March Foreclosures

Submitted by Rich Toscano on April 15, 2008 - 4:26pm

Just a couple quick graphs today, friends.

I have no explanation for the divergence between NODs and NOTs (the former up for the month and the latter pretty substantially down). We've seen such one-month divergences before and I assume that we have just seen one again. If it keeps up we will have to look for an alternate explanation. Monthly ups and downs notwithstanding, we are still at or near record-shattering levels.

I've put a little more background up at, but it's probably old hat for regular Piggs.

(category: )

Submitted by Navydoc on April 15, 2008 - 7:18pm.

Could this possibly mean a backlog on the banks' part in processing the NOTs? Maybe their administrative apparatus to process foreclosures is being overwhelmed. Just a thought.

Submitted by capeman on April 15, 2008 - 7:28pm.

If it makes you feel better the macro picture for NOD/NOTs in California during March passed 350% of total sales in the previous month.

Either Rich's NOD data for San Diego is an anomaly or we got a rush of help to stem the NODs via fresh jobs or the like. I'd put my money on the former.

Submitted by mrmortgage on April 15, 2008 - 9:39pm.

The majority are coming from a single loan type that is neither subprime or fixed. I updated my blog post. Thank you for the thoughts.

-Best, Mr Mortgage

Submitted by jonnycsd on April 15, 2008 - 9:43pm.

The banks realize that if they take the entire inventory through auction they will cause long term "damage" (from their point of view) to the value of their collateral. Of course a fundamental "correction" to the value of their collateral is exactly what the Piggingtons expect.

I have heard **rumored** stories of FBs in Los Angeles area who have not made a mortgage payment in 6, 7, even 8 months and are 4, 5, 6 months past the NOD and the banks are just not moving forward with any auction or eviction. I do not believe this is due to any operational backlogs - that is easy to overcome by ramping up staff. Insurance companies learned to do quick staff ramp ups for adjusters after the massive hurricane losses earlier this decade.

This then begs the question: if not auctioning it all off, what then are they doing? Maybe they are waiting on some kind of government program to "handle" all these bad loans.

It would be interesting to see NOD and NOT data by servicer if such data is available.

Submitted by SD Realtor on April 15, 2008 - 10:45pm.

I am not sure if this is an adequate explanation but I have been posting for a few months now that many, very many short sales that are/have been posted on the MLS do indeed have offers on them. Nobody really wants to believe that because it goes against the bearish nature of many posters but what we could possibly be seeing is the manifestation of that event. Thus sellers that may have a NOD that has not gone to NOT status may have that delayed as the short sale gets processed and possibly accepted. Additionally it is RUMORED that the short sale processing times are starting to get reduced a little bit as lenders get these departments up to snuff but I am a little skeptical.

Once again, don't mistake this post as a cheerleading post for the market, just a possible explanation about why the NOT rate may be down when at first glance it should be up. (Also consistent with this theory would be a reduction in the ratio of REO sales to NODs as longs as the quantity of NODs remains constant.... and this does indeed seem to be the case)

Anyways, Rich just my thoughts....

SD Realtor

Submitted by Fearful on April 16, 2008 - 9:54am.

Just checking to see if I understand your explanation of the divergence: More NODs are going to short sale, versus NOT?

Submitted by Fearful on April 16, 2008 - 9:58am.

To amplify Rich's "record shattering" comment: We are at DOUBLE the prior bust's peak of NODs.

I frankly think NODs are the better leading indicator, as they indicate homeowner distress, not just subsequent bank distress. Short sales, as well as bank sales, drive prices down.

Submitted by kerpowski on April 16, 2008 - 12:36pm.


Given that NOTs lag NODs by a minimum of 90 days (and likely more in the current environment) is it possible that the divergence between current month NODs and NOTs is due more to the low data point in November/December of last year as opposed to any recent improvement in the conversion rate of NODs to NOTs.

Has there been any recent data posted on the average current lag time from NOD to NOT?


Submitted by kerpowski on April 16, 2008 - 12:50pm.


Another interesting thing to do would be to use the NOD to NOT average conversion time to estimate the NOD to NOT conversion rate and forward project future NOTs from the current month NODs.

