NYT: Backlog of Cases Gives a Reprieve on Foreclosures

The Map Above Shows the Average Number of Days that Loans Have Been in Default, By County (Source: New York Times)

By Anne B. Norton and Harsha Sekar

A few days ago, the New York Times presented yet another angle of the chaotic and disorganized foreclosure crisis, a maelstrom that has revealed, among other things, poor ethical practices and other bizarre behaviors on the part of both homeowners and lenders.  Apparently, the backlog of foreclosures is now so extensive that mortgage servicers may be delaying the process altogether.  In some cases, this practice (or lack thereof) has conferred legitimate relief upon buyers, who are able to continue living in their homes.  In others, buyers have taken advantage of stalled foreclosure processes, strategically defaulting on their loans.  The Times reports that some homeowners have even discovered creative (yet unscrupulous) was to earn a profit off of their foreclosure, one of the more shocking news items we’ve come across.

The Times explains the magnitude of the crisis straightforwardly:

In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real estate data firm.

Clearing the pipeline in New Jersey, which like New York handles foreclosures through the courts, would take 49 years. In Florida, Massachusetts and Illinois, it would take a decade.

The Times goes onto distinguish states which mandate that foreclosures be filed in court versus those that do not (and states are more or less evenly divided throughout the country).  “The pace is much more brisk,” in states that bypass the court process, declares the paper, “three years in California, two years in Colorado and Nevada.” According to a foreclosure lawyer to whom the Times was able to speak, “banks aren’t trying to win.”  While the banks, in a strong effort to mitigate the understandable concerns of investors that may purchased their assets, have categorically denied allegations that they have made any attempts to intentionally prolong foreclosures.

Perhaps not surprisingly, while the new phenomenon is a relief for those less fortunate, certain people have chosen to take advantage of the situation:

Mr. Stopa, the Florida lawyer, said he divided his clients into three groups. Some are unemployed or disabled and just getting by. Others are able to save money and improve their financial situation as their case drags on. The third group are those who have strategically defaulted. They can afford to pay but are taking advantage of the banks’ plodding pace. Often the members of this group rent out the foreclosed home and keep the proceeds.

While so much of the coverage of the foreclosure crisis has emphasized ordinary American families that have fallen on hard times, here, we get a rather appalling glimpse of another, new side of the equation.

Is the backlog for real, and what does this all mean in the grander scheme, one might ask?  In total, the Times definitely delivers a few valid points in terms of delay.  The process in NY will be substantially longer due to the judicial process that can take more than 500 days to complete if there was no backlog and no objections to the foreclosure sale filed.  As for locally, there is no question that there is backlog of foreclosures in Maryland thanks to the July 1, 2010 mediation law followed by robo-signing followed by new changes to the mediation law coming soon as well as a looming settlement with the OCC, DOJ/AG group and state bank regulators.  The state’s Foreclosure Bar has said that there largest national bank clients have 10’s of 1,000’s of loans in the pipeline that are waiting for some of the uncertainty to resolve.

Everyone’s hope is that the economy will start to pick up a little as the filings start to move through the system and that certain changes in servicing make it more likely that the homeowners in line for foreclosure will find relief.  But, without clearing the market of the foreclosure inventory, can there be a true economic recovery? We’re not certain.

 

 

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