Case-Shiller from 3 months into the future

Thursday, September 3, 2009

On shadow inventory

As promised, a word or two about shadow inventory. It didn't turn out particularly illuminating, but here goes.

First of all, I'm not a serious corporation like RealtyTrac or ForeclosureRadar, and I don't have access to their (paid-for) databases. I tried to put together some numbers using free public sources. To do that, I pulled the index of the San Diego grantor-grantee database (http://www.sdarcc.com) and looked for some patterns.

The grantor-grantee database is a place where many important real estate transactions and events are recorded. Some well known types of events are notices of default (NOD) and notices of trustee sale (NOT or NTS). The database also contains records of trustee sales, transfers (deeds), and some of the less known events. The complete database is, unfortunately, unavailable online, but its index is. The index contains document numbers, dates and names. So, for example, I might find out that a Mr. John Smith (a made-up name) received a Notice of Default on 7/30/2008 and a Trustees Deed on 11/15/2008. Of course, I can't be sure that the two refer to the same property, but it's a reasonable assumption.

These are my preliminary results.



Areas marked as "Foreclosure" and "Short sale" refer to NODs that were followed by an ownership transfer (i.e. the former owner is no longer in possession of the property). This simple approach does not allow me to track the property any further - if the bank chooses to "sit" on the property after foreclosing, there's no way for me to tell that. Anecdotal information suggests that it does not happen often.

Next two: "Reconveyance" and "Rescission". Reconveyance is recorded when the bank releases interest in the property (because the loan was paid off or refinanced). It appears that very few people have been able to refinance their way out of default. Rescission means that the bank "rescinds" a previously recorded document for any reason - for example, because the loan was modified. A NOD followed by a rescission probably indicates that the borrower is now okay.

That leaves us with the last two categories: "NTS" and "No action". This is where our shadow inventory would live. Some borrowers are in this category because they got a loan modification, but the bank never bothered to rescind the NOD or the NTS. Others are there because they are trying to complete a short sale. Those that don't conform to either of these situations, probably represent the true shadow inventory.

There's typically a 3-4 month delay between a NOD and a NTS. It means that May '09 and later defaults are not "shadow inventory" yet, they are still in the pipeline. The total number of "uncured" non-duplicate defaults between 7/1/2008 and 4/30/2009 is 10,335. That's the upper bound on the size of shadow inventory in San Diego county. The actual number is most likely lower.

My next step is to head to the nearest county clerk's office and run some names. I heard that it's possible to access the grantor-grantee database directly for free from a public computer in any county clerk's office. That should clear things up. I want to estimate how many people in "NTS" and "No action" categories are current on their property taxes. For people who defaulted substantially earlier than 4/10 (when the most recent installment of the property tax was due), property tax status should be a good test of distress.

2 comments:

STD Area Telephone Dialling Codes List India said...

Nicely explained!!! It is really helpful and informative. I was always in dilemma whenever I want to know about shadow inventory. But I am clear about the concept.
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Amy said...

Good job! But I have a couple of questions for you. As I know, there are 1607 and 1358 trustee's sales (foreclosures)in the county. But your figure only shows less than 100 for July and August. Also, there are about 4000short sales on current market at "contingent" status. Are those contingent short sales belong to your "no action" mark?