According to RealtyTrac, 1 in 98 homes in the Chicago-Naperville-Joliet Metropolitican Statistical Area are in foreclosure. To make matters worse, foreclosure filings are up 25% from one year ago. With the news media generally reporting on a slowly stabilizing housing market, how is this possible?
If you ask the creditors' attorneys, then the problem is that Illinois' judicial foreclosure process unnecessarily prolongs the foreclosure process. If you ask an especially zealous consumer defense attorney (like me), then the answer is that the banks are unable to prove their case most of the time and are purposely going slowly to give themselves time to get their papers "in order."
The truth is likely more complex than that. Here are a few more reasonable reasons:
1. This is backlog catching up with us.
In 2010, many banks put their files "on hold" while they investigated the claims of robosigning. There was a multi-state and federal committee of attorneys general established. I was optimistic. Banks likely held off in judicial foreclosure states to see how the National Mortgage Settlement would pan out. Now that the settlement is in place, it's back to business as usual -- the banks have some certainty as to their legal position, so they're now plowing ahead.
2. People who obtained loan modifications a few years ago are defaulting.
I don't have an easily-linked chart for this point, but I know it's true. People who got loan modifications early on in the crisis got deals ranging from awesome to awful. The vast majority are still underwater. Many of them are likely defaulting and surrendering the property, or seeking some other solution. In 99% of these cases, the bank will still have to go through the foreclosure process. This will, in turn, increase the number of foreclosure filings.
3. Informed homeowners are making the business decision to get rid of bad assets.
People are underwater. Their homes have no equity and will not likely see positive equity for at least ten years. Many homeowners are awakening to the idea that trying to save an underwater asset makes no sense. When CEOs put their companies into bankruptcy and ultimately turn the failing company around, they are lauded as heroes of finance and industry. Underwater homeowners have finally realized that they can be their own CEOs. Severing personal liability on a bad investment is simply good business sense.
4. Chicagoland has been a slow burn compared to areas such as Nevada.
The judicial foreclosure process does slow down the foreclosure process. In areas with a non-judicial foreclosure process, like Nevada, banks were able to process their foreclosures an a much faster pace. When you factor in the population density of Chicagoland, and add in the number of new loans issued during the boom period, you end up with a large base of potential foreclosures. Consider, as well, that banks won't just foreclose on everything at once -- it would destabilize the market even further.
Needless to say, fighting a foreclosure is still a good idea. You also have some great bankruptcy options. No matter how many one-size-fits-all solutions the government tries to roll out, a well-planned consumer defense strategy is fact-specific and tailored to the individual's needs. If you'd like to immerse yourself in this material and get informed, then I'd suggest that you take a look at my book.