The data at the following site is a good start. He mistakenly compares the current month NODs to the current month NOTs. This tends to underestimate the NOD to NOT rate but he's on the right track.



Submitted by jasper on April 16, 2008 - 8:42pm.


Not sure if this theory holds any water...maybe if fellow pigs in the banking industry could weigh in.....

It is well publicized that the banks are struggling with liquidity, which also represents assets; in this case, very liquid assets. The reason they need assets is because banks are required by law to have a minimum percentage of liquid assets vs. liabilities. No bank in the world can survive a run on cash (e.g. Bear Sterns) as the rules on our fractional banking system offer the banks to significantly leverage their cash position.

Another law in our banking system is that banks are required to 'mark to market' all vehicles in the asset column of their balance sheet. If REOs sell at fire sale prices....sure the banks pick up much needed cash BUT they are then legally required to write down the remainder of the asset class. This would kill their ratios, put them out of compliance, and they would be legally obligated to file with the federal government.

This would cause a run on that particular bank, even when the bank is cash flow positive and actually making money. This is the percarious position in which banks find themselves. So the banks are better off buying time....not selling REOs and keeping their 'mark to market' assets falsely high. This gives them time to make write downs against cash flows and maintain compliance with the % asset rules.

Make no mistake, the banks WILL flush the inventory but there is a huge risk to the confidence in the banks if they just blow them out at fire sale prices....not because of that particular REO but for all the other loans they have on their books which would then be legally required for write downs.

Bankers are well aware of the rules they need to follow, and well aware of the likely hood of jail time for willful non compliance. Their best bet is to buy time and hope the market holds up long enough for them to generate profits from the 98% of their portfolio which is performing well to slowly offset asset writedowns.

This is the game the Japanese banks played for 15 years from 1990 - 2005. The American system, and attitude, should motivate a clean up much faster than 15 years, but it just doesnt make sense that it could happen in less than 1 year.

The great unwinding has begun and I am in 100% agreement with Rich and most piggs out there...the 'must-sell' inventory is a great indicator of where prices are headed. The banks are just buying time and arent motivated to sell just yet. Prices will continue to fall as long as the must sell inventory stays high.

Any thoughts???


Submitted by SD Realtor on April 16, 2008 - 10:21pm.

Fearful, we need a few more months of data but I see a few things when I look at it... One the NOD rate has been consistent for the past 3 months, just a tad below 3300. There is no argument that this has SHATTERED the previous record. However it is interesting that it has become level albeit at a VERY high number. What is very interesting to me though is that the number of trustee deeds that have gone to trustee sale have actually declined a tiny bit each month for the past few months, 1461, 1398 and 1161 for Jan, Feb and March respectively.

Now first off I will say that we just do not have enough data to make any sort of strong conclusions yet. Give me 6 more months of this behaviour and I will be more sure of myself.

However, there is absolutely no doubt in my mind that more short sales are being processed. Alot (but certainly not all) short sales are usually on properties that have a NOD filed. Sometimes even a NOT filed. Similarly ALOT of short sales on the MLS do indeed have offers into the bank. Many of these will fall apart for one reason or another but some will indeed close. Similarly if a short sale has an offer in process, AND a NOT has not yet been filed, the lender may hold off on filing the NOT while the short sale is processed. Thus this may be the reason that NOT filings are down in the presence of a consistent number of NODs.

Just a guess...

SD Realtor

Submitted by capeman on April 16, 2008 - 10:24pm.

SD Realtor- With sales drying up, only 3% of REO auction homes actually being sold by banks when even at a 20%+ discount and CA sales being dwarfed by NODs/NOTs that argument cannot hold. Looking at the March CA NOD/NOTs it's tough to say these are not bearish.

Hey, MrMortgage showed up! Hey Hedgie!

Submitted by SD Realtor on April 16, 2008 - 10:59pm.


It seems as if I need to justify every post with a disclaimer that I am not saying the market is turning around or any such a thing. My postings in this thread are all aimed at answering the simply question, what caused the turnaround in NOTs.

