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SC S1007 Expedites Foreclosures for Abandoned Property

Posted on September 13, 2018September 13, 2018 by Safeguard

On June 2, South Carolina Governor Nikki R. Haley signed into law S1007, which provides a process for expediting mortgage foreclosures for abandoned properties.

Link to S1007

About Safeguard
Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders, and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.

Post-Foreclosure Evictions Haunt Some Renters

Posted on September 13, 2018September 13, 2018 by Safeguard

On June 15, the Chicago Tribune published an article titled Post-Foreclosure Evictions Haunt Some Renters.

Post-foreclosure evictions haunt some renters
Sealing of cases, stipulated by law, not consistent, leading to blemishes on credit records

The housing crisis caused thousands of renters to worry about their living arrangements as their apartment buildings went into foreclosure. But another worry may be their credit reports .

In 2008, Illinois passed a law ordering that post-foreclosure-related eviction cases be sealed, cases in which the tenant’s only fault was living in a building that went through foreclosure. That isn’t always taking place.

Even though the law took effect six years ago, it hasn’t benefited Janet Anderson. The Chicago resident is moving to a new rental unit, but it’s not her first choice. She scaled back her search because she knew there was an earlier foreclosure-related eviction case on her credit report .

Once the boxes are unpacked, Anderson plans to embark on the mission of getting the proceedings sealed and contacting credit bureaus to get the eviction — and more important, the stigma it carries — removed from her records.

“I thought this was over and done with,” Anderson said. “I’m a real decent, respectable person, but this has just been very taxing. I’ve really been trampled on.”

Post-foreclosure eviction actions are filed with county courts after a foreclosure case ends and the building’s ownership is transferred, typically either to a bank , Fannie Mae or Freddie Mac. During the housing crisis, owners frequently filed the eviction actions to empty a foreclosed building of tenants because otherwise the bank had to act as landlord.

An ordinance that took effect in Chicago last fall is expected to decrease the practice, but that offers little solace to the thousands of renters whose cases have not been sealed and are now blemishes on their credit records , often unbeknown to them, according to an analysis by Lawyers’ Committee for Better Housing, a Chicago advocacy group.

Cook County Judge E. Kenneth Wright Jr. acknowledged Thursday that sealing these cases — which are different from evictions for cause, such as not paying rent — should be automatic, but “sometimes things get through the cracks for one reason or another.”

In fact, in Chicago, many cases are falling through the cracks. Just last year, a year in which foreclosures dropped, more than 2,800 eviction cases were foreclosure-related, initiated by a lender, Fannie Mae or Freddie Mac. Less than half of them were sealed from public record, according to the Lawyers’ Committee for Better Housing.

Not having those cases sealed is an issue that affects all neighborhoods, socioeconomic levels and segments of the rental market, from units secured with the assistance of federal housing vouchers to individually rented high-rise condominiums. Whether the eviction is on a less-than-stellar credit report or an immaculate one, it can curtail a renter’s options when it comes to finding new housing.

The state law, adopted in 2008 and tweaked since then, generally calls for mandatory sealing of eviction actions brought against “an occupant who would have lawful possession of the premises but for the foreclosure of a mortgage on the property.” Foreclosure actions against building owners, however, remain open to the public.

Missing from the statute is who bears the burden of ensuring the case is sealed and at what point that should happen.

“A lot of cases are not sealed because there is no lawyer involved requesting it to be sealed,” said James Sojoodi, an attorney at Lawyers’ Committee. “The tenant is having problems because they want to look for a place to move, but they are getting rejected because they have a case showing.”

Some companies that offer tenant screening services include all references to evictions, regardless of whether there is a judgment, he added.

Landlords base their decision to rent to someone on several factors, but an eviction record in that person’s background “is definitely a big one,” said Edward Skoda, who works with landlords at the Spanish Coalition for Housing. “It’s really up to the landlord, but it is unfortunate. A lot of times that’s what they look for. (People) do get denied, and then they have to fix the problem. An eviction to a landlord is a big red flag.”

In California, post-foreclosure eviction cases are masked from public viewing for 60 days after the complaint is filed so as not to inhibit a tenant’s ability to find a home during the court process.

That type of policy might be something to consider locally, Wright said.

