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Foreclosures tumbled in Sonoma County to their lowest level in five years in 2012, but a record number of homeowners still sought to escape their mortgages by surrendering their homes in short sales.

Banks seized 1,228 houses and condominiums in foreclosure proceedings last year, down 35 percent from 2011 and the lowest total since 2007, according to figures published Wednesday by San Diego-based real estate information service DataQuick.

For the first time since the housing crisis began, more homes went through a short sale last year than were taken back by banks in foreclosure. Though the margin was narrow, it marks a significant reversal in a housing market bulging with distressed properties.

Buyers last year purchased 1,246 single-family homes via short sale, according to The Press Democrat's monthly housing report. That figure doesn't include condos that changed hands in a short sale, where a property is sold for less than the amount owed on the mortgage.

"The banks have finally recognized that this is a better option for them (than foreclosure)," said Teri Shaughnessy, an agent with Pacific Union in Santa Rosa.

Figures released Wednesday revealed a shift in one of the most powerful forces shaping the county's housing market for the last half-decade.

Banks reported 452 mortgage defaults in the fourth quarter, down nearly 45 percent from a year earlier, according to DataQuick. Default notices, the first step in the foreclosure process, have now dropped to the lowest since early 2007.

Homeowners lost 269 properties to foreclosure in the fourth quarter, a decline of 31 percent from a year earlier and the lowest since the fall of 2007.

Over the past six years, more than 14,000 county homes have been surrendered through either foreclosure or short sales. That amounts to roughly one out of every seven county homes with a mortgage.

But foreclosure activity has now dropped for four consecutive years from its peak in 2008, when 2,820 county homes were lost at auction.

Brenda Alarcon, an agent with Bradley Real Estate in Santa Rosa, said that last spring her short sales business started to overtake her work in bank-owned foreclosure properties, also known as real estate owned, or REO.

"I'm getting a trickle," now of the REO listings, she said.

Banks generally have become more receptive to short sales, agents said, now even telling sellers to make contact before seeking a buyer — a reversal of past practice. But some troubled homeowners still are waiting too long to take the steps needed to prevent foreclosure.

"People are so in denial about things," Alarcon said. "They still sit in the house thinking somebody's going to come along and rescue them."

James Madison, an agent who specializes in REO property for Coldwell Banker in Santa Rosa, predicted banks this year will try to keep more owners in their homes through loan modifications. He noted that a new state law prohibits lenders from foreclosing while such a modification is being considered.

"That's going to make it a lot better for everybody," Madison said.

Nearly a third of December home sales involved short sales or REO properties. In contrast, in early 2009 such homes made up three out of every four sales.

In 2008, Madison's REO sales accounted for one in every 10 homes sold in the county, a result that placed him within the top 10 of all U.S. real estate agents, measured by the volume of their transactions. Four years later, business has slowed so much that Madison has let most of his staff go.

"I had my run, and I'm looking forward to not having to work as hard," he said.

Statewide, default notices fell to 38,212 in the fourth quarter, a decrease of nearly 38 percent from a year earlier. Foreclosures totaled 21,127, a decline of 32 percent from a year earlier.

DataQuick analysts said foreclosure activity dropped partly due to rising home prices and an improving economy.

"Home values increased through most of 2012, and the rate of increase picked up toward the end of the year," John Walsh, DataQuick president, said in a statement. "That means fewer and fewer homeowners are underwater, where they owe more than their homes are worth. That in turn means they can sell and pay off the mortgage, or perhaps refinance at today's low interest rates."

Walsh predicted the increase in home values and the various government efforts to prevent foreclosures would lead to fewer foreclosures this year.

(You can reach Staff Writer Robert Digitale at 521-5285 or robert.digitale@pressdemocrat.com.)