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Short Sales Outpace Foreclosure Sales in Many Markets

An important shift is occurring in the real estate market: Short sales are outnumbering foreclosure sales in many markets.

In Q4 2011, there were 88,303 short sales, also known as pre-foreclosure sales, accounting for 10 percent of all sales during the fourth quarter, according to the latestRealtyTrac U.S. Foreclosure Sales Report. Short sales increase 15 percent from year ago.

Meanwhile, bank-owned (REO) sales decrease 12 percent from year ago. While third parties purchased a total of 115,777 REO homes in the fourth quarter, that share was down 10 percent from the previous quarter.

“We continued to see a shift toward pre-foreclosure sales, or short sales, and away from REO sales in the fourth quarter,” said Brandon Moore, chief executive officer of RealtyTrac. “Nationally, pre-foreclosure sales increased 15 percent from a year ago while REO sales decreased 12 percent. Pre-foreclosure sales outnumbered REO sales in several bellwether markets, including Los Angeles, Miami and Phoenix, where REO sales had outnumbered pre-foreclosure sales a year ago. That trend will likely show up in more local markets in 2012 as lenders recognize short sales as a better option for many of their non-performing loans.”  

For the 12.5 million borrowers struggling with an underwater mortgage, this shift could mean good news. Moreover, a new federal policy change could make short sales a lot quicker this summer under revised rules that will require lenders to respond to short sale offers within a month.

Increasingly, private lenders nationwide are coming to the conclusion that the short sale process is more cost effective than foreclosure sales. Lenders are realizing that forgiving the difference between what is owed on the mortgage and what the home is currently worth is a smarter disposition strategy than selling REOs. Bank of America, for example, has a new 22-day short sale process known as the “Cooperative short sale program.”

The Federal Housing Finance Agency, the regulatory overseer of Fannie Mae and Freddie Mae in conservatorship, has announced new steps designed to speed up the short sale process.

Lenders and loan servicers that collect payments for Fannie Mae and Freddie Mac will be required to make decisions within 30 days after receiving an offer to purchase a short sale. If the lender needs more than 30 days, it must provide borrowers with weekly status reports and a decision within 60 days of the initial application. This extension gives lenders more time to determine the value of the property or to get the approval of a mortgage insurer.

Freddie Mac was the first government sponsored enterprise (GSE) to issue new guidelines on April 17, shortening short sale timelines. On April 25, Fannie Mae outlined their short sale guidelines.

Stating in June, these new short sale rules should kick start the short sale machinery, increasing short sales nationwide. 

Q1 2012 Foreclosure Activity Lowest Since Q4 2007

March Activity At 56-Month Low, Under 200,000 Properties with Foreclosure Filings
  But Foreclosure Starts Increase for Third Straight Month in March

IRVINE, Calif. – April 12, 2012 — RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its U.S. Foreclosure Market Report™ for the first quarter of 2012, which shows foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 572,928 properties during the quarter, down 2 percent from the previous quarter and down 16 percent from the first quarter of 2011.

The first quarter total was the lowest quarterly total since the fourth quarter of 2007, when 527,740 properties with foreclosure filings were reported. The report shows one in every 230 U.S. housing units with a foreclosure filing during the quarter.

Foreclosure filings were reported on 198,853 U.S. properties in March, a 4 percent decrease from February and a 17 percent decrease from March 2011. March’s total was the lowest monthly total since July 2007, and also the first monthly total below 200,000 since July 2007.

“The low foreclosure numbers in the first quarter are not an indication that the massive reservoir of distressed properties built up over the past few years has somehow miraculously evaporated,” said Brandon Moore, chief executive officer of RealtyTrac. “There are hairline cracks in the dam, evident in the sizable foreclosure activity increases in judicial foreclosure states over the past several months, along with an increase in foreclosure starts in many judicial and non-judicial states in March. The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short sale activity.”

Judicial foreclosure activity increases in first quarter
The nationwide decrease in foreclosure activity was caused primarily by decreasing activity in states that use the non-judicial foreclosure process. These 24 states combined, along with the District of Columbia, had 329,854 properties with foreclosure filings during the quarter, more than half the national total — but a decrease of 8 percent from the previous quarter and a decrease of 28 percent from the first quarter of 2011.

Twenty non-judicial states registered year-over-year decreases in foreclosure activity, led by Arkansas, with a 79 percent drop, and Nevada, with a 62 percent drop. Recent legislation or court cases have disrupted the normal foreclosure process in both these states. Other non-judicial states with substantial year-over-year decreases in foreclosure activity included Washington (down 55 percent), Arizona (down 41 percent), Texas (down 31 percent), and California (down 21 percent).

Meanwhile foreclosure activity increased in states that primarily use the judicial foreclosure process. These 26 states combined accounted for 243,074 properties with foreclosure filings during the quarter, an increase of 8 percent from the previous quarter and an increase of 10 percent from the first quarter of 2011.

