Foreclosures Decline, But Expect a Spike Thanks to Banks Settlement

Foreclosure filings declined eight percent in February, the smallest year-over-year decrease since October 2010, as lenders began working through a backlog of seized properties, according to RealtyTrac Inc. A total of 206,900 homes received notices of default, auction or repossession last month, down two percent from January, according to the data firm, which noted that one in every 637 households received a filing.  Those numbers could rise sharply in coming months.

Banks slowed foreclosures for more than a year as attorneys general in every state investigated charges of shoddy and incomplete paperwork.  A $25 billion settlement with the five largest lenders removed some roadblocks to property seizures and gave the go-ahead for future actions, Brandon Moore, RealtyTrac’s chief executive officer, said.  “February’s numbers point to a gradually rising foreclosure tide.  That should result in more states posting annual increases in the coming months.”

“The pig is starting to move through the python,” said Daren Blomquist, RealtyTrac’s director of marketing.  The banks “have already adjusted their foreclosure practices to fit the terms of the settlement.  We expect that to continue as (the settlement) gets finalized,” Blomquist said.

The settlement clarifies the way in which foreclosures must be handled.  That is expected to let banks speed up their processing, putting many delinquent homeowners into the foreclosure process.  Cases could move forward after being on hold for months — even years — with their delinquent owners still living illegally in the properties.

“The foreclosure and mortgage settlement filed in court earlier this week will help pave the way to a properly functioning foreclosure process by providing a clear roadmap for necessary foreclosures,” Moore continued.  “That should result in more states posting annual increases in the coming months.  Not surprisingly, many of the biggest annual increases in February were in states with the more bureaucratic judicial foreclosure process, which resulted in a larger backlog of foreclosures built up over the last 18 months in those states.”

Cities with the highest foreclosure rates were Riverside-San Bernardino in California (one in 166 housing units); Atlanta (one in 244); Phoenix (one in 259); Miami (one in 264); and Chicago (one in 302).

The Department of Housing and Urban Development’s (HUD) Office of the Inspector General’s report found that several banks violated servicing standards and foreclosure procedures and engaged in extensive robo signing.  The banks agreed to follow new servicing standards and offer relief to borrowers by providing $10 billion in principal reductions, $3 billion in refinancing loans and $7 billion in alternatives to foreclosure.  Foreclosures in the 26 states with a judicial foreclosure process rose 24 percent over last year, while activity in the 24 states that follow a non-judicial foreclosure process fell by 23 percent

Default notices, the initial step in the foreclosure process increased more than 20 percent in 12 states, including Hawaii, Maryland, Connecticut, South Carolina, Indiana, Pennsylvania and Florida.  State attorneys general have filed lawsuits against major lenders in New York, California and Nevada in recent months, further slowing the pace of foreclosures in those states.