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Florida’s Foreclosure Process

Shannon Boehnken discusses some eye-opening statistics on Florida’s foreclosure process in today’s Tampa Tribune. According to LPS Applied Analytics, it takes, on average, 673 days for a foreclosure sale to take place in Florida after a homeowner stops paying his/her mortgage.  That means, on average, Florida homeowners can stay in their homes for 673 days after they stop paying their mortgage.  A few things jump out at me about this. 

First, this figure is the average of all foreclosures, including uncontested cases.  For those homeowners who fight their foreclosure lawsuit with an experienced foreclosure defense lawyer, that number is sure to be higher.  Consider this another reason to fight your foreclosure!

Second, one big reason the number is so high – 673 days! – is because banks take so long, even after a foreclosure judgment is entered, to set the foreclosure sale.  There is absolutely no excuse for this delay, and that’s the point I tried to get across via my comments to Shannon. 

Bankers like to argue that the real estate market would improve if foreclosures were processed quicker (hence the quotes in the article).  It sounds like a reasonable position – prosecute foreclosures quicker, sell homes faster.  Unfortunately, that position sounds reasonable, but it’s 100% spin and is totally untrue.  The reality is that banks aren’t setting foreclosure sales on cases they’ve already won because they don’t want title to these properties.

You see, when the bank sets a foreclosure sale, that means the bank must take title (unless a third party is the high bidder, which is rare).  But the banks don’t want to take title because they don’t want to pay taxes, insurance, and maintenance expenses.  So what happens?  The banks get a foreclosure judgment, and scare the homeowner into vacating, but they don’t set the sale.  Instead, they try to find a third party who will buy the house, ensuring there is immediately a buyer in place so the bank never holds title. 

So when bankers say “we’re trying to prosecute foreclosure cases quicker to get abandoned homes on the market,” don’t believe it.  Typically, homes are abandoned because banks won a foreclosure lawsuit, and scared the homeowner into vacating, but won’t set a foreclosure sale because they don’t want title to the property.  In the interim – the time between when the homeowner vacates and the bank sets the sale and sells the property – the home is vacant.  

If you disagree, think about it like this.  Most homeowners, and my clients in particular, want to stay in their homes.  My clients leave only when they are forced to leave.  If the banks would sell the homes immediately after homeowners are forced to leave, guess what?  There would be no abandoned homes.  That doesn’t happen because banks don’t want to own the properties upon which they are foreclosing. 

Here’s the article…

TAMPA – Tampa Bay homeowners can get away with not paying their mortgage payments for about 285 days before lenders even begin to take the house back.  And if you think that’s a long time, get this: it takes about 673 days before the house is sold and the homeowner kicked out, according to data compiled by LPS Applied Analytics, which provides technology and data to the mortgage industry.

That puts the Tampa-St. Petersburg-Clearwater metro area near the top of the list for states that are slow to initiate foreclose. The Bay area is behind Maryland, Massachusetts, New York and California.

It’s no secret that Florida is no where near emerging from the real estate downturn. But data like this show just how clogged local courts are. The data also bring up some thorny issues for economists and industry onlookers who say the market won’t recover until a bulk of the distressed homes are sold.

“This data reflects that our system is overwhelmed,” said Mike Larson, a real estate analyst with Weiss Research. “It also reflects the pressure from government and others to come up with foreclosure alternatives. That’s good or bad, depending on your perspective.”

One of the reasons why it takes so long to foreclosure on Florida homes is because a judge must sign off on foreclosures in the Sunshine State. Courts are working through a backlog of tens of thousands of pending foreclosures. Some lenders halted or dramatically slowed foreclosure proceedings, amid government programs to keep struggling Americans in their homes.

Some, such as the Florida Bankers Association, have tried in the past to change Florida’s foreclosure process so a judge doesn’t have to sign off on foreclosures. Supporters say it would help improve the economy faster.  However, that could create even more problems, say consumer groups, who point to recent cases involving sloppy practices, even fraud, by lenders. At least with a judge, they say, there is some opportunity for protection for struggling homeowners.

Alex Sanchez, president and chief executive for the Florida Bankers Association, supported a legislative bill last spring that would have allowed lenders to foreclose without judge approval.  “I have Floridians emailing me, asking that we foreclose on their neighbors’ empty home faster,” Sanchez said. “They don’t want to live by the eyesore. Being a non-judicial state would streamline the process.”

There are 30 states that have a non-judicial foreclosure process, allowing lenders to foreclose on properties in as little as a month.  Under Florida law, a lender can take back a home only if it files a foreclosure lawsuit and is granted one from a judge. Because of a backlog of nearly 500,000 foreclosures, the process can take several months to a year or longer.

The proposed bill, which was sponsored by Tom Grady, R-Naples, would have changed that by allowing lenders to skip legal proceedings unless the borrower requests the foreclosure go through the courts. Lenders could have foreclosed in as little as 90 days.

