The Foreclosure Mess: Written by June Fletcher WSJ

By June Fletcher

With foreclosures so often in the news these days, many readers have asked: Where are the best bargains?

The answer isn't cut and dried, because it is difficult to collect and analyze foreclosure data meaningfully. The process of foreclosure is governed at the state level, and states have varying requirements and timelines for filing. Foreclosing on a home also involves several steps, which typically include formally notifying an owner who has been delinquent in making payments that the property is in foreclosure, scheduling an auction, and -- if the home isn't redeemed by the owner or sold to someone else -- returning it to the lender.

Data providers, who use public records and lenders' databases to track foreclosures, have to account for these variables -- and it isn't easy or completely precise. That's one reason why two competing California firms trying to capture this market, RealtyTrac and First American CoreLogic, typically come up with different rankings of distressed cities.

RealtyTrac, which sells information to investors through its Web site, concentrates on foreclosure filings. Because a property can fall into and out of the foreclosure process a number of times as an owner brings his loan payments current and then falls into arrears again, a company that counts every filing could come up with a skewed result -- especially in states where the process drags on for months.

Daren Blomquist, a spokesman for RealtyTrac, admits that such skewed results were once a problem for the company, but says that the issue was resolved last year. Now, the company only counts filings against a property a maximum of three times -- when the notice of default (or its equivalent) is filed, an auction is scheduled and the lender repossesses it. To prevent double-counting, the company also checks records on each property already in its database to see if a similar notice was filed that month within the usual filing timeline. If one has been filed, the company doesn't count it that month.

Using this system, RealtyTrac found that Cape Coral/Ft. Myers, Fla., led the nation in distressed homes in February, the latest month where statistics are available, with one in 84 households in some stage of foreclosure -- 3,739 properties in all. But RealtyTrac's system of counting still has a flaw, Mr. Blomquist admits: Some states require fewer than three foreclosure filings, and so might be undercounted.

Meanwhile, First American CoreLogic, which sells data to consumers through its Web site, RealQuest.com, counts the number of distressed homes in inventory. Still, First American's method of counting properties doesn't paint a perfect picture either, since states with longer timelines for foreclosure are likely to have more properties in the system in any given month than states with shorter ones.

Mark Fleming, chief economist for First American, says the company tries to put the relative situations of cities into perspective by comparing the number of foreclosed homes to the total housing supply, which means comparing some rather small numbers. For instance, according to the company, the Atlanta area has 26,310 foreclosed homes, which represents 1.8% of the total housing stock; Detroit has 19,647 homes that have returned to the lender, or 2.4% of the supply.

Keep these caveats in mind when you see snapshot charts showing foreclosures in any city; the picture may be a lot fuzzier than it seems.

-- June Fletcher is a staff reporter at The Wall Street Journal and the author of "House Poor" (Harper Collins, 2005). Email your questions about the residential real-estate market. Please include your name, city and state. If you don't want your name used in our column, please indicate that. Due to volume of mail received, we regret that we cannot answer every question.

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