As the saying goes, it was the best of times and the worst of times. Nowadays it might be the best of times to purchase a home if you have the cash but if you’re a bank it might be the worst of times to sell. Recently, an appraiser used to searching for comparable sales on the local realtor MLS (multiple listing service) noticed an interesting anomaly on two online foreclosure websites(Realtytrac.com and ForeclosureRadar.com). The appraiser noticed that the numbers of foreclosures on online sites and the MLS database greatly differed.
He discovered that the number of foreclosures posted in Online sites far exceeds the sum of listings and sales found in the realtor multiple listing system by about 70%. Does this really mean that 70% of foreclosures posted in onlines databases ARE NOT listed or sold? If so, what might be happening to these homes? Are Lenders holding the foreclosures back from being sold because these Zombie banks are insolvent and can’t afford to take the losses? Or is something else happening? Well, here are three other scenarios which may help to explain the data disconnect.
1. Foreclosure Data is Not Standardized. Most internet websites do not have a standard definition of what constitutes a foreclosure. Most, for example, will consider a property being in foreclosure when the homeowner has missed making three payments and a Notice of Default has been filed with the County Recorder’s office. But what about the homeowner who has reinstated his loan? These usually still show up as a foreclosure long afterwards on the Internet, but don’t show up in the realtor multiple listing service (because many were never registered there in the first place).
2. Short Sales. A short sale takes place when the owner wishes to sell the property at fair market value, but owes more than what the home is worth. After finding a purchaser and collecting his financial data, the homeowner then makes a request to his lender(s) to reduce the principal balance of the loan(s) so that the sale can be consummated. Because a Lender often takes about 9 weeks to review the owner’s application and purchase contract, the Lender can appear to be acting like a Zombie. The auction date for a short sale may be waived by the lender or extended in order to close escrow, and for this reason it can appear that the house may be at eminent risk of foreclosure on an online site ” yet not show up as either a listing or sale on the realtor’s database.
3.Loan Modifications. In addition to short sales, many properties will show up as foreclosures in Realtytrac because the owners are behind in their payments when in reality the owners are simply in limbo waiting for his zombie lender to modify the loan. Owners are often told to miss a few payments to obtain a loan modification, the approval may take several weeks and the property will not be a part of any MLS statistic.
The possibility also exists that other logical explanations may exist for why some homes that are foreclosed on don’t immediately show up in the marketplace. The lender may be trying to collect money from an insurance claim, or there may be government banking regulations involved. Then again the idea of a bank filled with over-worked Zombie-like personnel waiting on customers like a scene ripped out Night of the Living Dead doesn’t seem too far-fetched these days, does it?
