Default notices drop in April, foreclosure sales up

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Home mortgage defaults in California, which had been rising this year, dropped in April, according to a report just released by ForeclosureRadar, an online seller of California default data.

Notices of Default, the first stage in foreclosure, fell by 18% in April from March. There were 42,675 Notice of Default (NOD) filings last month. NOD’s are filed when a borrower has missed several payments. If some kind of agreement is not reached between the borrower and lender over the default, the home is then put up for auction, typically for the amount of the outstanding mortgage.

March had been a record month for NOD’s. But those figures may have been boosted by the expiration of state-mandated and voluntary moratoriums that delayed filings. The April NOD total was 1% higher than the same month the previous year.

The number of people buying homes at the legally-mandated foreclosure auctions also jumped. In most cases, no one bids on the properties and banks take them over at the auction. That’s because the opening bid amount is typically set at the amount of the mortgage -- a price no one usually wants to pay.
When no bidders emerge, the lender takes the property at auction and sells it on the open market, often for less than the mortgage amount.

Last month, however, saw a jump in third-party bidders buying foreclosed homes at auctions. Statewide, 1,634 homes were purchased by third parties at foreclosure auctions, a 52% increase over March and a record level. The total number of homes going to auction was up 35% over March, to 13,550. However, the jump follows a period of reduced auction activity. The April total was still 40% lower than the same month the prior year.

Housing market watchers have lately noted a growing backlog of foreclosures – defaults had been rising, but the number of homes actually foreclosed dropped. It’s unclear whether lenders were overwhelmed by the volume, were deliberately delaying foreclosures to either continue trying to work out deals with borrowers or were trying to keep from further flooding the market with foreclosed homes for sale. It looks like April showed signs of movement in clearing the backlog. Whether the backlog clears promptly and in an orderly way remains to be seen.

-- Peter Y. Hong