Story URL: http://news.medill.northwestern.edu/chicago/news.aspx?id=214245
Story Retrieval Date: 5/19/2013 2:50:06 AM CST
Foreclosure rates rose 33 percent in 2012 in Illinois, one of 25 states whose rates increased.
Illinois foreclosures jump in 2012 as national recovery appears mixed
Illinois ranked fifth among states in terms of foreclosures.
Foreclosures have been decreasing since 2010 but are still well above 2005 levels.
Illinois remains in the top 5 among states for foreclosures in 2012 according to a report released Thursday by RealtyTrac, though analysts say this could have more to do with the foreclosure process than a declining housing market.
The number of foreclosures was down 3 percent nationally to 1.84 million properties in 2012 from 1.89 million in 2011. But Illinois was among 25 states where foreclosure rates increased compared with 2011.
“The market is still dealing with the wreckage of the housing bust,” RealtyTrac Vice President Daren Blomquist said in a statement.
Florida replaced Nevada atop the list of states with the most foreclosures, with approximately one in 32 properties, or 3.1 percent, undergoing foreclosure. Illinois was fifth with almost one in 38 properties, or 2.58 percent.
In Illinois, foreclosures rose Illinois 33 percent in 2012 compared with 2011.
Blomquist said the mixed results nationally could be explained by the different routes to foreclosure in each state, differentiated as a judicial or non-judicial foreclosure process. Illinois is among the states with a judicial foreclosure process, meaning the courts are involved when a lender files suit against the homeowner.
“2012 was the year of the judicial foreclosure, with foreclosure activity increasing from 2011 in 20 of the 26 states that primarily use the judicial process,” Blomquist said. “Meanwhile foreclosure activity continued to decline in 19 of the 24 states that use the more streamlined non-judicial foreclosure process, but there could be a backlog of delayed foreclosures building up in some of those states as well as the result of recent state legislation and court rulings that raise the bar for lenders to foreclose.”
Sarah Duda, assistant director of the Institute for Housing Studies at DePaul University, said the bump in foreclosures in Illinois last year could be imagined as a sort of hose. She said 2011 represented a “kink in the hose” with the foreclosure process in Illinois keeping many cases from completion. Those cases were finished in 2012, which may account for the increased foreclosure rate.
“This number is going to be bigger just because 2011 was distorted.”
Duda added, “When we think about market recovery we have to look beyond foreclosure numbers. The excess inventory can depress prices. There are challenges around limited access to credit. It is difficult to say whether there is going to be price recovery in 2013. Most likely it will be uneven.”
Thomas McNulty, head of the real estate practice at Neal, Gerber, & Eisenberg in Chicago and former head of the tax unit at the Cook County State’s Attorney’s Office, echoed the mixed signals in the report.
“You can’t conclude we are out of the mess based on this. It is based on a number of variables.”
Two variables McNulty cited include poor records kept by lenders and the inability of banks to efficiently manage foreclosed properties.
“What is happening everywhere is that one of the things bank don’t want to be in is the real estate business, especially now. They are not built to own, operate and manage houses and small apartment buildings. A lot of them are slowing down. Trying to hold off from trying to take title.”
Illinois metro areas, defined by RealtyTrac as those with populations above 200,000, continued to struggle with high foreclosure rates. Chicago ranked ninth nationally with a foreclosure rate of 3.31 percent of properties. Rockford was behind Chicago in 10th with a 3.28 percent foreclosure rate. Stockton, Calif., led the metro list, which included seven California cities in its top 20.
McNulty remained optimistic about the future real estate market, citing lending regulations released Thursday by the Consumer Financial Protection Bureau. Regulations require lenders to verify borrowers’ financial records and bans “interest only” and “liar” loans.
“I think things are going to get better simply because the Consumer Financial Protection Bureau announced standards for lending,” McNulty said. “Whether you like the standards or don’t like the standards, they are clear. One thing most banks and lenders like is certainty.”