Foreclosure activity in Sonoma County remains at its lowest level in nearly five years, even as short sales have risen to become the primary way to dispose of financially distressed homes.

Lenders in the third quarter sent county homeowners 597 notices of the default, the first step in the foreclosure process, according to DataQuick, a San Diego-based real estate information service. The number decreased 33 percent from a year earlier and was the lowest since 462 mortgage defaults were recorded in the second quarter of 2007.

Homeowners lost 304 houses and condominiums in foreclosure during the third quarter, a decline of 38 percent from a year earlier. The figure was higher than the 258 foreclosures from the previous quarter, but still lower than any other quarter since the end of 2007.

DataQuick reported a similar trend for the state, and analysts suggested one reason was the rise in short sales, where the price paid for the home is less than the amount owed on mortgage.

"We've seen short sales overtake the foreclosure process as the procedure of choice to deal with homeowner distress," DataQuick President John Walsh said in a statement.

The county has seen the same shift. A year ago, sales of foreclosure properties seized by lenders outnumbered short sales. But earlier this year the order began to reverse and since has shifted dramatically.

In the third quarter the county recorded 316 short sales, compared to 165 foreclosure resales, according to The Press Democrat's monthly housing report.

In parts of the state, the total number of distressed sales is about the same as a year ago, said Sean O'Toole, CEO of ForeclosureRadar, a Discovery Bay company that tracks foreclosure data. The only difference is that now more of the transactions involve short sales than foreclosures.

However, in Sonoma County the total number of distressed sales declined 11 percent in the third quarter, compared to a year earlier.

O'Toole predicted that in the coming months, banks won't greatly increase how quickly they process short sales and foreclosures to deal with homeowners behind on their mortgage payments.

At the current pace, it's going to take another three years for banks to wipe out the backlog of delinquent mortgages, he said.

"And that doesn't include the folks that are still underwater," he said.

Since 2007, more than 10,000 county homeowners have lost their properties in foreclosure. The annual total peaked in 2008 at 2,820 homes and has slowly declined over the past three years. It fell to 1,898 last year.

"I think we're through the worst of it," said James Madison, an agent with Coldwell Banker in Santa Rosa who specializes in bank-owned foreclosures.

Madison and other agents said their foreclosure listings are at their lowest level in more than five years.

Doug Del Fava, an agent who specializes in foreclosures for Frank Howard Allen in Kenwood, nonetheless said plenty of homeowners still owe more than their homes are worth, and many remain at risk of losing their homes.

"We still are going to be seeing a lot of this, just not nearly at the level that we were," he said of distressed sales.

More hiring could help keep people in their homes. Doug Solwick, broker/owner of Advantage One Real Estate in Santa Rosa, said he hopes to see an uptick in employment by next spring, along with "signs that we are turning the corner."

But for now, he said, "I don't think this economy has mended itself at all."

For California, mortgage defaults in the third quarter declined 31 percent from a year earlier to 49,026. Trustees deeds, which record the loss of the home in foreclosure, fell 41 percent to 22,949.

DataQuick reported that 1.48 million of the state's roughly 8.71 million houses and condos have been caught up in foreclosure proceedings in the past five years. Of those, 847,067 were lost to foreclosure and the other 633,000 were either sold or the payments were brought current.

At the foreclosure auctions, an estimated 39 percent of properties were bought by investors in the third quarter. That compares with 31 percent a year earlier.