The default foreclosure process can be a long and daunting task for servicers and attorneys to deal with on an ongoing basis as many states have to wait months, even years, for a foreclosure to be issued against a distressed homeowner.
As a result of these long timeframes, attorney fees increase for servicers trying to file a foreclosure and for borrowers who are trying to prevent losing their property. Also, the extensive process hurts the overall housing economy because these properties will eventually hit the open market and cause home prices to fall in the future.
At the Mortgage Bankers Association’s National Mortgage Servicing Conference in Dallas, a group of panelists featuring default attorneys discussed why delays are so problematic in not only judicial states, but nonjudicial states, too.
Caren Jacobs Castle, an attorney with Denver-based Castle Stawiarski LLC, cited that the logjam of distressed properties is evident nationally for a variety of reasons, such as court or judge driven rules as well as regulatory and legislative delays coming from the state, county and federal levels.
One of the hardest-hit judicial states during the housing crisis was Florida. Jane Bond, managing partner for Florida litigation at McCalla Raymer, said that even though some foreclosure cases are getting resolved in the Sunshine State in 120 days, she doesn’t expect this trend to continue. Most cases are still taking over a year, with the average foreclosure timeline still anywhere from 600 to 1,000 days, due in large part to the backlog of old filings coming from the 2008-2009 docket, Bond said.
Currently, Bond noted that one in every five mortgages in Florida is in some form of delinquency. As of Oct. 31, 2012, 377,272 mortgage foreclosure cases were pending in the circuit courts in the state of Florida.
Another problem exacerbating the situation in Florida is that the clerk’s office raised the foreclosure fee. Instead of $209 per foreclosure claim, the fee is now based on the amount of the principal balance of a loan and attorney fee costs. For a $50,000 to $250,000 claim, a foreclosure filing costs $905 for a servicer. For anything above, it’s $1,905.
“Volume and funding are the keywords harming Florida,” Bond stated. “The volume of foreclosures is a mess and is only going to continue. And when the foreclosure case is stopped because of the DOJ ruling, our core funding stopped.”
New Jersey is a second judicial state that has had a very slow foreclosure process through the court system. Lawrence Phelan, managing partner at Phelan Hallinan & Schmieg LLP, based in Philadelphia, called New Jersey the “new Florida,” in which whenever there seems to be improvement with the foreclosure rules, some other stalemate comes along immediately implicating the process.
“There is no business on the servicing, attorney, or court house dockets to work well in an environment of fits and starts,” Phelan said as a panelist. “A servicer is going through all of their due diligence to make sure a foreclosure can be processed on time and not be delayed. For it to be feast or famine in the mortgage industry is very difficult.”
If no new processes are put in place today, Phelan estimated that it will take anywhere from four to nine years to get through the backlog of foreclosures in New Jersey. Phelan mentioned that there are over 75,000 files currently in the system, and shadow inventory estimates that have not been filed to date are approximately 150,000 to 250,000.
“It’s very important for all of us that for every case we review, it has been done correctly the first time, because the last thing you want happening is to go in the back of the line,” Phelan said.
Jill Rein, a managing attorney at Chicago-based Pierce & Associates, mentioned one way the foreclosure process could be expedited in Illinois is that the state could appoint a private seller officer to dispose all of the distressed properties. If this happened, there would be more “control over those vendors and they basically would do the sales as fast as possible,” Rein said.
However, this practice is not allowed in certain counties and the sheriff officer has to sell the properties. Therefore, instead of getting the distressed assets sold in one day, it could take as long as eight months to get a transaction completed.
Meanwhile, nonjudicial states are also experiencing delays as referrals are being put on hold in order to verify if loss mitigation certifications need to be completed.
“The more information that you can provide as servicers to your attorneys or trustees at the beginning of the foreclosure with the referral, the better we will all be able to minimize those delays,” Castle stated.
In order for a foreclosure to be processed on time, it is also important that servicers have complied with federal regulations, like no dual-tracking or failing to offer a borrower with all of their loss mitigation options.
According to Lance Olsen, managing partner at Bellevue, Wash.-based Routh Crabtree Olsen, he believes many distressed homeowners are unaware to even call their servicer to request help. Because of this, many states have instituted new requirements forcing servicers to send notices to borrowers presenting them with contact information if they have questions with their mortgage loans.
A concern Carrie Ward, a member of the BWW Law Group LLC, based in Bethesda, Md., sees in speeding up the process in a timely manner in her state is the number of executables required varies from servicer to servicer. For example, she may need four affidavits and a foreclosure trial transcript from one servicer, but five affidavits and a foreclosure trial transcript from another.
“When I try to figure out how a servicers’ shop staff is handling the documents, I have no idea when it’s coming, which state it’s coming from and I need all of the paperwork relatively around the same time in order to file a foreclosure” Ward said. “It becomes problematic to run a business in any usual method.”