Thanks to continuing recession-driven foreclosures, 36% of all California home resale activity in the second quarter of 2011 can be attributed to real estate owned (REO) inventory — down 4% from the first quarter but nearly the same as one year earlier.

56,633 Notices of Default (NODs) were recorded in California in the second quarter of 2011, down significantly from 70,051 one year earlier. The largest numerical drops in NODs issued took place in Los Angeles (-1,795), Riverside (-1,732), San Bernardino (-1,611) and San Diego (-1,300) counties.

NOD volume peaked in the first quarter of 2009 with 135,431 NODs recorded.

Also in the second quarter of 2011, 42,465 homes were taken by foreclosure. This is up from the recent low of 35,431 in the fourth quarter of 2010, and slightly lower than the 47,669 homes foreclosed on one year earlier.

Statewide, high-tier regions (zip codes with median home prices higher than $800,000) saw a 15% decrease in NODs from the first quarter of 2011, and an 11% drop from one year earlier. NODs in low-tier areas (zip codes with prices lower than $200,000) dropped 19% from the first quarter of 2011, falling 24% from one year earlier. Low-tier neighborhoods continue to see the highest concentration of both NODs and foreclosure sales.

It now takes an average of ten months following the recording of the NOD to complete a trustee’s foreclosure sale in California. One year earlier, foreclosure proceedings averaged nine months in duration. The extended processing time is seen as a product of legal complications, lender backlogs and the pursuit of loan modifications and short sales to circumvent foreclosure, as reported by MDA Dataquick.

An estimated 28% of homes sold at trustee’s sales were bought by individuals other than the lender or government groups — up from 24% last year. This third-party high bidder situation indicates speculators remain optimistic about resale pricing in the current real estate market. [For more information and trends on NODs and Notices of Trustee’s Sale (NOTS) in California, see the first tuesday Market Chart, NODs and Trustee’s Deeds: Grim signs of real estate’s present condition.]

first tuesday take: Last quarter’s drop in NODs would ordinarily be a good sign for a recovery, but one quarter does not make a trend in the bumpy plateau recovery California is experiencing. Worse, the continued high number of serious delinquencies and negative equity homes is proof California homeowners are not yet clear of continued high rates of future NODs and trustee’s sales.

Foreclosures are sure to continue at or near their current high rate until employment returns to California in significant amounts and negative equity properties are dealt with by lenders or owners—events not likely to be concluded for three to four more years.

In the meantime, lenders will work through the obscure shadow inventory of homes backlogged for foreclosure. [For more on the shadow inventory, and the conditions necessary for economic recovery, see the June 2011 first tuesday article, Wobbling housing market reflects wobbling economy.]

Under extreme criticism from state governments around the nation, many of California’s largest lenders recently promised to improve the efficiency of their foreclosures. In the unlikely event that lenders actually do as they say, foreclosures will begin to increase by the end of 2011.  If NODs do not pick up dramatically in 2012, expect a drawn out real estate recovery that will last well into 2016.

It is imperative that lenders quickly clear out the delinquencies on their books, either by repairing those loans (via cramdowns) or, more likely, by foreclosing on loans that have been delinquent for over 90 days, as they are contractually entitled to do under servicing arrangements.

Re. “Golden State Mortgage Defaults Drop to Four-Year Low,” from MDA Dataquick