers are suckers because they are buying for almost market value.
October 10th, 2007 at 9:24 am
required reading
October 10th, 2007 at 9:47 am
I must laugh loud and heartily. Garden Grove home for $513,000? That’s not even a deal and that poor sucker is already losing money. Unless it’s a 1/2 acre lot, $513,000 is definitely not “bottom” in Garden Grove.
October 10th, 2007 at 10:13 am
great info!, as far is house pricing= Titanic
October 10th, 2007 at 10:28 am
Well of course there are no buyers. The market is going DOWN, down, down. And it’s not going to bottom out in weeks or months, it’s going to take years. It was a TEN YEAR run up after all. So the lender would have taken $119,000 less for the HB property, or $628K. Sounds nice, but what do you think that property will be worth 2 years from now? Less than $628K for sure. That’s why no one is buying. You don’t have to be a “bear” or a “bitter renter” to see where the market is heading, you just have to not be blind.
October 10th, 2007 at 10:33 am
Great post Matt. I like the http://www.foreclosureradar.com maps. It adds to the reality of it. I think it is great idea to track these and how long it takes for the bank to actually dump them onto the market.
A big thanks for the hat tip too. As one of the many homeowners at the Irvine Housing Blog it’s nice to see someone else writing about what is really going on. Keep up the great work.
October 10th, 2007 at 10:50 am
once the hit 400k you might get interest
October 10th, 2007 at 11:55 am
If the people foreclosed on these very expensive homes because they could not afford their mega-jumbo ARM loans then it’s no surpise there are no bidders ready to make the same mistake They pretty much cost the same, maybe a little lower, but not a good deal. I think the attitude right now is “I’m not gonna touch that with a ten-foot pole”.
October 10th, 2007 at 11:59 am
It’s funny for the past 4 years the stories were about housing being over-priced and people buying were going to lose their properties when the ARMs reset, which is what is happening now. The good part about it is those who have equity and either want to sell to buy a bigger home or just cash-out and leave. Marketing a home for an owner who has equity has a very good chance of selling against a REO with little price flexability.
October 10th, 2007 at 12:04 pm
There are some of you that are saying this is a rip off. Maybe for the first time uses of this type of information, you can tell us how to work the foreclosures better.
Thanks in advance.
October 10th, 2007 at 1:59 pm
Very good research and very good presentation Matt. I suspect that the maps above will be a cluster of green, blue, and red to the point that you where you can barely read the street names. The NOD’s, foreclosures and REO’s will definitely increase within the next few months, especially with a high-spend season (Oct - Dec) coming into full swing. To make matters worse, the national unemployment rate crept up slightly (in spite of a favorable jobs report) this past month. Homeowners losing their jobs is usually the #1 reason they default on their mortgages and if this number begins to increase, it will most certainly be a bloodbath. The banks are delirious if they think they can sell properties at market value….they are handcuffing themselves because they have made it much more difficult to qualify for a loan (a much needed reform given the amount of easy loans they were financing) thus taking out a lot of would-be buyers (sorry, no more 100% stated financing). The banks made their own bed (ultra-easy loans) now they must lie in it (Foreclosures, REO’s, liquidity crunch).
I’ll be looking forward to articles in the future….please write me.
October 11th, 2007 at 2:47 pm
Thank you for a very informative and useful article - it will make me more of a regular reader.
Not to add to your work, but an interesting line of inquiry might be why banks/lenders (anybody in this age of securitization) are being so slow to lower prices.
If it were me, I’d prefer to be “on the train, rather than under it.”
Since there is broad consensus that home demand can only fall for the next 18 to 24 months, why are lenders dawdling about dropping prices?
Is there some sort of crummy accounting rule that encourages banks to hold on to REOs in order to artificially prop up their reported earnings/balance sheets?
Would lower prices force banks/lenders to mark down comparable loans so that price declines have a multiplier effect on reported bank earnings?
And how about the nonbank lenders? Why would they want to wait for even greater price declines?
I don’t think I’ve seen many/any articles on this topic, so the OCR might be able to break some national news here.
October 11th, 2007 at 9:54 pm
Lenders take hits to their books by holding REOs after they hold an REO for a certain period of time (I think beyond 90 days) they have taken most of their bad hits. The have to use their own money in a loan loss reserve account (not federally borrowed money) so that certainly hurts their profit numbers and future profit numbers as they can’t lend that money. Just like individuals have credit scores, so do lending institutions. These scores, called CAMEL scores, help a bank borrow money from the federal reserve. Having bad loans and REOs lowers these scores. But the big banks have so many assets that LLR money is a very small percentage and not sure how it affects them. Just read a “the street” article, and it gave the top 10 banks performance scores, and most were in the low b to high c ranges.
