I just read this article this morning and it explains well the recent issue where some homes were foreclosed on all to hastily and what that means for the markets in the US. Paige.
What Does the 'Foreclosure Crisis' Mean for You?
The Recent Fracas May Not Hit You Where You Live— But the Fallout Could Affect You in Surprising Ways
For the vast majority of homeowners, new questions about the state of foreclosures appear to be irrelevant. Few people seem to have been wrongly thrown out of their homes, and those who have been are generally months or years behind on their mortgage payments.
But the fallout from the crisis is beginning to be felt in real-estate markets across the country, particularly in places dominated by vacation homes and investment properties. Some of the worst-hit areas could be Western ski towns, because fall is the busiest time of the year for sales.
Real-estate salespeople in some of those places are worried. "September and October are usually the height of the selling-season for us," says Rich Armstrong, who owns the brokerage Rare Properties in Jackson Hole, Wyo. "Now we are seeing a number of what we call 'fence sitters,' people who would have leapt in even a month ago, but now are waiting on the sidelines."
The "foreclosure crisis" is a result of the frenzied real-estate boom and bust of the past decade. Banks made foolish loans, and borrowers signed up for them—only to default later, as the economy slumped. Banks rushed to reclaim properties, launching a record number of foreclosure proceedings.
In the past several weeks flaws have emerged in that complex process. Because of the high volume of foreclosures, the documentation supporting legal actions was prepared hastily, and some homes were seized improperly.
Yet the far bigger worry is what happens next. A frenzy of lawsuits and banks' examinations of their own practices could throw more of the millions of foreclosures of the past few years into legal jeopardy. Attorneys general in all 50 states are investigating, and plaintiffs' lawyers are working hard to perfect their legal strategies for suits on behalf of people who have been foreclosed on.
The suits might well fail. But just the threat that past foreclosure rulings might be overturned could result in collateral damage. In some places, banks are rushing foreclosed properties to market. In others, buyers are stepping back, refusing to buy foreclosed properties or "short sales"—homes sold by owners for less than the mortgage balance. In markets already beset with large inventories of foreclosed properties, the result could be a slower recovery.
Coastal markets and ski areas are feeling the most anxiety. Some already are littered with foreclosures—in part because they're dominated by second-home and investment properties. Those owners are more willing to walk away from a house that isn't their primary residence.
Foreclosure tracker RealtyTrac estimates that, nationwide, 30% to 35% of properties in foreclosure are owned by investors or were second homes. In Aspen, Colo., the figure is about 60%, says Kim McKinley, owner of McKinley Sales Real Estate in Basalt and Aspen, Colo. If foreclosure proceedings slow from here, inventory could jump, leading to price weakness later.
"We're concerned that the phantom inventory buildup will cause a more rapid and drastic drop in prices in Aspen, which is just getting started in terms of foreclosures coming to the market," says Ms. McKinley.
The timing of the foreclosure mess is especially inconvenient for ski towns, given the fall selling season.
Property owners are growing nervous. In Park City, Utah, lenders are quickly unloading foreclosed homes ahead of what could be a long, stalled foreclosure process, says Joe Trabaccone, a real-estate agent there.
On Oct. 11, for example, J.P. Morgan Chase put up for sale an 8,000-square-foot home adjacent to a private gated golf course. Mr. Trabaccone initially recommended the property be listed for $1.6 million, but Chase opted for $1.26 million. "They are offering these homes far too low just to hurry up and sell them," Mr. Trabaccone says.
Even so, it hasn't worked. A buyer made an offer and signed a contract, but then backed out.
Foreclosures aren't the only problem. Short sales are getting more difficult to pull off, too.
In Bend, Ore., agents say buyers are avoiding short sales or even backing out of contracts because they don't want to deal with paperwork hassles or the chance of a court challenge later.
"I have some people saying 'I don't want to mess with bank-owned properties or short sales,'" says Dianne Willis, principal broker with RE/MAX Sunset Realty in Sunriver, Ore. "They're reluctant because it can be a frustrating process, especially for those who are looking to make a big move."
The short sales "can be very frustrating," adds Becky Ozrelic, of with Steve Scott Realtors in Bend. "You just have buyers waiting and waiting."