Reopening the Foreclosure Pipeline?

Anthony Martin has been a bit grumpy. His data business, Auction Control System, tracks county trustee sale and notice of default (NOD) activity for investor clients, and he hasn’t had much to study for the past six months, thanks in large part, he says, to AB 284, a.k.a. the robo-signing law.

Trustee sales and NODs are the heart and soul of the foreclosure pipeline. Under Nevada’s foreclosure-process law, a bank must file an NOD with the county recorder’s office, then a trustee sale (or public auction) notice 90 days later. At that point, the property goes up for auction. If there are no buyers, the bank then gets to foreclose on the home. AB 284 has created more paperwork and costs in this process, real estate experts say, keeping banks from starting it in the first place.

But a glut of foreclosures could start to stream into the system come August, Martin says. Since the beginning of the year, he has seen unusually high trustee-sale notices compared with the number of NODs, which hit an all-time low in October but are now inching up slowly. Trustee-sale notices have outnumbered NODs by as much as 10 times in some cases; in a normal market, Martin says, they should be close to even.

This signals not that banks are initiating new foreclosures, but that they’re probably dumping old properties they’ve been holding. Martin estimates that 30,000 to 40,000 of these types of homes are still out there, and he foresees a gradual influx of them coming through the system. With more supply on the market and more homes going through the trustee-sale process for investors to snap up and either flip or hold for rentals, he expects housing prices to drop.

A little more tough news for today’s many underwater homeowners.