I was reviewing some of the 675 Pasadena properties that are in some stage of the foreclosure process today. Some of the recent trends I have noticed indicate many more of the properties have passed the “pre-foreclosure” stage and have now entered the “auction” stage. Also many of the listings that show an upcoming auction have been postponed due to the following reason …”bankruptcy”.

After looking at all of this information the only thing that seems certain at this point is uncertainty.

There does not seem to be any logical process of how this situation is being handled. I have talked to homeowners who haven’t made a house payment in 7 months, but still have not received a ‘Notice of Default”. But what was really amazing was that I took a sample of about 30 properties in various zip codes throughout Pasadena that were listed with a firm auction date of about 30 days or less. Wouldn’t you think a foreclosure would be the last thing a homeowner would want? We have been hearing a lot of information about the “short sale” process and how a homeowner can avoid the devastating consequences of foreclosure and help preserve their credit score by selling their home for less than the balance owed with the banks approval.

However of these 30 properties, the issue I found most amazing is only 1 was listed for sale. What this tells me is if your home is in foreclosure and you have an auction date within 15 days you’re not too worried that it will be sold on the courthouse steps in Norwalk anytime soon. We keep hearing about a shadow inventory which refers to the banks holding onto these repossessed homes and have yet to release them for sale. We also keep hearing that this issue of foreclosures is not going to go away any time soon, and mounting foreclosures will be with us for the foreseeable future.

I have been seeing a few homes move from “auction” to “bank owned”, which to me seems puzzling. Why do some homes progress through the process while others do not? Could it be that a “non owner occupied” or investment property is moving through the system much faster than a home that is a “primary residence”. Investment properties are not subject to the new bureaucratic programs such as HAFA and HAMP.

Risk vs Reward

Apparently homeowners are not under any pressure to vacate the premises. Why go somewhere else where you would be expected to pay rent? If you can continue to live in your home and not make a payment for 12 to 18 months has this become the new defacto economic stimulus? As more homeowners realize there is no inherent risk of being evicted, has neglecting house payment’s become financial salvation?

A $500,000 mortgage at 6% is about $3000/month. Not making that monthly payment for 12 months is a $36,000 savings and assuming the selling price of the house was $500k you can throw in another $7500 in property taxes. When was the last time you added $43,500 in discretionary income to your bottom line? As Washington ponders the next unsuccessful program for homeowners in distress, wouldn’t it be much simpler to provide a restructuring of a 4% mortgage and then if a homeowner falls behind again the repo man cometh. It’s difficult to understand how we can have a selective housing/foreclosure program subject to the shortest straw.