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LA JOLLA, Calif. -- The number of mortgage default notices filed against California homeowners fell last quarter for the first time in three years as a change in the state's formal foreclosure process took effect.

If that procedural change hadn't kicked in during early September, indications are that third-quarter default filings would have been about the same as the record number filed in this year's second quarter, a real estate information service reported.

Mortgage servicers recorded 94,240 "notices of default" on homes during the July-through-September period. That was down 22.5% from a revised record of 121,673 in this year's second quarter, and up 29.9% from 72,571 in third-quarter 2007, according to MDA DataQuick. The San Diego-based firm's default statistics begin in 1992.

The last time default filings fell from one quarter to the next was in the second quarter of 2005.

This year default filings totaled about 40,000 for each month from March to August. In September the number dropped to 14,995 filings as a new state law took effect early that month. It requires that in many instances lenders must try to contact homeowners delinquent on their mortgage payments, then wait 30 days before filing a default notice.

During the first week of September, before the law took effect, roughly 2,000 default notices were filed each business day in California. In the week after the law kicked in, average daily filings plunged to less than 100, then went back up to around 500 daily the final week of September.

Notices of Default
(first step in foreclosure process)

Houses and condos
County/Region
2007Q3
2008Q3
Yr/Yr%
Los Angeles 13,583 17,073 25.7%
Orange 3,882 5,692 46.6%
San Diego 5,673 7,062 24.5%
Riverside 9,250 11,714  26.6%
San Bernardino 7,038 9,110 29.4%
Ventura 1,377 1,676 21.7%
Imperial 259 568 119.3%
SoCal 41,062 52,895 28.8%
San Francisco 252 353 40.1%
Alameda 2,126 3,482 63.8%
Contra Costa 3,216 4,103 27.6%
Santa Clara 1,655 2,814 70.0%
San Mateo 581 797 37.2%
Marin 172 258 50.0%
Solano 1,513 1,934 27.8%
Sonoma 749 1,021 36.3%
Napa 163 265 62.6%
Bay Area 10,427 15,027 44.1%
Santa Cruz 267 342 28.1%
Santa Barbara 598 593 -0.8%
San Luis Obispo 249 370 48.6%
Monterey 163 1,260 67.8%
Coast 1,865 2,565 37.5%
Sacramento 4,947 5,541 12.0%
San Joaquin 2,961 3,432 15.9%
Placer 728 973 33.7%
Kern 2,196 2,774 26.3%
Fresno 1,807 2,202 21.9%
Madera 320 499 55.9%
Merced 1,076 1,399 30.0%
Tulare 595 883 48.4%
Yolo 303 405 33.7%
El Dorado 278 342 23.0%
Stanislaus 1,909 2,636 38.1%
Kings 108 140 29.6%
San Benito 178 202 13.5%
Yuba 227 307 35.2%
Colusa 54 68 25.9%
Sutter 155 269 73.5%
Central Valley 17,842 22,072 23.7%
Mountains* 417 526 26.1%
North Calif* 958 1,155 20.6%
Statewide* 72,571 94,240 29.9%
*Not all counties listed
Countywide Trustees Deed counts can be found at dqnews.com

"It's unclear just how much foreclosure activity will be time-shifted into future months. We'll know more when we have fourth-quarter numbers. What's interesting is that the surge in activity certainly did level off during the second and third quarters. A lot of the market's distress is working its way through the system and the spectacular jumps in activity may be behind us. Or it may be that those processing the default paperwork are just maxed out," said John Walsh, DataQuick president.

Most of the loans that went into default last quarter were originated between October 2005 and February 2007. The median age was 28 months, up from 18 months a year earlier.

On primary mortgages, California homeowners were a median five months behind on their payments when the lender filed the notice of default. The borrowers owed a median $11,184 on a median $345,000 mortgage.

On home equity loans and lines of credit, homeowners were a median eight months behind on their payments. Borrowers owed a median $3,286 on a median $57,950 credit line. However the amount of the credit line that was actually in use cannot be determined from public records.

DataQuick, a subsidiary of Vancouver-based MacDonald Dettwiler and Associates, monitors real estate activity nationwide and provides information to consumers, educational institutions, public agencies, lending institutions, title companies and industry analysts.

Notices of default are recorded at county recorders offices and mark the first step of the formal foreclosure process.

Although 94,240 default notices were filed last quarter, they involved 91,927 homes because some borrowers were in default on multiple loans (e.g. a primary mortgage and a line of credit).

Of the homeowners in default, an estimated 20% emerge from the foreclosure process by bringing their payments current, refinancing, or selling the home and paying off what they owe. A year ago it was about 46%. The increased portion of homes lost to foreclosure reflects the weakness in the real estate market, as well as the number of homes bought at the height of the market with multiple-loan financing, which makes lender "work-outs" difficult.

Multiple-loan financing peaked in the fourth quarter of 2006 at 61% of all financed home purchases. Last quarter it was 6.5%.

Trustees Deeds recorded, or the actual loss of homes to foreclosure, totaled a record 79,511 during the third quarter. That's the highest since DataQuick began tracking Trustees Deeds in 1988. Last quarter's total rose 25.6% from a revised 63,316 in the previous quarter, and rose 228.4% from 24,209 in third quarter 2007. In the last real estate cycle, Trustees Deeds peaked at 15,418 in third-quarter 1996. The all-time low was 637 in the second quarter of 2005.

Because a foreclosure typically takes about four to six months, or longer, the recent procedural changes for default filings probably won't affect Trustees Deed counts much before the end of this year.

There are 8.4 million houses and condos in the state, DataQuick reported.

Foreclosure resales have emerged as a major market factor, accounting for 47.6% of all California resale activity last quarter. A year ago it was 9.5%. Foreclosure resales - homes that had been foreclosed on at some point in the prior 12 months -- vary significantly by area, from 7.3% of resales in San Francisco County to 77.9% in Merced County.

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