After falling for four years straight, the number of U.S. properties scheduled for foreclosure auction in August was higher than it was a year ago, according to a new report from RealtyTrac, a foreclosure sales and analytics company. The rise was very small, just one percent, but it was, nonetheless, a warning that the foreclosure crisis is not entirely over.
"The messy business of cleaning up the distress lingering from the housing bust continues in many markets," said Daren Blomquist, vice president at RealtyTrac. "The annual increase in foreclosure auctions — the first since the robo-signing controversy rocked the foreclosure industry back in late 2010 — indicates mortgage servicers are finally adjusting to the new paradigms for proper foreclosure that have been implemented in many states, whether by legislation or litigation or both."
Total foreclosure activity, which includes default notices, scheduled auctions, and bank repossessions (the final stage of the foreclosure process) rose 7 percent in August month-to-month, but is still down 9 percent from a year ago. Close to 117,000 properties received some kind of foreclosure filing during the month.
The biggest gains in foreclosure activity were in so-called judicial states, where foreclosures are processed through the court systems. These states have had the largest backlogs since the crisis began but are now ramping up work on cases, some that have lingered in limbo for several years. Foreclosure auctions increased the most in judicial states like Connecticut (up 81 percent), New York (up 81 percent), New Jersey (up 71 percent), Illinois (up 25 percent), and South Carolina (up 21 percent), but also in non-judicial states like Colorado (up 160 percent) and Oregon (up 117 percent).
"That's probably going to become "the new normal," while the judicial states finally begin to process delinquent loans that should have been in foreclosure two or three years ago, but we're delayed by regulatory and legislative measures," noted Rick Sharga of Auction.com, a real estate auction company. "In fact, a high percentage of foreclosure starts - probably 50 percent or more - are very likely on loans that were issued in 2009 or earlier, and where the borrower hasn't made a payment in at least two years."
Scheduled foreclosure auctions in judicial foreclosure states increased 5 percent from a year ago, according to RealtyTrac.
"We've actually picked up business in about 18 judicial states in the past year," added Sharga, who says that auctions are beginning to replace short sales. Short sales are when the lender allows the home to be sold for less than the value of the mortgage.
"As home prices have rebounded, especially in the hardest-hit states, lenders have been able to recoup a higher percentage of their losses at the foreclosure sales, so they're sending more properties to auction, and pricing them to sell," he added.
More than 55,000 U.S. properties started the foreclosure process in August, up 12 percent from previous month, although flat from a year ago. It was the second consecutive month that foreclosure starts have increased on a month-over-month basis.
—By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.
Questions? Comments? Facebook.com/DianaOlickCNBC