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There was a spate of foreclosure activity in Jul 2013 as lenders in certain judicial states continued to clear their backlogs. The foreclosure market report – released by RealtyTrac – depicted a rise in overall foreclosure activity from the prior month.

According to this leading online marketplace of foreclosure properties, foreclosure filings were up 2% from Jun 2013 but down 32% from Jul 2012. This brought the aggregate number of properties receiving default, auction or repossession notices to 130,888. The primary reason for the monthly rise was an increase in foreclosure starts and bank repossessions (REOs).

Foreclosure starts – default notices issued and foreclosure auctions (depending on the state’s foreclosure procedure) – jumped 6% from Jun 2013 but declined 38% from Jul 2012 to 60,601 properties in the reported month. Foreclosure starts increased in 26 states on a monthly basis and in 15 states on a yearly basis.

Additionally, REOs were up 4% from Jun 2013 but down 31% from Jul 2012 with 36,964 properties. In the aggregate, REO activity rose on a monthly basis in 29 states and on an annual basis in 18 states.

As per the trend so far, this year is expected to end with the lowest number of REOs since the last 6 years. This will, in turn aid in limiting the adverse impact of foreclosures on property values.

Notably, foreclosure-related problems continue to shift towards judicial states. The top 10 states with the highest foreclosure rates are Florida, Maryland, Ohio, Connecticut, New Mexico, Illinois, Nevada, Georgia, South Carolina and Utah. Of these, the first 6 are judicial states.

The foreclosure crisis is still far from over. As the major servicers – JPMorgan Chase & Co. (JPM - Analyst Report), Bank of America Corp (BAC - Analyst Report), Citigroup Inc. (C - Analyst Report), Ally Financial Inc. and Wells Fargo & Company (WFC - Analyst Report) – adjust to the new rules set under the National Mortgage Settlement as well as several other state laws, foreclosure activity is expected to rise in the near term.

Moreover, rise in foreclosure activity is expected to continue as mortgage servicers are more confident of getting higher value for foreclosed properties, given the increasing demand for these as well as rise in home prices. However, foreclosure activity is expected to remain volatile, as the processes being used in handling these differ from state to state.

The housing market will witness resurgence if there are sufficient buyers for foreclosed properties. The stabilizing housing sector, increase in jobs, and low mortgage rates will likely make homeowners avoid foreclosures. Additionally, the rate at which properties are entering the foreclosure procedure is expected to eventually slacken, leading to further rise in housing prices.

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