Lenders foreclosed on a record 3,242 Bay Area homes in the third quarter - a 622 percent increase from the same time last year - and there’s no sign of relief ahead, according to a real estate report Friday.

Statewide, foreclosure activity hit all-time highs for the quarter. Bank repossessions were up more than 600 percent, and late notices were 2.7 times higher than a year ago, according to DataQuick Information Services, a research firm in La Jolla (San Diego County).

Most ominously, the report showed that default notices, the first step in the foreclosure process, were growing more rapidly in the state and Bay Area compared with last year and earlier this year.

“There is no sign in these numbers that we’re close to turning the corner where foreclosure activity levels off,” said Andrew LePage, an analyst with DataQuick. “It is continuing to build and building even faster.”

The vast majority of recent foreclosures stem from subprime loans made to people with poor credit, many of whom put no money down. After an introductory period with low interest rates, such loans often reset sharply higher, so monthly mortgage payments increase by hundreds of dollars.

At the same time, home prices have stagnated or fallen, so struggling homeowners cannot refinance because they owe more than their houses are worth.

A fairly typical case is that of Kathy Quintanilla, who bought a two-bedroom home in Oakland’s Fruitvale district two years ago with 100 percent financing. When her mortgage reset in August, her payments went from $2,800 a month to $3,500. It is slated to reset again in February.

“I’m finding I can’t refinance,” said Quintanilla, who said the home is now worth about $350,000 - $48,000 less than she paid.

Quintanilla, who works as an office manager, has not yet missed a payment, but “I’m living paycheck to paycheck,” she said. She got a roommate to bring in extra income, and she is trying to sell some of her clothes and shoes. She called her lender without reaching someone who could help.

She is thinking about a short sale - selling the house for less than she owes on the mortgage. Such a sale requires lender approval and can have adverse tax consequences, because the amount of “forgiven” debt is treated as ordinary income.

“The IRS would come after me for the difference,” Quintanilla said. “But I’m considering it - is a short sale the best option for me, is it a way out?”

At an emotional level, that is a hard decision, she said.

“I would love to keep my house. I’m the first one in my family to even own my own home.”

Most of the foreclosure fallout is in California’s interior, from Bakersfield to Sacramento. Half of the foreclosure activity is concentrated in 293 of the state’s 1,465 ZIP codes, almost all of them in that region, DataQuick said. Those ZIP codes as a group experienced annual price appreciation of 34 percent in early 2005, peaked at a median price of $399,000 a year ago, and since have fallen 11.7 percent off that peak.

Price appreciation and decline was less severe in the state’s other 1,172 ZIP codes, which are less heavily affected by foreclosure. In those areas, appreciation peaked at 25 percent in mid-2004, and the recent median price of $575,000 is only 2.5 percent below the peak.

Loans in Merced, San Joaquin and Riverside counties were most likely to go into default, DataQuick said. The three counties with the lowest likelihood of default were all in the Bay Area: San Francisco, Marin and San Mateo.

In the Bay Area, the most lender repossession activity was in Contra Costa County, where 1,159 homeowners lost their residences, followed by Alameda County (674) and Solano (495).

Across California, the real estate frenzy reached a high around August 2005, when the most mortgages, both for purchases and refinances, were funded.

Because mortgages tend to go bad early in their lifecycle, that would imply that foreclosures should be peaking now, LePage said - but that does not appear to be the case.

Notices of default stood at 72,571 in California for the July-to-September period, up 166.6 percent from a year ago and up 34.5 percent from the preceding quarter. A single house may have more than one loan, so the 72,571 late notices represented 68,746 different residences.

More than half of default notices (54.1 percent) resulted in homes being taken back by lenders. A year ago, only 19.1 percent of default notices led to repossessions.

In the Bay Area, 10,427 homeowners received notices of default in the quarter, 2.7 times more than 3,797 a year ago. The most such notices were in Contra Costa, where 3,216 homeowners were late on payments, more than triple the number a year ago.

DataQuick said the number of homes repossessed in California and the Bay Area were the highest since it began tracking foreclosures in 1988. Likewise, the number of default notices for the state and the region were the highest since it began tracking them in 1992.

Statewide, 24,209 homes were taken back by lenders in the third quarter, also the highest level recorded. That was up 604.8 percent from last year’s third quarter, when 3,435 California homes were lost to foreclosure, and a 38.7 percent increase from the preceding April-to-June quarter of this year.

“We’re deep into uncharted territory because we’ve never been in this boat where the housing market is weakening so much in the absence of a recession,” LePage said. “We’ve never had this widespread use of very risky unconventional loans.”