Banks purposely slowing foreclosure sales?

On the surface, South Florida’s home prices appear to be bottoming out, but a dip in the number of bank-owned properties for sale is leading analysts to conclude that lenders may be slowing the flow of foreclosures to the market as a way of stanching further price declines.

Monthly numbers from the Florida Association of Realtors show that South Florida existing-home sales continued to rise in June, as bank-owned homes and short-sales attracted bargain hunters from across the country.

Median single-family home prices were down again since June of last year. But they have strengthened from April prices.

The apparent leveling out of prices is being attributed to two things: a shrinking number of distressed homes entering the market and a larger share of high-priced homes changing hands.

Beneath the surface

Listings of bank-owned homes and short-sales – in which a home is sold for less than the mortgage owed – fell from 44 percent in May to 39 percent in June. And sales of these so-called distressed properties dropped from roughly 60 percent in May to 54 percent in June.

Fewer well-priced foreclosures on the Florida market are now routinely sparking bidding wars.

Bank-owned homes in hot condos and neighborhoods are going under contract within days.

Lenders, some real-estate lawyers and analysts believe, may be behind the trend as they either inadvertently drag out the foreclosure process or hold back the release of foreclosures for sale to the public.

Either way, the smaller numbers could be curbing further price declines, since analysts say home prices will not recover until the high numbers of distressed properties are cleared from the market.

“There is less distressed inventory being distributed to brokers for sale,” said Doug DeWitt, a Miami-based real-estate broker. “I think they are trying to establish a bottom by not flooding the market, which seems to have worked a little bit.”

Julian Dominguez, owner of Foreclosure Information Systems, a company that publishes reports about foreclosure auction sales in Miami-Dade, said he is seeing the hold-back firsthand.

“They are canceling a lot of sales at the auction. That’s mainly because they don’t want to take title,” said Dominguez, who has been attending the now thrice-weekly auction sales.

Ross Toyne, a Miami-based lawyer who represents condo associations in disputes with lenders, said he thinks lenders are deliberately dragging their feet – both in the foreclosure process and in bringing the properties to market for resale.

“They are doing themselves a favor. They’re afraid they would have to drop the price not enormously, but ginormously to get the market to clear,” Toyne said.

Condo associations have alleged that the feet-dragging is a ruse to avoid having to assume the maintenance cost of properties – including association fees.

Speculations

Ken Thomas, a Miami-based banking analyst, said it all makes sense. Once a bank takes back a home at the end of the foreclosure process, it has to value the property at its current market value – and take a hit to its bottom line. Some banks, he said, may be holding off that day of reckoning.

“Some of them simply can’t afford to recognize the loss,” Thomas said. He also said there was no rule or law requiring banks to immediately sell a property once it had been taken back through foreclosure.

Not everyone is convinced that’s the case.

Mark King, an attorney with the Miami office of Jones Walker who represents banks in commercial foreclosures, attributed any decrease in bank-owned inventory more to the inability of lenders to effectively manage the huge volume of homes being reclaimed through foreclosure. They don’t have the manpower or know-how to handle the volume.

“To say banks have a devious, brilliant strategy for controlling the market is probably giving them more credit than they deserve,” King said, adding that it may differ from lender to lender. “Maybe some are doing it for strategic reasons. When you digest so many of these assets so quickly, inevitably there will be some indigestion and you may not want to continue consuming at the same pace.”

But foreclosures certainly haven’t been worked out of the system. Rising unemployment will only exacerbate the trend, analysts predict. The Miami Herald.