NYC residential defaults surge after six months of decline

The number of New York City residences entering the foreclosure process surged by nearly 38 percent in August, reversing a six-month trend and suggesting that the foreclosure cycle has yet to fully run its course in the Big Apple, according to data from RealtyTrac released today.

Across the five boroughs, 1,437 homes were hit with lis pendens — the initial default notices that mark the beginning of the foreclosure process — last month. That’s up from 1,043 homes in July, though still below the level from August 2009, when 1,855 homes went into default, RealtyTrac said.

In New York State, the spike was even more pronounced, with lis pendens up 59 percent month-over-month, to 3,608 homes from 2,265 in July, but down 8.6 percent from 3,947 homes in August 2009.

Overall, 1,667 residential properties in the city saw foreclosure filings — including default notices, scheduled auctions and bank repossessions — in August, a 21 percent increase from one month earlier but a 25 percent decrease since the same month last year.

The influx of new homes into the foreclosure process could be the result of loan modification programs, which in many cases have merely delayed foreclosures for underwater homeowners rather than prevented them, said Daren Blomquist, a spokesperson for RealtyTrac. The increase we’re seeing, he explained, is that backlog of postponed defaults beginning to enter the system in New York.

Nationally, lis pendens levels were relatively flat month-over-month and down 30 percent from last year. But Blomquist warned that New York City’s August surge in new defaults could be replicated in other states as loan modification programs fail to rescue many of their participants.

“Delinquency rates are very high still, so we know there are still a lot of homeowners out there who are in trouble and are missing their payments,” Blomquist said. “Eventually, some of those properties will enter foreclosure down the road.”

But for now, there appears to be a concerted effort amongst lenders and servicers not to flood the market with either new defaults or REO properties, the data shows.

“On the front end, seriously delinquent loans are rolling into foreclosure at an unusually slow rate [in the U.S.],” said James Saccacio, CEO of RealtyTrac, in a statement. Similarly, bank repositions — which hit a new monthly peak of 95,364 in August — are happening “in steady stream rather than a flood,” despite the “dammed-up inventory of properties already in foreclosure,” he said.

That’s not a coincidence, Saccacio explained, but rather “a clear indication that the clogged foreclosure pipeline is being carefully managed on both ends by lenders and servicers.”