The controversial bill, however, hit such resistance from foreclosure defense attorneys and consumer groups that it didn’t get very far.  “The faster we can get these properties rehabilitated and sold to someone who will clean them up, the faster our economy will recover,” Sanchez said.

Lenders foreclosing faster wouldn’t help, said Mark Stopa, a Tampa foreclosure defense attorney

“Banks want to get the judgment so they can write it off their books, but they don’t want to take title and sell the home,” Stopa said. “The LPS data shows how long it takes before they sell homes.  “I’ve seen so many homeowners move out because they lose their case and then the bank cancels the sale, and the home stays empty.”

Mark Stopa

www.stayinmyhome.com

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Beware of title problems as foreclosure sales resume

Shannon Behnken of the Tampa Tribune covered the story about Fannie and Freddie resuming foreclosure sales the right way – by reminding everyone: (1) flooding the market with properties will further drive down real estate values; and (2) there are significant concerns about the validity of title being conveyed by properties in foreclosure sales.  

Here’s the article:

TAMPA – Mortgage giants Fannie Mae and Freddie Mac have lifted their ban on selling foreclosed homes, which could potentially double the number of these homes available for sale in the region.

That could be good news for home buyers who now have a lot more options. But flooding the fragile real estate market with distressed homes will further push down prices, some industry leaders say, and make it more difficult for traditional home sellers to compete.

Some question whether buyers will even want the foreclosed homes.  With allegations of foreclosure fraud still unsettled, can buyers trust they’re getting these homes free and clear? Do they have to worry that later – even years later – the previous homeowner could sue to get the house back?

“If you pick a random case, the chances are good that there won’t be a title problem,” said Mark Stopa, a Tampa foreclosure defense attorney. “But I wouldn’t be surprised if there are 50,000 cases in Florida where the previous homeowner would have a valid claim to void the foreclosure.”

Fannie and Freddie together hold about half of the foreclosed homes in Florida. Both of them halted sales of foreclosures in September, amid revelations that servicers were signing key foreclosure documents without reading them or verifying the information was true, as required by law.

There also are accusations that some firms hired to serve homeowners with lawsuits failed to notify them. Some homeowners say they thought they were working on loan modifications with their lenders only to find out later that the home was already sold in foreclosure.

In those cases, foreclosure defense attorneys say, judges could reverse foreclosures, causing title problems for buyers who purchased these homes.

Stopa is representing two former homeowners who are suing to get their homes back. In both cases, the plaintiffs say they weren’t given the chance to defend themselves in court.

In one case in Pinellas County, Michael D. Carlson has asked a judge to undo a foreclosure judgment against him from 2008. He says he didn’t know about the foreclosure proceeding on his Dunedin rental home until he went to check on the house and found the bank owned it.  Bank of America sold the home more than a year ago to another family, Stopa said, and they had every reason to believe they owned the foreclosed property free and clear.

The Carlson case represents “the perfect storm” and a home buyer’s worst nightmare, said, Peter Murphy, a consultant with Tampa-based Home Encounter, a real estate consulting firm and brokerage that tracks local real estate trends.  Buyers can never be sure there won’t be a challenge to the title, Murphy said, but title insurance should protect them from liability.  “Now that doesn’t mean they’ll get to keep the house if there’s a challenge to the title and, yeah, that’s unnerving,” he said.

Home sales in the Tampa-St. Petersburg-Clearwater area plummeted 25 percent in October, compared to a year ago. Real estate agents said the foreclosure moratorium was partly to blame because some pending deals fell through.

Putting the homes on the market all at once will cause home prices to drop, but Murphy said he thinks it’s better to get it over with now.  “If you wait, neighborhoods and homes will further deteriorate,” he said. “I don’t think homes will fly off the market, though, because people are fearful as to what will happen in the economy.”

Vernon Taylor, president of the Greater Tampa Association of Realtors, said he’d “be nervous to buy a foreclosed home.”  “Buyers don’t want to go through this hassle and find out later they have a problem,” he said.  Even so, Taylor agreed with Murphy that it’s best for the market to work through the inventory now, not later.

Mark Stopa

www.stayinmyhome.com

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Florida Default … acknowledging its own incompetence; proof of title problems

New House Title, a title insurance company owned by the same people who own Florida Default Law Group, has refused to insure title on a property which Florida Default prosecuted on behalf of JP Morgan Chase to a foreclosure judgment.  Think about that for a minute.

The owners of Florida Default won’t insure title on a property that Florida Default prosecuted to a foreclosure judgment!

If you believe in “putting your money where your mouth is,” this conduct is telling.  After all, if Florida Default was confident that it was prosecuting foreclosure cases correctly, wouldn’t it be telling everyone “of course you can insure title on this property; we did everything correctly.”  Per Kimberly Miller of the Palm Beach Post, they’re not doing that – instead, they’re telling everyone “we won’t insure title on this property, even though we foreclosed on it.”  It’s pretty clear, in my eyes, the only reason they’d be refusing to insure title is because they realize there are title problems.  In other words, Florida Default is admitting its own incompetence! 