“We’re responsible for making sure justice is rendered when we see it,” Wright said, adding that when judges hear an eviction case, it should be determined whether it is the result of a foreclosure and if it is, the case should be sealed.

“Based on what (judges) told me, they may not be doing that in some instances,” he said. “Maybe a good thing we should do is seal them before they start.”

Going forward, post-foreclosure eviction cases may be less of a problem for tenants in Chicago because of the Keep Chicago Renting Ordinance, which took effect last fall. Designed to protect tenants and preserve the stock of affordable rentals within the city, the law requires an entity like a lender, Fannie Mae or Freddie Mac, that takes ownership of the property at the end of a foreclosure case to honor the lease of bona fide tenants until the lender sells the building to a third party. Otherwise, they need to make a $10,600 relocation payment per unit.

The ordinance won’t help renters like Anderson, who is dealing with the bad luck of having been a tenant in one of the thousands of rental units already involved in foreclosure proceedings.

“I still can’t wrap my head around all this,” she said.

Please click here to view the online article.

New York City Considering Eminent Domain to Prevent Foreclosures

Posted on September 13, 2018September 13, 2018 by Safeguard

On June 25, HousingWire published an article titled Is Eminent Domain Coming to New York City?

Is eminent domain coming to New York City?
Council members push to aid city’s underwater borrowers

A group of New York City council members are calling for the use of a controversial plan to prevent foreclosures in the city’s five boroughs.

Council members Jumaane Williams, Daneek Miller, Donovan Richards, and Mark Levine have joined with the New York Communities for Change and the Mutual Housing Association of New York to push for the city to use eminent domain to aid underwater borrowers.

In a study released Wednesday by the four council members, the New York Communities for Change and the Mutual Housing Association of New York, they report that there are more than 60,000 homeowners “in crisis” in the city. Those 60,000 underwater mortgages make up nearly 12% of the total mortgages in NYC.

According to the study, more than 24,000 of the underwater mortgages are private-label securitized mortgages, and are “concentrated disproportionately in lower- and moderate-income African-American and Latino neighborhoods.”

The study notes that the mortgages are “primarily high-interest, subprime mortgages that investment banks bundled and sold on the secondary market to investors, leading to the economic collapse of 2008.”

The report calls for the city government to “step in” and use eminent domain to “seize these toxic mortgages in order to reduce the principal that is owed, protect homeowners, and strengthen communities.”

Eminent domain has been discussed in several other smaller cities previously but nothing on the scale of what is being discussed in NYC. In early 2013, an eminent domain plan was halted in San Bernardino County, California because of a lack of community support and fear of unintended consequences.

Eminent domain plans were also discussed in Richmond, California and North Las Vegas, Nevada. The North Las Vegas plan failed to earn a single vote in the city council. The Richmond plan earned the ire of the Federal Housing Finance Agency, which came out against eminent domain as an avenue for underwater borrower relief.

But the four NYC council members said that the plan for NYC has merit and value for the city’s homeowners. “As the City Council and de Blasio administration begin to combat the affordable housing crisis throughout the five boroughs, one thing is certain: we must act to end the foreclosure crisis, and the use of eminent domain should be explored as a tool to do that, before we run the risk of casting the neediest of New Yorkers into an uncertain future,” Council Member Williams said.

Council Member Miller echoed those sentiments. “The utilization of eminent domain to resuscitate properties burdened by underwater mortgages will have a positive impact on communities devastated by the foreclosure crisis – including my own in Southeast Queens,” he said.

“It will allow entire neighborhoods to move forward and help break the cycle of declining values that stems from foreclosures. Southeast Queens is a community which has some of the highest homeownership rates in our City and we have been disproportionately affected by the foreclosure crisis without any resolution.”

Council Member Richards said that there are still many in NYC that are feeling the effects of the housing crisis. “Those who have not yet lost their home are on the brink of losing it in the near future. If we, as a city, can assist homeowners in anyway then we are obligated to do so,” he said.

“Eminent domain can remedy the failures of mortgage servicers and previous administrations which did not help the many New Yorkers who have faced or are facing the possibility of foreclosure.”

Council Member Levine singled out the “thousands of NYC homeowners” that are embroiled in court cases “with banks unwilling to work out reasonable accommodations” over their underwater mortgages.