I would like to analyze some of your statements.. as you know I try to be factual when I post. The numbers I quoted are simply from the foreclosureforum website.

Can you please show me the source of data that says only 3% of REO auction homes being sold? Also can you show me data regarding the 20% discount?

So let me get this right... You are saying that if there are 100 homes on the MLS that are bank owned, only 3 of them will sell, and of those 3 some or all of them will sell at 20% below the list price.

Please clarify if I am not understanding your claim.

SD Realtor

Submitted by NotCranky on April 16, 2008 - 11:32pm.

Mortgage modification data woudl be interstingot have. Not saying therin lies the answer to these questions but it certainly would be nice ot know the extent of this action.

I also would like to see how much the loan reset charts would change if all the modifications were removed from those forecasts.

Evidently a lot of top regulators would like to know too.

Submitted by SD Realtor on April 16, 2008 - 11:34pm.

Rustico I was going to mention that as well. While it is most likely a small number it is a factor and as time goes on, may become more meaningful.

Good point.

SD Realtor

Submitted by NotCranky on April 16, 2008 - 11:36pm.

About the regulators who want this data.

Submitted by capeman on April 17, 2008 - 12:11am.


Even worse, more than 97% of foreclosures that are sent to auction are coming back to the lenders without being sold as lenders simply refuse to take the bids submitted and either shell-bid (which is legal, surprisingly enough) or set a reserve that is not hit. Oh, this is with an average discount of 21% off loan value - meaning that the market says that these homes are worth less than the loan value minus 21 percent!


As you can see from this the banks are not taking the write-downs they should be and this will very likely lead to a much bigger credit crunch than the "Subprime mess" so-called of last year.

Submitted by SD Realtor on April 17, 2008 - 9:02am.


Just a bit of nomenclature... you are using the term auction and if we apply your terminology to what happens in San Diego county, I think you mean trustee sale. Your analysis appears based on reading internet websites. So first off have you ever been to a trustee sale? This is what happens in San Diego county when a home goes up for auction using your terminology. So at the trustee sale there is basically no means of financing. Of course just about 100% of the homes at trustee sales will go back to the banks. The only ones that actually sell to other parties besides the holder of the lien are the properties that have alot of equity or represent good deals and can pencil out as an investment. The people that attend trustee sales are VERY savy... they are usually WAY ahead of the curve and have researched the properties that they want and will usually only pull the trigger on moneymakers.

So my question to you is why would ANYONE buy a property at a trustee sale if it doesn't make money? Also please remember that you can't come to a trustee sale and expect to finance the deal in any conventional manner.


If you did really mean auction rather then a trustee sale then please point me to a source of homes that have gone to auction and I will be more then happy to see if they sold. Every time an REDC auction comes to San Diego I post and I always say point me to a list of homes at the auction and I will look them up 30-45 days after auction to see if they sold.

If you are saying that only 3% of the homes at the REDC auction sold then I am definitely in disagreement with you.


What you have not seemed to address is REO properties that are sold on the MLS. As I said, I don't have to read any internet stories to see that indeed a much higher percentage then 3% of the MLS listed foreclosures are selling. I see them, I show them to people, and I watch them go into escrow and sell.

All I am asking is that perhaps you do a little bit of hard research and look up tax records of sold homes to see the percentages of REOs that have sold verses not sold.


There is not any dispute of the direction of the market. Nor is there any dispute about the numbers of foreclosures and such.

Just try to do some lookups on tax rolls to gather some additional information, that is all I ask.

In fact I will do a little lookup for you tonite on a zip code and we can see how many MLS REOs sold verses didn't sell to see if it comes close to 3%.

Also next time there is an REO auction at REDC why don't you grab some of the addresses and we will mark them down to see if only 3% of them sell.

That way we can validate your claims to see if you are telling the truth or just requoting information that may not be accurate.

SD Realtor

Submitted by capeman on April 17, 2008 - 10:53am.

