The Seattle Times recently reported on data from RealtyTrac, a firm that specializes in foreclosure real estate listings, suggesting that in 2012 Washington State had the fewest home foreclosures since the onset of the 2008 recession. The rate of foreclosure activity also declined on a national level, despite a continued increase in foreclosure activity in a number of states.
The article notes that many of the states still facing an increase in foreclosure activity are judicial states such as New Jersey, Florida, and Illinois—in these states, a mortgager must file a claim in court to repossess a home should the mortgage become delinquent. Conversely, mortgages in nonjudicial states (such as Washington) utilize a third-party trustee, which holds title to a mortgaged property—only delivering the title to the homeowner upon full payment of the loan (and delivering the title directly to the lien holder in the event of default). This process tends to be more streamlined, and the indication is that nonjudicial states “worked through” the glut of their foreclosures at a brisker pace than states that use a judicial process.
Looking beyond this article to another published last month regarding the recent surge in new home starts, it seems that there may be an inventory problem in the local home market. The “for sale” market is no longer flooded with dirt-cheap foreclosures, as many “underwater” homeowners have benefitted from loan restructuring (yet remain unable to sell their house for a price greater than the balance due on their mortgages). The constricted supply has enticed builders to build new homes to satisfy demand (which remains high in the area), yet this increase in supply will generate continued downward pressure on home values.
– Jonathan Kilpatrick and Sarah J. Kilpatrick