“The City should explore every option to provide these homeowners relief including buying the properties for fair market value through eminent domain,” he said.

The move toward eminent domain in NYC could have considerable impact on the usage of eminent domain throughout the United States. “There are two kinds of cities that Wall Street can’t frighten – those that have serious underwater loan and foreclosure problems, and those that have dedicated Mayors and City Councils,” said Robert Hockett, professor of law at Cornell University.

“New York City is in both of those categories,” he said. “Any serious measures taken in New York City to address underwater loans and foreclosure will be ‘game-changing’ nationwide.”

Please click here to view the online article.

Eminent Domain Mortgage Seizures Down But Not Out

Posted on September 13, 2018September 13, 2018 by Safeguard

On June 16, American Banker published an article titled Eminent Domain Mortgage Seizures Down But Not Out.

Eminent Domain Mortgage Seizures Down But Not Out

The city of Richmond, Calif., was the first municipality to approve the use of eminent domain to acquire underwater mortgages in an effort to reduce foreclosures. But because the city council has been unable to muster the supermajority five out of seven votes necessary to actually use eminent domain, it will need to partner with another community to form a joint powers authority and carry out the plan. To date, it has not had any takers.

There are two major reasons why other municipalities are likely hesitant to partner with the city of Richmond and Mortgage Resolution Partners, a private company which developed the eminent domain program. The first is the threat of litigation from the banks and trusts that hold the rights to underwater mortgages. The second is the threat of the withdrawal of support from the Federal Housing Finance Agency, the bedrock of residential mortgage lending in America.

The city of Richmond emerged victorious in the lawsuits that were filed against it by the trustees for hundreds of residential mortgage-backed securities trusts after the city approved the eminent domain plan. However, those lawsuits were dismissed without prejudice to the trustees’ right to file again. The trustees are likely to file more lawsuits upon implementation of the plan. This possibility is deterring municipalities from partnering with Richmond, as they fear both their potential liability (the trustees in the initial lawsuits estimated $200 million or more in losses) and the associated legal costs.

The FHFA’s stance on eminent domain is another important deterrent. The agency has stated in no uncertain terms that it is against the use of eminent domain. The FHFA’s position is that the losses stemming from the use of eminent domain to modify mortgage loans would ultimately be borne by taxpayers and have a potentially chilling effect on the extension of credit to borrowers seeking to become homeowners. The FHFA has stated that it may initiate legal challenges against any local or state government that sanctions the use of eminent domain to restructure mortgage loan contracts in a way that affects FHFA’s regulated entities, Fannie Mae and Freddie Mac. It has also said that it may act by order or regulation to “direct the regulated entities to limit, restrict or cease business activities within the jurisdiction of any state or local authority employing eminent domain to restructure mortgage loan contracts.” This amounts to a death sentence for residential mortgage lending in any municipality in which the FHFA limits, restricts or ceases business activities.

The serious impact of the FHFA’s position on the viability of the eminent domain option has not been lost on pro-eminent domain stakeholders. The American Civil Liberties Union has sued the FHFA in Federal Court, seeking information about its position on the use of eminent domain to address underwater mortgages. ACLU staff attorney Linda Lye has said that the “FHFA has taken an aggressive stance on this issue in a way that has harmed minority communities” and that the “public deserves to know why.”

Although the concept of using eminent domain as a tool to address the continuing widespread issue of underwater mortgages is facing serious headwinds as a result of the above factors, the concept is not dead. Irvington, N.J., recently became the second community in the United States to adopt the use of eminent domain to address the issue of underwater mortgages, indicating that there is more to come on this topic.

Please click here to view the online article.

Foreclosure Fast-Tracking Gains Momentum

Posted on September 13, 2018September 13, 2018 by Safeguard

On May 12, National Mortgage News published a blog authored by Lynn Effinger, executive vice president of business development for ZVN Properties, titled Foreclosure Fast-Tracking Gains Momentum.

Foreclosure Fast-Tracking Gains Momentum

Momentum continues to build for the fast-tracking of the foreclosure process on vacant, abandoned properties. While this subject remains a bit controversial today, not acting pro-actively would be even more controversial.