Whoa chief! Did you read the CVBT article? This is macro California data and not SD specific. Obviously, there are a lot of areas in CA much worse off than SD to be pushing the data but it does not bode well for the macro picture. If you read it the data flows from foreclosure auctions of trustee sale. I don't bother going to these due to them being sham events where the reserve is usually not met and the homes never sell. What this is saying on the macro picture is that banks are not willing to write down the values of these homes enough to unload them and at an average of 21% discounts off of LOAN VALUE that does not bode well for pricing structure, the paper backing loans of this structure or the value of the banks that hold them. You seem to be at this from the RE investor perspective but my informational aim was to show how in general Trustee sale auctions are not pricing in real value and the financial system is soon going to pay for it.

If I do get a chance to post some numbers in between keeping the newborn from crying and other duties I will but don't take my post as a say all of SD auction data when it was a more general post outlining the macro picture.


Submitted by Fearful on April 17, 2008 - 6:46pm.

Try to relax - I know it's not easy with a newborn, but you're coming off a bit harsh. SD Realtor is one of the most valued contributors to this odd little community, and I would hate to see the guy get discouraged.

SD Realtor, I'm with you - the foreclosure data is really noisy. Three months flat doesn't mean a whole heck of a lot. I wonder if perhaps the issues in the credit market have temporarily paralyzed the foreclosure processing system.

Or maybe 3K foreclosures a month is all that the banks can handle? From here it just adds to foreclosure backlog?

Many possible reasons.

Submitted by capeman on April 17, 2008 - 7:44pm.

Nah, my bad. I was just posting for discussion. I wouldn't want to see anyone contributing good data for all of us to see being discouraged. These forums are for gaining knowledge but sometimes it seems like theres a bit of chest-pounding being done instead of discussion. Keep at the work SD!

Submitted by SD Realtor on April 17, 2008 - 9:31pm.

Capeman -

I understand the articles well enough. I guess I am perplexed at a few things. Whey would you call a trustee sale a sham event? I don't think they are sham events at all. If anything trustee sales are filled with buyers who know exactly what is going on in the market as opposed to REDC like auctions, wouldn't you agree?

Also perhaps you understand a bit more of the process then I do, but at any trustee sale I have never seen any lenders take anything below the loan value. Think about it, I actually am not sure that the lenders CAN accept anything less then the loan value. The can accept more then the loan value or even the exact loan value. However if they cannot fetch it then they effectively HAVE to take the home back. Yes all other liens are effectively is wiped away. Then the lender or in more of a reality the loan servicing organization processes the property through loss mitigation, a reappraisal is made (and/or a BPO) and the home is put on the market. The lenders or loan servicers CANNOT accept an offer below the loan balance at the trustee sale because at that point they are not PREPARED (and perhaps) not AUTHORIZED to.

See my problem with the article in general is that it whips everything and everyone up without really making an analysis of the reality of how foreclosure processing is done at the lender.

Doesn't that make a bit more sense to you?

Your post is a perfect example of someone buying into an article without researching the way things actually work.

Am I saying the homes are not worth the value of the loan or even 20% off value or 40% off value or 60% off value? They very well may be... However it doesn't matter what they are worth. The conveyance of a home from a homeowner in default, to a lender, and then back to the open market as an REO is a fixed process. An article like this making a big issue about what happens at a trustee sale is not worth anything to me.

Do you more fully understand what I am trying to put across?

Submitted by SeanO on April 17, 2008 - 11:14pm.


I'm the founder of A couple of comments.

1. As someone else pointed out the Notice of Trustee Sale (NOTs) lags the Notice of Default (NODs) by about 3 months (actual average right now is 108 days), and the auction (yes Trustee Sales ARE auctions) happen on average about 37 days after that. So the divergence right now makes sense, and the two trending together in the past in the chart above was more the anomaly.

2. Just 2-3 years ago 90% of what went to trustee sale sold at auction. So that 97.7% now does NOT sell is a big deal. And even though little sells it provides a heck of a crystal ball into what is coming, as every home in that 97.7% will end up listed as an REO.

3. The discounts at auction are largely real discounts, and a great indicator of what the lender was willing to take on that day even if it didn't sell. One could argue they may not be willing to go as low once they have to do an eviction, clean it up and pay commissions - but it remains a telling indicator of where prices are headed.

