IN BUSINESS:

The number of defaults on Newport-Mesa home loans jumped dramatically in the second quarter of the year compared to 2005, a rise some experts say could be the result of the sluggish real estate market.

According to numbers released by DataQuick Information Systems, in Newport Beach the number of defaults skyrocketed, showing a 118% jump from the periods in 2005 to 2006. The number of defaults in Costa Mesa went up more than 50%.

These numbers do not necessarily represent the number of homes that continued through the foreclosure process and went up for auction, said Kurt DeMeire, chief executive officer of County Records Research, a Huntington Beach corporation that researches and processes foreclosures in California.

“The real story is not just the number of defaults going crazy, but the number of properties that are actually making it to auction, and that has increased dramatically,” he said.

In today’s market, more homes are making it to auction and going back to the lender because the home no longer has equity, DeMeire said.

“Most people think it’s just junkie properties that go into foreclosure,” he said. “Every neighborhood in the county has foreclosures every day.”

In California, the foreclosure process is a series of steps that gives homeowners the chance to reinstate their loans or sell the property before it goes to auction. Andrew LePage of DataQuick said only about 7% of homeowners who file default notices in the state lose their home in the foreclosure process.

“The notice of default is just the first step in a foreclosure,” DeMeire said. “The owners then have three months to come up with the money, or just sell out, this is when most people sell — most people that go into foreclosure sell the property.”

If the homeowner does not sell or come up with the money owed, he said, a notice of trustee sale — or an auction notice — must be published in a newspaper for three weeks, giving the owner an additional 21 days to sell or pay their lender.

“At these auctions, the question is are they being picked up by a bidder or are they just going back to the lenders?” DeMeire said. “A lot of properties have plenty of equity so they attract bidders.”

Keith Cotarelo, president of Signature Loan Group, said he expects to see more bank-owned homes after the auction process is complete.

“Personally I think you’re going to see a lot more bank-owned properties, and in turn they will have to change some of the lending practices,” he said. “I see it coming around to eliminating some products.”

In particular, Cotarelo said, the practice of 100% financing has hurt homeowners in the long run.

“A lot of them have been caught in the crux of creative financing and the reality of what the rates have done. A lot of lenders selling the product were not explaining it very well, and with knowledge comes power,” he said. “If they were able to understand the product they were being given, they might be able to make more informed decisions as far as being able to handle the [interest rate] increases that were built in … none of us wants to buy a home just to lose it in the next couple years.”

Rising interest rates could be to blame for the increase, but DeMeire said the standard reasons like divorce, unemployment — a distant second, he said — gambling, incarceration and deaths still play a role.

Guide to buying homes in foreclosure:

Purchasing a home that is in the foreclosure process can be profitable for the buyer, even if it appears the home has accrued tremendous debt.

Here are a few tips on how to purchase a home for below-market price.

To maximize the bargaining advantage at the start, potential buyers can get a list of homes in the foreclosure process with all the details through a paid-subscription company, like County Records Research.

Buying while a house is in the default:

Buying at auction

Buying after the auction has passed

After auction day, the lender will many times hire a lender and the property will be listed at market price. It may help to tell the lender you’ll take the property as is.

— Kurt DeMeire, chief

executive officer of County

Records Research