Steep Drop in Foreclosure Filings Only Temporary: RealtyTrac

Foreclosure activity hit a 40 month low in April, posting a decline in all types of filings for the seventh straight month according to data released Thursday by RealtyTrac. One in every 593 U.S. housing units was subject to some form of foreclosure filing during the month.  During the recently ended first quarter of 2011 the ratio was one in 191 housing units. Filings were recorded on a total of 219,258 properties during the month, a 9 percent decrease from March and 34 percent below filings reported in April 2010. 

RealtyTrac, an Irvine California firm, releases a monthly U.S. Foreclosure Market Report that tracks foreclosure filings in three categories:

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.

The drop in activity held across all types of filings in April.  Default notices were filed for the first time on 63,422 properties, down 14 percent from March and 39 percent from the April 2010.  Default notices had taken a big jump in March, up 16 percent; April's figures are close to the 48-month low reached in February.

Foreclosure auctions were scheduled for the first time on 86,304 properties, 7 percent fewer than in March and 37 percent less than one year earlier.  This month's numbers represent a 31 month low.

Lenders foreclosed on 69,532 U.S. properties in April, down 5 percent from March and down 25 percent from April 2010, but bank repossessions (REOs) were still above a 22-month low hit in February 2011.

Judicial foreclosure states registered a 3 percent decrease in overall foreclosure activity from March and a 47 percent decrease in overall foreclosure activity from April 2010. States with a non-judicial foreclosure process posted an 11 percent month-over-month decrease and 26 percent year-over-year decrease in activity.  For the 52nd straight month Nevada led the states in foreclosures with one in every 97 housing units receiving a foreclosure filing. Overall filings were down 9 percent from March but bank repossessions were up 23 percent month-over month and were the highest recorded since RealtyTrac began covering Nevada filings in April 2005. 

While overall activity decreased 15 percent in Arizona, REO's increased 22 percent, keeping the state in second place for the fifth consecutive month.  One in every 205 housing units received a foreclosure filing.  Likewise a 22 percent jump in REOs kept California in third place for a sixth month despite an overall decline in activity.  One in every 240 housing units was affected during the month.  Other states in the top five were Utah (1:322 units) and Idaho (1:325).

RealtyTrac's CEO James J. Saccacio warned that the decrease in filings could be temporary.  "This slowdown continues to be largely the result of massive delays in processing foreclosures rather than the result of a housing recovery that is lifting people out of foreclosure.

"The first delay occurs between delinquency and foreclosure, when lenders and services are no longer automatically pushing loans that are more than 90 days delinquent into foreclosure but are waiting longer to allow for loan modifications, short sales and possibly other disposition alternatives," Saccacio continued. "Data from the Mortgage Bankers Association shows that about 3.7 million properties are in this seriously delinquent stage. The second delay occurs after foreclosure has started, when lenders are taking much longer than they were just a few years ago to complete the foreclosure process."

RealtyTrac found that the timeline for a foreclosure continues to extend.  RealtyTrac reports that foreclosures completed in the first quarter took an average of 400 days to complete from the time the first notice of default was filed to the point of bank repossession.  This is up from 340 days during the first quarter of 2010 and more than double the average of 151 days it took during the same period of 2007 when foreclosures were still a bit of a rarity.

Foreclosures in some states took even longer than the 400 day national average.  In New Jersey and New York the average time frame was more than 900 days.  This was more than triple the time a foreclosure took in either of those states in 2007.  In Florida the recent average is 619 days compared to 169 days in the pre-crisis era. 

In terms of numbers, ten states account for 70 percent of all foreclosure activity.  The first two, California with 55,869 filings and Florida with 19,649 and the fourth, Michigan with 12,996 are populous states.  However, Arizona and Nevada, with relatively small populations rank in the top five by virtue of numbers as well as foreclosure rate with 13,419 filings and 11,761 filings respectively.  The next five states are Illinois, Texas, Georgia, Ohio, and Colorado.