Defaults and foreclosures in the region fell precipitously in January as the economy began to stabilize and financial services companies accelerated their efforts to keep properties out of foreclosure.

In North San Diego County, banks notified 655 borrowers that they were more than 90 days behind in their mortgage payments, down 44 percent from last January, and continuing a trend of monthly drops that began in March, according to data from distressed property specialists ForeclosureRadar.

The number of homes sold at auction, the end of the foreclosure process, fell even more precipitously, with 91 properties sold at auction, a 76 percent drop from a year ago.

Southwest Riverside County saw similar declines, with notices of default down 36 percent from the previous year to 756, while 136 homes were sold in foreclosure auctions, a whopping 77 percent drop from the previous January.

"The stress of default is still there," said Mark Goldman, a real estate instructor at San Diego State University. "But we're starting to hear a lot more buzz about the efficiency of short sales."

In a short sale, borrowers sell their property for less than they owe on the mortgage, and then wait for their lenders to approve.

For much of the past year, financial institutions have taken up to nine months to make decisions, leaving sellers, buyers and real estate agents frustrated.

But short sales are a much cheaper option for banks than going through the foreclosure process, with its layers of notifications and paperwork.

Real estate agent Larry McKenzie, who works in North San Diego County, said banks tell him that a short sale costs them 10 percent of the home value, while a foreclosure costs them 30 percent.

That fact, combined with new federal incentive programs for short sales, has prompted McKenzie to reposition his business.

"I was just doing bank-owned (properties)," he said. "But short sales are radically increasing."

Economist Nathan Moeder of the London Group said the drop in numbers of distressed homeowners may reflect a stabilizing economy.

"We ran out of people that are losing their jobs and becoming affected by this," he said. "It's a hopeful sign, but this (recovery) is a long process. This isn't something to get all cheery about. Things aren't going to be all bright and sunny again, except the San Diego weather."

Call staff writer Eric Wolff at 760-740-5412.