Are Zombie Banks Waiting for Bailout Money?
An old real estate axiom goes that once a home has gone through foreclosure, and the sooner a lender can sell the property the better. After all, a non-performing asset is bad for a lender’s books and the sooner the escrow closes, the quicker the lender will be able to recover his losses. However, recently an appraiser paired the online foreclosure databases (found at either Realtytrac.com or ForeclosureRadar.com ) against the statistics found in the local Realtor MLS (multiple listing system) inventory, and noticed something rather peculiar: the datasets don’t reconcile.
He discovered that the number of foreclosures posted in Online sites far exceeds the sum of listings and sales found in the realtor multiple listing system. Roughly 70% of foreclosures in the onlines database ARE NOT listed in the MLS system. Why? He reasoned that perhaps banks might be trying to defer the losses to a later date, because having to recognize the losses short term might pose severe risks to the banks in question. Can this be true? Are zombie banks holding back these houses from being sold because the banks are insolvent and can’t afford to take the loss? Or is something else happening? Here are three other possible ways to explain the disconnect.
1. MisInterpreted Data. Most internet websites will usually count a home as being a foreclosure when the homeowner has missed making three payments and a Notice of Default has been recorded. They don’t take into account the fact that a homeowner may still be able to reinstate the loan and take the property out of foreclosure. Thus, the homeowner may never have needed to list the property in the realtor multiple listing service to begin with which is why it doesn’t show up in the realtor MLS system, and yet shows up as an online foreclosure.
2. Short Sales. A short sale takes place when the owner wishes to sell the property at fair market value, but owes more than what the home is worth. After finding a purchaser and collecting his financial data, the homeowner then makes a request to his lender(s) to reduce the principal balance of the loan(s) so that the sale can be consummated. Because a Lender often takes about 9 weeks to review the owner’s application and purchase contract, the Lender can appear to be acting like a Zombie. The auction date for a short sale may be waived by the lender or extended in order to close escrow, and for this reason it can appear that the house may be at eminent risk of foreclosure on an online site ” yet not show up as either a listing or sale on the realtor’s database.
3. Loan Modifications. Many owners are advised by loan mod experts to avoid making a payment or two in order to show the need for a modification to a lender. Although under the new Obama Financial Stability Plan this is no longer necessary, in the past, many owners have followed this advice. To an online Foreclosure website, it might appear that the owner is definitely in foreclosure, yet at the same time because the owners wish to remain in their home, the property will not show up in the realtor’s MLS database.
The possibility also exists that other logical explanations may exist for why some homes that are foreclosed on don’t immediately show up in the marketplace. The lender may be trying to collect money from an insurance claim, or there may be government banking regulations involved. Then again the idea of a bank filled with over-worked Zombie-like personnel waiting on customers like a scene ripped out Night of the Living Dead doesn’t seem too far-fetched these days, does it?