Foreclosures in Lowell: A Closer Look

The incidence of home foreclosures in Lowell rose dramatically in 2007. In 2006, there were 93 foreclosures in the city; in 2007 there were 283. This year, there will be even more. To help understand what happened, I scrutinized 247 of the Lowell foreclosures, capturing information about the owner’s purchase of the property, the mortgage used to finance the purchase and any additional mortgages on the property. Here is what I found:

1. In almost every case, the buyer at the foreclosure auction was a national lender, usually the one that had made the loan that was being foreclosed.

Large, national entities appear again and again as both the foreclosing party and as the buyer at the foreclosure auction. In only twelve cases (less than 5%) was the buyer at auction a private individual. Local banks were the foreclosing lender in just two cases.

2. 57% of the foreclosures were of the mortgage used to purchase the property.

A clear distinction in the Lowell foreclosures was between the mortgage used to purchase the property and a subsequent mortgage that resulted from one or more refinancings of the property. Of the 247 cases studied, 141 (57%) involved the foreclosure of the purchase mortgage. The other 106 (43%) involved a refinanced mortgage.

3. In 66% percent of the purchase mortgage foreclosures, the property buyer borrowed the entire purchase price

Of the 141 foreclosed purchase mortgages, 94 (66%) put no money down but borrowed either all of the purchase price (in 83 cases) or more than the purchase price (in 11 cases). Only in 48 cases (34%) did the borrower put any of his own money towards the purchase of the property. In 17 of those cases, the cash contribution was less than $10,000; in another 15 the contribution was between $10,000 and $20,000. In only 16 cases did the buyer contribute more than $20,000 to the purchase of the property.

4. In 72% of the purchase mortgage foreclosures, the amount borrowed was split between a first and second mortgage from the same lender.

The majority of all of these transactions involved second mortgages. In only 39 instances (28%) did the buyer borrow the purchase price of the property with just one mortgage. In 102 cases (72%), the amount borrowed was split between a first and a second mortgage. (In this analysis, the amounts of these first and second mortgages have been combined to give a “purchase mortgage” figure that more accurately reflects the amount borrowed to buy the property).

5. The average foreclosure auction took place within two years of the purchase of the property by the borrower.

The borrowers in these 141 foreclosures didn’t wait long to get into financial distress. The average foreclosure deed was recorded 28 months after the property was purchased. While this may not seem like a short period of time, remember that foreclosure deeds are typically recorded 30 to 60 days after the auction occurs and the auction doesn’t occur until three to six months after the lender decides to proceed to foreclosure.

6. The amount obtained at the foreclosure sale was $53,000 less than the amount the borrower owed the lender.

As for the price realized at the foreclosure sale, on average it was $52,832 less than the amount the borrower owed the lender. In 127 cases, the amount the property was purchased for at auction was less than the amount of the mortgage being foreclosed. In only 14 cases did the consideration on the foreclosure deed exceed the mortgage amount.

7. 43% of the Lowell foreclosures involved refinanced mortgages.

Of the 247 foreclosures studied, 106 (43%) involved refinanced mortgages. The average refinanced mortgage property owner was typically on his fourth mortgage at the time of foreclosure although there were several “serial refinancers” (four owners had eight mortgages, one had nine, one had ten, and another had fourteen).

8. Refinanced mortgages were foreclosed almost seven years after the borrower purchased the property.

In the 106 foreclosures of refinanced mortgages, the average borrower had originally purchased the property nearly seven years before the foreclosure occurred. The mortgage that was foreclosed was obtained nearly five years after the property was purchased and was the fourth mortgage that borrower had on the property. The time from the mortgage that was ultimately foreclosed to the foreclosure deed was 29 months, suggesting that if a borrower was going to get into trouble, it would happen very quickly – certainly within 18 months – of the problem mortgage being obtained regardless of whether it was a purchase mortgage or a refinance.

9. In refinanced mortgage foreclosures, the borrower owed the lender $75,000 more than he had paid for the house when he purchased it.

As for the money involved in the refinanced mortgage foreclosure, the borrower had purchased the home for $75,000 less than the amount borrowed on the mortgage that was ultimately foreclosed. Additionally, 38 of these borrowers had another mortgage, junior to the one being foreclosed and averaging $50,000, outstanding on the property at the time of the foreclosure.

While every community is different, this detailed analysis of one city’s foreclosures might shed some light on what is happening elsewhere in the Commonwealth. Understanding the details – the ratio of first time owners who put no money down to established residents who financed their way into a housing crisis, for example – is a precondition to crafting a workable response. The data held at your local registry of deeds may help answer these questions.

A regular and welcome contributor to REBA News, Dick Howe is Register at the Middlesex North District Registry of Deeds in Lowell. Dick can be emailed at Richard.howe@sec.state.ma.us.