Countless neighborhoods and whole communities have been negatively impacted over the past several years by blight and other consequences that accompany increased abandonment of residential real estate properties, especially in many urban areas. That is why a growing number of cities, states and other municipalities are taking steps to speed up the foreclosure process wherever it makes sense to do so.

The Bangor Daily News recently reported in a piece authored by Judy Harrison, a BDN staff writer, that a new law enacted by the Legislature and signed by Gov. Paul LePage, “…will improve the foreclosure process in Maine, Attorney General Janet T. Mills said.”

In her piece, Harrison noted that LD 1389, was drafted following a six-month assessment of the foreclosure process in Maine, two public forums, meetings with numerous bankers, housing counselors, attorneys and others. While the foreclosure rate has slowed in many parts of the country, Maine courts experienced an increase from 4,339 in 2012 to 4,756 in 2013. The new legislation reportedly will, among other things:

Strengthen the role of mediation by incorporating the national mortgage settlement standards.
Establish an expedited procedure to deal with abandoned properties.
Shorten the challenge period from 15 years to five years for property subject to municipal tax liens recorded after October 2013.
Authorize the Bureau of Consumer Credit Protection to regulate property preservation entities operating on behalf of lenders.

There exists a balancing act between protecting property rights of homeowners and the blight and associated costs related to health and safety issues and increased criminal activity often caused by vacant, abandoned properties that has given rise to the growing number of states looking at solutions to the problem.

But blight is not the only issue. According to an article published recently by Ohio.com, a report released by the Federal Reserve Bank of Cleveland indicated the acuteness of the foreclosure problem in Ohio and other states where the process is handled through the courts. The article stated, “As the study notes, the amount of time it takes to complete the [foreclosure] process—at least six months at its quickest in Ohio—adds significantly to the overall cost of foreclosures and slows the economic recovery.”

According to the study’s estimate, approximately 20% of the houses that have been foreclosed on in Ohio are vacant. It conjectured that if the judicial foreclosure process were to be fast-tracked on abandoned properties the state would reduce its inventory of foreclosed houses and substantially cut losses to the tune of tens of thousands of dollars.

One important provision of House Bill 223, currently under consideration in the Ohio House, defines the criteria for declaring a residential property to be vacant and abandoned, which then qualifies the house to be fast-tracked. Another significant provision would create a pilot program that would eliminate the minimum-bid requirement if the subject property does not sell at the first auction.

Ohio is one state among several that continues to suffer from a backlog of foreclosure cases in its court system. The aforementioned bill is looked upon as a promising bipartisan effort to accelerate their promising economic recovery.

Ohio’s action follows that of the Illinois General Assembly, which passed a bill late last year that reduces the timeline on the foreclosure process for abandoned properties from the more than two years it can often take today to as little as 90 to 100 days.

Lenders would also be required to pay additional fees to file foreclosure actions which will ostensibly be used to fund homeowner counseling and foreclosure prevention efforts, as well as help offset municipalities’ costs to secure and maintain neglected buildings. One of the main keys to the potential success of the Illinois bill would be the foreclosure courts’ ability to push the process through after the lender clearly demonstrates abandonment.

Other states are looking to follow New Jersey’s lead. Senate Bill 2156, signed into law by Gov. Chris Christie, is a piece of legislation that allows courts to grant summary foreclosure action when a subject property is certified vacant. As in other judicial foreclosure states, especially New York, moving abandoned properties through the foreclosure process is quite protracted. This new bill in New Jersey will require that lenders present in court “clear and convincing evidence” that the subject property is in fact vacant and abandoned. With that evidence accepted, the lender is allowed to fast-track the foreclosure process.

Similar legislation, instituted in Colorado and municipalities in Florida, is being watched closely for signs of success. Clearly, there is momentum building for fast-tracking the foreclosure process on vacant, abandoned properties. This is gaining in importance since there are numerous signs that the artificially created, “so-called” housing recovery has stalled noticeably.

Lynn Effinger is the executive vice president of business development for ZVN Properties Inc.

Please click here to view the online blog.

Berkeley Studies Underwater Mortgage Problem, Supports Richmond’s Eminent Domain Plan

Posted on September 13, 2018September 13, 2018 by Safeguard

On May 8, CBS reported on a story titled UC Berkeley Study Looks At Underwater Mortgage Problem, Supports Richmond’s Eminent Domain Plan.

