Foreclosure Time Bomb Getting Worse

May 13, 2011 (Chris Moore)

The massive delays in processing foreclosures threaten to prolong the effects of the current housing crisis and delay the ability of the housing market to recover. Like a ticking time bomb, the number of properties in the foreclosure inventory continues to expand as the amount of time it takes to complete a foreclosure in some states has now reached as long as 900 days.

According to RealtyTrac’s Foreclosure Market Report for April 2011, there were 219,258 foreclosure filings on U.S. properties in April of 2011, a 9 percent decrease from March and a 34 percent decrease from April 2010. Foreclosure filings consist of default notices, scheduled auctions, and bank repossessions. One in every 593 U.S. housing units received a foreclosure filing during April.

Foreclosure filings have decreased on an annual basis for seven straight months and have reached a 40 month low, so you would think this is a good thing, right? The problem is, it’s for the wrong reasons. The slowdown is largely a result of the delay in processing foreclosures, not the result of an improving housing market.

Foreclosures in the first quarter of 2011 took an average of 400 days from the initial default notice to completion. That’s up from an average of 340 days that was experienced in the first quarter of 2010 and a huge leap from the average of 151 days it took to foreclose a property in the first quarter of 2007.

And in some states the timeline is more than twice that! In New Jersey and New York the average time frame from initial default to completion was more than 900 days in the first quarter of 2011. Other states experiencing long delays are Florida, an average of 619 days to complete the foreclosure process, up from an average of 470 days in the first quarter of 2010 and an average of 169 days in the first quarter of 2007.

The foreclosure process in California took an average of 330 days in the first quarter of 2011, up from an average of 262 days, a year earlier, and up from 134 days in the first quarter of 2007.

As James J. Saccacio, chief executive officer of RealtyTrac, explains it, “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. 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.”

So while the amount of homes receiving foreclosure filings are on the decrease, the foreclosure inventory continues to swell because properties cannot be moved through the system fast enough to the REO stage.

States that have judicial foreclosure procedures, like New York, are more likely to have longer foreclosure timelines than states that that use non-judicial foreclosures procedures because they use the court system to process foreclosures.

(Commentary!) Throw in activist judges, states, and politicians who are trying to force mortgage servicers into alternative methods to foreclosure, like loan modifications, and we should expect delays in foreclosure timelines to increase and foreclosure inventories to continue swelling which will inevitably delay a housing recovery.

Nevada for the 52nd consecutive month continued to have the highest foreclosure rate among the states in April with one in 97 housing units receiving a foreclosure filing. Arizona was second (one in 205), California was third (one in 240), Utah was fourth (one in 322) and Idaho was fifth (one in 325). Rounding out the top ten was Michigan, Florida, Georgia, Colorado, and Oregon.

In shear numbers, California was the champ with 55,869 properties receiving foreclosure filings, followed by Florida (19,649), Arizona (13,419), Michigan (12,996), Nevada (11,761), Illinois (10,055), Texas (8,793), Georgia (8,479), Ohio (7,962), and Colorado (4,379). These ten states represent 70 percent of the foreclosure filings in April.

Ka-boom!

RealtyTrac is the leading online marketplace of foreclosure properties, with more than 2 million default, auction and bank-owned listings from over 2,200 U.S. counties, along with detailed property, loan and home sales data. You can read the Foreclosure Market Report in its entirety here.

Tags: RealtyTrac, foreclosure properties, foreclosure filings, notice of default, auctions, bank repossessions, processing delays, housing market, housing crisis