Foreclosures are going upscale across the Bay Area.

Nearly 1,000 homes valued above $730,000 were repossessed by banks in the nine-county region in each of the past two years, according to a Chronicle review of public records compiled by MDA DataQuick, a San Diego research firm. This year is on track for similar numbers, with 223 homes in that price bracket repossessed by banks since January.

Back in the real estate boom year of 2005, just 42 Bay Area homes valued above $730,000 went into foreclosure; in 2006, the number was 80.

"The numbers are certainly high by historical standards," said Andrew LePage, an analyst with DataQuick. Even more striking is the growth of mortgage defaults - the first step in the foreclosure process - in affluent ZIP codes.

While the high-end numbers are far shy of the massive wave of lower-priced foreclosures, the growth reflects a significant shift in the foreclosure landscape and its underlying causes. Mortgage distress has moved upstream in part because of economic conditions such as unemployment and stock losses. Also in play is a different type of risky loan called option ARM (adjustable rate mortgage) that's just beginning to cause problems.

"In high-end areas, (default notices), which started at super low levels, have grown 50 percent to 100 percent higher," LePage said.

"It definitely seems like the focus is shifting," said John Sefton, a real estate agent with Empire Realty Associates in Walnut Creek. "We're seeing more defaults, foreclosures and short sales in the more-affluent communities, and the activity in outlying (lower-cost) areas has dropped off."

A significant share of high-end foreclosures were valued above $1 million. In 2008, banks took back 289 million-dollar Bay Area homes; in 2009, they repossessed 305 such properties. In the first quarter of this year, 86 million-dollar Bay Area homes went into foreclosure.

Short sales at high end

Experts emphasized that the foreclosure numbers don't fully reflect the extent of distress at the high end, because for expensive homes, banks are more likely to pursue short sales, in which the homeowner stays put while marketing the home for less than is owed on the mortgage.

"Banks take the time on the high end to short-sale properties because they get a higher return and better valuation," said Pat Lashinsky, CEO of Emeryville's ZipRealty, a nationwide brokerage. "When you sell a high-end home, its condition is significantly more important because (buyers) expect it to be maintained. With foreclosures, homes tend to get thrashed."

Kendra Wall, an agent with Vanguard Properties in San Francisco, sold about 30 foreclosures last year, including quite a few over $700,000.

"With any of my high-end foreclosed properties, if I find them vacant when I take them over, they're almost always stripped," she said. "I had one where they sold everything on eBay - the kitchen cabinets, granite countertops, the appliances."

Wall sold a foreclosure in San Francisco's Eureka Valley late last year for $1.37 million; in 2005 it had sold for $1.725 million. The property had been picked clean. "This was a high-end remodel and my guess is the contractor took out the appliances because he didn't get paid," she said. "They took all the fixtures, all the hardware off the doors."

Banks planning strategically

Buyers looking at high-end foreclosures shouldn't expect fabulous deals.

"They sell very quickly when they hit the market because the banks are doing a very good job; they're withholding lots of them (so as not to flood the market) and strategically planning their REO (real estate owned by banks) sales," said Diane DeFaria, a broker with D&F Properties in San Jose.

In January, a four-bedroom foreclosed home in San Jose's Meadowlands Ranch area that she listed for $849,000, on the low end of the scale, got about 20 offers and sold for $950,000. In 2006 the home had sold for $1.235 million.

Realtors don't always list homes as short sales, believing it puts them at a negotiating disadvantage, Lashinsky said. That makes it difficult to pin down just how many occur, but ZipRealty data show a definite uptick in short sales of higher-end homes, particularly in the counties of Alameda, Contra Costa, Santa Clara and San Mateo.

Experts agreed that high-end homes take longer to become foreclosures because affluent people have more resources and savvy, so are likely to extend the time they're struggling to make payments.

More ARM resets ahead

Buyers of high-end homes during the real estate boom years often relied on option ARMs, which allowed them to start off paying just the interest - or even less than the interest, thus adding on to their mortgage balance. Most option ARMs had an initial period of five years before loans recast, causing payments to soar.

Some option ARMs have already recast, but since they particularly flourished from 2005 to 2008, recasts are expected to start swelling this year and continue over the next few years. Previous Chronicle analyses have found that option ARMs were heavily used in the Bay Area, accounting for 20 percent of all homes bought or refinanced here from 2004 to 2008. They were used for homes averaging about $823,000 in value.

"I think the combination of option ARMs and the unemployment picture is taking a heavy toll on the upper end," Lashinsky said. "The upper end tends to be a little more resilient to the economy, but when you combine those option ARM resets with portfolios that have taken a dramatic drop, people start thinking this asset is a noose around their neck and they have to get out from it or it will strangle them."