UC Berkeley Study Looks At Underwater Mortgage Problem, Supports Richmond’s Eminent Domain Plan

RICHMOND (KCBS) – A new report from UC Berkeley’s Haas Institute for a Fair and Inclusive Society shows the widespread problem of underwater mortgages continues to affect cities throughout the country, including several in the Bay Area.

The report, titled “Underwater America: How the So-Called Housing ‘Recovery’ is Bypassing Many American Communities” is a first-of-its-kind look at the magnitude of the underwater mortgage issue.

Link to report.

“According to the data that we’ve looked at, the overwhelming proportion of cities and zip codes with the worst underwater mortgage problem are those with a high proportion of Latino and African American families,” said Peter Dreier, Chair of the Urban and Environmental Policy Department and Professor of Politics Occidental College, and a co-author of the study.

The report found that almost 5 million families have lost their homes to foreclosure since 2008, and foreclosures continue at rates higher than prior to the Great Recession. For African Americans and Latinos specifically, between 2005 and 2009, they experienced a decline in household wealth of 52 percent and 66 percent, respectively.

Bay Area cities with the highest percentages of underwater homes are Vallejo, Fairfield, Antioch, and Richmond. Co-author Saqib Bhatti said they support local governments taking matters into their own hands to give homeowners relief.

“What that means is taking steps, like the Richmond CARES program, which would involve using reverse eminent domain to acquire the mortgages from investors if they are unwilling to sell them,” Bhatti said.

In the 100 hardest-hit cities in the U.S. with populations over 100,000, the number of underwater homeowners ranges from 22 to 56 percent. In those cities in 2013, more than 320,000 homeowners went into default or foreclosure.

Among the recommendations to address the crisis: to have loan holders and investors reduce the principal on underwater mortgages to current market values, and if they are unwilling or unable to do so, to allow these loans to be purchased by publicly-owned or nonprofit entities that are willing to restructure them with fair and affordable terms.

The authors of the study said if bold action is not taken, entire cities will suffer the ripple effects of deteriorating neighborhoods.

Please click here to view the online article.

OH HB 223 Advances to Senate for Consideration

Posted on September 13, 2018September 13, 2018 by Safeguard

On April 2, Ohio HB 223 was passed by the House and is now being considered by the Senate. On April 3, The Columbus Dispatch published an article titled Bill Would Help Columbus Address Blighted Houses.

Please click here for prior reporting and bill summary. Following is the aforementioned article.

Bill would help Columbus address blighted houses

Allowing hunters to use silencers and creating what one supporter called a “radical” program to deal with blighted, abandoned houses were among the bills that advanced in the legislature yesterday.

Arguing that government money alone can’t handle the problem of blighted houses that drive down neighborhood property values and drive up crime, the House unanimously backed a bill allowing three cities to send these abandoned houses to auction without conducting appraisals or requiring minimum bids.

The five-year pilot project would be available to the cities that have housing or environmental divisions in their municipal court: Columbus, Cleveland and Toledo.

“There will never be enough government money to deal with a fraction of this problem,” said Rep. Michael F. Curtin, D-Marble Cliff, who sponsored the bill with Rep. Cheryl Grossman, R-Grove City. “ So let’s see if the market can work.”

The idea to deal with what Curtin called “zombie properties” came from Columbus City Attorney Richard C. Pfeiffer Jr.

“It quite frankly frightened some people when they first heard about it,” Pfeiffer said. “But where we have these blighted neighborhoods and nothing is moving, we need to do something different.”

Under the bill, if a property meets the legal definition of a blighted property, a city can file legal action against the owner and notify all lien holders that if it’s not fixed within a certain period, the city will foreclose on it. Without an appraisal or a required minimum bid, it will go to sheriff’s sale and be sold to the highest bidder.

However, bidders must be approved by the city to ensure that they legitimately want to deal with the property. If bought, the house becomes free of all back taxes owed.

In the past two years, Pfeiffer said, government and bank-settlement money has been used to fund efforts to deal with blighted properties. “That money is going to dry up,” he said. “This is an attempt to see if the private market will come back into these neighborhoods.”

