Pre-Foreclosures are increasing, any trends in your area?

[John Slater]

Curious to know what you see in your state.

We are seeing pre-foreclosures continue to increase in So.Cal, and continue to see the same trends over and over again....

A lot of these pre-foreclosures have two things in common:

1. The first lender, often a big mainstream lender sold the note to a smaller lender in the last 12 months, to a kind of trust management company.

2. The default amount is super high, 60-70k, meaning these people were in default during covid pandemic

So at least here in Cali its common to see both these traits in new Pre-foreclosures meaning big lenders sold "bad debts" to smaller lenders.  

Are you seeing any trends in your market?

and why aren't big lenders foreclosing, instead selling their notes to smaller lenders who then foreclosure?

[Chris Seveney]

@John Slater defaults are at all time lows and continue to increase as inflation and the economy start to take a hit.

The reason banks will sell is banks are not set up to deal with distressed debt nor do they want to own real estate. Also foreclosure timelines are lengthy process.

Also look up fractional bank reserves or lending. A bank only has to keep 10% of its deposits and can lend out the rest. So in essence a bank can take $100,000 deposit and loan approx $900,000. But if that $900,000 goes into default it’s now a liability on its balance sheet and it will need to put $900k in reserves which stops it from lending $8.1M…. Most don’t know banks create money out of thin air.

So in the above case they sell it for 50 cents on the dollar and lose in short term and win in long term