A recent sheriff sale in New Jersey indicates distressed property sale prices are the new residential property value metric in hard-hit areas with large inventories.
In so-called judicial states like New Jersey, Florida and New York where the backlog of distressed property inventory is significant lenders have to base their value assessments on distressed sales, says Michael Bonner, CEO of Property Pilot. "It is the best comparable value!"
“The trend will continue in New Jersey and the inner cities where there’s a huge backlog of inventory that has to be cleared,” he said. “We have every foreclosure in our state in our system, and we have the share of preforeclosure sales, and sheriff sales, and it seems that finally lenders will start auctioning off and bringing to sheriff sales a lot of the inventory that has been held up because of the robo-signing and Hurricane Sandy.”
Recently New Jersey experienced the largest sheriff sale of the past three years, he said, as about 50 properties were sold in one day, and it is an interesting trend to see more than half of all sales in a neighborhood are distressed sales.
“It’s a huge spike that’s supposed to start in May, and if this day is any indication, the inventory has finally started to clear. New Jersey is a judicial state so we have the second largest foreclosure inventory backlog in the country after Florida.”
As the housing market recovers and prices inch up in many areas, backlogs of distressed inventory due to very long foreclosure processes in judicial states and lawsuits that have made lenders even more cautious when handling compliance risk in New Jersey have now started to sell.
The state of New Jersey has its unique blend of property values with wide variations between the metro areas and the suburbs. He recalls subprime lending was wide spread in the inner cities where most of the distressed inventory resides, while the backlog in the high and midmarket price areas in the suburbs has already been cleared.
Lenders are trying to just auction off as many properties as they can as prices start to go up in some areas but still are down in the areas where subprime lending was prevalent.
In New Jersey close to 100,000 properties with loans dating back to 2006 or between 2008-2010 were in foreclosure, he says. The shadow inventory problem has not cleared out yet, he says, and will continue to haunt high foreclosure rates in judicial foreclosure states.