At a time when much of the country is experiencing rapid declines in foreclosures, the Nutmeg State stands nearly alone in seeing substantial increases.

The numbers tell the tale: The number of foreclosures in the state of Connecticut surged 11.4 percent last year compared to 2012, with the number of single-family foreclosures up over 18 percent, according to data provided by The Warren Group, publisher of The Commercial Record.

The surge strengthened as we headed into 2014, with foreclosures up 16.7 percent in December 2013 compared to December 2012. And there’s more on the way: Petitions to foreclose – the first step in the foreclosure process – rose 7.8 percent on the year and 17.8 percent in December compared to the prior year, suggesting the foreclosure pipeline will continue to pump out new cases for many months to come.

Those numbers have driven Connecticut up the ranking tables for homes in foreclosure, with a report by real estate analytics firm CoreLogic placing the Nutmeg State fourth in the country, with 3.6 percent of homes with a mortgage currently facing foreclosure. (Florida ranked number one, with 6.7 percent of mortgaged homes in foreclosure.)

If there is a glimmer of good news in the offing, it’s that the problems rising to the fore in the state are not new: According to lawyers and counselors who work with distressed borrowers, the bulk of the problem loans now coming due date back to the housing boom of the mid-2000s.

“Sometimes it’s folks who had some workout attempts and are now back in foreclosure, sometimes it’s relatively fresh cases,” said Jeff Gentes, managing attorney for the Connecticut Fair Housinc Center’s Fair Lending and Foreclosure Prevention Project. “We’re just as busy here … We have clinics for homeowners [facing foreclosure] and 2013 was the busiest year we’ve had since 2010.”

Connecticut’s Lengthy Foreclosure Process

Part of the issue is that Connecticut is what is known as a “judicial state,” a bit of legal jargon meaning that homeowners are guaranteed a day in court to defend themselves against a foreclose case. In non-judicial states, lenders can proceed to foreclosure and schedule an auction without filing a court case. As the flood of foreclosures has risen, courts have struggled to cope, lengthening the amount of time it takes for a lender to foreclose.

According new data released by the Mortgage Bankers Association, the average rate of loans in distress in January for judicial states was 4.92 percent, compared to the average rate of 1.52 percent for non-judicial states.

Connecticut also has unique features which help to lengthen foreclosure timelines: It has a mandatory foreclosure mediation program, which brings together lenders and homeowners to see if a foreclosure can be avoided though a short sale or a modification of the loan’s terms. Recent changes to the law governing the mediation program have extended its timeline, and required that courts hold off on any decision in the foreclosure case until the mediation process is complete. While the program has helped some homeowners to avoid foreclosure, it has also further extended the time required to complete the foreclosure for lenders.

In addition, some borrowers are becoming savvier as to their rights, leading to an increase in contested foreclosures, which take much longer to complete, according to lawyers who work with lenders.

“Contested foreclosures are becoming almost an epidemic in Connecticut,” said Peter Meggers, an associate with Hartford-based Halloran & Sage who has advised lenders on how to cope with foreclosures.

“If lenders don’t stay on top of it and respond immediately when borrowers assert a counter-claim, that can force the foreclosure to linger for months longer, if not years longer,” said Meggers. “[Our firm] recently resolved a case that originated in 1997.”

Serious Delinquencies

Connecticut also ranked sixth in the country for the number of homeowners who were seriously delinquent on the their mortgages, with 6.6 percent of homeowners with a mortgage more than 90 days behind on payment, according to CoreLogic, though that number is down from the same time last year.

 “The serious delinquency numbers are still high. The legal filings numbers move up and down wildly, but the serious delinquency numbers have been consistently high,” said Gentes.

Across the country, more than 90 percent of seriously delinquent loans were originated before the housing crash, according to MBA Chief Economist Michael Fratantoni. With most of the problem loans dating so far back, it’s highly unlikely that most owners will be able to get the loans back on track – which means the state has a long way to go before the housing market gets out of the woods. 

Email: csullivan@thewarrengroup.com