Preforeclosure filings plummet; numbers called ‘deceiving’

Banks are “picking and choosing” homes they want to sell and homes they want to keep, said Tony Martin, principal of LV Default.

“The numbers are very deceiving,” Martin said Friday. “You see a deep decline in NODs (notice of default) since April, but you don’t see a decline in notice of sale.”

LV Default reported 3,340 notices of trustee sale in July, with 1,526 going back to the bank, 1,396 cancellations and 597 sales to private parties.

The trustee sale is the final preforeclosure step before a home is sold to a third party — typically an investor — at auction or returns to the bank.

Martin noted an interesting uptick in the percentage of trustee sales compared with homes going back to the bank. It rose to 39 percent in July, up from 33 percent in June and from 20 percent in July 2010.

The percentage is the highest in years and proves that banks prefer to rid themselves of nonpaying, “toxic” assets through the auction rather than as REOs, or bank-owned homes, Martin said.

“That’s the key,” he said. “If they put them on the market as REOs, (Sen.) Harry Reid comes along and says, ‘Oh, look at that.’ It’s negative media exposure for them.”

Banks use a complex cost-benefit analysis to determine profitability and longterm hold potential for each home they take back, Martin explained. Instead of selling them as REOs, they hold on to them and create an artificial increase in demand as short-sale and REO listings dwindle, he said.

Bank of America did not respond to a request for comment. A spokeswoman for Wells Fargo said the comments would have to come from the bank’s mortgage department in Iowa.

Zolt Szorenyi, president of Lenders Clearing House Las Vegas, said he’s seeing fewer homes being sold at auction, including a couple days with only 200 listings, compared with 500 to 600 homes on a typical day in the past. About half of them are postponed or canceled, he said.

Szorenyi said he went three days without buying at the auction. On Friday, he picked up a 2,900-square-foot home in Rhodes Ranch for $202,000 and a 1,600-square-foot home near Grand Canyon Parkway and Tropicana Avenue for $107,000.

Most bidders at the trustee auction are working for investor clients and don’t want to walk away without making their fees, Szorenyi said.

“A lot of these guys fudge the numbers, put up a higher number than it’s worth,” he said. “They bring in unsuspecting clients who have no idea that they’re buying at market value or even above market value.

“The reason you see this gold rush is people see the listings decrease and they feel they have to buy now. They’re in a panic mode,” Szorenyi said.

Martin of LV Default said banks are doing what they said they would do. Asset managers find no value in REO and short sales, largely due to the amount of negative media coverage associated with reporting those type of sales, he said.

“Banks are trending more to the trustee sale because there’s less scrutiny and reporting,” Martin said. “There’s no bailout and they don’t want to sell REOs. They don’t want to take properties back. It’s simply easier for the banks to sell privately to the investors at the trustee sale.”

Nevada continues to lead the nation with one out of every 114 housing units receiving a foreclosure filing in June, though the numbers are declining, according to a mid-year report from Irvine, Calif.-based RealtyTrac foreclosure listing service.

Default notices, scheduled auctions and bank repossessions were reported on 53,217 Nevada properties during the first six months, down 17 percent from the second half of 2010 and almost 18 percent below the year-ago level, RealtyTrac reported.

Foreclosure filings were reported on 10,007 Nevada properties in June, down 9 percent from May and down 22 percent from June 2010.

Contact reporter Hubble Smith at hsmith@reviewjournal.com or 702-383-0491.