Foreclosure activity increased 9 percent from April to May, according to a report from RealtyTrac, a marketplace for foreclosed properties. RealtyTrac vice president Daren Blomquist said, “After 27 months of decreased foreclosure starts, we saw an increase.”
The silver lining to this jump in activity is that sales are taking place early in the foreclosure process from distressed sellers to third-party buyers. Such sales do not depress prices as badly as sales of bank-owned properties, according to RealtyTrac. They are not as financially harmful to the defaulting owners, to banks, or to property values in neighborhoods where they happen.
“More banks are now recognizing that treating the problem of delinquent mortgages with short sales rather than bank repossessions can help them minimize their losses and also avoid taking on more REOs, which they then have to manage, maintain, and market for sale,” said Brandon Moore, CEO of RealtyTrac, in a press release. REO stands for “real estate owned,” and refers to bank-owned properties.
Lenders had been holding back on starting foreclosures, according to Blomquist. He said that last year’s rates were artificially depressed because lenders were waiting to see the outcome of a legal challenge to their procedures.
The government accused banks of using fraudulent or shoddy practices to repossess houses. The government announced in February that the case against five banks is being settled for $25 billion.
Now that the case is settled, lenders feel that they can proceed with foreclosures, so this year’s rates are artificially high. Rates will stay high while the foreclosure processes that started in May plays out and the properties are sold.
“It will hobble the housing recovery, at least temporarily,” said Blomquist.
Georgia topped the list of foreclosure activity for the first time since 2006. In May, the foreclosure rate in Georgia was 33 percent higher than in April, and it was 30 percent higher than in May 2011, according to RealtyTrac. In Georgia, 1 in every 300 housing units was in the foreclosure process last month. That’s more than double the rate for the rest of the country.
Atlanta is second only to Riverside, Calif., among the 20 biggest cities with the highest rate of foreclosure activity. According to RealtyTrac, 1 in every 224 Atlanta households is in the foreclosure process.
According to Blomquist, Georgia’s housing market has not yet stabilized. For some other places such as California, Nevada, and Phoenix, Ariz., pent-up demand created a price floor for housing. People who were previously unable to buy expensive houses in those areas have started to buy as prices have dropped.
“The prices have come down so far, and people consider those places desirable, so buyers are jumping on those places very quickly,” Blomquist said. Their purchases stabilize the market.
That stabilization has not happened in Georgia, perhaps as a result of overbuilding during the boom, he said.
Blomquist also said, “Unemployment is a huge factor” in Georgia and other states with high foreclosure rates.
“Buyers should be looking for short sale opportunities” rather than for bank-owned properties, because lenders will now be more willing to allow short sales, according to Blomquist. A person who owes more than his house is worth and wants or needs to get out from under the burden of debt can use a short sale as an escape, rather than waiting for the full process of bank repossession to take place.
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