Housing Recovery Lags in Judicial Foreclosure States

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By Karen Mracek

Believe it or not: The housing market is recovering in most states. Home price indexes for 38 states ended 2011 above their early-year lows. And while prices aren't yet up to prerecession levels, 30 states had more than two quarters of growth under their belts by the end of 2011, according to data from the Federal Housing Finance Agency.

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But the national index is still falling, dragged down by pricing drops in the worst-hit states. It'll drop another 2 percent in the next six months before starting to climb in the second half of the year. There are just a handful of states dragging down the national average: Arizona, California, Florida, Michigan and Nevada, all of which saw home prices drop by more than 50 percent from 2006 levels. These five states are home to 46 percent of the inventory working through the foreclosure process.

Furthermore, "almost half of the shadow inventory (homes which could come on the market in the near future because owners are in default on their loans) is not yet in the foreclosure process," says Mark Fleming, chief economist at data analysis firm CoreLogic. "Also, shadow inventory remains concentrated in states impacted by sharp price declines and states with long foreclosure timelines," he says.

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The pace of a state's housing recovery depends largely on how it handles foreclosures. Twenty-four states require a judicial review, calling for a judge to sign off before a house can be transferred to the lender. The foreclosure backlog clogging the pipeline in states with judicial review is 2.6 times larger than in states without judicial review, says Florida mortgage analysis firm Lender Processing Services.

And states without judicial review are selling off foreclosed homes faster -- up to three times faster in January than those with judicial review. "In January, you could have had some seasonal impact," says Herb Blecher, vice president of LPS Applied Analytics. "But if it continues, it really is a resolution of this pipeline issue we've seen for some time." In late 2010, several large banks, including Bank of America, JPMorgan Chase, Wells Fargo and Citigroup, halted foreclosures in some states because of improper documentation. Afterward, states without judicial review saw the resolution of foreclosures pick up relatively quickly, while foreclosures in "states with judicial reviews have been largely flat for well over a year," Blecher says.

In many cases, home prices are already ticking up in states where foreclosures work through the process faster. Texas, for example, has the shortest foreclosure timeline, 90 days, and it saw home prices climb 1.2 percent in the fourth quarter of 2011, according to the FHFA. In Delaware, the time between missing a mortgage payment and foreclosure averages 106 days, and prices grew 0.6 percent in the fourth quarter. In New York, however, where judicial reviews and mortgage mediation requirements stretch the foreclosure time to a whopping 1,019 days, prices fell 1 percent.

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Housing Recovery Lags in Judicial Foreclosure States

Recent reports on the housing market suggest that real estate prices may finally be close to hitting bottom, with at least one expert predicting that national median prices will tick up this year for the first time since the housing bust. 

For some towns, price recoveries have been in the works for some time. Florida, in particular, lays claim to quite a few markets that appear to be firing on all cylinders, and posting the price gains to show for it.

With the help of our friends at Realtor.com, AOL Real Estate brings you homes from the metro areas that posted the greatest year-over-year median price increases in February, as measured by Realtor.com listings. If a national price recovery is happening, these are some of the towns leading the charge. 

Location: Sarasota-Bradenton, Fla.
Median Price Increase: 14.47 percent

Home Price: $5.479 million
Beds/Baths: 5/7
Sq. Ft.: 5,286

This home, apparently recognized as a local architectural achievement, uses the material terrazzo, a combination of granite or marble and concrete, for its indoor and outdoor flooring. 

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Highlights of the home include its gourmet kitchen, master bedroom, master bath, entertainment areas, office and exercise space. Need we mention the views? 

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Location: Daytona Beach, Fla. 
Median Price Increase: 15.56 percent

Home Price: $7.7 million
Beds/Baths: 4/10
Sq. Ft.: 13,654

Commanding a long, lavishly-landscaped driveway, this "new traditional" epitomizes the "good life" in Daytona Beach. 

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The gated home has its own dock and and a generous stretch of waterfront.

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Location: Fort Myers-Cape Coral, Fla. 
Median Price Increase: 15.59 percent

Home Price: $8.7 million
Beds/Baths: 6/13
Sq. Ft.: 13,723

This home is a behemoth. But while it may stretch 13,723 square feet, you're never far from a bathroom. There are 13. 

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The home is steeped in luxury inside and out. Exhibit A: a nine-car garage. 

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Location: Naples, Fla. 
Median Price Increase: 15.67 percent

Home Price: $11.95 million
Beds/Baths: 5/8
Sq. Ft.: 7,890

She's not hard to look at, is she? One of the many things this mouth-watering residence has going for it is its gigantic, resort-style pool. The home also has 127 feet of waterfront, and its many columns, inside and out, give the place regal flair. 

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As far as amenities, we say the theater room and library top the list. 

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Location: Boise City, Idaho
Median Price Increase: 16.28 percent

Home Price: $1.25 million
Beds/Baths: 4/6
Sq. Ft.: 6,984

Sitting on a hilltop perch, this sprawling log-built home commands five acres of woodsy Boise real estate. 