There might be no market for the properties, Pfeiffer said, but it’s worth a try.

“When you say you’re going to sell a property without an appraisal, that’s radical,” he said. “ But you have to go into our neighborhoods and see that we’ve got to do something radical to make this thing work.”

The bill, which now goes to the Senate, also would set up a new fast-track process for foreclosures on vacant properties.

The foreclosure process is not working, Grossman said, because it is too long and complicated. The bill, she said, clarifies procedures and timelines for foreclosure actions and sheriff’s sales, and it would eliminate the minimum bid at auction if the house fails to sell at an initial auction.

“Vacant and nuisance properties are like cancer,” Grossman said.

Please click here to view the online article in its entirety.

ME HP 992 Will Expedite Foreclosure Process

Posted on September 13, 2018September 13, 2018 by Safeguard

On April 5, Maine House Bill H.P. 992, subtitled “An Act To Expedite the Foreclosure Process” was approved by Governor Paul LePage. On April 10, bangordailynews.com published an article titled Attorney General Says New Law Will Improve Residential Foreclosure Process in Maine.

Attorney general says new law will improve residential foreclosure process in Maine

Please click here for the bill text. Following is the aforementioned article.

AUGUSTA, Maine — A new law enacted by the Legislature and signed by Gov. Paul LePage will improve the foreclosure process in Maine, Attorney General Janet T. Mills said Thursday.

The legislation stemmed from a study, spearheaded by Mills, of the state’s efforts to handle residential foreclosures that resulted in a report submitted to the Judiciary Committee.

LD 1389 was drafted after a six-month examination of the home foreclosure process, two public forums and meetings with dozens of bankers, mediators, housing counselors, judicial personnel, attorneys and other stakeholders, according to a press release issued Thursday by Mills’ office.

“The data we collected shows that the housing crisis is still rippling through Maine,” she said. “Maine courts saw 4,756 foreclosure filings in 2013, up from 4,339 the year before. Our state has still not recovered from the recession. Maine families and communities continue to suffer.

“Many people in Maine are still struggling to make ends meet,” Mills said. “My work in this area reinforces that we need a legal framework that works efficiently but is responsive to the individual needs and interests of homeowners.”

Any impact on the costs or revenues within the Bureau of Consumer Credit Protection in the Department of Professional and Financial Regulation as a result of the new law are expected to be minor and absorbed within existing budget resources, according to the fiscal note attached to the bill.

Mills’ report concluded that the foreclosure mediation process, enacted into law in 2009 and adopted by court rule that same year, is successful and should be improved.

The legislation will:

Strengthen the role of mediation by incorporating the National Mortgage Settlement standards.
Establish an expedited procedure to deal with abandoned properties.
Shorten the challenge period from 15 years to five years for property subject to municipal tax liens recorded after Oct. 13.
Authorize the Bureau of Consumer Credit Protection to regulate property preservation entities operating on behalf of lenders.
Strengthen standards and training for foreclosure mediators.
Protect funding for housing counselors, a critical part of the foreclosure process, by closing a loophole that allowed foreclosing banks to avoid paying the full real estate transfer tax when the transfer was done with an affiliated entity.

Mills will review the foreclosure process and report her findings to the Legislature in January 2015, the press release said.

Please click here to view the online article.

KY SB 36 Right of Redemption

Posted on September 13, 2018 by Safeguard

On April 10, Kentucky Governor Steve Beshear signed into law, Senate Bill 36, subtitled AN ACT Relating to the Right of Redemption.

Please click here for the latest bill text.

KY SB 36 Summary:

Amend KRS 426.530 to reduce from one year to six months the time period for the right of redemption of real property sold in pursuance of a judgment or order of a court, other than an execution, if the sale did not bring two-thirds of its appraised value.

Banks Pushing Court Foreclosures Means More Inventory

Posted on September 13, 2018 by Safeguard

On April 10, Mortgage Servicing News published an article titled Banks Pushing Court Foreclosures Means More Inventory.

Banks Pushing Court Foreclosures Means More Inventory

Lenders are increasingly using the courts to foreclose on delinquent homeowners in states where it’s not required to reduce the risk of falling afoul of new protections.

