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The second month of 2013 brought news that non-judicial foreclosure filings fell significantly in California.
This development may be due to the changing legal landscape in the state, rather than a sign that all distressed homeowners in the state are eventually going to find a desirable solution to their troubles or escape foreclosure altogether, according to real estate industry data.
RealtyTrac on Thursday noted that the state of California had 18,093 properties facing a non-judicial foreclosure filing in January, down 39% from December and a 65% drop from a year earlier.
This seems like a significant and decidedly positive change for the hard-hit state, but it’s not the full story. RealtyTrac does not report judicial filings in California.
Daren Blomquist, vice president of RealtyTrac, said those numbers for January include only non-judicial foreclosures, which doesn’t rule out the possibility that banks fearing new California foreclosure laws are gearing up to file in state courts instead.
January brought the enactment of the California Homeowner Bill of Rights, which created new state bans on dual-tracking and a private right of action that gives homeowners a chance to challenge various elements of the non-judicial foreclosure process in courts.
Foreclosure attorneys and economists warned as early as September of last year that California would become a de facto judicial foreclosure state, prompting fewer banks to choose the non-judicial foreclosure process and instead opt for a judicial foreclosure that could help them gain protections from legal risks tied to the new Bill of Rights.
Daren Blomquist, vice president for RealtyTrac, forecasted a possible downshift in California foreclosure filings late last year.
When his firm released the latest data he wrote, "The U.S. foreclosure landscape in January was profoundly altered by the effects of new legislation that took effect in California on the first of the year," he said. "As a result, the downward foreclosure trend in California accelerated into hyper speed in January, decisively shifting the balance of power when it comes to the nation’s foreclosure activity."
Consumer advocates that have pushed for a progressive solution to foreclosure issues applauded the resulting decline in California foreclosure activity in January. But they may be speaking too soon by assuming the Bill of Rights actually stopped, or even prevented, foreclosures.
"The decrease in foreclosure starts in California, while welcome, is also an indictment of the past five years when banks failed to deal fairly with the hundreds of thousands of California families struggling to keep their homes," said Kevin Stein of the California Reinvestment Coalition. "The Homeowners Bill of Rights is a rare point of leverage to hold banks accountable to communities, and this data point indicates that it's finally starting to work."
But the financial services industry predicted the Bill of Rights would actually cause non-judicial foreclosures to decline in California as opposed to ending the process outright.
"The word on the street is that lenders are filing judicial foreclosures instead," said Blomquist. With this in mind, RealtyTrac is tracking judicial foreclosure activity separately. To date, the research firm has not discovered a substantial uptick in judicial foreclosure filings. But Blomquist says, "lenders don’t just turn on a dime in terms of how they are running their operations."
Blomquist hasn’t ruled out the possibility that more judicial foreclosures could be waiting in the wings with lenders still transitioning from nonjudicial to judicial foreclosures.
Blomquist points out that legislation and an onerous court decision in Oregon last summer stifled non-judicial foreclosure activity in the state until more attorneys switched to judicial foreclosure filings a few months later.
The fact that California is not seeing more judicial foreclosure filings as of yet does not rule out the possibility.
"It is reasonable to think it would take a month or two before banks ramp up judicial foreclosure filings," Blomquist concluded.
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