Foreclosure Actions at Lowest Level Since 2007

foreclosure rates
foreclosure rates

After a year marred by red tape and mortgage lender malfeasance, foreclosure activity in 2011 fell to the lowest annual rate since the housing crisis began more than four years ago, according to data released Thursday.

Foreclosure filings -- which include default notices, scheduled auctions and bank repossessions -- were recorded on 1.9 million homes in 2011, down 34 percent from 2010, the foreclosure database company, RealtyTrac, said.

In real terms, 1.45 percent of homes, or one in 69, were in some stage of foreclosure in 2011. That's down from 2.23 percent in 2010, 2.21 percent in 2009, and 1.8 percent in 2008. Both key metrics in 2011 were at their lowest rate since 2007, when home prices started to tank in several markets.

But the latest figures are less a sign of recovery than a reflection of widespread delays in foreclosure processing.

"It's not that the market is all of a sudden staging a dramatic recovery," said RealtyTrac spokesperson Daren Blomquist in an interview with AOL Real Estate. "It's just that lenders are taking their time for a variety of reasons."

Principal among those reasons is the ongoing (and seemingly never-ending) negotiations for a nationwide mortgage settlement between the country's biggest banks and a coalition of state attorneys general.

A proposed $25 billion lawsuit aims to take lenders to task for a number of fraudulent foreclosure proceedings collectively referred to as "robo-signing" during the height of the housing bubble. As the investigation lurches forward, local courts have been inundated with claims of wrongful foreclosure, especially in states like Florida, where judicial action is necessary to repossess homes with delinquent mortgages.

(See a full list of judicial foreclosure states here.)

Not surprisingly, Florida is "ground zero for dysfunctional foreclosure processes," Blomquist said. While there has been almost a 63 percent decrease in foreclosure activity over the last year in the hard-hit state, he said that the time it takes to complete the process has gone up 48 percent in the same time period. From start to finish, he said, foreclosures take an average of 806 days in the Sunshine State -- the national average is 348.

Closer to 'Reality' in Arizona

But while the widespread legal delays may mask the underlying problems facing the housing market, Blomquist said that foreclosures would have fallen in 2011 regardless -- just not so dramatically.

For a sense of what the road to recovery really looks like, Blomquist offered Arizona, another state suffering from high foreclosure rates, albeit under different circumstances than Florida.

Foreclosures are down there, too, but as a non-judicial state, Arizona has been far more expedient in getting distressed properties on the market and out of the courts. The average foreclosure process in Arizona takes 173 days, far below the national average of 348.

The problem across the board, though, is that once foreclosures hit the market their effect on neighboring properties can be severe. Foreclosures typically sell at a 20 percent discount, according to the National Association of Realtors, and that can drag comparable homes' value down fast.

Facing Facts

December marked a 49-month low for monthly foreclosure activity nationwide. The state with the longest foreclosure processing time by far is New York, with an average of 1,019 days to completion in the fourth quarter. New Jersey and Florida rounded out the top three with 964 days and 806 days, respectively.

But as counterintuitive as it may sound, Blomquist said, the recovery won't truly take off until more foreclosures are processed and the backlog of distressed properties is brought back to normal inventory levels.

'We've been deferring a lot of these foreclosures," he said. "So at some point the market needs to face reality and deal with them."