Analysts claim that even though the housing market is on
the mend, with progress even in the hardest-hit states, the backlog of homes in
foreclosure and real-estate owned (those already foreclosed on) properties is
still clogging the pipeline.
The volume of distressed properties continues to impact
housing momentum, and consequently, there is a compelling need for improved
public policy on the local and national levels to minimize losses and
externalities resulting from foreclosures and REO inventory, explained Diego
Aragon, Richard Peach and Joseph Tracy of the NY Fed.
As of March 2013, nearly 3% of all first-lien loans secured
by one-to-four-unit residential properties were 90-plus days delinquent,
essentially unchanged from the June 2012.
In contrast, the percentage of loans in foreclosure,
which leveled off around 4% from 2011 through 2012, declined to 3.5% by early
2013, the report noted.
Underlying these national trends is a large disparity in
performance between states that have a judicial foreclosure process and those
that have a non-judicial foreclosure process.
The average number of days that a mortgage is 90-plus
days delinquent at the time the foreclosure process is started is roughly
comparable in judicial and non-judicial states.
A foreclosure in Florida begins when a lender files court
action and records a notice of a pending lawsuit (Lis Pendens) against the
borrower. The lender notifies the borrower and any other affected parties in
person or in some cases by mail or publication. If the borrower does not
respond to the court action within a specified amount of time, the county clerk
can find the borrower in default and the lender can ask the court to make a
final ruling. If the court rules against the borrower, the ruling will include
the total amount owed to the lender and the foreclosure sale date.
The lender is not required by state law to notify the
borrower before initiating the foreclosure process, but individual mortgages or
deeds of trust might call for this. The borrower can stop the foreclosure up
until the date of the sale by paying the total amount owed to the lender.
Notice of Sale / Auction
The sale date is typically 20-35 days after the court
ruling, but this may vary depending on the individual court. The clerk of court
issues a notice of sale containing the location, date, and time of the
sale. The notice is published once a
week for two weeks, with the second notice appearing at least five days before
the sale.
The clerk usually oversees the sale, which ordinarily
occurs at the county courthouse at 11:00 a.m. on the sale date. The winning
bidder must provide a 5-percent deposit and pay the remaining balance by the
end of the day or a new sale is scheduled a minimum of 20 days later. After a
successful sale, the clerk gives a certificate of sale to the winning bidder
Within 10 days of the sale, the clerk transfers ownership
to the winning bidder if no one disputes the sale. In most instances, a borrower has no right of
redemption after the certificate of sale is issued.
Judicial states maintained higher foreclosure rates in
early 2013, indicating the length of a loan remains in the foreclosure process
in the judicial states is significantly longer than in the non-judicial states.
For instance, Florida, New Jersey and New York stand out
as the most extreme examples of this occurrence, the report stated.
As a result, the large volume of loans in the foreclosure
process in the judicial states appears to be impeding a home price recovery in
those states.
The judicial foreclosure states have seen a more modest
improvement in home prices since the trough for a given peak-to-trough decline
in home prices.
"One potential explanation for this relationship is
that potential homebuyers in the judicial states recognize that a large number
of distressed sales have yet to occur, and this consideration has influenced
the prices they are willing to offer for homes currently on the market,"
the NY Fed analysts concluded.
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