4. While I can't speak for other providers data, I believe at least our foreclosure data is quite good. Unlike other services we actually track each foreclosure through to completion which is why we can tell you that 97.7% went back to the bank with no third party bid. If in doubt try printing our auction status report and going to the auction.

5. Keep in mind that the number of properties being sold at trustee sale each month right now is very close to the total number of properties being sold through all other means statewide right now. In January trustee sales actually exceeded all other sales.

6. The REDC, Marshall & Hudson, etc. auctions, are NOT foreclosure auctions. These are marketing events run by a real estate broker to try and maximize prices for bank owned properties. They have nothing to do with the state mandated foreclosure process, and they represent a small fraction of sales in the state.

Best Regards,

Submitted by SD Realtor on April 18, 2008 - 12:32am.

Hi Sean -

Thank you for the clarification. I have been to 3 of the trustee sales in the past year and I have not seen any of the discounts offered that you speak of. All of the properties that I have watched at the auctions have actually gone back to the lender so perhaps the ones that were discounted, (I assume you are referring to 21% off the primary lien, not 21% off the total, in the event of say 2 mortgages) are ones that I just missed. Also some of the people I have talked to in loss mitigation groups have mentioned to me that there are legal complexities with having authorization from the investors completed in time to offer such discounts at the trustee sale.

Finally it should really be no surprise at all that 97% of trustee sale homes are going back to the bank, nor should it be a surprise that 2-3 years ago 90% of the homes did sell at the trustee sale. If you look at the timeframe that was pretty much at the real estate peak and credit was flowing like water. Plenty of speculators were around, people could cash out HELOCs, and in fact, the trustee sales probably offered better deals then anywhere else so it would make sense that this was the place to buy a home.

There is no doubt as to the number of foreclosures or the fact that anything that goes back to the bank goes to the market eventually. Additionally we are starting to see some more timely responses from banks on short sales. Thus again, bringing back to the original issue of the thread, which was the dips in NOTs verses the rise in NODs... It appears to me that January was a temporary peak of trustee sales and we have seen small declines in Feb and March although the NOD rate remains staggeringly high. While we need many more months of data to see if this is a true inflection point or not, it could be explained by short sales getting accepted by lenders or loan workouts/modifications as well. The actual numbers are quite small from a percentage point of view right? Jan was 1461, Feb was 1398 and March was 1161.

What is more telling (from a tsumani point of view) is the 3200 or so NODs we have seen countywide for the past 3 months. This would indicate another couple of thousand homes to become REO come mid/late summer.

SD Realtor

Submitted by dcrash on April 20, 2008 - 6:04am.

Was curious of your thoughts on this:

Excerpt: "Transaction volume, however, especially over the next 12 months is becoming an increasingly important gauge of a market's health. This month the National Association of Realtors reported that sales volume of existing homes was up 2.9%, the first such month-to-month rise since July.

In cities like San Diego, one of five major metros where transactions rose, that's good news, assuming it's sustained. What makes transaction volume a good indicator is that it shows how easy it is for people to get loans and how much confidence there is in the market. If mortgages are available and buyers have some faith in the value of the home, they're more likely to buy.

San Diego's present conditions suggest that over the next half-year, prices may start to rise. That's because "there's usually a three- to six-month lag between when transactions go up and prices go up," says Jonathan Miller, president of Miller Samuel, a Manhattan real estate appraisal firm."

Submitted by Rich Toscano on April 21, 2008 - 9:36am.

dcrash, that article has already been discussed at length on the forums:

To everyone else, thanks for the interesting thoughts on NODs vs. NOTs. Of course, it makes sense that the drop in NOTs has to do with the NOD drop a few months back -- I was thrown off by their past correlation but this explanation makes perfect sense. I personally don't think it's all that important in any case... the big issue is NODs which generally speaking will lead to must sell inventory whether by foreclosure or short sale.

Mr. Kerpowski did send me an interesting factoid, though: the best fit for the delay between NOD and NOT is 150 days, as opposed to the 90 day legal minimum.


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