Judicial states posting some of the biggest year-over-year increases in foreclosure activity in the first quarter included Indiana (up 45 percent), Connecticut (up 38 percent), Massachusetts (up 26 percent), Florida (up 26 percent), South Carolina (up 26 percent), and Pennsylvania (up 23 percent).

Foreclosure starts increase for third straight month in March
First-time foreclosure starts, either default notices or scheduled foreclosure auctionsdepending on the state’s foreclosure process, increased 7 percent from February to March, the third straight monthly increase. Foreclosure starts in March exceeded 100,000 for the first time since November 2011, although they were still down 11 percent from March 2011.

States with the biggest monthly increases in foreclosure starts included Nevada (up 153 percent), Utah (up 103 percent), New Jersey (up 73 percent), Maryland (up 53 percent) and North Carolina (up 47 percent). Thirty-one states posted monthly increases in foreclosure starts in March.

Nevada, California, Arizona post top state foreclosure rates
Nevada foreclosure activity decreased 26 percent from the previous quarter and was down 62 percent from the first quarter of 2011, but the state still posted the nation’s top foreclosure rate — one in every 95 Nevada housing units had a foreclosure filing during the first quarter. Although Nevada had the top foreclosure rate for the quarter, the state’s foreclosure rate slipped to second highest among the states in March, after 62 consecutive months in the No. 1 spot. Arizona’s foreclosure rate was the nation’s highest state foreclosure rate in March.

Although California default activity increased from February to March — up 14 percent — the state’s overall foreclosure activity in the first quarter was down on a quarterly and annual basis. TheCalifornia foreclosure rate still ranked second highest among all states in the first quarter, with one in every 103 housing units with a foreclosure filing.

One in every 106 Arizona housing units had a foreclosure filing in the first quarter, the nation’s third highest state foreclosure rate. Arizona foreclosure activityduring the quarter was down 4 percent from the previous quarter and was down 41 percent from the first quarter of 2011.

Other states with foreclosure rates ranking among the top 10 in the first quarter were Georgia (one in 119 housing units with a foreclosure filing), Florida (one in 123), Illinois (one in 141), Michigan (one in 162), Colorado (one in 191), Utah (one in 198) and Wisconsin (one in 206).

California, Florida, Illinois post top foreclosure activity totals
California’s 133,245 properties with foreclosure filings in the first quarter was the highest total of any state and accounted for 23 percent of U.S. foreclosure activity during the quarter.

Florida posted the second highest state total, with 73,344 properties with foreclosure filings during the quarter. Florida foreclosure activity in the first quarter increased 4 percent from the previous quarter and was up 26 percent from the first quarter of 2011.

Illinois foreclosure activityincreased 17 percent from the previous quarter and was up 14 percent from the first quarter of 2011, helping the state post the nation’s third highest state foreclosure total in the first quarter: 37,660 properties with foreclosure filings.

Other states with foreclosure activity totals among the nation’s 10 highest were Georgia (34,234), Michigan (27,934), Arizona (26,956), Texas (23,807), Ohio (23,780), Pennsylvania (12,746), and Wisconsin (12,727).

Time to foreclose increases nationwide, but down in key states
U.S. properties foreclosed in the first quarter took an average of 370 days to complete the foreclosure process, up from 348 days in the previous quarter and the highest average number of days going back to the first quarter of 2007.

Average foreclosure timelines appear to be turning a corner in some bellwether states. The average time to foreclose in California was 320 days, down from 352 days in the previous quarter and the second straight quarterly decrease after 12 straight quarterly increases.

The average time to foreclose also decreased in Colorado, Utah, Massachusetts, Nevada, Michigan and Maryland. Despite the decrease, Maryland still posted the fifth longest time to foreclose, 618 days. The states with the top four longest times to foreclose were New York (1,056 days), New Jersey (966 days), Florida (861 days) and Illinois (628 days).

Report Methodology
The RealtyTrac U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing entered into the RealtyTrac database during the month and quarter — broken out by type of filing. Some foreclosure filings entered into the database during a month or quarter may have been recorded in previous months or quarters. Data is collected from more than 2,200 counties nationwide, and those counties account for more than 90 percent of the U.S. population. RealtyTrac’s report incorporates documents filed in all three phases of foreclosure: Default — Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). For the quarterly report, if more than one foreclosure document is received for a property during the quarter, only the most recent filing is counted in the report. Both the quarterly and monthly reports check if the same type of document was filed against a property previously. If so, and if that previous filing occurred within the estimated foreclosure timeframe for the state where the property is located, the report does not count the property in the current month or quarter.

Report License
The RealtyTrac U.S. Foreclosure Market Report is the result of a proprietary evaluation of information compiled by RealtyTrac; the report and any of the information in whole or in part can only be quoted, copied, published, re-published, distributed and/or re-distributed or used in any manner if the user specifically references RealtyTrac as the source for said report and/or any of the information set forth within the report.

