Notices of default, the first step in the California foreclosure process, dropped 17.5% in the fourth from the year before, but the decline may not have come from borrowers improving their financial situation, real estate data provider DataQuick said. Lenders recorded 69,799 NODs at California county offices in the fourth quarter, down from more than 84,000 in the fourth quarter of 2009 and the lowest level since the second quarter of 2007. "We don’t know how much of the decline is due to less household financial distress, and how much is due to shifts in lender and servicer foreclosure policies," DataQuick President John Walsh said. "The level of default activity would certainly be higher if it weren’t for alternative strategies such as short sales, or even lengthening grace periods." American Banker reported this week that several lawsuits brought by homeowners contend that notices of default completed in nonjudicial states were done improperly. CNBC reported Tuesday that major lenders halted recording NODs to correct the problem. However, a Bank of America (BAC) spokesman told HousingWire that the delay was part of the overall foreclosure moratorium it began in October when employees were found to be signing affidavits improperly in states where the foreclosure process takes place in courts. It has since begun recording NODs as it begins to restart the foreclosure process nationwide during the first quarter of 2011. "The foreclosure process was restarted after a review of procedures including notices of default in nonjudicial states. Moving through the foreclosure backlog is a critical step to restoring the housing market and the nation’s economy," the BofA spokesman said. A source at JPMorgan Chase (JPM) said the bank had stopped recording NODs in some states, but not in California. It, too, has begun resubmitting documentation nationwide. Wells Fargo (WFC) and Citigroup (C) had to refile foreclosure affidavits as well. A spokesman for Citi said the bank "continuously reviews policies and procedures," but no decisions on its NOD process has been made, yet. Wells told HousingWire that it never stopped issuing notices of default. More than half of the homes in California that received an NOD in the last 18 months have been foreclosed on or sold through a short sale. The status of the other half isn't clear, DataQuick said, but they should be in the modification or short sale process. "The institutions that hold these loans in their portfolios will do whatever it takes to lessen their losses, including waiting," Walsh said. "An additional factor is all the turbulence when it comes to the formalities of the foreclosure process." Write to Jon Prior. Follow him on Twitter: @JonAPrior