Fuller impact of home foreclosure debacle hits N.J. - Denbeaux & Denbeaux Attorneys at Law

Fuller impact of home foreclosure debacle hits N.J.

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Date: July 19, 2015Author: Denbeaux & Denbeaux

JULY 19, 2015    LAST UPDATED: SUNDAY, JULY 19, 2015, 10:55 AM

The number of New Jersey home repossessions by lenders has soared in the past two years and is on track to increase again in 2015, in sharp divergence to the national trend.

Completed foreclosures, where banks and mortgage companies have taken the homes, climbed 34 percent in the state last year, to about 5,780, after an 11 percent surge in 2013, according to The Record’s analysis of RealtyTrac data. By contrast, on the national level, completed foreclosures fell by double digits in each of the past three years.

In the first three months of this year, Bergen County was on pace to nearly double last year’s total of sheriff’s auction sales with 201 properties sold.

CoreLogic report released Tuesday showed that in May 4.9 percent of mortgaged homes in New Jersey were completed foreclosures, the top rate in the country. The percentage of homes where the mortgages are seriously delinquent also was the highest at 8.4 percent.

The statistics indicate the foreclosure debacle, which has eased in other states following the housing meltdown that began in 2007, may only now be peaking in New Jersey, where foreclosures had been crawling through the system.

The reasons for the slow processing include a state judiciary that has tried harder than other states to hold banks accountable for illegal and improper paperwork. Also, New Jersey’s non-profit housing groups, which have support in the state Legislature, have worked to help keep homeowners in their homes. It has taken debt collectors about two years and 10 months on average from the time an initial notice is delivered until the property is repossessed, according to real estate information company RealtyTrac. Only Hawaii’s process is longer.

Now repossessions are moving faster. According to housing activists and lawyers who defend homeowners faced with foreclosure, the acceleration has coincided with a pickup in the real estate market. Although bankers deny it, homeowner advocates say that uptick seems to have made banks more eager to complete foreclosures, cash out and recover what they can from their losses.

“There have been secondary-market buyers coming in as a reaction to the housing market starting to rebound a bit,” said Adam Deutsch, a lawyer with Denbeaux & Denbeaux in Westwood, which has defended hundreds of New Jersey homeowners in contested foreclosures.

Other contributing factors underscore the complexity of the situation:

  • Much of a backlog caused by large banks delaying new filings in 2011, while the state judiciary reviewed their foreclosure practices during the “robo-signing” scandal, has finally passed through the system. The same is true of the thousands of delayed cases that resulted from lenders’ not complying with homeowner notification requirements in the state’s 1995 Fair Foreclosure Act.
  • Homeowner assistance and mediation programs, which kept debt collectors at bay for years in some cases, have ended or have been winding down. More than 4,000 of the 6,000 New Jersey homeowners who participated in the $300 million federally funded Homekeeper program are no longer receiving funds.
  • Questions about whether a plaintiff debt collector has the legal right to foreclose in cases where the chain of title is murky have largely been set aside. State Superior Court judges, who have been instructed to complete these cases within a year, are generally handling them with greater efficiency, lawyers say.

New Jersey has throughout the foreclosure debacle had a lower home-repossession rate than most states when measured as a percentage of the total number of homes. Last year, for example, the state ranked 30th, with about one in 350 homes going all the way through the repossession process, according to an analysis of RealtyTrac data. Nationwide, the rate in 2014 was about one in 225 homes.

Bankers tend to blame the courts, lawmakers and housing activists for the state’s inability to clean up its foreclosure mess in a timely fashion. They say homeowner assistance programs have delayed the inevitable.

“This [surge in repossessions] represents the ones that should have been completed years ago,” said Michael Affuso, director of government relations for the New Jersey Bankers Association.

But consumer advocates and lawyers who defend homeowners say banks and mortgage servicers are mostly responsible for the slow process and the case backlog. They say debt collectors often seem in no hurry to take possession of homes worth less than what is owed on the mortgages.

In addition, they say lenders have been reluctant to follow through with their foreclosure filings because the banks do not want to pay property taxes, home insurance and maintenance costs on repossessed homes.

According to Montclair lawyer Margaret Lambe Jurow, it should take “roughly 270 days,” or about nine months, for a lender to complete an uncontested foreclosure. “All the lenders have to do is tell the truth and comply with court rules,” she said.

Data from the Office of Foreclosure in Trenton show that about 90 percent of foreclosures are uncontested.

