When we think of short sales and distressed properties we usually think of major foreclosure centers such as Phoenix, Las Vegas, southern Florida and parts of California. But maybe we’re looking in the wrong place. Maybe one of the biggest foreclosure centers of all sits across the river from Manhattan.
According to Bloomberg News more than 27,000 Brooklyn properties received delinquency notices last year. That’s a pretty impressive number but what’s really remarkable is the actual number of foreclosures: Bloomberg reports just 34 foreclosures in the entire borough during 2011.
The Foreclosure Process
What’s going on in Brooklyn very much illustrates a trend which can be seen across the entire United States. While everyone has their eyes focused on foreclosed homes – short sales, properties facing the auction block and homes now owned by lenders – the real concern is a little different: huge numbers of properties are trapped in the foreclosure process but have not actually been foreclosed.
It’s a fact that not all foreclosure filings result in the loss of a property. Some loans are brought current and some mortgages are modified. But the grinding reality is that most notices of default and scheduled auctions will ultimately produce foreclosure sales and real estate owned by lenders, so-called REO properties.
Based on information from RealtyTrac, Bloomberg says the typical Brooklyn foreclosure requires 1,187 days to complete. That may seem astonishingly long, however RealtyTrac reports that the average foreclosure action in New York State takes 1,056 days to process, the longest in the nation.
The delays seen in Brooklyn are evidence that the foreclosure crisis is far from over.
The question always being asked is when will the mortgage meltdown be over? The real question is when will the inventory of distressed properties decline to such a point that home values can begin to increase across the country? The answer to both questions has a lot to do with the numbers from Brooklyn.
Real Estate Auctions
If there were 34 foreclosures last year in the borough and some 27,000 distressed properties remain then at the average rate of resolution the foreclosure crisis will be over in just 794 years. This, of course, is absurd. What will really happen is that when the key issues now delaying the foreclosure process — robo-signing and questions of note ownership – are resolved there will be a flood of foreclosure auctions. Local home values will fall until the inventory of distressed homes is thoroughly reduced, a process which won’t happen instantly or painlessly.
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