By Richard P. Howe Jr.
The number of foreclosure deeds recorded in the Middlesex North Registry of Deeds during the first nine months of 2016 increased 29 percent from the same period in 2015, rising from 133 to 172. Projecting that number across the entire year would yield 229 foreclosures, far below the 639 that occurred in 2008 with the collapse of the economy, but far more than the 51 in 2005 when real estate was booming.
Urban foreclosures tend to get the most attention, but troublesome mortgages in the suburbs pose a significant problem as well. While many of the 2016 Middlesex North foreclosures were properties in the Gateway City of Lowell, 114 came from the nine suburban towns (Billerica, Carlisle, Chelmsford, Dracut, Dunstable, Tewksbury, Tyngsborough, Westford, and Wilmington) that make up the rest of the registry district.
The vast majority of these foreclosures – 81 of 114 – were of refinanced mortgages. That status was determined by comparing the date of the mortgage being foreclosed with the date of the deed by which the borrower became owner of the property. In cases where the person who lost the home had acquired title through inheritance or gift, the first full-consideration deed into the family, not any subsequent no-consideration deeds, was used in this analysis. If the foreclosed mortgage was recorded on the same day as the deed, it was deemed to be a purchase mortgage. If the mortgage was recorded at some later time, it was deemed to be a refinanced mortgage.
Of the 81 refinanced mortgage foreclosures studied, 30 homeowners (or their family predecessors) had acquired title during the 2000s; 24 during the 1990s; 12 in the 1980s; three in the 1970s; five in the 1960s; three in the 1950s; and four in the 1940s. No matter when title was acquired, all of the refinanced mortgages that were foreclosed in 2016 originated during the 2000s. If we measure the housing bubble from the start of 2003 through the end of 2007, 68 of the 81 refinanced mortgage foreclosures originated then. Only one came before, 11 came after.
Comparing the original purchase price of the property with the amount borrowed on the refinanced mortgage, and the length of time between that mortgage and acquisition of title, provides context for these foreclosures. For the 30 people who purchased homes in the 2000s, quickly refinanced, and then lost their homes to foreclosure, the median amount borrowed on the refinanced mortgage was $249,000, while the median purchase price of the home was $247,450, a difference of just $1,550. This suggests that refinancing these newer mortgages may have been driven by lower interest rates or different terms rather than borrowing a larger sum
For the 24 people who purchased their homes in the 1990s, eventually refinanced, and then lost their homes to foreclosure this year, the median amount borrowed on the refinanced mortgage was $244,000, while the median purchase price of the home was $125,000, a difference of $119,000. The median time between purchase and refinancing for this group was 10.5 years (I did not count how many times they refinanced).
For the 27 people who acquired title before 1990, the median amount borrowed on the refinanced mortgage was $267,200 and the mortgage was obtained 25 years after acquisition of title. Because many homeowners in this group acquired title through inheritance or gift, it was difficult to ascertain the purchase price of these properties. Most likely, these homeowners paid little or nothing, suggesting that the amounts borrowed with these mortgages would most likely be all cash to the homeowner.
As for the 33 foreclosures that involved purchase mortgages, 28 of the homes were purchased during the 2003-2007 bubble, none were purchased before, and five were purchased after. The median sales price of these homes was $276,000 and the median mortgage amount was $241,900. Eight homeowners financed 100 percent of the purchase price; six financed between 90 and 99 percent; ten financed between 80 and 89 percent, and nine financed less than 80 percent.
Registry records do not explain why these foreclosures occurred, nor do they disclose why they occurred now. Did longtime homeowners suddenly experience some catastrophic disruption of family cash flow that precipitated the loss of the house? Or did these loans have defective mortgages that required time for lenders to rectify title problems prior to foreclosure?
One thing that is clear from the record is that many longtime homeowners took advantage of rising values to extract equity from their homes. Most of these loans were obtained during the real estate bubble when values were at levels so high that current values still lag. Many homeowners with mortgages from this period, not just those who have experienced foreclosure, remain underwater, unable to realize enough from the sale of the property to pay off the existing mortgage. For that reason, the relatively high number of foreclosures seen this year will probably remain with us for several years to come, and other underwater home owners, those who remain current on their mortgages, will remain frozen out of the housing market, thereby contributing to the continuing lack of inventory that plagues the market today.
Dick Howe has served as Register at the Middlesex North Registry of Deeds for more than 30 years. His periodic thoughtful commentaries on Massachusetts real estate market and foreclosure trends, have been a regular and welcome feature in REBA News. He has also been a panelist at REBA’s twice-yearly conferences. Dick has also served as president of the Massachusetts Registers and Assistant Registers of Deeds Association Dick can be reached by email at Richard.firstname.lastname@example.org.