In an unexpected bit of fallout from the real estate crash, lenders are filing far fewer foreclosures.
Alas, that's not because the economic picture is improving but because the housing market is flooded with repossessed homes, and banks and courts are inundated with default proceedings.
Foreclosure filings in Palm Beach County plunged 70 percent in July, August and September compared to the same three months a year ago, research firm RealtyTrac says in a report to be released today. Filings fell 57 percent in Florida and 34 percent nationwide.
In normal times, a sharp decline in foreclosure filings would be cause for celebration. But these aren't normal times.
Nearly 2 million Floridians owe more than their homes are worth, and the state's unemployment rate has been stuck above 10 percent for more than two years.
Foreclosure experts say several factors have lenders taking back fewer homes. One is simple supply and demand; banks typically sell properties they repossess, and they know that putting more homes on the market will hurt values.
"The banks don't have a motivation to push these through quickly," said Tom Ice, a foreclosure attorney in Royal Palm Beach. "There's a lot of expense involved in owning the houses. And they understand that flooding the market with properties is going to push down the resale value of their own properties."
John Tuccillo, chief economist for the Florida Realtors, agrees.
"Banks are in business to make as much money as they can, or to lose as little money as they can," he said. "It's a bad business decision to flood the market."
Once a lender takes back a home, it pays the costs of owning the property, including insurance premiums, homeowner association fees and maintenance. So banks seemingly have decided that it makes sense to leave a deadbeat borrower in the home.
"There is an economic benefit to them of leaving the homeowner in the property," Ice said.
Another factor: Legal controversies surrounding foreclosures have caused banks to slow their court filings. Palm Beach County Clerk Sharon Bock pointed to the "robosigning" debacle and to the difficulties lenders have faced in proving ownership of foreclosed homes.
"The banks just simply are holding back," Bock said. "They have many more loans in default than they're putting through into foreclosure."
RealtyTrac's Daren Blomquist agreed that legal concerns have created what he called an "artificial slowing."
"Trying to adjust to the huge volume of foreclosures in 2010, lenders were resorting to questionable procedures," Blomquist said. "To make sure they don't get into trouble again, they have to take longer and can't process as many as they used to."
Yet another reason: Lenders have begun to push short sales as an alternative to foreclosure. In a short sale, a homeowner owes more than the home is worth and finds a buyer willing to buy the property. The bank agrees to forgive the difference between the loan amount and the sale amount.
While lenders have been notoriously slow to approve short sales, two major banks have begun to encourage short sales by giving homeowners as much as $20,000 at closing.
"Bank of America and Chase have rolled out more aggressive incentive programs for short sales," said Damian Turco, an attorney in Palm Beach Gardens. "Lenders are recognizing that it's a better business decision to avoid foreclosure."
While banks take a hit on a short sale, they're likely to incur an even bigger loss on a foreclosure.
"Lenders are getting smarter," Tuccillo said. "I talk to a lot of people who say the process is getting more rational."
There were 5,528 foreclosure filings in Palm Beach County in the third quarter, RealtyTrac said, down from 18,413 in the third quarter of 2010.
RealtyTrac counted 1,895 foreclosures in September, down from 2,035 in August and down from 8,943 in September 2010.
The Palm Beach County Clerk's Office reported a different tally: 1,188 new foreclosures filed in September, up 5.5 percent from August but down 38 percent from September 2010. The clerk's numbers and RealtyTrac's statistics don't match because of differences in timing, but they agree on the broader trend of fewer foreclosure filings during the past year.
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