April 2009 California Foreclosure Report

for April 2009. In a reversal from the prior month, foreclosure noticesdropped while foreclosure sales rose. Sales at auction rose by 35 percent overall and a record number ofthose properties were purchased by third parties at an average 28 percent discount from estimatedmarket value. Notices of Default, the first step in the foreclosure process , dropped by 18.2 percent from the record level set the prior month. Notices of Trustee sale, which set the auction date and time, also dropped by 8.5 percent from the prior month.

Notices of Default remained near earlier record levels, despite falling 18.2 percent from March to42,675 filings. Year-over-year filings dropped by just 1.1 percent, though April of 2008 had heldthe record for Notices of Default until March 2009.

Notices of Trustee Sale declined by 8.5 percent to 29,552 filings, a .8 percent decrease from theprior year, and a 24.2 percent decrease from the peak reached in July 2008.

Foreclosures taken to sale at auction increased by 35 percent, to 13,550 representing $6.0 Billionin loan value. Despite the significant increase, these trustee sales remained 40.7 percent lowerthan the prior year, and 52.0 percent lower than the peak reached in July 2008. Nearly 90 percentof the foreclosed loans this month were originated between January 2005 and December 2007.

Lenders took back 11,916 foreclosures for which no third party bid was received representing$5.3 in total loan value. Of these loans, nearly 99 percent were first mortgages, with many ofthese foreclosures wiping out the secured interest of junior lenders. Potential losses by juniorlenders exceeded $623 Million across 6,911 wiped out junior loans.

The number of foreclosures sold to third parties increased in April to 1,634 a 52.3 percentincrease over March. Though the increase was significant, the percentage of foreclosures sold tothird parties remains just 12 percent of the total, with 88 percent going back to the lender. Thenumber of foreclosures sold to third parties increased 217.9 percent increase from April 2008.

Lender discounts at auction decreased slightly to an average of 40 percent with Merced, SanJoaquin, Stanislaus and Monterey counties seeing the largest discounts at 47 to 49 percent onaverage.

“As the inventory of bank owned, or REO, inventories drop across California, we’ve seen a dramaticincrease in demand for information on the foreclosure auctions as an alternative source for buyingproperty in the current market”, says Sean O’Toole, founder and CEO of ForeclosureRadar. “Despite the discounts offered at the trustee sale auctions, we’d like to remind everyone that these discounts come with significant risks, especially for consumers and inexperienced investors”.

There are a number of inherent risks when bidding at a foreclosure auction, technically referred to as a “trustee sale”. All sales are as-is, with little or no opportunity to inspect the property before purchase.

Sales are also subject to existing liens and encumbrances so buyers must carefully research anyoutstanding debt that may be owed after the purchase. Since there is no title insurance, any mistake made when researching those liens and encumbrances is the buyers’ alone to bear. In addition, the successful bidder may also have to evict the prior owner or tenant, before taking possession of their new purchase.

In return for taking on these risks, third party buyers enjoyed an average 28 percent discount from our estimated market value. With an average estimated market value of $294,000, that discount represents a significant savings of nearly $82,000. Despite the size of this discount, actual margins are lower given the costs associated with evicting occupants, cleaning, repairing, maintaining and reselling these properties. Private investors can often accomplish these tasks far more cost-effectively than large banks, making it a win-win for both parties.