The second month of 2013 brought news that non-judicial real estate foreclosure filings fell significantly in San Diego and all across California.

This may be an enigma, however, due to the state’s shifting legal landscape instead of a sign that distressed homeowners will discover a desirable solution to their troubles or escape foreclosure altogether, HousingWire reported Thursday.

California had 18,093 properties facing a non-judicial foreclosure filing in January, down 39 percent from December and a 65 percent drop from 2012. January brought the enactment of the California Homeowner Bill of Rights, which created new state bans on dual-tracking and a private right of action that gives homeowners a chance to challenge various elements of the non-judicial home foreclosure process in courts.

Foreclosure Sign

Foreclosure attorneys and economists warned as early as September of last year that California would become a de facto judicial foreclosure state, prompting fewer banks to choose the non-judicial foreclosure process and instead opt for a judicial foreclosure that could help them gain protections from legal risks tied to the new Bill of Rights.

Consumer advocates that have pushed for a progressive solution to foreclosure issues applauded the resulting decline in San Diego foreclosures and those in other California cities in January. But they may be speaking too soon by assuming the Bill of Rights actually stopped, or even prevented, foreclosures.

“The decrease in foreclosure starts in California, while welcome, is also an indictment of the past five years when banks failed to deal fairly with the hundreds of thousands of California families struggling to keep their homes,” said Kevin Stein of the California Reinvestment Coalition. “The Homeowners Bill of Rights is a rare point of leverage to hold banks accountable to communities, and this data point indicates that it’s finally starting to work.”

But the financial services industry predicted the Bill of Rights would actually cause non-judicial foreclosures to decline in California as opposed to ending the process outright; however, real estate watchdogs report that lenders are most likely filing judicial foreclosures instead.

With this in mind, RealtyTrac is tracking judicial foreclosure activity separately. To date, the research firm has not discovered a substantial uptick in judicial foreclosure filings, but added that lenders have traditionally moved slowly in terms of how they are running their operations. There’s a strong possibility that more lenders will be transitioning from nonjudicial to judicial foreclosures.

The fact that California is not seeing more judicial foreclosure filings as of yet does not rule out the possibility.

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This is filed under National Markets.


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