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Distressed Litigation Has Fallen Off The Cliff- For a Moment

RE Litigation has dropped off but the economic trends will bring it back next year

By Joel Ross | Updated on October 01, 2012

Various people in the litigation business have begun to tell  me that real estate litigation and bankruptcy has fallen off the cliff in the past few weeks. It appears that servicers have decided that either things are better so let’s kick the can again and wait longer for things to improve. More rescue capital is available so deals are being cut. There is a substantial amount of fund capital available to buy distressed debt so servicers are selling more loans which are then getting worked out. Servicers have realized that if they get too aggressive with foreclosures their fee income drops and their jobs go away. I expect the reality is a combination of all of these things. The result is litigation for foreclosures and loan defaults has declined precipitously.

I expect this will continue to be the case for several months. However, the economy is simultaneously going into a major slowdown. Almost nobody is going to be hiring anyone for the next few months. The Business Roundtable met about 10 days ago and there was near unanimous agreement that the situation around the world is so uncertain, and there is such lack of any leadership out of Washington, that hiring and investing would be irresponsible right now and probably through at least early next year. It is clear that unemployment is about to increase. GDP may be slowing even more. The Chicago PMI is negative for the first time since 2009. Durable goods orders fell off the cliff. Consumer spending is flat lined not counting price increases to food and gas. Europe is not solving its critical problems, China is slowing markedly, the prospect for growth worldwide is negative. Hotel revpar had no growth last week in the US. The situation in the Mideast, and especially Egypt is going in the very wrong direction and there will be something military happen in Iran in the next 6 months.

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