Foreclosure filings fell in the first quarter to their lowest level since the end of 2007, according to new figures compiled by RealtyTrac, but the mortgage and housing industries shouldn't pop the champagne quite yet.Default notices, scheduled auctions and bank repossessions were reported on 572,928 properties during the quarter, a 2% sequential decline, and a 16% drop from a year ago.

One in every 230 housing units recorded a foreclosure filing in the first quarter. 

In March, servicers filed foreclosure notices on 198,853 homes, 4% lower from February and a 17% decrease from March 2011. Last month also marked the first time since July 2007 that fewer than 200,000 foreclosure filings were recorded. 

The processing time to complete a foreclosure took longer in the first quarter, RealtyTrac said – averaging 370 days compared to 348 days in 4Q11.

“The low foreclosure numbers in the first quarter are not an indication that the massive reservoir of distressed properties built up over the past few years has somehow miraculously evaporated,” said Brandon Moore, chief executive officer of Irvine, Calif.-based RealtyTrac. “There are hairline cracks in the dam, evident in the sizable foreclosure activity increases in judicial foreclosure states over the past several months, along with an increase in foreclosure starts in many judicial and non-judicial states in March. The dam may not burst in the next 30 to 45 days, but it will eventually burst, and everyone downstream should be prepared for that to happen — both in terms of new foreclosure activity and new short sale activity.”

In the 26 states that use the judicial foreclosure process, 243,074 properties were the subject of a foreclosure filing in 1Q, an 8% jump from 4Q. Compared to 1Q 2011, filing rose 10%. 

Judicial states that posted some of the biggest year-over-year increases in foreclosure activity in the first quarter included Indiana (up 45%), Connecticut (38%), Massachusetts (26%), Florida (26%), South Carolina (26%), and Pennsylvania (23%).

The main reason why foreclosure activity dipped came primarily from the non-judicial states, which accounted for only 329,854 foreclosure filings over the last three months. Even though this is half the national total, it is a decrease of 8% from the prior quarter and 28% less than the first quarter a year ago.

Twenty non-judicial states registered year-over-year decreases in foreclosure activity, led by Arkansas and Nevada with a 79% and 62% drop, respectively. Recent legislation or court cases have disrupted the normal foreclosure process in both these states.

Other non-judicial states with substantial year-over-year decreases in foreclosure activity included Washington at 55%, Arizona at 41%, Texas was down 31% and California had 21% less foreclosures.

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