Posted on Thu, Jan. 12, 2012
last updated: January 12, 2012 06:21:08 AM
WASHINGTON — The two major markers of financial distress — bankruptcies and foreclosures — declined in 2011 from the previous year, but the good news is a bit deceiving.
The 34 percent decline in foreclosure filings last year was due mainly to processing delays caused by legal concerns about proper documentation of paperwork, according to a new report by RealtyTrac, an online foreclosure database.
Foreclosures in the fourth quarter of 2011 had taken an average of 348 days to complete, compared with 305 days in the last quarter of 2010.
"Foreclosures were in full delay mode in 2011, resulting in a dramatic drop in foreclosure activity for the year," said Brandon Moore, the CEO of RealtyTrac.
Moreover, the 12 percent reduction in personal bankruptcies last year reflected a continued decline in consumer spending and the lack of available credit rather than a strongly rebounding economy.
"As consumers continue to leverage their debt and access to credit remains tight, bankruptcy filings will continue to decrease," said Samuel J. Gerdano, the executive director of the American Bankruptcy Institute, a nonpartisan insolvency research center.
Even the 19 percent decline in business bankruptcies — from 92,070 in 2010 to 74,142 in 2011 — reflects more the willingness of secured lenders to restructure finance deals than an improving business landscape.
"It's referred to in the business as 'extend, amend and pretend,' and that's been the environment," Gerdano said. "The people who are in a position to put the hammer down are essentially extending existing deals. That means fewer traditional Chapter 11" business bankruptcies.
Total business and personal bankruptcy filings fell from roughly 1.56 million in 2010 to 1.38 million in 2011, according to figures from Epiq Systems Inc., which tracks bankruptcy data for the legal profession.
After nearly 1.47 million personal bankruptcies were filed in 2010, the number fell to more than 1.3 million last year.
Nevada led the nation with a total bankruptcy filing rate of nearly 9 per 1,000 residents, followed by Georgia and Tennessee, with per capita filing rates of 7.35 and 7.34 respectively. Utah and Alabama rounded out the top five with per capita filing rates of 6.5 and nearly 6.4 percent.
Nearly 2.7 million foreclosure filings — which included default notices, scheduled property auctions and bank repossessions — were reported on roughly 1.9 million properties last year.
That works out to about one filing for every 69 U.S. homes. That rate and total foreclosure activity in 2011 were at the lowest annual levels since the housing market imploded in 2007.
But the decline may be short-lived, as lenders work their way through the backlog of delayed filings stemming from "robo-signing" scandals.
"We expect that trend to continue this year, boosting foreclosure activity for 2012 higher than it was in 2011, though still below the peak of 2010," Moore said.
Nevada's 6.4 percent foreclosure rate was the highest in the nation for the fifth straight year, followed by Arizona, which had the second-highest rate — 4.1 percent — for the third year in a row.
"The lack of clarity regarding many of the documentation and legal issues plaguing the foreclosure industry means that we are continuing to see a highly dysfunctional foreclosure process that is inefficiently dealing with delinquent mortgages, particularly in states with a judicial foreclosure process," Moore said
Las Vegas led all metropolitan areas, with one in 14 homes, or 7.4 percent, in foreclosure.
Ten of the nation's top 20 metro-area foreclosure rates were in California. They included Modesto at number 3, Vallejo-Bakersfield at 4, Riverside-San Bernardino at 5, Merced at 7, Bakersfield at 9 and Sacramento at 10.
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