Judicial States Struggle with Foreclosure Backlog
On February 25, MBA NewsLink published an article titled ‘Judicial’ States Struggle with Foreclosure Backlog.
‘Judicial’ States Struggle with Foreclosure Backlog
ORLANDO, Fla.–It’s a given: if a borrower goes into foreclosure in a “judicial” state, expect a long, ungainly process.
The Mortgage Bankers Association’s 4th Quarter 2013 National Delinquency Survey released last week showed states with judicial foreclosure processes (which involve extra steps through the state’s court system) still account for most loans in foreclosure. The NDS said of the 17 states that had a higher foreclosure inventory rate than the national average, 15 were judicial states. And while the percentage of loans in foreclosure dropped in both judicial and non-judicial states, the average rate for judicial states was 4.92 percent compared to the average rate of 1.52 percent for non-judicial states.
Caren Jacobs Castle, attorney with The Castle Law Group, Denver, said here at the recent MBA National Mortgage Servicing Conference & Expo that judicial delays in the foreclosure process, while well-intentioned, continue to keep thousands of borrowers and servicers in limbo, despite the courts’ working their way through resulting “bubbles.”
But in some of those states, sentiment appears to favor moving the process forward, particularly in New York, New Jersey and Florida, which have the highest number of foreclosures and make up nearly half (with Nevada) of all foreclosures in the U.S.
Rosemarie Diamond, managing partner with Phelan Hallinan & Diamond LLP, Philadelphia, said New Jersey represents a case study of the judicial process. In response to concerns raised in 2010, the state courts took a more active role in the process to ensure transparency–slowing the process down to perform longer reviews.
Diamond said many of these concerns have been resolved; in the second half of 2013, the courts reactivated a rule that allows them to dismiss cases perceived as “inactive,” issuing notices on more than 90,000 cases it still showed as being on the record demanding to know why these cases were still pending.
“This rule is going to be part of our ‘new normal’ and can affect whatever negotiations you have with a borrower,” Diamond said. “The rule ensures that the courts are not wasting resources. While this has sped up the process, it has also created confusion among some borrowers, who don’t understand why their cases have been dismissed.”
As the industry moves forward, New Jersey courts have been given only a finite amount of resources by the state, which affects their ability to manage the process. “Going forward, the state has allowed for electronic filing to streamline the process–which it has–but we now also have a significant number of loans that have to be addressed through the judicial process,” Diamond said. “This is resulting in a strain in court resources.”
Another statute expedites the process to close out abandoned and vacant properties, which Diamond said represents a very positive step. “For servicers and the community at large, and even for borrowers who have decided to move on with their lives, this is a very useful resource,” she said.
Daniel Consuegra, managing partner with the Law Offices of Daniel Consuegra, Tampa, Fla., said Florida continues to be the epicenter of foreclosure activity, with the highest rate of foreclosures in the country. He said backlogs as a result of the judicial process have pushed the process to more than two years in some cases.
A new foreclosure law in Florida, in effect since July, temporarily slowed the process even further, but he said the process has accelerated since then. “There is some movement to accelerating the process,” Consuegra said. “But there are statutes of limitations; and if it runs out, you have to start all over again, which drags out the process even longer.”
Susan West, senior associate of foreclosure with Rosicki, Rosicki & Associates, Plainview, N.Y., said New York faces similar issues to other foreclosure states, bogged down by the sheer numbers of foreclosures and the length of the process, one of the longest in the nation.
West said the state is experimenting in some cases with “bulk trials,” in which a representative from a single servicer provides testimony on numerous cases on the docket. She said in some cases, this cuts the foreclosure timeline by half. But other issues continue to drag the process.
“We’re still seeing loss mitigation as a major factor in the timeline,” West said. “We have 62 counties, all of which handle loss mitigation differently. It can be a real challenge.”
Consuegra said Florida has also used bulk trials as a means of cleaning up the process, setting up thousands of trials. Unfortunately, the trials required servicers to be in many places at the same time. “While it has reduced the backlog, it’s been very problematic logistically,” he said. “It’s required servicers’ witnesses to be well-prepared and servicers’ attorneys to be well-trained. They are up against sophisticated law firms with plenty of resources.”
Richard Rothfuss, president and CEO of Lerner Sampson and Rothfuss, Covington, Ky., said Ohio–and in particular, Cuyahoga County (Cleveland)–presents unique challenges. He said new legislative proposals and regulatory proposals appear to be more dialed in to resolving the foreclosure process more quickly and efficiently, although few have emerged from the legislative process. Rothfuss said part of the issue in Ohio, as well as other states, is that the foreclosure process is dependent on a public documentation system with limited resources.
“There’s nothing truly overwhelming right now,” Rothfuss said, “but neither are things changing quickly. There needs to be a flow to the process; what we’re seeing in Ohio and Kentucky is a lot of fits and starts.”
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Safeguard Properties is the largest mortgage field services company in the U.S. Founded in 1990 by Robert Klein and based in Valley View, Ohio, the company inspects and maintains defaulted and foreclosed properties for mortgage servicers, lenders, and other financial institutions. Safeguard employs approximately 1,700 people, in addition to a network of thousands of contractors nationally. Website: www.safeguardproperties.com.