Examining the equity shift in foreclosures: 2008 versus 2024
Whether we look at 2008 or 2024, the foreclosure process itself has basically remained the same — with one significant difference: equity.
Once homeowners are sued, they can fight and fight, but with each passing day, they incur late fees, interest, and attorney’s fees and costs. Before they know it, they owe thousands more than before the foreclosure action began.
During the housing market crash in 2008, many homeowners did not worry about the damage to their loan balances. They had no equity in their homes, with many Florida residents having significant negative equity positions.
Pursuant to First American CoreLogic’s Negative Equity Report from the fourth quarter of 2009, 48% of all mortgaged properties in Florida were underwater, which equated to 2.2 million negative equity mortgages encumbering Florida properties at that time.
Since there was really nothing to lose from an equity perspective, many homeowners from Miami to Tallahassee hoped that their attorneys would find a legal way out, or at least buy them time to stay in their homes for as long as possible.
In the absence of equity, the real value was in the amount of time that homeowners could remain in their houses. Correspondingly, the foreclosure defense strategies were influenced by clients’ underlying goals to stay in their homes for as long as the law would allow. Some of these foreclosure actions were litigated for years.
But today’s housing market is dramatically different.
Many homeowners have significant equity in their properties, giving them powerful options. CoreLogic’s Homeowner Equity Insights Report for the fourth quarter of 2023 stated that U.S. homeowners with mortgages have seen their equity increase by a total of $1.3 trillion since the fourth quarter of 2022, a gain of 8.6% year-over-year. The report goes on to state that, on a year-over-year basis, negative equity across the U.S. declined by 15% to 1.2 million homes, or 2.1% of all mortgaged properties, from the fourth quarter of 2022.
With regard to the Sunshine State, the report illustrates that as of the fourth quarter of 2023, the average Florida homeowner gained $32,000 in equity over the previous year.
In Miami, the percentage of homes in a negative equity position as of the end of last year was only 0.9%, which is among the lowest in the nation at the major metropolitan level. These figures are night and day when compared to how things looked in 2009.
Now, homeowners have equity to lose, but that doesn’t mean that they are not feeling financial stress in other areas.
With property taxes and insurance premiums on the rise, coupled with increased inflation over the last several years, many Floridians still have the difficult task of deciding which monthly bills must be paid and which bills can be temporarily avoided.
For condominium owners, in addition to skyrocketing insurance premiums which have been causing an increase in assessments, they are also dealing with the new inspection and reserve fund requirements resulting from legislation enacted after the Surfside condominium collapse.
Although the new requirements were very necessary, these enhanced due diligence measures are also very expensive. When you factor in that many condo residents are on fixed incomes, the additional assessments are not just unaffordable; they are often financially devastating.
Given the equity that most homeowners now have in their properties, the litigation strategy of the past no longer makes sense. In today’s real estate market, buying more time through an overaggressive litigation strategy could significantly increase loan balances with a corresponding decrease in equity.
To avoid gambling with equity, litigation strategies must be more sophisticated, calculated, and selective regarding which cases advance to trial. When faced with foreclosure, homeowners should make sure that their housing goals, current budget and litigation strategy are aligned to better preserve their equity cushion.
David J. Miller is the managing partner of David Miller Law, PLLC in Largo, Florida, and is of counsel to Lucas, Macyszyn & Dyer Law Firm.