Los Angeles Foreclosures May Increase Due to Quake

Strategic Insights -

The January 17 earthquake in Los Angeles may lead to a surge in foreclosures as homeowners face significant rebuilding costs, experts warn. Approximately 6,600 buildings, including over 21,000 dwelling units, have been deemed unsafe following the quake, and owners without quake insurance are most likely to default on their mortgages. Lenders are willing to offer deferments or accept less than full repayment on mortgages, which could worsen the foreclosure crisis.

Key Takeaways:

  • About 6,600 buildings, including over 21,000 dwelling units, have been declared unsafe following the quake.
  • Homeowners without quake insurance are most likely to walk away from mortgages on heavily damaged homes.
  • Lenders are offering deferments and will accept less than full repayment on mortgages to avoid foreclosure.
  • The foreclosure process takes four or five months to complete, with homes usually being sold at a significant discount.
  • There is little incentive for lenders to foreclose unless the property owner gives up.
  • Estimates suggest that 25-40% of homes were covered by quake insurance, but even those with coverage will have a 10% deductible.
  • The lack of quake insurance coverage and high rebuilding costs may lead to a significant rise in foreclosures, particularly in areas that were heavily damaged.

Statistics:

  • Approximately 6,600 buildings have been declared unsafe following the quake.
  • Over 21,000 dwelling units have been affected by the quake.
  • 4,300 residential and commercial foreclosures occurred in the San Fernando Valley last year.
  • Home values in the San Fernando Valley may fall by up to 10% this year.
  • 25-40% of homes may have been covered by quake insurance.
  • The foreclosure process takes four or five months to complete.
  • Homes are usually sold at a discount of less than the mortgage value.

Sources:

  • Los Angeles Times, Experts Warn of Spike in Foreclosures Due to Quake
  • Douglas Snyder, real estate attorney with Cox, Castle & Nicholson
  • Andrew Kane, principal with the Arthur Andersen accounting firm
  • Lynn Reaser, economist with First Interstate Bank
  • Jon Douglas, realtor specializing in high-end properties