Foreclosure Attack on Silicon Valley

Posted in Foreclosure, May 26th, 2008 |

So far Silicon Valley has been fortunate. The foreclosure attack on Silicon Valley has been relatively less severe in comparison to the rest of California. But real estate agents and tax experts believe that it is biding time – soon foreclosures will flood the valley.

At a recent meeting of Silicon Valley Association of Realtors, Pamela Simmons of Simmons and Purdy commented that foreclosures continue to rise as the state struggles through falling estate prices and at-risk mortgages. According to information complied by DataQuick, the Trustees Deeds numbered 47,171 during the first three months of 2008 as compared to 11,032 during the same period in 2007. This calculated to a jump of 327.6%.

About 18 months ago Simmons had noticed the first flow of foreclosure cases increasing. The first lot consisted of those who had no reason to buy a home at the very onset. They had no steady income and became easy targets of predatory lending tempted by nil down payment loans. These buyers were the first ones to succumb to foreclosures.

The second lot of foreclosure victims consisted of those in trouble for having contracted sub-prime mortgages with adjustable interest rates. These rates began to swing up throwing down the borrowers. It became impossible for them to keep pace with the upswing.

The third wave is now visible, says Simmons. These are house owners with negative amortization loans. It means these borrowers siphoned off equity from their house during the boom period but now that the prices of real estate have fallen they are getting entangled in the foreclosure net. For some the monthly payment has increased by as much as $3,000. The third group with multiple mortgages on their properties is referred to as ‘flippers’. It is like a game of musical chairs. Now that the music has stopped they do not have a chair to sit on!

Simmons further went on to explain the difference between judicial and non-judicial foreclosure. The former is processed through a court of law starting with the filing of complaint giving details of the debt. If the court is satisfied with the plea then it issues an order for the lender to proceed with an auction and realize dues together with incidental fees. The judicial process is extremely costly and may involve an expenditure of $100,000 for the lender. Non-judicial foreclosures are conducted without the mediation of the courts. Nearly all the foreclosures in California State are non-judicial.