The stream of foreclosures that began to hit Capital Region homeowners last year turned into a flood in the first three months of this year, and neither bankruptcy court nor various foreclosure prevention efforts are providing much help.
The number of area properties in various stages of foreclosure increased more than fivefold during the three-month period ending March 31, compared with a year earlier, according to RealtyTrac.com, an Irvine, Calif., nationwide foreclosure tracking firm.
During the quarter, the five-county region had 608 foreclosure filings, which include default and auction notices and bank repossessions. A year earlier, there were 111.
That means one out of every 622 households in Albany, Rensselaer, Saratoga, Schenectady and Schoharie counties got foreclosure notices. That is a much better track record than Stockton, Calif. — ground zero of the mortgage crisis, where one out of every 30 households received a foreclosure filing. And it is also better than the nationwide foreclosure rate, one out of every 194 households.
The foreclosure statistics, which RealtyTrac released Tuesday, showed the state has the nation’s 30th highest foreclosure rate. Nevada has the highest.
New York Department of Banking Superintendent Richard Neiman said the statistics are a “clear indicator that we are not near the end of this crisis,” which will worsen as rates on adjustable rate mortgages reset over the next 18 months. An estimated $514 billion in variable-rate loans are projected to reset to higher rates this year, followed by $398 billion in 2009, according to Banc of America.
New York’s Foreclosure Prevention Working Group last week reported that seven out of 10 seriously delinquent borrowers had not taken significant loss mitigation actions or steps to avoid foreclosure. The foreclosure group was formed last July and consists of state bank and mortgage regulators plus representatives from the Attorney General’s Office.
Without working out a deal with lenders, many cash-strapped borrowers’ only other recourse to save their home lies in the U.S. Bankruptcy Court system. By filing for Chapter 13 rehabilitation, borrowers can stop the foreclosure process and develop a court-sanctioned payment plan for their mortgage.
Non-business Chapter 13 filings increased during the first quarter at the U.S. Bankruptcy Court in Albany, but only by a tiny amount compared to the heightened foreclosure activity — 13 percent. And non-business Chapter 7 liquidation filings actually declined by 3.5 percent.
“It’s certainly possible there could be a lag between the commencement of foreclosures and the bankruptcy filings,” said Francis Brennan, an Albany bankruptcy attorney and the former president of the Capital Region Bankruptcy Bar Association.
Brennan noted the first quarter tends to be a slow bankruptcy filing period because consumers are reeling from the holidays. But the process of receiving a bankruptcy court’s protection has also become more costly and onerous since Congress reformed the bankruptcy system in 2006.
Before filing, bankruptcy petitioners need to collect six months worth of pay stubs, for example. And the court fees are now higher. Those reforms have pushed bankruptcy out of reach of many low-income homeowners who are already struggling with higher food and fuel prices on top of higher monthly payments for their adjustable rate mortgages.
The nation’s annualized inflation rate climbed to 4 percent in March while wage growth slowed to 3.6 percent, according to the U.S. Bureau of Labor Statistics.
“People are literally making the choice between feeding their children, getting to work and paying their mortgage,” said Capital Region Bankruptcy Bar Association President James Doern, a Saratoga Springs bankruptcy attorney.
However, the foreclosure crisis is not limited to the region’s poorest neighborhoods. Foreclosure filings in Saratoga County surged during the first quarter, climbing to 137 from six a year earlier. Albany County led the region in foreclosure activity, with 305 filings compared with 40 during the first quarter of 2007. Schenectady County filings jumped to 101 from 17.
Regionwide, RealtyTrac said 177 properties had been foreclosed upon and repurchased by a bank. Latham bankruptcy attorney Barbara Whipple said some borrowers are letting homes fall into foreclosure because they are not worth saving, especially when their assessed value falls below the amount of their mortgage.
“A lot of people are just walking away from their house because they’re finding they are just so under water,” said Whipple, who is also the president-elect of the CRBBA.
The problem of walk-away borrowers has been less pronounced in the greater Capital Region, where home values have largely held steady or even increased. In March, the region’s single-family home median sale price rose 3 percent over the year while that value tumbled 8.3 percent nationwide.
Doern warned that walk-away borrowers can be sued by lenders for funds not recouped through the sale of a repossessed property and for fees stemming from the foreclosure.