Since 2008 United States foreclosure activity has hit a record high. Lenders filed a record number of mortgage default notices earlier this year as a result of the recession. Luckily, United States foreclosure activity decreased 8% for the month of November from the previous month. November has been the third consecutive month the United States has seen foreclosure activity steadily decline which CEO of RealtyTrac, James J. Saccacio states is, “unprecedented for our report, and on first blush an indication that the foreclosure tide may be turning”. However, foreclosure activity levels for November are substantially higher in most states than a year ago as the foreclosure activity is up 18% from November of 2008. 

One in every 417 United States households got a foreclosure filing during the month of November. The total Notice of Defaults (NOD) for November were down 8% from October at around 47,000, but still up 22% from November of 2008. For the second consecutive month, the same four states account for more than 50% of the nation’s total foreclosure activity, California, Florida, Illinois and Michigan. 

Aside from an overall 13% decrease in foreclosure activity from preceding months, California posted the highest total than any state with nearly 74,000 properties receiving a foreclosure filing in November - up 22% from November 2008, but down over 30% from July, the peak month for foreclosure activity. 

Foreclosure activity declined nearly 18% from its record high in October for Illinois. However, the over 16,000 properties that received foreclosure filings during November is still nearly 108% higher than the state’s November 2008 activity. 

Ironically, after two consecutive months of decline in foreclosure activity, Florida’s activity increased to some extent in November. The 52,935 Florida homes receiving foreclosure filings during November was an increase of nearly 2% from October and up 8% from November 2008.

During the month of November, the 15,988 Michigan homes that received foreclosure filings were a 3% decrease from the month of October, but still 10% above the state’s total in November 2008.

While two of the top four states in the nation for foreclosure activity follow judicial procedures, the laws governing the foreclosure process varies from state to state and depends mostly on whether the state utilizes mortgages or deeds of trust for the purchase of property. Commonly, states that use mortgages conduct judicial foreclosures; meaning court action is required on a foreclosed home. States that use deeds of trust conduct non-judicial foreclosures permitting the trustee to commence foreclosure proceedings without court action. In some cases, states use both methods. For example, in Michigan Judicial as well as Non-Judicial foreclosure procedures are available. Non-Judicial foreclosure procedures are used when a power of sale clause exists in a mortgage or deed of trust. This clause pre-authorizes the sale of property to pay off the outstanding balance on the loan in the case of default. For more details and comparison on foreclosure procedures by state visit RealtyTrac at:

http://tinyurl.com/4oe5se

Although foreclosure activity has been on the decline, the current activity levels are still relatively high. Since total notice of defaults are still up tens of percentages compared to last year’s total, while notice of trustee’s (NTS) sales have decreased from last years , many people are questioning where has the REO inventory gone. 

Lenders acknowledge it is taking longer than in previous years to process REOs and they site some viable reasons. One of the main reasons for the slowdown in REO inventory is that many states are extending the length of their eviction proceedings. This has been put into practice in hopes that the original home owners may be able to recover the defaulted amounts on their homes. Foreclosures are expensive for lenders and allowing the original borrowers to keep their homes is a more lucrative and prompt solution in comparison with foreclosure. Other reasons lenders site for slowing down foreclosure processing time are unresolved title issues, extensive clean-up and repair of recovered properties, strict redemption rights periods which prohibits lenders from reselling the property during these periods and the sheer number of defaults itself which is not proportional to lender staff. Additionally, federal and state foreclosure moratorium laws have been attributed to the decline in REO sales.

Those eager to get in on the housing bargains are not buying it. Due to the number of homes listed for sale declining, in spite of a promised market boom, many believe banks are holding a shadow inventory of homes in order to serve the illusion of a stabilizing housing market and increase property values to undue one of the major side effects of the lending crisis, depreciating home values. Many people believe REOs have been forced to hold back inventory to recover losses on foreclosed property. Perhaps a sudden increase in inventory would drastically decrease the value of foreclosed homes even further. By rationing out and controlling available inventory, banks could recoup their losses as demand would increase on the limited supply, thus increasing the apparent value of their foreclosed properties.

While the former may be easy to believe given past performance of lending companies, the simplest and probable reason for the missing inventory in REO is an extensive process. Inventory takes time to get to the market as it may take up to nine months to the trustee’s sale, anywhere from 2-12 months before properties are vacated and an additional month for clean up. A current notice of default may not reach REO listing status for upwards of 18 months. Although lenders may be holding back inventory, it cannot be much, at most it may be a few months worth. 

Lenders are making an effort to increase REO processing times and get pending properties on the market. Many lenders are increasing staff to handle the drastic increase in defaults. Lenders are also cutting their loses via alternative default services such as loan modifications and short sales. It is not advantageous for lenders to intentionally hold back inventory to manipulate values. In order to recover loses, lenders need to create loans and loans cannot be made on shadow inventory. There is quite a bit of REO inventory being processed which will make its way to the market in due time.