Foreclosures down, but default notices up

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The volume of homes sold at foreclosure auctions dropped in March from a year ago, but the number of mortgages going into default jumped, according to the latest report from ForeclosureRadar, the online seller of default data.

Foreclosure is a multi-step process, beginning when a Notice of Default is filed after the borrower misses numerous payments, and concluding when the delinquent mortgage holder’s home is sold at auction by the lender. After receiving a default notice, a borrower can avoid foreclosure by negotiating new loan terms with the lender, or paying off the mortgage, typically by selling the property.

In March, Notices of Default in California jumped 26% over the level of notices filed the same month a year ago.

Auction sales, however, were down 37% in March from the same month in 2008.

ForeclosureRadar’s CEO, Sean O’Toole, said the gap is probably due to government foreclosure prevention programs stalling the process. A California law enacted last year, for instance, required lenders to contact homeowners before filing a Notice of Default. O’Toole said the law probably delayed default notices for a few months, but may have prompted a flood of them recently when lenders ultimately filed those backlogged notices.

--Peter Y. Hong