Super Jumbo Foreclosures Surge as Overall Activity Wanes

December 5, 2013 No Comments »
Super Jumbo Foreclosures Surge as Overall Activity Wanes

A new report from RealtyTrac revealed that overall foreclosure activity was down a sharp 23% year-to-date through October, but it’s a different story for the priciest properties nationwide.

For homes worth $5 million and above, the foreclosure rate was actually up 61% during the same time period.

Of course, the volume is nowhere close to that of more modest homes. In fact, less than 200 properties with price tags north of $5 million have received a foreclosure notice so far this year.

That compares to 1.2 million properties in all value ranges through October.

Miami Mansions Finally Getting Foreclosed On

The biggest surge was seen in the Miami-Ft. Lauderdale metropolitan area, where 47 properties valued at more than $5 million received foreclosure notices, a 488% increase from a year ago.

The Los Angeles metro had the second highest number of super jumbo foreclosures with a total of 35, but the foreclosure rate was up only 3% from a year earlier.

Third was the Atlanta metro, where a total of 18 $5 million plus foreclosures translated to a 260% year-over-year increase.

The Orlando metro was the fourth most active with 12 high-end foreclosures representing a 500% increase in activity. Put another way, just two $5 million homes got notices last year.

Rounding out the top five was the New York-Northern New Jersey metro area, which saw a 29% year-over-year increase thanks to its nine $5 million+ foreclosures.

[How Long After Foreclosure Can I Purchase a Home?]

What the Increase Could Signal

So clearly the volume isn’t that large, which makes the percentage increases less significant, but it does mean banks are changing their tune somewhat.

RealtyTrac VP Daren Blomquist noted that it could mean lenders are more financially stable to handle these large losses now. And that a stronger housing market comes with more prospective buyers, which translates to higher prices for these expensive properties.

A few years ago, foreclosing on these behemoths may have meant multi-million dollar losses.

Today, the damage may be a lot less substantial thanks to renewed demand and a lack of supply relative to the buyer pool.

This new analysis reminded me of a post I wrote two and a half years ago, in which ForeclosureRadar founder Sean O’Toole argued that larger loan balances equated to longer foreclosure timelines.

In other words, borrowers with enormous loan balances, such as those with $5 million properties, were more likely to be severely underwater, which would cost the banks big if they foreclosed.

It’s one thing for a homeowner to be $20,000 underwater on a $200,000 property. But when a homeowner is $1 million deep, the lender might pause before pursuing that loss.

Another possibility is that most of the states that saw major percentage increases are judicial states, meaning foreclosures are handled through the courts and take a lot longer to process, so starting with the smaller ones might make more sense.

It could also be that these states are finally seeing a turnaround, whereas other states have already scored major appreciation since hitting bottom.

For the record, Florida and California accounted for more than 60% of all “ultra high-end foreclosures” so far this year, though activity is actually down in the Golden State compared to a year ago.

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