What's Happening With Foreclosures in Flagstaff?

What's happening with foreclosures in Flagstaff? That's a very good question.... one that I've been searching to answer in an intelligent way for a couple of weeks now. For several months, I posted the Coconino County foreclosure lists on my other blog on Active Rain. I stopped the postings because I thought the statistics were telling the same story every week -- and because I ran out of time in this busy season of buying and selling Flagstaff real estate.

Here are the straight facts that the foreclosure sales lists were telling: Every Monday, many (20-50) foreclosure sales were scheduled on the courthouse steps in Flagstaff. Many of these were for outlying county properties, but several also were in Flagstaff itself. Reviewing the lists of actual sales at the end of each week, however, showed that few of the sales actually occurred. Homeowners were somehow rescuing their homes from the foreclosure block just as the gavel was about to fall. The serious story is how and why was this happening?

I still don’t know the whole answer. Some of it is surely that the homeowners turn over a deed-in-lieu of foreclosure at the last moment. A few of the cancelled trustee sales are due to last minute closings on successful short-sales. In one case I know of the sale was not even short – it was just desperate. Some last minute cancellations are a result of bankruptcy judges issuing temporary orders of stay. Others are last minute workouts and rescues due to some of the government plans that have been put in place. Some are loans provided by family members or once-in-a-lifetime windfalls – although there are probably very few of these.

What I do know is that there are, right now, very few bank-owned properties for sale in Flagstaff. That’s because we haven’t seen many actual foreclosures in the last few months. But I’m not certain this will continue. Partly because the official moratorium that was in place during the winter for government-guaranteed loans and for some big banks stopped about three months ago and that's about the time it takes for a bank to get a home ready for market after it takes title. Also because I hear other stories – stories of homeowners who stopped paying their home loans months ago and their banks have not foreclosed. Why is this? I speculate that it is because the banks don’t want to own the property.

And there is a deeper story there as well. We’ve heard throughout this foreclosure mess that banks don’t want to foreclose because it costs them an average of $50,000 to process the foreclosure – attorney fees, trustee fees, Realtor^® fees, cleanup and utility expenses. But there is more at work when homeowners never hear from the bank. Or the bank takes the foreclosure process to the brink and doesn’t force the gavel down. Here’s what it is: the banks don’t want to own the property because of their balance sheets.

The scary part of all of this is that even though nationally we’ve had over one-million foreclosures this year alone, it’s likely that there are many more to come. And, that means that home prices may have hit bottom – because the inventory from now on may trickle out – but the prices are not going up for a long-while, for the same reason.