Los Angeles Foreclosures

Five years have passed since the collapse of the U.S. housing market following the mortgage meltdown. Cities like Los Angeles that have historically had high housing prices due to year-round warm climate and proximity to the ocean were particularly hard hit and quick glance at the Los Angeles foreclosure listings shows that housing market is still taking a beating. The boom and bust cycle of housing prices is not news in California, but other economic factors that came along at the same time made for financial disaster for many homeowners.

The job market also fell in as some companies had massive layoffs and others moved their operations overseas. Sub-prime borrowers who had obtained adjustable rate mortgages found that they could not keep up with payments as the rates reset. And finally, many homeowners who found themselves upside down on their mortgages, owing more than their homes were worth, decided to just walk away.

Between the unemployed, the overextended, and the underwater, defaults skyrocketed. Lenders were overwhelmed by the sheer volume of paperwork involved in processing the unprecedented number of foreclosures. There were problems of "robosigners" — loan servicers having low-level employees churn through foreclosure documents without verifying them — as well as some situations where one department of the lender would be moving towards foreclosure while another department was working through paperwork to restructure the loan.

Loan service employees are buried, borrowers can’t get answers, and investors are scouring the Los Angeles foreclosure listings for fix-and-flip properties.

In some states legislators are pursuing regulations concerning these foreclosure problems. The California State Senate is looking at legislation that would require lenders to inform borrowers about loan modification programs and also hold off on foreclosure proceedings until any restructuring application had been processed.

The general idea of this makes economic sense, though whether legislation would make a significant difference remains to be seen. It is in the lender’s interest to look at each situation case by case. If a modification would preserve the value of the loan then that is clearly a better deal for all concerned than a foreclosure. The homeowning family gets their debt under control and gets to keep their house; the lender keeps a performing loan.

No lender wants to get stuck with a non-performing asset, which is what a foreclosed home is. Lenders are not in the business of owning homes. This is why savvy real estate investors can find excellent deals in foreclosures. Lenders are eager to sell these properties. Foreclosed properties are usually not left in the best condition. At best they are run down because the owners could not afford repairs. At worst they are totally trashed by vindictive former owners at move-out. Either way, foreclosed homes are excellent prospects for fixer-upper flipping. A savvy buyer can search the Los Angeles foreclosure listings, pick up a bargain property at auction, fix it up, turn around and resell it at a profit.

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