Foreclosure filings in the U.S. dropped 27% year-over-year in September, RealtyTrac reported in its latest foreclosure update.

The report shows 131,232 U.S. homes facing either a default notice, auction sale or bank repossession in September, down 27% from last year and 2% from the previous update.

In fact, the month of September marked 36 months of annual declines in foreclosure activity, with third-quarter foreclosure activity falling to its lowest quarterly level since 2Q 2007, RealtyTrac noted.  

As a whole, the data and research firm recorded 376,931 properties with foreclosure filings in the third quarter, down 7% from the previous quarter and a 29% drop from last year.

"The September and third-quarter foreclosure numbers show a housing market that is haltingly returning to health," said Daren Blomquist, vice president of RealtyTrac. "In a healthy housing market foreclosures are rare but streamlined while still protecting the rights of the homeowner."

"While foreclosures are clearly becoming fewer and farther between in most markets, the increasing time it takes to foreclose is holding back a more robust and sustainable recovery," Blomquist added.

Meanwhile, foreclosure starts hit a seven-year low in the third quarter, with 174,366 properties entering the foreclosure process, down 39% from a year ago.

Foreclosure starts fell year-over-year in 38 states, including Colorado, Arizona and California, where starts declined 71%, 63% and 59%, respectively.  

Foreclosure starts grew dramatically in 11 states, with Maryland, Oregon and New Jersey seeing rises of 259%, 252% and 53%, respectively.

"These spikes in activity demonstrate that while millions of distressed homeowners have been pulled back from the precipice by foreclosure prevention programs over the past several years, once those programs expire or are exhausted, a percentage of these troubled homeowners are still susceptible to falling into foreclosure," Blomquist said.

Bank repossessions also fell 24% from a year ago, while still rising 7% from the previous quarter.