Seattle foreclosure activity surged 41 percent in August compared to a year ago after 13 months in hibernation.
According to the RealtyTrac August foreclosure report, the Seattle surge was one of the few year-over-year increases in states utilizing the non-judicial foreclosure process. Most other metros in non-judicial foreclosure states continued their downward trend of the last two years or more.
Further south along the west coast, Portland foreclosure activity dropped 36 percent from a year ago. Continuing down the coast, San Francisco foreclosure activity decreased 35 percent, Los Angeles foreclosure activity was down 38 percent, and San Diego foreclosure activity was down 35 percent.
Further inland, foreclosure activity in Phoenix dropped 30 percent from a year ago.
All these metro areas are in states with a non-judicial foreclosure process, and the drops being seen there are likely because the non-judicial foreclosure process was less susceptible to delays and foreclosure backlogs built up last year as a result of scrutiny on the foreclosure industry for questionable foreclosure practices.
So why is Seattle different? Because the state legislature there decided that distressed homeowners needed an extra chance to avoid foreclosure. Last year, the legislature passed a law giving homeowners facing foreclosure the chance to request mediation with their lender to consider foreclosure alternatives.
This new law took effect in July 2011 and had an immediate impact on foreclosure numbers.
The average number of Seattle-area properties with a foreclosure filing each month from January through June 2011 — before the law took effect — was 2,751. From July 2011 through July 2012, the average was 1,700 a month, a deficit of more than 1,000 a month.
But that all changed in August, when there were 3,119 Seattle-area properties with a foreclosure filing, up 26 percent from the previous month and 14-month high.
This clearly demonstrates that not all distressed homeowners who opted for mediation were able to avoid foreclosure. What’s not certain is how big the backlog of failed mediations is. If it’s even half of the 1,000 foreclosure filing deficit of the last 13 months, that adds up to a backlog of 6,500 deferred foreclosures that will be added going forward.
Since Washington state passed its foreclosure mediation law, other states have jumped on the bandwagon, adopting various forms of legislation designed to protect homeowners from improper foreclosure and give them ample opportunity to take advantage of a foreclosure alternative. Nevada, California and Oregon have all passed such legislation.
Which begs the question: are those states exchanging short-term gain for long-term pain as it appears Washington did a year ago?
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