Foreclosure filings were down 3% in October, the third consecutive month-over-month dip, according to RealtyTrac, the online seller of foreclosed homes.

To be sure, foreclosure rates are still elevated from a year ago: They’re up 18% compared with October 2008. But the month-over-month decrease followed a 4% drop in filings during September and a 1% fall in August.

Broad economic distress, such as the rising unemployment rate, has RealtyTrac spokesman Rick Sharga thinking that declining foreclosures may be artificial rather than a real trend. “Processing delays and legislative actions are slowing down foreclosures,” not actual improvement in the market, he said.

The slowdowns include banks taking time to judge whether some loans are eligible for the Making Home Affordable program, President Obama’s foreclosure-prevention initiative that was passed last spring.

RealtyTrac reported 77,077 REOs in October, down 12.2% compared to September, when nearly 88,000 homes were lost. For the year, there have been a total of 700,929 properties taken back by banks.

One positive trend is that home prices have recorded modest gains over the past few months. As a result, fewer mortgage borrowers owe more than their homes are worth. And that’s good news for the foreclosure rate.

Foreclosures require a double trigger. The first is that mortgage borrowers must have experienced a financial setback, such as medical bills, divorce, unemployment and the like.

The second trigger is owing more on the mortgage than the home is worth. Millions of borrowers are in that position: More than 20% of borrowers are underwater.

Most will continue to pay off their mortgages. However, if a family member loses their job or someone gets sick or the loan resets to a much higher interest rate, that’s when the home may be lost.

Homeowners with positive home equity are in less jeopardy. Even if they run into unexpected expenses or periods of unemployment, they can tap their home value, via a home equity loan or cash-out refinance, to tide them over.

(Source: CNN)