Lenders Foreclosed on Record Number of Properties in Q3

RealtyTrac reported this morning that foreclosure filings in the third quarter of 2010 rose 4 percent from the previous quarter but were down 1 percent from the same period in 2009.  930,437 homes, one in every 139 U.S. housing units received a foreclosure filing during the quarter. 

In September, the last month of the quarter, some form of foreclosure document was filed on 347,420 housing units, up 3 percent from August and 1 percent from September 2009.  RealtyTrac, located in Irvine California, compiles a U.S. Foreclosure Market Report each month from tracking documents filed in all three stages of foreclosure:

1. Notice of Default (NOD) and Lis Pendens (LIS). This is the first legal notification from a lender that the borrower on a mortgage loan has defaulted under the terms of their mortgage and the lender intends to foreclose unless the loan is brought current.
2. Auction - Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); If the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.
3. Real Estate Owned or REO properties : "REO" stands for "real estate owned" and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.

Notices of Default: While foreclosure activity remains high, the early stage filings continue to decline.  During the third quarter a total of 269,647 properties received default notices, down one percent from Q2 and 21 percent from the same quarter in 2009 when default notices peaked at over 342,000. 

Auctions: Foreclosure sales were scheduled for the first time on 372,445 properties which sets a record for RealtyTrac's reports.  This was an increase of 5 percent from the second quarter and 4 percent from a year earlier.

Real Estate Owned: For the first time in RealtyTrac's history bank repossessions (actual foreclosures) topped 100,000 in a single month, reaching 102,134 in September.  Third quarter figures also set a record with 288,345 repossessions, an increase of 7 percent from the previous quarter and 22 percent above repossessions in the third quarter of 2009

Foreclosure sales continue to make up a significant portion of the larger real estate market.  Preliminary data for September indicates that these sales, both REO and pre-foreclosure sales - represented 31 percent of all home sales and REO alone accounted for 18 percent.  In those 24 judicial foreclosure states impacted by the moratoriums, nearly a third of home sales were foreclosure related although RealtyTrac data does not differentiate between pre-foreclosure sales which would be less affected by the documentation problems and REO sales.

Foreclosure activity continues to be dominated by Nevada, Arizona, and Florida.  One in every 29 housing units in Nevada received a foreclosure filing during the third quarter and activity increased by 1 percent quarter-to-quarter but declined 20 percent year-over-year.  In Arizona, one in every 55 housing units received a filing and in Florida it was one in 56 units.

In actual numbers, California led the nation with 191,016 filings, 21 percent of the nation's total, but this was down slightly from Q2 and was 24 percent lower than a year earlier.  Florida however, saw a jump of 12 percent from Q2 and was virtually unchanged from the previous year.  157,026 properties received a notice during the quarter.

The current moratorium on foreclosures announced by several major banks will probably have a significant impact on foreclosure figures when the October report is issued.  RealtyTrac states in its current release that foreclosure activity in the 24 judicial foreclosure states which were initially affected by the underlying documentation problems accounted for 40 percent of all foreclosure activity in the third quarter and 36 percent of property repossessions or REO. 

 "Lenders foreclosed on a record number of properties in September and in the third quarter, taking a bite out of the backlog of distressed properties where the foreclosure process was delayed by foreclosure prevention efforts over the past 20 months," said James J. Saccacio, chief executive officer of RealtyTrac. "We expect to see a dip in those bank repossessions - and possibly earlier stages of the foreclosure process - in the fourth quarter as several major lenders have halted foreclosure sales in some states while they review irregularities in foreclosure-processing documentation that has been called into question in recent weeks."

"If the lenders can resolve the documentation issue quickly, then we would expect the temporary lull in foreclosure activity to be followed by a parallel spike in activity as many of the delayed foreclosures move forward in the foreclosure process," Saccacio said. "However, if the documentation issue cannot be quickly resolved and expands to more lenders we could see a chilling effect on the overall housing market as sales of pre-foreclosure and foreclosed properties, which account for nearly one-third of all sales, dry up and the shadow inventory of distressed properties grows - causing more uncertainty about home prices."