Foreclosure Frenzy: Fact, Fiction, and Unexpected Victims

pd_foreclosure_070612_ms.jpgForeclosure is the new “F” word. But the media’s love affair with this issue is, in some opinions, overkill. One of Redfin’s own bloggers, Brenda Keener, puts forth the idea that the media coverage of the market’s downturn in general is more responsible than any other factor for the continued slide. Not everyone agrees (just look at the comments on her blog!). But certainly, whatever your stance on media attention to real estate’s meltdown, you have to admit there’s room to interpret data differently: either you spin it postively, or you spin it negatively. This is true of foreclosure stats as well.

Witness CNN’s article announcing “Foreclosure up 75% in 2007.” Among fear inducing stats here:
1. More than 1 percent of all U.S. households were in some stage of foreclosure during 2007, up from 0.58 percent the year before.
2. In California alone, nearly 66,000 people lost their homes last year.
3. California had a total of 250,000 foreclosure filings, the highest number of of any state.

And now for the postive spin. San Francisco Schtuff points out

1. Foreclosures were lower prior to last year, which causes the numbers to appear to be soaring when looked at purely in terms of percentage gains.
2. RealtyTrac reports defaults on loans, not on properties, so one household that defaults on a primary loan and an equity line will be counted as two defaults, even though both loans were for the same house. This could artificially inflate foreclosure statistics.
3. A foreclosure filing includes default notices, auction sale notices and bank repossessions. One home may fall into each of these categories as it moves through the long foreclosure process. RealtyTrac counts each step along the way separately. This also skews foreclosure statistics.
4. The overwhelming majority of homes are not in danger of foreclosure. If slightly more than 1 percent of U.S. homes were in some stage of foreclosure last year, then 99 percent of homes were not. Although some of the hardest hit communities with high concentrations of defaults are suffering, those communities do not reflect California overall.

One sad side story of foreclosures, impossible to spin positively, highlights some unexpected victims in the process: renters. Along with the frightening increase in Bay Area (specifically SF)  rents, renters also face increased evictions when the homes they rent go into foreclosure. SF Gate reported that

    As the mortgage crisis claims more homes – more than 11,000 Bay Area residences were repossessed by lenders last year – an increasing number of tenants are facing rapid evictions by banks eager to partially recoup their losses by selling the properties. In November, a Chronicle analysis of Bay Area foreclosures showed that about one-fifth had nonresident owners. Renters have minimal rights in such situations:

    Tenants’ rights in such situations are minimal. Some cities with rent control include eviction regulations; other cities do not have rent control for single-family residence, so renters here are subject to state law, which generally requires 30 days notice. Worse, a foreclosure usually invalidates an existing lease. Paul Leonard, director of the California office in Oakland for the Center for Responsible Lending said:

     ”In an already flagging market, the idea that foreclosures displace renters without adequate notice creates a level of upheaval and distress that could be mitigated with more reasonable notice provisions.”

    Ouch. So, yes, the media seems to like foreclosure stories as much as celebrity babies or weight gain stories. But are these stories made out to worse than they are? Do they actually make things worse than they are? Could things get any worse?

    Your thoughts?

    photo credit (surprise!): abcnews.com