Litigation leads to spike in foreclosure filings

A lawsuit filed by the Colorado Attorney General against two of the biggest foreclosure law firms in the state caused the number of foreclosure filings in the state to spike in August, according to RealtyTrac, a compiler of real estate data.

Foreclosure filings, which start the foreclosure process, were up 23 percent in Colorado in August compared with July, and up 57 percent from a year ago — the largest annual increase in Colorado foreclosure activity since April 2007, according to RealtyTrac’s August 2014 Colorado Foreclosure Market Report.

“The swell in foreclosure filings is likely fallout from pending litigation between the Colorado attorney general and two of the biggest foreclosure law firms in the state,” said Daren Blomquist, vice president at RealtyTrac. “The litigation has led to transfers of many foreclosure cases to new law firms, who in many cases are refiling the cases from scratch.”

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It also revealed that completed foreclosures were down 23 percent statewide.

In the region, most areas experienced spikes with the exception of Greeley.

It had 59 foreclosures started in August, but that represented a 15 percent decrease from the same month a year ago.

In the Boulder metropolitan statistical area, which includes Longmont, 35 foreclosures were started in August, representing a 95 percent increase in starts compared with August 2013.

The Fort Collins/Loveland area had 64 foreclosures started in August, a 77 percent increase compared with August 2013.

The attorney general’s office in July filed civil lawsuits against Castle Law Group, and Aronowitz & Mecklenburg. The allegations ranged from collusion between law firms to set the price on process services fees associated with foreclosure cases, to the inflation — and in some cases outright creation — of fees charged to homeowners trying to save their house from seizure, or the banks that hired the law firms to foreclose.

“Foreclosure activity has been artificially low in Colorado since the spring of 2013, when the state attorney general first started issuing subpoenas investigating the two foreclosure law firms,” Blomquist noted. “In the 12 months ending in February 2013, Colorado averaged more than 3,200 foreclosure filings a month. Since then the average has been about 1,300 foreclosure filings a month, but the August numbers indicate there are some deferred cases finally hitting the foreclosure pipeline.”

“The surge in foreclosure activity is not the result of a faltering economy but instead problems in the foreclosure industry that have delayed some foreclosures,” said Chad Ochsner, owner/broker at Re/Max Alliance, covering the Denver market. “The good news for buyers is that this increase in foreclosure starts should provide more affordable inventory of homes for sale in the coming months.

“The influx of distressed inventory will not threaten to derail the recovery given the very tight supply in the market now but will be quickly absorbed by homebuyers and investors.”