The number of local residents losing their homes because they aren’t paying their mortgages increased again last year, but local real estate agents don’t think the jump is a sign of a worsening economy.
Local real estate agents and bankers said the increase did not mean more homeowners were unable to pay their mortgage in 2013 but more likely was because of a lag in processing foreclosure cases in the courts or multiple listings as banks try to negotiate sales with potential buyers before an auction.
The rising number isn’t worrisome because, overall, home prices increased, more houses were sold and demand was high throughout the year, which all show an improving housing market, local bankers and real estate agents said.
Johnson County set 1,002 homes for sheriff sale in 2013, which is a 10 percent increase from the 905 homes set for sheriff sales the year before. But the number of homes going into foreclosure is still below the 2009 and 2010 totals, which both topped 1,200 foreclosures.
The total doesn’t directly indicate the number of properties that were foreclosed because the same property might be listed for auction multiple times before it is actually sold or a listing might be pulled and not auctioned.
Home prices and demand for homes also increased last year, which means fewer homeowners are in situations where their mortgages are substantially higher than the value of their home, Greenwood F.C. Tucker manager Tom Johnson said.
In Indiana, foreclosures have to be approved through local courts, so sheriff’s sales that were set in 2013 could be for homeowners who were in financial trouble for several years, Johnson said. If a bank had several other foreclosures already in the works or just weren’t aggressive in filing a court case, homes with overdue mortgages might not have been sold for two years or longer.
In states with judicial review such as Indiana, the average home going through foreclosure was delinquent for 31 months, compared with 21 months for other states, according to a report by the Indiana Business Research Center.
“People were living in them, and they’re in an upside-down situation, and they couldn’t get the home sold, and they went into a foreclosure status. The house had sat there, and the bank just sat there and didn’t go after it,” Johnson said.
A smaller, local bank such as Mutual Savings Bank is better suited to work with a homeowner to reach a new agreement at the first sign of financial problems without having to go directly to foreclosure, bank president Bob Heuchan said.
But nationwide, banks or mortgage companies likely still are backlogged with cases because of the sheer volume of loans, he said.
The improving housing market also could have driven up the number of sheriff sales since banks have been more active in trying to sell a house through a real estate agency for a higher price instead of letting the property go through auction, said agent Chris Watkins of Mike Watkins Real Estate Group in Greenwood.
A home can get listed for auction but then pulled because a bank receives an offer from a potential buyer. But if the bank doesn’t agree to the offer or the buyer withdraws it at a later time, the home gets listed for auction again, Watkins said.
For example, Watkins wrote four offers for a foreclosed home in Franklin, but the bank and potential buyer couldn’t agree on a price before a different buyer made a fifth offer and the bank accepted it. All the while the home was on and off the sheriff sale listing, he said.
Foreclosures aren’t stifling home sales in Johnson County as they were two or three years ago, Johnson said. New foreclosures aren’t as frequent or concentrated into a small area, and high demand and low supply of available houses has helped increase prices throughout the county, he said.
In past years, a neighborhood with multiple foreclosures
would depress prices for other homeowners looking to sell because a potential buyer wouldn’t pay $100,000 for a house if they could buy a foreclosed home next door for significantly less, Johnson said.
But because the area had a limited inventory of houses for sale throughout 2013, banks didn’t need to sell a foreclosed home at a steep discount to get the bad debt off their books quickly, Johnson said.
That meant homeowners trying to sell also didn’t have to drop their prices to compete with bank-owned properties, he said.
Watkins received multiple offers on homes ranging from a $30,000 condo to an $870,000 home in the Center Grove area in the final months of 2013. He said home sales have been the best he has seen in the years since the recession.
And since home prices are going up, homeowners aren’t in as much danger of being saddled with a mortgage that’s much higher than what they could sell for, Johnson said.
Since the recession, the Consumer Financial Protection Bureau has been given more power to make sure banks aren’t giving out high-risk loans to people who likely won’t be able to repay them, which can help prevent future mortgage defaults, Heuchan said.
He added that banks throughout central Indiana have done a good job of avoiding giving out risky loans as a way to try to capture more business than other banks.
“I’m not naïve to think this couldn’t happen again, but there are more checks and balances in place,” he said.
Lenders can expect to see more buyers needing mortgages in 2014, the economic forecast shows. Home prices and new construction should continue to increase, while foreclosures are expected to decrease this year, according to the 2014 housing outlook by Indiana Business Research Center demographer Matt Kinghorn.
Although the sheriff sales number increased, local foreclosures didn’t hurt the housing market last year, which should help lessen the amount this year, Johnson said.
“The market was so much better, and we were able to get houses sold; and there were so many less short sales,” Johnson said. “We’ve had short-sale situations where you normally would have been in the foreclosures for months.”