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The place is brimming with interior detail, including cherry floors, built-in cabinets and sound system, "forged-nickel hardware" and crystal chandeliers. 

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Location: Washington, D.C.
Median Price Increase: 18.45 percent 

Home Price: $7.495 million
Beds/Baths: 6/8
Sq. Ft.: 9,710

Throw down for this stately manse and you'll win the right to call Joe Biden neighbor. Vicey himself lives in the neighborhood. The Tudor-style home has 17-inch stone walls that are stitched with timber and brick. 

See the listing for more details, or see AOL Real Estate's full profile on the home

The home's interior has ebony-stained floors, and amenities include a library, breakfast room, great room, "executive kitchen," gymnasium and au pair room. 

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Location: West Palm Beach-Boca Raton, Fla. 
Median Price Increase: 18.48 percent

Home Price: $3.4 million
Beds/Baths: 6/7
Sq. Ft.: 7,043

This lavish mansion boasts membership in Harbour Isles, a ritzy, secluded community. In fact, ever single home has a dock, according to the listing. The 7,000-square-foot home has over 90 feet of waterfront for itself. 

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Pictured here is the home's columned patio that offers soul-soothing river views. 

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Location: Punta Gorda, Fla. 
Median Price Increase: 19.35 percent

Home Price: $1.15 million
Beds/Baths: 3/2
Sq. Ft.: 3,950

Overlooking a stretch of creek, this luxury property spans four verdant acres. Of all the interior highlights, the great room really caught our eye, thanks to some creative copy on the part of the property's listing description. Inside the cavernous room, the "Built in Wood/Gas Fireplace is perfect for snuggling on [the] occasional cool Florida evening," the description says.  

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The home has a gourmet kitchen with cherry cabinets, marble countertops, dual ovens and its very own "butcher block." There's also a glass-enclosed pool that overlooks the property's creek. 

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Location: Phoenix-Mesa, Ariz. 
Median Price Increase: 20.62 percent

Home Price: $4 million
Beds/Baths: 6/8
Sq. Ft.: 9,309

Located in the city that posted the second-highest year-over-year increase in home prices for February, according to Realtor.com, this $4 million mansion features marble and oak floors, beveled glass windows and custom cabinetry. Oh, and also close to 10,000 square feet of space. 

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The home has a guest house and expansive courtyard connected to the gourmet kitchen. Amenities run the gamut: The home has a game room, wine cellar, music room and potting room, among other perks.  

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Location: Miami
Median Price Increase: 26.19 percent

Home Price: $7.7 million
Beds/Baths: 6/7
Sq. Ft.: 6,500

This sprawling apartment nestles into one of Miami's soaring residential skyscrapers. Price per square foot for the contemporary is a whopping $1,185. 

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The sleek, lavish interior opens up to a balcony perched over Miami's waterfront. Occupants can suck in the jaw-dropping views while lounging in an outdoor hottub. 

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Even where there is a huge overhang of housing inventory, there is a big difference. Take Florida and Arizona, two states bearing the brunt of the housing bubble burst. It takes an average of 806 days to complete foreclosure in the Sunshine State, which requires judicial review. In the Grand Canyon State, which doesn't, it takes less than 200 days. As a result, Arizona's market is already turning the corner. Phoenix home prices, for example, gained 2.7 percent in the fourth quarter of 2011, after plunging a staggering 55 percent from the 2006 peak. In Florida, prices are still falling.

That's not to say some delays aren't justified. The robo-signing fiasco and other cases validate the need to be diligent in the foreclosure process. Mediation is justified if there is an actual chance the homeowner can afford to make future payments on a house. But if not, the faster inevitable foreclosures can be concluded, the faster prices can rebound, because foreclosed-upon homes are often listed at a 40 to 50 percent discount to comparable houses and vacant, blighted homes depress the prices of those nearby.

Florida is trying to cut damaging foreclosure delays with legislation to let lien holders request an expedited process. But it appears the move will be put off until next year. Although a bill passed in the state House of Representatives this year, it did not clear the state Senate. Odds are it will come up again in the next legislative session. Other states, though, are headed in the opposite direction, imposing new requirements for mediation between homeowners and lenders, which will add more months of delay. New York's required mediation, for example, adds about one year to the process, according to one estimate.

Nationally, there is some movement to help clear excess inventory. Lenders' recent agreement with state attorneys general will provide relief for about 500,000 homeowners, keeping many of them from going into foreclosure. And a pilot program at Fannie Mae to sell off foreclosed-upon homes in bulk, with the requirement that they be rented out for five years, is getting a warm reception from the market. Fannie Mae is selling 2,500 homes in the hardest-hit areas, such as Atlanta, South Florida, Phoenix and Las Vegas. Look for the government-sponsored entity to expand the program later this year and for other mortgage holders, including Freddie Mac, to follow suit.

Read more on Kiplinger:
12 Cities Where Home Values Have Risen Most
SPECIAL REPORT: Guide to Buying and Selling a Home in 2012
What $300K Buys You In Today's Market
QUIZ: How Smart a Homeowner Are You?


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