“I had grasped the significance of the silence of the dog,…”— Sherlock Holmes in Silver Blade.
When I saw this title America’s New Foreclosure Capitals, I thoroughly expected to see some of California’s usual suspect communities. Instead, there was a notable lack of California locales on the list.
Forbes and RealtyTrac culled through data for more than 200 MSAs to identify the 20 in which foreclosure activity accelerated the most over the past year. The factors considered include the increase in foreclosure activity from May 2011 through May 2012; the size of the shadow inventory supply; and the percentage of distressed sales.
California benefitted from being both a non-judicial and nonrecourse foreclosure state. Even though the state’s foreclosure rate skyrocketed in 2007-2009, the settlement process appears to have worked out troubled mortgages faster than other areas that were hit hard by the Subprime implosion.
- All of Forbes’ New Foreclosure Capitals (see list below) are in judicial states, in which foreclosure actions require court proceedings. In non-judicial states foreclosure actions can be handled by attorneys according to a state-dictated process.
- In non-recourse mortgage states, borrowers are not liable for more than the home’s value at the time of foreclosure. In recourse states, after a foreclosure lenders can pursue borrowers if the foreclosed property sold for less than the amount owed the lender by filing suits, garnishing wages, levying bank accounts. Theoretically, in nonrecourse states troubled borrowers will more readily submit to foreclosure actions because of the limited liability incurred.
The settlement of the robo-signing scandal early in 2012 led to a new wave of foreclosure actions, particularly in judicial states.
“So while foreclosures in hard-hit states where the process is less rigorous — like California, Nevada, and Arizona — have actually been decreasing, judicial states like Florida, Ohio and Pennsylvania, are facing an onslaught of new filings.”
Judicial States: Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont, and Wisconsin
Non-Recourse States: Alaska, Arizona, California, Connecticut, Florida, Idaho, Minnesota, North Carolina, North Dakota, Texas, Utah, and Washington.
goldenstateoutlook 
It’s likely, though, that foreclosures of owner-occupied houses will increase over the next few months, as lenders seek to beat the homeowners’ rights legislation that goes into effect in January. It’s particularly likely that they’ll step up NOD and NTS (Notice of Default and Notice of Trustee Sale) filings on those who have been “dual-tracked.” They won’t be able to continue dual-tracking and, since that appears to be a lender scheme where the soon-to-be-foreclosed homeowner is encouraged to empty out savings accounts and retirement funds, sell first-born child, etc. on the off-chance that a modification is forthcoming, lenders will just decide to foreclose before the end of the year.