Yunnie Coming Around
At the Washington Realtors’ legislative hill day this year we had an opportunity to hear from the National Association of Realtors’ chief economist, Dr. Lawrence Yun. Dr. Yun spoke about the improving real estate market in Washington state and his optimistic outlook for our state’s housing prices to continue rising at a rate faster than the nation as a whole.
At the same time, he was concerned with the persistence of high levels of “shadow inventory” in Washington, even while those levels have been shrinking significantly across the nation as a whole. Dr. Yun surmised that the legal system in Washington was one that provided more obstructions to the foreclosure process, and that was creating a huge backlog of foreclosures that should have already been back on the market. The striking lack of inventory in our current market is holding back a large crop of eager buyers and stifling home sales in general.
The essence of Dr. Yun’s point was that we should speed up foreclosures. On its face, that’s not an argument you’re likely to hear from real estate professionals. Our organizations are constantly working for property owners’ protections and rights, and fighting fraudulent or predatory practices that force homeowners out of their homes.
This issue, however, is more complex than simply pitting banks against homeowners. When we really examine the broken foreclosure process in our state, and nationally, we have to make clear distinctions between the protections that distressed homeowners already have in place, and the unacceptable extensions of the actual foreclosure timelines taking place in the market.
There are an increasing number of homeowners who have realized that, even though their home is underwater and they have no intention of keeping it long-term, they can live in the home without making a payments for years on end. As long as the lender is inhibited from closing the actual foreclosure sale, the number of people living in homes for two and even three years, rent free, continues to build. The homes are a drag on the community, as these long-term foreclosures deflate nearby housing prices, instead of being resold and fixed up by the new homeowners. The homeowners can’t just abandon the property, because it is still legally in their name (see Zombie Titles).
The effort to shorten the timelines on these foreclosures would make no changes to the protections already built into the process for the truly distressed homeowner. There are already a number of steps for that person to repay their debt, work out an adjusted payment schedule, or find another means to save their home. These people usually have at least a year from the time they stop making payments until the foreclosure sale goes through, and those protections can and will continue to exist for them.
For those homeowners who have already been through the normal foreclosure process and are one, two, or even three years behind on payments, the process needs to be expedited. These folks have accepted that the home will be foreclosed upon, and the only question is when. It will be better for the neighborhood and, frankly, better for these former homeowners to move on with their lives and begin to rebuild their credit. This artificial backlog of foreclosure inventory has an eager market of buyers ready to move in, and our communities could benefit from a healthy gain in home sales as we continue to recover.
So, should we speed up foreclosures? If the current legal protections are preserved, but the unnecessary multi-year extensions can be avoided, then the answer is “Yes.” Sometimes, facing up to reality and moving forward is the only way to begin correcting the difficult times we’ve been through.