About RealtyTrac Inc. 
RealtyTrac (www.realtytrac.com) 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. Hosting more than 3 million unique monthly visitors, RealtyTrac provides innovative technology solutions and practical education resources to facilitate buying, selling and investing in real estate. RealtyTrac’s foreclosure data has also been used by the Federal Reserve, FBI, U.S. Senate Joint Economic Committee and Banking Committee, U.S. Treasury Department, and numerous state housing and banking departments to help evaluate foreclosure trends and address policy issues related to foreclosures.

California Foreclosure Activity Drops in February

Statewide filings down 6 percent from January; Rate second highest

Foreclosure filings — default notices, scheduled auctions and bank repossessions — were reported on 48,422 California properties in February, a 6 percent decrease from January and 14 percent below the level reported for February 2011, according to the latest RealtyTrac® U.S. Foreclosure Market Report.

The Golden State maintained its position as the state with the second highest foreclosure rate, reporting one in every 283 California housing units with a foreclosure filing in February.

California continues to lead the nation in terms of total properties with foreclosure filings by a large margin. Second ranked Florida reported 26,337 properties with foreclosure filings during the month. Third place was Illinois, where 13,298 properties with foreclosure filings were reported. Georgia moved up to the fourth highest total, reporting 12,356 properties with foreclosure filings while Michigan dropped a spot to fifth place, tallying 10,467 properties with foreclosure filings.

The remaining states that make up the nation’s top 10 in February include Texas (9,554), Ohio (9,445), Arizona (9,131), Pennsylvania (4,494) and Wisconsin (4,403). The top 10 accounted for 71 percent of the nation’s total foreclosure activity for the month.

Sierra County posts top foreclosure rate in the state for February
 One in every 137 housing units in Sierra County had a foreclosure filing in February — 4.7 times the national average and 2.1 times the state average — the highest foreclosure rate of all California counties for the month. Lake County had the second highest rate of one in every 150 housing units with a foreclosure filing during the month — 4.2 times the national average and 1.9 times the state average. Yuba County had the third highest rate of one in every 157 housing units with a foreclosure filing during the month — 4.1 times the national average and 1.8 times the state average.

Southern California continues to lead the state in foreclosure totals in February
 Four Southern California counties topped the list for highest foreclosure totals in the state for February. Los Angeles County continued to lead all counties by a large margin, reporting 9,936 properties with foreclosure filings for the month. Riverside County remained second highest, reporting 4,770 properties with foreclosure filings. San Bernardino County was third, reporting 4,287 properties with foreclosure filings. Fourth highest was San Diego County, recording 3,403 properties with foreclosure filings. Sacramento County was the only Northern California county in the top five, tallying 2,942 properties with foreclosure filings for the month.

State the nation’s largest contributor to total foreclosure activity in February
 California accounted for 23 percent of the 206,900 properties with foreclosure filings reported nationwide in February. Total U.S. activity decreased by 2 percent from January and was down over 8 percent from the level reported in February 2011. One in every 637 U.S. housing units received a foreclosure filing during the month.

“February’s numbers point to a gradually rising foreclosure tide as some of the barriers that have been holding back foreclosures are removed,” said Brandon Moore, CEO of RealtyTrac. “Although national foreclosure activity was pushed lower by decreases in a handful of larger states, 21 states posted annual increases in foreclosure activity, the most states with annual increases since November 2010.

“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.”

California Top Foreclosure Rates By County – February 2012

County	NOD	LIS	NTS	NFS	REO	Total	1/every X HU (rate)	/Natl. Avg.	/State Avg.
United States	23,058	35,828	60,700	23,480	63,834	206,900	637	n/a	n/a
California	19,439	0	20,439	0	8,544	48,422	283	2.25	n/a
Sierra	9	0	4	0	4	17	137	4.65	2.06
Lake	105	0	71	0	60	236	150	4.23	1.88
Yuba	61	0	56	0	59	176	157	4.05	1.80
Solano	399	0	411	0	136	946	161	3.94	1.75
San Bernardino	1,768	0	1,863	0	656	4,287	163	3.90	1.73

 California Top Foreclosure Totals by County – February 2012 

County	NOD	LIS	NTS	NFS	REO	Total	1/every X HU (rate)	% Chg Jan 12	% Chg Feb 11
United States	23,058	35,828	60,700	23,480	63,834	206,900	637	-1.92	-8.09
California	19,439	0	20,439	0	8,544	48,422	283	-6.13	-13.88
Los Angeles	4,126	0	4,433	0	1,377	9,936	347	-6.74	-18.60
Riverside	1,875	0	2,096	0	799	4,770	168	-0.83	-14.68
San Bernardino	1,768	0	1,863	0	656	4,287	163	-1.47	-6.25
San Diego	1,393	0	1,527	0	483	3,403	342	-10.40	-8.84
Sacramento	1,107	0	1,129	0	706	2,942	189	3.63	-3.41