It's another piece of the puzzle needed to complete a recovery of the housing market, and there are signs that it's falling into place.
Foreclosure activity last year in the Chicago area fell to its lowest level since 2008, when the housing crisis began in earnest to push down home prices, pockmark neighborhoods and overwhelm county courts. In Cook County alone, the number of new foreclosure cases filed in 2013 was the fewest since 2006, according to data from Cook County Circuit Court.
"It's clear the crisis is dissipating slowly but surely and things are clearly improving," said Moshe Jacobius, presiding judge of the Circuit Court's Chancery Division.
The numbers are welcome news to housing observers, who can add them to previous positive monthly reports of strong home sales and recovering prices. Annual figures on local home sales will be released next week.
The combination of fewer homeowners falling into foreclosure and a shrinking number of cases working through the pipeline is key to a real estate recovery, they say.
Anyone who has tried to sell a home on a block with a foreclosure knows those troubled homes do more than taint a neighborhood's reputation. They can skew sales activity and prices. Banks that take ownership of foreclosed homes want to unload them quickly and are willing to take low prices. The situation makes it much more difficult for other homeowners to sell their properties and generate the profit they expected.
Overall progress is being made.
In December 2012, 28 percent of homes sold within the city of Chicago were repossessed, bank-owned homes. By last month, those sales constituted only 20 percent of all sales, according to data provided by the Chicago Association of Realtors.
Another worry neighborhoods have grappled with: the lower home values brought on by nearby foreclosures. Declining home values shrink the amount of equity that homeowners have in their own properties, putting them at risk of owing more on their own mortgages than the homes are worth.
Despite the improving conditions, experts are cautiously optimistic at best. The number of properties in foreclosure remains much higher than it was before the housing market started a frenetic run of escalating sales and prices that led to a bubble — and then a bust. Some neighborhoods are showing real recovery, while others continue to struggle.
Housing counselors say that while their caseloads may be down, there are still thousands of homeowners with unaffordable mortgages, and more could fall behind now that 1.3 million people nationally have lost their extended unemployment benefits.
Also, because of various administrative delays and recently adopted regulations, it took an eye-popping average of 815 days to complete a foreclosure in Illinois, a state where foreclosures are processed through the courts, according to RealtyTrac, an online marketplace for foreclosed properties. Nationally, the average time to complete a foreclosure hit a record-high 564 days in 2013's fourth quarter.
The longer a home sits in foreclosure, the more run-down it becomes, making it harder to sell.
In Cook County, new mortgage foreclosure cases filed in 2013 plummeted 41 percent from 2012, to 24,854 cases, the fewest number of new filings since 2006, according to the Circuit Court. At year's end, fewer than 60,000 cases were pending in the court system, compared with just more than 78,000 at the end of 2012.
A separate report due out Thursday from RealtyTrac shows that 90,830 homes in the area that stretches from Kenosha, Wis., through the Chicago area and into northwest Indiana received a foreclosure notice in 2013. A year earlier, more than 125,000 homes did.
For the state as a whole, the number of foreclosure filings in 2013 was 27 percent lower than in 2012.
"In Illinois, we did see a surge in foreclosure activity in 2012 and early 2013," said Daren Blomquist, a RealtyTrac vice president. "It appears there was a temporary surge and now the numbers have turned the corner, back lower."
While the number of Illinois homes repossessed in December fell 33 percent, Blomquist noted that scheduled auctions of foreclosed properties in the Chicago area rose 60 percent last month. "We're going to want probably a full year of decreasing numbers before we can say we're completely through this," he said.
Nationally, foreclosure filings fell 26 percent in 2013, compared with 2012, and were down 53 percent from 2010, the peak year for filings.
Local housing counselors say they see an increasing number of people inquire about buying homes but too many homeowners remain in financial straits and unable to afford their mortgages. And while homeowners who lost their jobs during the Great Recession may be finding jobs, they add, these new positions frequently pay less.
"There's still thousands of people getting foreclosed on," said Daniel Lindsey, an attorney at LAF, formerly the Legal Assistance Foundation of Metropolitan Chicago. "We're more than full."
"It's two very different markets," agreed Ed Jacob, executive director of Neighborhood Housing Services of Chicago Inc., which counsels financially troubled homeowners. "The (foreclosures) that we do now are tougher and longer term. They've been in foreclosure for a while."
While large geographic areas all saw declines, the extent of the improvement varies by suburban communities and city neighborhood.
In Chicago, for instance, foreclosures declined 57 percent in the Logan Square neighborhood through the first nine months of 2013 compared with a year earlier, and were down 61 percent on the city's Near North Side, according to data from the Institute for Housing Studies at DePaul University. But the declines were much smaller in other neighborhoods that experienced hard times earlier, like West Pullman and Auburn Gresham, where foreclosures were down 16 percent.
Humboldt Park, named Tuesday as the nation's 10th hottest neighborhood in 2014 by real estate site Redfin, saw year-over-year foreclosure activity fall 36 percent during 2013's first three quarters. Many of the new buyers in the community are investors. More than 60 percent of homes that sold in the neighborhood last year were either foreclosed properties or short sales, according to the Chicago Association of Realtors.
The same pattern of good and better areas has occurred in Cook County's suburbs. Foreclosures declined 60 percent in Elmwood Park and Skokie through the first nine months but dropped only 11 percent in Homewood and 20 percent in Westchester.
"There's a lot of variation within the city, within (Cook) County," said Geoff Smith, the DePaul institute's executive director. The decline in foreclosures "is something that really needed to happen for the housing market to move forward. But there are a number of other things for the market to fully recover. You need prices to continue to increase, which would reduce the number of underwater homes. You need the economy to improve, to increase confidence in less strong neighborhoods."
Twitter @mepodmolikCopyright © 2014, The Baltimore Sun