Foreclosure process stretches years longer than a decade ago

A decade ago, a home in Connecticut could be sold to another party about 12 months after a borrower stopped paying a mortgage.

These days, it's more like five years.

The national average for liquidation timelines in 2016 reached 48 months. In many Northeastern states, including Connecticut, that timeline reached or surpassed the 55-month mark last year, according to data from Fitch Ratings.

Sean Nelson, a senior director in the residential mortgage group at Fitch Ratings, said the increase began as a direct result of the mortgage crisis. At the time, loan servicers, which handle the billing and foreclosure of a mortgaged home, were not used to dealing with thousands of delinquent borrowers at one time.

"When that occurred there were too many foreclosures to work through and you had a backlog," Nelson said. "Servicers had to learn how to deal with that in bulk."

While the national numbers appear to have reached their peak and are beginning to decline, Nelson said the Northeast is still seeing increases in the time it takes to liquidate a foreclosed home.

One of the major drivers of the timeline, which affects many Northeast states, is whether a state is considered judicial or non-judicial. "When a lender wants to foreclose in a non-judicial state, they don't have to go through the court system," Nelson said. "In a judicial state, you do."

Connecticut is a judicial state, which gives the borrower more time to contest a foreclosure proceeding while prolonging the process through paperwork and court hearings.

The practices and actions of a loan servicer can also have a significant impact on the timeline. "Every company has a different strategy," Nelson said.

Some servicers give borrowers the option of attempting to market their house through a short sale, meaning a price less than the amount of the mortgage, instead of foreclosing on the home. "They accept it's going to take a loss but it's likely going to be a smaller loss than a foreclosure," Nelson said.

Loan servicers could also give borrowers the option of a loan modification by lowering the interest rate on the mortgage, extending the term of the loan or taking another route.

While short sales and loan modifications can often save a home from foreclosure, when they don't they add to a liquidation timeline. "There could also be some regulatory pressure," Nelson said.

When governments discovered some banks had people signing documents without verifying information, also known as robo-signing, or had improper individuals signing documents, moratoriums on foreclosures were put in place by many lenders, under pressure from state governments. This extended the timeline for mortgages already in the beginning stages of a foreclosure process.

"The longer the timeline, the more it costs," Nelson said. "You're not getting payments from the borrower. There could be deterioration to the property and that's a cost. The longer the foreclosure, the bigger the loss is going to be on the mortgage."

These days, many foreclosed homes do need to go through as cash sales or through what's known as a 203(k) rehab mortgage because of their condition, said Betty Stroll, who works with Weichert Realtors and has credentials in foreclosure sales.

But Stroll said she is seeing fewer foreclosed homes on the market than in previous years. "We used to see a lot more foreclosures," she said.

The ones currently on the market are selling in about the same time frame a non-foreclosed home sells in and at prices close to market rate, Stroll said. "People used to think you could get them at half price, and that's not happening," she said.

© 2017 The Stamford Advocate, Conn. Distributed by Tribune Content Agency
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