South Pasadena. Just mentioning those two words creates a very positive connotation. The location means many different things to people. A great school system. Old established tree lined neighborhoods and above average home prices. One of the things least associated with South Pasadena real estate has been the foreclosure crisis. It’s typically a term not mentioned with South Pasadena. After all, the median price of a single family home has usually maintained at least a $200,000 cushion above the neighbor to the north, Pasadena.

You may think the term foreclosure applies to other areas of California and Los Angeles County, not South Pasadena. It just doesn’t happen here or does it?

Foreclosure begins when a homeowner is late on the mortgage payment. A “Notice of Default” is filed letting the homeowner know that unless the debt is cured (brought current) along with the outstanding fees, etc., the property will be sold at auction. This pre-foreclosure process can last approximately 3 months until the “Notice of Trustee Sale” is recorded and an auction date is set. The auction date can be a minimum of 20 days after the Notice of Trustee Sale is recorded. Once in the auction process they can be postponed, sold to the bank, sold to a 3rd party or cancelled.

How many homes are actually sold according to the above time frame? Very, very few. I have seen some homes stay in the foreclosure process anywhere from at least a year to a year and half and have heard of 2 years in some cases. Banks are giving the appearance of understanding and a desire to work with homeowners through loan modifications and being very patient with allowing owners to stay in their home payment free. But is a loan modification really productive and advantageous if the bank reduces the payment balance by say $50,000 and tacks it on to the back end of the loan. Kind of like the old TV commercials for auto parts…..”you can pay me now or pay me later”.

The bad news is many homeowners will not be helped and cannot qualify under many of the federal programs which were designed to assist these individuals. Therefore how long can the inevitable be delayed? The good news is that after a long trail and error period, many banks are now encouraging and even paying relocation fees to property owners who are underwater and in distress, encouraging them to do a “short sale’. A short sale occurs when the market value of the property is less than the mortgage balance. A contract is written, signed by the property owner and contingent upon the banks approval. Many times there is no additional cost to the homeowner as the bank pays for the escrow, real estate fees, past due taxes, etc. If the property is sold with a real estate agent, the banks are providing as much as $2500 to $3000 and possibly more depending upon the lender to the owners upon a successful close of escrow.

The unfortunate thing is many people are still being foreclosed upon. They ignore the notices in the mail, they don’t return phone calls from their lender and for reasons I cannot explain they fall victim to foreclosure. Granted not everyone may be a candidate for a short sale, but given the list of pros and cons, short sale or foreclosure, I know what path I would follow. This is not a time to play ostrich and stick your head in the sand. Talk to someone, an attorney or a real estate agent who works with short sales and distressed homeowners. Help is available.

In my next post regarding South Pasadena real estate, I will take a look at home prices over the last few years. We will see where we were and compare that with where we are today.

Lastly, this is not intended as legal advice. You should contact the appropriate professional (CPA, Attorney) as to your own individual situation.