During January, the amount of repossessed properties increased 12%, according to statistics released today from RealtyTrac. There were 78,133 repossessed properties throughout January. The amount of foreclosure filings, including bank repossessions, default notices, and scheduled auctions, totaled 261,333 in January. There were 257,747 filings in December, reflecting a 1% increase during January. This slight increase ends a three month streak of consecutive declines in the total amount of foreclosure filings. January also has the second fewest foreclosure filings among the past 25 months.
Though, the recent decline in total filings was not due to organic market conditions, but was instead a result of the temporary suspension of foreclosures from allegations of notary fraud. Still, the foreclosure suspension ended and foreclosures are still well under 300,000 monthly filings. Prior to November, there were 20 straight months with 300,000 or more foreclosure filings. Total filings compared to January 2010 were 17% lower this year.
While the relatively low amount of foreclosures in January appears as a positive indicator for the housing market, the relatively low amount of filings is likely due to the increased scrutiny foreclosure proceedings have encountered since the allegations of notary fraud. As discussed in a recent article, several legal actions against mortgage lenders throughout the country have surfaced in recent months, including:
- A New York Court of Appeals Chief Judge Jonathan Lippman announced a new rule [.pdf] in October requiring lawyers to file new paperwork confirming the accuracy of information for foreclosure cases.
- All fifty attorneys general, as well as the AG in DC, formed a bipartisan commission in October to investigate fraudulent practices from mortgage lenders during foreclosure proceedings.
- In November, Florida Supreme Court Chief Justice Charles Canady issued a memorandum [.pdf] to Florida’s 20 judicial circuits ordering all of the state’s foreclosure proceedings to be public information.
- In December, Arizona Attorney General Terry Goddard filed a lawsuit against Bank of America for deceiving consumers in foreclosure proceedings.
- In January, Massachusetts Supreme Court Judge Ralph Grants issued a ruling that voided two foreclosure sales from 2007, due to a failure of the lender (Wells Fargo) to be able to demonstrate ownership.
These five legal actions show how consumers, lenders, and the courts are treating the technical aspects of foreclosures more carefully and slowing down the processing rate of foreclosures. During the last week of January, yet another lawsuit was filed against Bank of America for housing market fraud. This lawsuit, however, was not filed on behalf of troubled homeowners, but was instead filed on behalf of wealthy investors who claim the bank lied to them about the quality of mortgage backed securities.
The lawsuit [.pdf] claims hundreds of millions of dollars were invested into mortgage certificates with exaggerated credit ratings. At the time the certificates were issued from 2005-2007, 93% were among “AAA,” which is the highest credit rating. As of January 24th, 90% of these certificates have a credit rating below C. This dramatic shift in the credit ratings of these mortgage certificates resulted with significant losses for the investors.
As the CEO of RealtyTrac said, “lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing.” In fact, during January, bank repossessions increased 23% in states with a non-judicial foreclosure process (20 states), while states with a judicial foreclosure process had a 7% decrease in bank repossessions. Considering the slower processing rate of foreclosure filings, the relatively low amount of foreclosure filings in January were not generated from organic market conditions. Since the processing rate is expected to accelerate, foreclosures are expected to gradually increase throughout the first quarter of 2011.