Affuso said he agrees that some lenders have delayed the process with shoddy legal work by “incompetent in-house counsel.” But he disagrees with those who suspect banks have intentionally avoided seeking final judgments for financial reasons.

“They are not sitting on a house in Bogota waiting for the market to return,” he said.

Homeowners facing foreclosure often stay in their homes without making any mortgage payments for years as the process drags on, partly because lenders refuse to accept partial payments once a loan is in default.

But it’s not a free ride for the homeowner. Missed interest payments and late fees, as well as arrears in taxes and insurance, typically are added to what is owed.

Bankers are reluctant to speak on the record about their foreclosure practices. “It is a politically sensitive and customer-sensitive issue,” one industry veteran said. But regulatory filings by publicly traded lenders offer some insight into the effect the surge in homeowner defaults has had on these companies.

Paramus-based Hudson City Savings Bank, the largest mortgage lender among New Jersey-based banks, told investors in a filing with the Securities and Exchange Commission that it increased the dollar amount of repossessed homes on its balance sheet by nearly $10 million since the end of 2014, to $88.4 million as of March 31. The upscale housing lender sold 241 repossessed properties last year, up from 207 in 2013.

Valley National Bancorp, the Wayne-based holding company for one of the largest commercial banks in the state, has intimated to its investors in an SEC filing that a slow foreclosure process in New Jersey may be hurting the company’s relative standing in the investment community, as compared to banks of a similar size in other states. The length of time it takes to foreclose in New Jersey “negatively impacts the level of our non-performing assets,” the lender said.

Federal Deposit Insurance Corp. data show that in the past decade, the amount of repossessed one- to four-family homes owned by New Jersey-based banks, by market value, skyrocketed from $3.9 million at the end of 2005 to $156.1 million at the end of last year. The number has climbed in the first three months of this year to $161.3 million.

These properties represent only a small portion of the total of New Jersey homes repossessed by mortgage companies, as most of the mortgage loans are owned by large companies based in other states.

Homes in foreclosure continue to be a drag on New Jersey’s housing recovery, and the sooner they are sold to buyers who want to live in them, or to investors who want to resell them or rent them, the better, said the New Jersey Bankers Association’s Affuso.

“This is a nightmare for a bank,” Affuso said. “They’ve already written the loans down and they want to get rid of them.”

Meanwhile, homeowners who have faced foreclosure say it’s also been a nightmare for them.

Eric, a software engineer who wanted to be identified only by his first name, was moving with his spouse last month into an apartment in Hackensack after losing the 2½-bedroom house he had lived in for nearly 30 years in Englewood.

The house went to a sheriff’s auction in May. Then last month, the new owner stuck a notice with black electric tape to his front door, saying eviction proceedings would begin in five days, signaling the end of a six-year ordeal, during which time Eric had made no mortgage payments.

“My friends think I was living rent-free, but you are not really living. You don’t know if you’re leaving next year or next month,” he said. Eric said he had gotten into financial trouble after losing his job at an Internet company in 2008.

He said the house is now worth $350,000 because of a big drop in real estate values since 2008, but the lender has insisted that he repay $550,000, which includes penalties and fees added on while his attempts to get the bank to lower the principal amount failed.

Lawyers who defend homeowners say foreclosures typically follow the loss of a job, an unanticipated medical expense or a divorce, and that most of the loans were made between 2003 and 2007, when prices were inflated during the housing bubble that preceded the global financial meltdown in 2008. Many of these homes are still worth less than the amounts owed on the loans. The homeowner typically is not evicted until months after the sheriff’s auction has been held and the property is sold.

While completed foreclosures continue to rise in New Jersey, the numbers of new filings may be starting to taper off. In the first two months of this year, the latest figures available, there were 6,575 new filings, down from 6,603 in the same period in 2014.

Even so, there were nearly 49,000 new foreclosure complaints filed statewide last year, the most since 2010, according to data from the Office of Foreclosure. The counties with the highest numbers last year were Essex, Camden, Ocean, Middlesex and Bergen, in that order.

“It’s a difficult situation,” Affuso said. “We are closer to the next recession than we are from the last recession and there are still about 85,000 properties in foreclosure, and probably 40 percent are older than 2013.”

In states like New Jersey where it takes more than two years on average to complete foreclosures, consumers should expect higher borrowing costs down the road, he said.

“When Fannie Mae and Freddie Mac, who buy the vast majority of the mortgages, say New York, New Jersey and Connecticut take too long to complete foreclosures, they will say consumers will have to pay more for a mortgage in those states,” he said.

Staff Writer Dave Sheingold contributed to this article. Email: [email protected]


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