Foreclosure looms over more homes

By: CHRIS BAGLEY - Staff Writer | Monday, January 22, 2007 11:29 PM PST ∞

Foreclosure activity in Riverside County continued to rise sharply in the last three months of 2006, reflecting overstretched buyers and flattening real estate values, according to a research firm.

Lenders sent out 5,329 notices of default to home buyers who had fallen behind on their mortgages, up from 1,835 in the fourth quarter of 2005, according to data from Irvine-based RealtyTrac.

The numbers have risen above historical averages but aren't cause for alarm, said Rick Sharga, vice president for marketing at the company. They reflect a certain amount of catching up from the last three years, when rising real estate values and an especially brisk market allowed financially stretched homeowners to sell their way out of a heavy loan before getting too far behind on their payments, he said.

"As real estate sales go down, it takes one of the best options off the table for people who are in default," Sharga said.

A default notice is the first of several steps in the foreclosure process. Lenders in California can auction or repossess a house after about five months if the loan isn't paid off.

Lenders moved to the next step of the process, a warning that the property could be auctioned, in just more than 700 cases last quarter, according to RealtyTrac. That number isn't particularly high, Sharga said, due to a relatively strong demand for houses in Southern California and the economy.

Unemployment in the county has remained below 5.5 percent since July 2005, and stood at about 4.6 percent last month, according to a state agency.

In many cases, a delinquent borrower can avoid foreclosure by selling the house quickly and at a loss, Sharga said.

Banks and other lenders also have become more willing to renegotiate with borrowers than in past real estate slumps.

Now that houses are sitting on the market for longer, they can be more troublesome for banks to sell than foreclosed properties in 2003 and '04.

"Market conditions make banks more willing to consider any reasonable option," Sharga said. "A few years ago, they could repossess the house at breakfast and sell it at lunch. That's not the case anymore."

The notices of default sent out in the fourth quarter include several dozen that went to participants in an unusual real estate investment group centered in Murrieta, according to signed declarations filed last week as part of a civil lawsuit.

The plaintiffs allege that a Murrieta mortgage brokerage suckered them into buying multiple homes with inflated mortgages and then pocketed the difference in cash, in some cases about 20 percent of the legitimate value of the homes, according to court documents.

The suit names 11 plaintiffs who said they each bought between two and 10 homes under the arrangement. Many of the plaintiffs have defaulted on multiple mortgages.

-- Contact staff writer Chris Bagley at (951) 676-4315, Ext. 2615, or cbagley@californian.com. 

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