South Florida Property Repos Jump 25%, Year-over-year

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According to a new report from Condo Vultures, lenders repossessed nearly 9,200 properties in the tricounty South Florida region in the first quarter of 2010, representing a 25 percent year-over-year increase compared to the same January through March period in 2009.

The first quarter surge was led by 3,707 property repossessions in Miami-Dade, Broward, and Palm Beach counties in March 2010, which established a new high for a single month in the 39 months that CondoVultures.com has tracked bank repossessions.

Prior to March 2010, the highest number of lender repossessions in any given month was 3,706 in December 2009, according to the report based on Clerk of the Court records.

South Florida bank repossessions totaled 2,900 in the month of February and 2,475 in January,  according to the report.

"All indications are that 2010 could well be the peak for bank repossessions in South Florida unless something dramatic happens," said Peter Zalewski, a principal with the Bal Harbour, Fla.-based Condo Vultures, LLC. "Borrowers, lenders, and the legal system are starting to come to grips with the foreclosure problem in South Florida. All three sectors are working diligently to find solutions to curb the foreclosure problem with innovative ideas such as mortgage modifications, reductions in loan principal, a new willingness by lenders to approve short sales, online foreclosure auctions, and even a new foreclosure court in Miami-Dade County to expedite the legal process. "

"The understanding, experience, and infrastructure are, generally speaking, all in place to better manage the problem."

Bank repossessions, also known as bank-owned properties or Real Estate Owned (REO) by banks, are a lagging indicator of the foreclosure process, which takes an average of 18 months and costs more than $100,000 per property in South Florida.

Back in 2007 when the foreclosure crisis first began, lenders estimated it would take between six to nine months to repossess a property at the time of the foreclosure filing at a cost of $40,000 to $80,000.

A foreclosure filing - also known as a Lis Pendens or a notice of default  - is the first legal step in a lender's quest to repossess a property. A bank repossession completes the process.

Even before a foreclosure notice is filed, a lender typically waits about 90 days before initiating the action. Once a lender finally does repossess a property, the bank inherits the responsibility of settling up outstanding liens on the property that live on after the foreclosure, such as property taxes, past-due condo association maintenance fees, and open permits.

Compare the foreclosure scenario to a short sale where a borrower who owes more than the property is currently worth brings in a buyer to pay the current market value for the underwater property. This means an immediate loss for the bank but the situation is predictable.

To complete a short-sale, a bank can unload the property in a matter of weeks without having to invest additional dollars as is the case with a foreclosure proceeding.

In the end, buyers are paying about the same price for a bank-owned property as a short sale, which is influencing many lenders to move away from the costly and drawn out foreclosure process, according to Condo Vultures.

Not surprising, foreclosure filings in South Florida slipped by 21 percent to less than 20,000 actions initiated in the tricounty region in the first quarter of 2010 on a year-over-year basis compared to more than 25,000 filings during the same period in 2009. The region is now on pace for fewer than 80,000 foreclosure filings in 2010, according to a recent report from Condo Vultures.

In the three years prior, lenders initiated 33,000 foreclosure filings in 2007, 76,000 in 2008, and 97,000 in 2009, according to the Condo Vultures' Foreclosure Database.  

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