Says Maddux:
In Florida, 45% of our clients are in pre-foreclosure status. On average, these Florida homeowners are 17 months delinquent and have yet to receive even their first formal foreclosure notice. 59% of our California clients are in pre-foreclosure status. These California borrowers are an average of 15 months delinquent and also have yet to receive their first formal foreclosure notice. Eighty-five percent of the homeowners we’re working with are in pre-foreclosure and have not made a mortgage payment for an average of 14 months.
You Walk Away has 7,000 clients.
YouWalkAway.com has worked with over 7000 clients nationwide. One part of the service includes monitoring their foreclosure and providing weekly updates and a personalized foreclosure timeline. Once enrolled, we begin by asking each client when was the date of their last mortgage payment and weekly research each client’s property to determine if a foreclosure start notice has been filed. We then continue to monitor every property and record each milestone of the foreclosure process until the home goes back to the bank or is sold in a short sale.
The data was compiled using our current client database we compiled lists of the number of active clients in every state and compared the number of borrowers who had received their foreclosure start notice and those who have defaulted, but not yet received the foreclosure start notice. This was done to see what percentage of our clients had defaulted, but were not yet in the formal foreclosure process. After realizing that the numbers were higher than expected, especially in light of recent news indicating that lenders had picked up the pace as a result of the $26 billion mortgage settlement, we decided to see how many months delinquent on average these “pre-foreclosure” borrowers were. Again, the numbers came back much higher than expected. This indicates that, while there may have been a recent uptick in foreclosure filings, lenders are still dealing with years of backlog.
This housing bust is like no other. By definition, a distressed sale is one where the seller is under duress, which creates undue stimulus for the seller to sell and is atypical motivation for the current market locale. The above data represents over 7,000 strategic defaults; owner-occupant chooses to stop paying their mortgage even though they have the wherewithal to make payments. How much compulsion or duress is there for financial institutions who hold the mortgage on these properties to start foreclosure proceedings?
The obvious conclusion is there are many more defaulted mortgages where the owner-occupant either can't or won't make their mortgage payment. By one estimate, there are 2.2 million residential defaulted mortgages with no foreclosure proceeding initiated where the properties are over 24 months delinquent. Again, how much compulsion or duress is there for financial institutions who hold the mortgage on these properties to start foreclosure proceedings?
In most definitions, market value assumes a sale to the most probable buyer within the highest and best use opinion. This means the definition of the term is based on a sale from the current owner to a new owner. This also necessitates an opinion of “the most probable type of buyer.” There are many parts to the popular definitions of market value including the condition that “buyer and seller are typically motivated;” some appraisers consider that this condition in the defined value precludes using comparable sales that were bank owned properties, short sales, or even corporate owned. While this may be possible in some markets, this cannot be done in many other markets.
It is a basic step in any market value appraisal for an appraiser to identify the most likely buyer type. It is not possible to develop an opinion of market value unless an appraiser is able to determine who the likely buyer type is and their criteria for purchase. It is important for the appraiser to know who the most likely buyer type is and what motivates their decision to buy. If the subject is only salable to an investor, then the best comparables would be properties that sold to investors, not to owner-occupants. If an appraiser is developing a market value opinion based on the most likely buyer type, the appraiser needs to know if the buyer of a comparable was an owner user or an investor-speculator. This determination is necessary to match up the sales with the most probable buyer. This is the public perception of the term “Market Value.”
There are markets where both REO and non-REO sales are found and there is a significant difference in the sale prices between these two classes of properties. This situation has led many appraisers to question if they should adjust the investor sales up to the owner-user level or adjust the owner-user sales down to the investor-entrepreneur level. In estimating market value, appraisers are required to determine who is the most likely buyer for the subject and it is logical that they use comparable sales that reflect that opinion. If the subject must compete in the investor market, the comparables should come from that market. If the most likely buyer for the subject is an owner occupant retail buyer, then the comparables should be from that market. The appraiser can make a judgment about the likely nature of the most probable buyer and the value that would probably result, but would likely report the presence of the other type of buyer and that resulting price.
There can be significant differences in prices between properties at the investor and the owner-occupied level in markets where both types of properties are offered for sale. The common question presented by appraisers, lenders and especially assessors is, “Which comparable sales are appropriate in providing an opinion of 'market Value?'”
If an appraiser finds the subject property is located in a market where both non-REO and REO property sales exist and these result in significantly different value opinions, the appraiser should use the comparable sales that represent the actions of buyers most similar to the most probable buyer for the subject. It is also possible for an appraiser to give clients two values, properly defined, in the same report.
It would be misleading in a market value appraisal to use non REO sales as comparables for a property that will compete in the REO market, or not adjust them to reflect the most likely buyer. It is a violation of USPAP to mislead the reader of the report. The value opinion should be consistent with the defined value and the most likely buyer for market value appraisals.
