Faster Foreclosure Process = Quicker Home Price Recovery

There is an intriguing article in Bloomberg about how local markets with faster, non-judicial foreclosure processes tend to be recovering more quickly than local markets with slower, judicial processes. The article juxtaposed the real estate market in two Washington, D.C., counties: Fairfax County, Va., and Montgomery County, Md. The counties are very similar in size and demographics, but home prices in Fairfax County have increased 26 percent from a bottom in January 2009, while home prices in Montgomery County have increased less than half that much, up 12 percent from a bottom in January 2011, according to the article.

A key difference in the two counties is the differing foreclosure processes used in Maryland and Virginia. The Maryland foreclosure process goes through the court system, and is considered quasi-judicial. RealtyTrac data shows it takes an average of 634 days to complete a foreclosure in Maryland as of the fourth quarter of 2011, up from an average of 167 days back in the fourth quarter of 2007. Meanwhile, the average time to complete a foreclosure in Virginia, which allows for a non-judicial process that occurs outside of the court system, is 132 day as of the fourth quarter of 2011, up from 90 days in the fourth quarter of 2007.

The thesis of the article is that a faster foreclosure process has allowed the Fairfax County market to more quickly clear its distressed inventory, allowing home prices to bottom out and start heading higher sooner than in Montgomery County, where the slower foreclosure process weighed down home prices longer. Of course it helps that the Washington, D.C. market is relatively strong compared to other markets. Unemployment rates in both Fairfax and Montgomery are well below the national average. There has not been a strong home price recovery in areas like Las Vegas, Nev., and Stockton, Calif., even though both those metros are in states with the non-judicial foreclosure process.

A quick search on RealtyTrac for Fairfax County foreclosures and Montgomery County foreclosures shows that both counties have ample foreclosure inventory, with more than 1300 bank-owned homes in Fairfax County and more than 800 bank-owned homes in Montgomery County. Below are two examples of similarly sized foreclosure mansions available in each of the counties. Both appear to be good bargains, with the Fairfax County property in Alexandria, Va., listed for 27 percent below estimated market value, and the Montgomery County property in Silver Spring, Md., listed for 14 percent below estimated market value.

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