Banks began fewer foreclosures in the Bay Area in January than any time since 2006 as they changed gears from auctioning off homes to helping borrowers keep them or sell them for less than they owe, according to a report released Monday.

The dramatic shift was mirrored across California, according to ForeclosureRadar, which released the report.

"There are a dozen or more programs that will either take you out of the foreclosure process, wipe out part of your debt or delay the process," said Madeline Schnapp, the Truckee-based foreclosure tracking company's chief economist.

One big change is the Homeowner Bill of Rights, a package of state laws that went into effect Jan. 1 and banned controversial foreclosure practices. Another is a multistate agreement with major banks that went into effect last year. Under the agreement, the banks agreed to commit $25 billion to various forms of foreclosure relief.

In January, notices of default -- the first step in the foreclosure process when a borrower falls behind on payments -- reached the lowest level since ForeclosureRadar began tracking the data in September 2006, Schnapp said.

They dropped in one month, from December to January, by half to nearly two thirds in Santa Clara, Alameda, San Mateo and Contra Costa counties, the company said.


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Notices that a property will be sold on the courthouse steps -- the second step -- are at their lowest point since 2007 in the four counties.

The final step, actual auctions on the courthouse steps, are at their lowest level in five years. There were 515 foreclosure sales in the four counties in January compared to 1,126 in January 2012.

Schnapp said the drop in foreclosures "is kind of a double-edged sword. The unintended consequence is that you have no inventory of homes for sale, which is acute in California."

Many struggling homeowners still complain of difficulties either short-selling their home for less than is owed on it or obtaining a loan modification. But there are more reports now of debts forgiven and loans modified. Jennifer Castro, 36, finally is able to short sell her home in San Jose after months of waiting during which she lost two buyers. The reason: Wells Fargo canceled her $147,000 second mortgage, Castro said Tuesday.

She said Bank of America, which holds her first mortgage, is also giving her a big check for moving expenses.

"It's back on market and we have another buyer," she said.

Her broker, Myron Von Raesfeld of ClickHome Realty, said he thinks banks have realized that "it's cheaper and more cost effective for them to get rid of these nonperforming loans" and get back to their core business.

"It's taken them five years to learn, and they're still learning to some extent," he said.

Contact Pete Carey at 408-920-5419 Follow him on Twitter.com/petecarey