Florida leads nation in foreclosures

Article Courtesy of The Orlando Sentinel

By Mary Shanklin

Published October 12, 2012

For the first time since 2005, Florida led the nation for foreclosures, according to a report by a real-estate research group that tracks home sales across the country.

During the past year, foreclosures dropped 13 percent nationally but increased by more than that amount in Florida . The state had one foreclosure legal filing for every 117 houses during the third quarter the highest rate in the country and double the rate for the entire nation, according to a third-quarter report by RealtyTrac.

Metro Orlando closely reflected the rest of the state: Foreclosure actions increased 14 percent during the third quarter from a year earlier. RealtyTrac analysts think growing pools of foreclosures typically place downward price pressure on overall housing in an area.

Florida 's top foreclosure ranking could be bad news at a time when the state's housing market has been headed toward recovery. Prices in the core Orlando market, for instance, have increased from $108,000 in January to $120,550 in August, according to the Orlando Regional Realtor Association.

A combination of factors, including homeowner associations foreclosing on homes and hedge funds snapping up properties, appear to be contributing to the run-up in numbers.

Florida has more homeowner associations than most states, and hedge funds have targeted it, along with the other foreclosure-heavy states. Florida usually ranks in the top five for foreclosures, with Arizona and California typically in the top two spots.

Orlando real-estate agent Janet Scott said homeowner associations have increasingly opted to take advantage of state laws that allow them to foreclose on condominiums and houses when owners fail to pay association fees.

"When people let their homeowner-associations fees become delinquent, that's what's causing foreclosure rates to go up because the associations get tired, and they foreclose on these people," said Scott, an agent with Keller Williams Classic Realty. "But it's still a can of worms."

When homeowner associations take ownership of a home, they typically try to fix up the property and find a tenant. However, they often only have the properties briefly before the banks take them back.

Central Florida had a higher rate of foreclosures than the state did overall, with 8,896 actions filed during the third quarter, which is one for every 106 houses. Orange County had the highest rate within the four-county metro area and Lake County the lowest. Even though the foreclosures had increased from a year earlier in Metro Orlando, they lessened somewhat from the second quarter to the third.

Some real-estate experts have noted that Central Florida 's rising foreclosure rate comes at a time when the region should not have problems absorbing the extra properties because it has an unusually low amount of homes listed on the market. The core Orlando market has about three months of inventory; six months is considered normal.

Another factor that appears to be driving up foreclosures during the past year is that hedge funds have increasingly started buying up the properties at auction, giving banks more incentive to push the properties through the legal system rather than trying to market them as short sales.

American Homes 4 Rent is an example of a fund that has purchased hundreds of foreclosures in Orange County during the past year, and other groups have started picking up auctioned properties and renting them out. Another group, THR Florida LLC, has been buying courthouse foreclosures in Orange , Seminole and Volusia counties.

Many attribute Florida 's backlog to the fact that it is one of 26 states where foreclosures are processed through the court system. Filings have increased in slightly more than half of the country's judicial-foreclosure states. Two judicial-foreclosure states that have turned around their foreclosures inventory are Massachusetts and Wisconsin .

Altamonte Springs lawyer David Borack said the local court systems have less staffing than they did in the past to handle the caseload.

"It's no secret the court systems are overburdened with cases, and they're cutting back left and right on the remaining staff," he said.

And finally, Borack added, homeowners have tired of trying to get banks to modify their mortgages. More owners are deciding to stop paying for a house worth half what it was when they bought it near the peak of the market in 2007, he said.

"To me it's very simple," he said. "People are realizing there are other alternatives. And they say: 'What are the banks going to do to me kick me out of my house?' "