County foreclosures leap 69% to surpass $600 million.

Southland lenders foreclosed on a record amount of real estate in Los Angeles County in August, taking back 2,331 properties on loans worth $609.3 million.

It marked the first time in this business cycle lenders have seized more than $600 million worth of property in a single month in the county, and it served sharp notice that the recession still cuts deeply into property owners.

The dollar volume of foreclosures in August was up 67.3 percent from $364.2 million a year earlier, while the number of properties seized was up 80.7 percent from 1,279 a year before.

Back in 1990, lenders foreclosed on as little as $20 million in any month.

For the year through August, lenders have taken back $4.16 billion worth of property, an amount equal to about 1 percent of the total assessed property value of Los Angeles County of $419 billion.

The big numbers are more bad news for property owners and lenders. As more foreclosed property is dumped back onto the market, it drives property values down - helping to convince more owners to bail out.

"You'll continue to see a downward pressure on the price of real estate," said David Shiokari, vice president at the Real Estate Disposition Corp. in Irvine. "Owners will say, |If I have to pay to sell it (because the mortgage is larger than the market sale price), I might as well walk away from it.' That makes for more inventory for lenders."

Shiokari and several other local real estate experts contend that banks are holding onto large inventories of real estate - but they can't hold onto those hoards forever.

"We have not hit bottom on prices yet - several of the banks have large inventories, especially of commercial property. But they are just deferring the problem," said shiokari. "They'll have to sell it sooner or later."

Foreclosures of apartment buildings are easily outstripping sales in some neighborhoods, stated Shiokari. "In the neighborhood north of Wilshire (Boulevard), east of Highland (Avenue), west of the 101 (Hollywood Freeway) and south of Sunset (Boulevard) there have been 27 foreclosures of apartment buildings and 8 sales since the start of the year," he said, based upon a search of real estate records for the area.

Jerry Wise, senior investment associate in the downtown Los Angeles offices of the Marcus & Millichap real estate brokerage, concurred with the assessment that the apartment market faces more sales out of foreclosure.

"I track apartment foreclosures and sales also, and I would say we are about one-third of our way through this. They (banks and lenders) still have to sell about two-thirds of the apartments in foreclosure," said Wise.

Prices on apartments are appealing, allowing handsome returns for those willing to take a risk - the risk that values will go down even more, said Wise. And he added, "Apartment rents are off about 15 percent in the last two years, and are still falling."

According to a survey of apartment values done by Marcus & Millichap, the median unit price has fallen 17 percent in the last year.

Some say a perception that Los Angeles has declined as a place to live, plus the departure of many middle- or upper-class residents, is also fueling foreclosure volume.

"You don't want to be the last one to leave Los Angeles," said Stan Plog, head of Reseda-based Plog Research, a business research and consulting firm. "If you don't have a job, and your house is |upside-down' (worth less than the loan on it), and you think the city won't be able to solve the problems of violence and crime - what is there to stick around for?"

The economy and sociology of the city are driving out higher-income residents, even as lower-income people migrate in, he said. "That's not going to increase property values," said Plog.

Indeed, measured on a per-square-foot basis, home prices in the county have fallen 15.7 percent since May 1990 and have been steadily declining in 1993.

Still, there are signs that the rising tide of foreclosures is perhaps nearing a high-water mark.

The number of notices of default hit something of a plateau in the May through August period, at around 4,000 a month, probably a sign that foreclosure will flatten out later this year, said John Karevoll, publisher of the Southern California Real Estate Observer.

(Before a lender forecloses on a property, it sends to the owner and publicly posts a notice of default. Generally speaking, a default notice precedes a foreclosure by three months, unless the default is cured.)

"The NODs (notices of default) show signs of hitting a plateau, perhaps a high plateau. I would guess that foreclosures will start leveling off, too," said Karevoll.

But he conceded that the proportion of NODs that are converted to foreclosure - that is, the borrower did not cure the delinquency in loan payments - has been rising in the last year.

Now, in any month, as much as 85 percent of NODS end up in foreclosure in any month, compared to less than half last year.

That means foreclosures could continue to rise this year and next, because higher proportions of NODs end up in default. "We are seeing increasing proportions of NODs not get cured," said Karevoll.

Others say banks are fed up with late mortgage payments and don't see any reason to forestall foreclosure, given the still-soggy economy. "The recession has eaten through people's savings, through a lot of businesses' nest eggs, and they can't make the (monthly mortgage) payments anymore, and now lenders are losing patience - it's hard to put together a believable scenario for a fast turnaround," said Bruce Ballenger, of the Westside-based Ballenger, Budetti & Associates turnaround and reorganization adviser.

Ballenger reckoned that the level of foreclosures will continue to rise for another six months, before leveling off.

Most agree the root of the Southland real estate recession is found in the region's flagging economy, which has been savaged by a chronic contraction in jobs since 1990.

The number of jobs in Los Angeles County peaked at 4.19 million in March of 1990, according to the state Employment Development Department. Since then, 461,500 jobs have evaporated, or about 11 percent of the total.

More aerospace and defense jobs cutbacks are predicted.

When job growth resumes in the Southland, then at long last real estate will stabilize and perhaps even rally, said some analysts.

"When the job market improves, then probably the foreclosure rate will decrease," said Shiokari of the Real Estate Disposition Corp. "But we have military base closures and other problems before we can get to job growth again. The other shoe may yet drop."

     Forclosure Volume
       (L.A. County)

Period          Amount(*)

1993 August     $609.3
1992 August      364.2
1991 August      224.7
1990 August       34.4

(*) In millions