Foreclosure filings of all types continued to decline during February, with 225,101 filings of all types recorded on U.S. properties during the month.  This is a 14 percent decrease from January and is 27 percent lower than the same period a year earlier.

According to RealtyTrac's US Foreclosure Market Report released on Thursday, that year-over-year decrease is the largest recorded by the company since it began keeping records in 2005.  A foreclosure filing was reported on one out of every 577 U.S. housing units.

RealtyTrac bases its reports on a database derived from a nationwide survey of foreclosure filings in three categories:

  1. Notice of Default (NOD) and Lis Pendens (LIS). This is the first legal notification from a lender that the borrower on a mortgage loan has defaulted under the terms of their mortgage and the lender intends to foreclose unless the loan is brought current.
  2. Auction - Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS): if the borrower does not catch up on their payments the lender will file a notice of sale (the lender intends to sell the property). This notice is published in local paper and contains information pertaining to the date, time and subject property address.
  3. Real Estate Owned or REO properties : "REO" stands for "real estate owned" and typically refers to the inventory of real estate that banks and mortgage companies have foreclosed on and subsequently purchased through the foreclosure auction if there was no offer higher than the minimum bid.

"Foreclosure activity dropped to a 36-month low in February as allegations of improper foreclosure processing continued to dog the mortgage servicing industry and disrupt court dockets," said James J. Saccacio, chief executive officer of RealtyTrac. "While a small part of February's decrease can be attributed to it being a short month and bad weather, the bottom line is that the industry is in the midst of a major overhaul that has severely restricted its capacity to process foreclosures. We expect to see the numbers bounce back, but that will likely take several months. And monthly volume may never return to its peak in March 2010 of more than 367,000 properties receiving foreclosure filings."

The problems associated with foreclosure documentation do not directly impact every step of the process though. There is reason for optimism.   Default notices (NOD LIS) were filed on a total of 63,165 properties in Fenruary, that is a 16 percent decline from January and a 41 percent improvement from a year earlier.  It is also a 48-month low for this category and is 55 percent below the peak in default notices, which occurred in April of 2009.

Because many of the issues that have arisen in the foreclosure process were identified in states using a judicial foreclosure process, RealtyTrac now breaks out filings by judicial and non-judicial states.  Default notices in judicial states decreased 19 percent during the month and 13 percent in non-judicial states.  Year-over-year filings were down 48 and 31 percent respectively. 

Foreclosure auctions (NTS, NFS) were scheduled for the first time on 97,293 U.S. properties in February, a 10 percent decrease from the previous month and a 21 percent decrease from February 2010. This represented a 27 month low and a drop of 38 percent from the peak level reached in March 2010.  In judicial states these filings were down 7 percent from January and 49 percent from a year earlier; in non-judicial states the changes were -11 percent and -7 percent.

Lenders foreclosed on 64,643 U.S. properties in February, down 17 percent from January and down 18 percent from February 2010. These repossessions (REO) were at a 22-month low in February, down 37 percent from their peak of 102,134 in September 2010.   In judicial foreclosure states bank repossessions decreased 24 percent from January and were down 35 percent from February 2010, while bank repossessions in states with a non-judicial process decreased 14 percent from January and were down 8 percent from February 2010.

Once again Nevada and Arizona led the country in foreclosure rates; Nevada for the 50th straight month.  One in every 119 housing units in the state received a filing in February but this was a 22 percent drop from January and a 13 percent decrease from February 2010.  A total of 9,553 homes received a filing during the month.

Arizona had the second highest rate with one in every 178 housing units receiving a filing and California was third with one foreclosure touching in every 239 homes.

Rounding out the top five were Utah (1:273) and Idaho (1:298).  A notable change: in February Florida dropped out of the top five where it has been for many months.  In February it was the state with the 8th highest foreclosure rate although it still ranked second nationally in numbers of foreclosures.  For the For the second month in a row, no Florida cities posted foreclosure rates in the top 20 among U.S. metropolitan areas with a population of 200,000 or more; a distinct improvement from 2010, when the state accounted for nine of the top 20 metro foreclosure rates.