NEW YORK (MainStreet) — One of the reasons banks favor short sales over foreclosures is that lenders are taking too long to repossess a home.
According to RealtyTrac, a firm that monitors the foreclosure market, homes in the U.S. spent an average of 318 days in some stage of foreclosure before a bank formally regained ownership during the second quarter of 2011. This marks an increase over last year when foreclosures were processed on average in 277 days.
To put this in context, RealtyTrac’s data from the second quarter of 2007—the year preceding the housing crisis—indicate that back then, a foreclosure was completed 154 days after the initial notice was filed by a lender.
So what has doubled the time it takes for a foreclosure to be processed?
The sheer volume of properties entering foreclosure is a huge factor, Daren Blomquist, marketing communications manager at RealtyTrac, tells MainStreet. But the process is also impeded by changes to many states’ laws.
“There are many programs being instituted by state and local governments that help the homeowner prevent foreclosure,” Blomquist says. He explains that many municipalities require lenders to provide mediation before they can repossess the home, which “adds 30, 60, even 90 days to the process.”
Also throwing a wrench into the procedure is the Home Affordability Modification Program, which doesn’t require lenders to let a homeowner refinance his or her mortgage on a distressed property, but gives financial institutions monetary incentives to do so. Such incentives lead many banks and lenders to try to work out a loan modification for the home before it’s repossessed, Blomquist says.
Finally, you can’t talk about the foreclosure market without addressing the robo-signing controversy which led to a temporary halt to foreclosures in October 2010, when lawmakers asserted banks were not following proper protocol before signing off on a foreclosed home. While proceedings resumed about a month after the initial outcry, the scrutiny did not die down. Just this month, county officials in three states — Massachusetts, North Carolina and Michigan – called for for hearings and further investigation Tuesday after alleging lenders were still illegally signing off on homes they did not legally have claim to.