In the first quarter, banks filed 2,348 court notices in nonjudicial states, which don’t require court involvement, according to data compiled by Irvine, Calif.-based mortgage data provider RealtyTrac Inc. That compares with only seven notices in the first quarter of 2013. The shift to the courts comes after laws were passed in states such as California and Hawaii that give consumers new tools to fight foreclosure, said RealtyTrac Vice President Daren Blomquist.

“Going through the judicial process now protects lenders,” said Thomas Lawler, a housing consultant and former chief economist at Fannie Mae. “Even though it takes longer, all sorts of eyes starting with the judge’s will reduce the likelihood of mistakes and potential liability under new foreclosure laws.”

The courts are emerging as an alternative way for lenders to move the remaining shadow inventory of foreclosed homes to the market. Banks have almost 500,000 homes in foreclosure that haven’t been sold, according to Blomquist. About 10% of these “limbo” properties are listed for sale, and more than half are occupied by a former homeowner or tenant, RealtyTrac estimates.

Housing price gains have been decelerating after a 23% overall advance in the past two years ago, according to data from the S&P/Case-Shiller index. Borrowing costs are increasing, with average mortgage rates for a 30-year fixed loan rising to 4.41% last week from 3.54% a year earlier, according to Freddie Mac.

Last year’s “rapid” price increases should give way to “moderating gains” in 2014, David Blitzer, chairman of the S&P/Case-Shiller index committee, said on March 25. Twelve cities in the 20-city composite gauge had monthly declines in January.

Foreclosure filings have plunged across the U.S. amid the price rebound fueled by low borrowing costs and investor purchases. Default, auction and repossession notices totaled 341,670 in the first quarter, down 23% from 2013 and the lowest in almost seven years, according to a RealtyTrac’s first-quarter foreclosure report released today.

In February 2012, the $25 billion settlement by the biggest banks after regulators probed their mortgage practices applied to past wrongdoing such as the use of faulty paperwork in home seizures, said Ethan Handelman, vice president for policy at the National Housing Conference. Laws passed since then cover future violations by lenders and specify tough new penalties, he said.

California’s Homeowner Bill of Rights, in effect since January 2013, subjects lenders that file unverified foreclosure documents to fines of as much as $7,500 per loan and enforcement by state licensing agencies. It also gives borrowers authority to “seek redress of material violations” of a newly enacted set of homeowner protections, according to an online summary.

The language is vague enough to convince banks that pursuing foreclosure through a court process offers more certainty and less risk, according to Blomquist. That’s especially the case for expensive California homes in foreclosure, he said.

“The judicial process is a known quantity, and any legal issues can surface on the front end,” Blomquist said in an interview. “It’s safer than being sued and having onerous damages applied after the fact.”

California homes in judicial foreclosure as of April 4 had an average value of $623,736, a 54% premium over the $404,378 average value for all distressed properties statewide, RealtyTrac data show.

Neighborhoods in Beverly Hills, La Jolla near San Diego and Orange County’s Aliso Viejo were among the top five ZIP codes in California where court filings jumped in the first quarter. More than a quarter of homes now under judicial review in the state had values of at least $750,000, the data company said.

Oregon homes under court purview had a value of $273,001, or 14% above the average for all foreclosures. In Nevada, such homes were valued at $209,565, representing a 4.5% premium.

California led the spike in court filings with 1,376 in the first quarter, an increase from one a year earlier, RealtyTrac data show. Hawaii followed with 410 such filings, up from zero, and Oregon climbed to 343 from six. Texas, Nevada, Washington and Wyoming also had gains in judicial filings.

Courts are typically bypassed in 26 states and the District of Columbia where lenders foreclose by sending delinquency notices to borrowers and recording defaults at the county level, Lawler said. That’s cut distressed inventory in those states and allowed for a quicker price rebound compared with the 24 judicial states with automatic court review of repossessions, he said.

The surge in court foreclosure filings, which began to gain steam in December and accelerated in the first quarter, may be part of new market assessments by banks as investors prepare for higher mortgage rates, said Handelman.

“It may be more the result of real estate fundamentals in certain places where banks are using different calculations,” Handelman, based in Washington, said. “This may be the latest ‘wait and see’ as they try to figure out the right time to take repossession.”

Please click here to view the online article.