Foreclosures in the region and state increased substantially last year as court-ordered restraints on processing were lifted, even as they fell nationally.
Area distressed-property experts, however, say there continues to be a shortage of inventory of houses available for short sales and bank-owned sales. They’re not sure why.
Hader Rivas said most of his work at Re/Max Atlantic in Northfield is with distressed properties.
He said the number of foreclosure filings last year in Atlantic County — 1,382 according to RealtyTrac — would seem to have increased the so-called “shadow inventory” hanging over the market without doing much to actually make houses available to buyers.
“Personally, I doubt it. I believe the banks are selling them in package deals to investors in some cases,” said Rivas, 33, of Galloway Township. “I think more inventory is coming gradually. I don’t think we’ll get bombarded with 1,600 foreclosures.”
Rick Cammarano, broker associate with Century 21 Alliance Wildwood Crest, said the available inventory of bank-owned properties remains “a little thin” and a lot of banks are holding off on closing on properties “and I’m not sure why.”
He said banks may be thinking that the housing market will get better and allow them to recover more value from their distressed properties.
“I’ve also read some articles suggesting that the government is trying to keep all of them from hitting the market at one time to help keep property values up,” said Cammarano, 55, of North Cape May.
The number of properties in the foreclosure processing system increased 55 percent in New Jersey last year, even as they dropped nearly 3 percent nationwide, figures provided by RealtyTrac of Irvine, Calif., show.
Foreclosure filings increased by two-thirds in Atlantic and Cumberland counties in 2012 from the prior year, with 1,382 in Atlantic and 573 in Cumberland.
Ocean County foreclosures jumped nearly 60 percent last year to 2,316, while Cape May County’s 494 filings were a modest increase of 7 percent.
Rivas said banks want to avoid taking the foreclosure process to its conclusion, which still can take nearly three years.
“So they’re offering folks mortgage modifications, if possible, and if not, then they pursue a short sale. If there’s no short sale, then they go deed in lieu and the (defaulting) borrower gives the keys to the bank,” he said.
Rivas said some banks are encouraging delinquent borrowers to execute a short sale (in which the buyer pays less than is owed on the mortgage) by offering them financial incentives.
Under one federal program, home sellers can receive as much as $3,000 to cooperate with a short sale or deed in lieu conveyance, he said. Some banks, to help smooth the sale and ensure the property is maintained, are offering much more — as much as 10 times as much.
Such payments are considered “relocation incentives,” so the owner must be living in the property and the house must be the primary residence, he said.
Rivas said such efforts make more short-sale inventory available, which finds ready buyers nowadays and helps stabilize the market.
He urged the many buyers looking for bargains to be realistic about the possibilities.
“The concept of a lot of buyers is that they’re going to steal the property, especially on a short sale,” he said. “But banks are going to do their homework, find the fair market value of the property, and sell at a certain percentage below that. It’s still a bargain, up to 5 percent lower than fair market, but you’re not going to be able to steal these properties from the banks.”
Cammarano said banks are postponing sheriff’s sales — the final step in many foreclosures — and holding onto properties longer.
He said he has tracked properties that have been on the sheriff’s sale list for more than a year and just keep getting postponed.
Another big problem for working through the distressed inventory is properties with a second mortgage or other lien.
“Any bank or lender with a second mortgage is just taking a beating. They often just write them off,” he said.
For example, a property in Wildwood that sold for less than $200,000 had more than $600,000 owed on it, including a second mortgage for $300,000, he said. “It took them a year to release that.”
Cammarano said that banks take a gamble by sitting on a property, especially if it’s vacant. The house can deteriorate from lack of maintenance or suffer substantial damage, such as having pipes burst because they weren’t drained before winter.
“I expected to have a wave of distressed properties by this time. Last year I was told by the beginning of 2013 they would foreclose on these properties, and it didn’t happen,” he said.
A just released survey by CoreLogic suggests the stream of distressed properties won’t dry up anytime soon.
As the fourth quarter of 2012 started, 22 percent of U.S. residential mortgage holders owed more on their homes than they were worth.
Such underwater homeowners accounted for 27 percent — or 19,380 properties — in Atlantic County, up from 25 percent three months earlier, CoreLogic said.
Cape May County homeowners with such negative equity were 14 percent of residential mortgage holders — or 7,128 properties — compared with 13 percent a quarter earlier.
Cammarano said that although thin inventory has held back sales of distressed properties, his agency as been very busy with regular sales, some of them short sales.
“At this rate, it’s hard to say when we’ll get back to a normal market,” he said.
Rivas said he thinks distressed properties will constrain home prices for another 15 months. Meanwhile, buyers are getting properties marked down substantially with loans in the 3.5 percent range.
“A year ago, we said we’d be in a more normal market a year from now. Well, the reality is we’re still now out of the woods,” he said.
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