October 11th, 2007 at 11:04 pm
The reason these homes are going back to the bank is very simple. The opening bid is more than the house is worth. Unless the lender is willing to take a deficiency bid (less than the note) and make it fairly significant, they will be taking back the property.
In most parts of Orange County we have already seen a 20% decline. So, if the homeowner bought at the top of the market with 100% financing (typically split 80% first note and a 20% second) the second is wiped out and the house is being auctioned at no less than market value. I ask you where is the value in buying this?
Some of the risks involved are the tax liens, IRS liens, current occupants, condition of the property and a multitude of other things.
The people who typically buy these properties make this their full time job. It is not for the weak of heart or intellect.
October 12th, 2007 at 1:27 am
Adam and Dave,
Both of you make some great points.
Adam,
I am starting to see the lender price the minimum bid at the foreclosure auction well below the the notice of trustee sale amount or the first lien balance/fees price. I have seen minimum bids that are $100k+ less than the NTS amount and they are still not selling. Some of these are decent properties with a reasonably clear title. I’m curious as to what you think of this and what it really means for the market.
October 15th, 2007 at 9:30 pm
First of all great article.
I want to comment on those of you who think these foreclosed prices seem too high. It makes sense to me that the banks would keep the prices as high as they can- if they lower the price too much they will pull down the values of the neighboring houses and guess who owns those? Most likely the same bank. Banks have a vested interest in keeping values as high as possible (think about it, the refi’s and 2nds will all but cease to exist if our values plummet).
As an OC home owner (this is my second home here I sold my first one in Fullerton last summer) I would like prices to hold as much as they can. Even though I am in a city I love (Los Al) and have no intentions of selling, if I have to I would like to come out even at the very least. I am personally grateful the banks are keeping the prices as high as they can. It sure beats prematurely forcing them lower.
October 17th, 2007 at 7:12 am
The prices are too high. That’s one big reason why no one is buying. When sellers start realizing how overpriced these homes are and they come back to reality, then maybe they will start selling. Until then they can keep dreaming.
October 17th, 2007 at 9:38 am
Pretty Colors, looks like Christmas ornaments with all the red, blue and green pins on the map.
October 17th, 2007 at 10:53 am
I’m glad I live in Coto De Caza! Great article, thanks Matt.
October 17th, 2007 at 2:48 pm
What I found interesting is how little the author actually knows and what is worse, what that lack of knowledge tells us. “banks are holding out for market value, or close to it” This is not the case. The fact is, banks are not real estate companies. They cannot keep property on the books or they have to recapitalize their bank. So they must get rid of it and to do that they have to “mark to market” which means sell it at the going rate. Now what is the going rate? If you have something that no one wants what is its value? You guessed it - nothing. So you have to drop the price or recapitalize. So here is want is happening… banks are saying one thing to keep the property valuse up, but the reality is they are selling their REO’s out the back door for 35 cents on the current broker’s opinion of value. This is why you can see houses on http://www.ushomeauction.com going for 41 cents on the dollar. Folks hang on as the market has not even begun to sink.
October 17th, 2007 at 3:30 pm
I wonder why the Register is changing the blog posts. Could it be under pressure from advertisers in their real estate market claiming they will stop buying ad space if the truth is told about the market? Why else would they do this. Why else would the truth not be told given it is so easy to check the facts out.
January 15th, 2008 at 7:19 pm
Interesting comments by everyone. Foreclosure aren’t what they really appear to be. Most of them are NOT a deal what so ever as many have stated. Others too are in areas that no one would want to own in. Banks are slow to respond because they are a corporation and a corporation is designed as such that no one can make a uniformed decision in a reasonable amount of time. In most cases, a bank already has 3 offers on the table with the buyers hoping their offer will be chosen. However, the bank is greedy and thinks if they wait long enough a better offer will come in. One thing many real estate agents will agree to is this statement: “usually the first offer in on a property ends up being the one that should have been taken”. A attached 2 story, 3 bedroom, 2 bath 1700 SqFt home just sold in my neighborhood in Laguna Niguel for $745,000 in 49 days. They were asking $749K. It backed to a street and was on a corner lot. Now you tell me, does it appear that the market is crashing? Heck no. I just had 3 sign calls on my one listing in San Clemente and 2 agents opened the lock box today. Activity is definetly on the rise and homes are going in escrow. People waiting for the crash will be the same people who were waiting for Y2K. Remember all the hype on that? Check out this site: http://www.ericisrael.com. This is the best site for ocean view homes in South County.
January 21st, 2008 at 9:13 pm
No need to rush. Beside Investors, there is no housebuyers left. Watch for a trap. Banks and Lenders are real homeowners, let them deal with all the headaches for you.
NO BAILOUT.