 If you think I’m overreacting, let me ask you this:

If the people prosecuting the foreclosure don’t have confidence in the title that results from the foreclosure, then how can anyone else? 

And what’s the point of a foreclosure if there will still be title problems afterwards?  Are these foreclosure mills that hellbent on removing homeowners from their homes that they’ll foreclose but do so in such a sloppy manner that they create blighted titles? 

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It’s here … Title Insurance Problems

With the recent news about GMAC and Chase, I’ve been telling everyone who will listen that it’s only a matter of time before title insurance companies start to change their business models (if they can keep writing policies at all).  In fact, I blogged about this at length, below, just the other day. 

This morning, word broke that Old Republic has stopped issuing title insurance policies on GMAC properties until further notice:

http://market-ticker.org/akcs-www?post=167884

I fear this is just the tip of the iceberg and that more fallout is coming.  The ramifications could not be more severe.  Property values are already depressed.  It’s only going to get worse if title insurance companies won’t issue title insurance on foreclosed properties.  After all, who wants to buy a property without assurances that title is clear? 

I sincerely hope that everyone, particularly the judiciary, realizes – before it’s too late – that continuing to push through foreclosure cases at the current pace is going to have far-reaching negative consequences for the entire economy. 

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Title problems – banks won’t warrant title to their own, foreclosed properties

As I type this, reporters across the country are scrambling to understand why GMAC has stopped all foreclosures in 23 states, including Florida.  The more I think about it, the more I think the answer is clear:

Banks and title insurance companies have realized that title conveyed via foreclosure is unreliable. 

That’s worth repeating. 

Banks and title insurance companies have realized that title conveyed via foreclosure is unreliable.

I’ve been explaining for a long time now, both on this blog and to every judge who will listen – invalid service of process, failure to join all necessary defendants in a foreclosure case (e.g. the mortgage holder of record and junior leinholders), and the bank’s use of fraudulent evidence to obtain a foreclosure judgment have resulted in tens of thousands of foreclosure judgments that are voidable, if not void. 

Let me put it in non-lawyer terms.  Even if a bank wins a foreclosure lawsuit, if service of process on the homeowner was ineffective (and it often is, especially if service was done via publication), or if the bank failed to join all necessary defendants (e.g. junior lien holders or the mortgage holder of record), or if the bank relied on evidence that was fraudulent (like the affidavits of Jeffrey Stephan, described in the blog below), then the Final Judgment may be vacated.  This means, essentially, that even if the bank won a foreclosure lawsuit, was the high bidder at a foreclosure sale, and sold the house to an independent third party, the original homeowner may still ask the Court to vacate the Final Judgment and re-take possession, and ownership, of the home. 

Envision that scenario.  The bank filed a foreclosure suit, won, took title, and sold the property to an independent third party.  Now imagine you’re the indepedent, third party purchaser.  (I know, that may be hard for some of you, but stick with me.)  You bought a home from a bank that obtained title via foreclosure.  You did nothing wrong.  You’re living in a house you purchased from a bank.  Yet suddenly, out of nowhere, the original homeowner, who owned the property before the bank foreclosed, has convinced a court that it still owns the property.  Incredibly, in light of the bank’s failure to prosecute the foreclosure lawsuit the right way, the homeowner is right – it’s still his house.  Hence, you’re being forced to vacate the home that you purchased even though you did nothing wrong. 

If that happened to you, what’s the first thing you’d do?  I know what I’d do – make a claim against the title insurance policy.  That’s what title insurance is for – to protect homeowners in the event of a problem with the title to the property they’ve purchased.  (Title insurance is routine in real estate closings.  The purchaser pays a little extra at closing in exchange for an insurance company agreeing to pay that homeowner the entire sale price in the event the seller does not actually have title to the property.  The way it’s supposed to work, the insurance company collects a little bit at a lot of closings and rarely has to pay anything, so it makes money, and the homeowner has the peace of mind of knowing that if the seller did not have title to the house that the title insurance company will pay.) 

Now imagine this scenario playing out over and over again, thousands of cases at a time.  If you’re the title insurance company, wouldn’t you stop issuing title insurance properties when the bank obtained title by foreclosure?  Absolutely.  It wouldn’t be worth the risk.  You couldn’t possibly afford to stay in business.  As far as I can tell, that’s precisely what is happening right now. 

Title insurance companies have realized that title via foreclosure is unreliable, so they don’t want to write title insurance policies for such properties.

If you’re skeptical, and think I’m being an alarmist, consider this article: 

http://www.nakedcapitalism.com/2010/09/latest-real-estate-time-bomb-title-of-foreclosed-properties-clouded-wells-fargo-dumping-risk-on-hapless-buyers.html

As the article explains, Wells Fargo has stopped warranting title to its own, foreclosured properties.  What does this mean?  Instead of issuing purchasers of bank-owned properties a warranty deed, Wells Fargo is only willing to issue a quit claim deed.  Of course, the difference between a warranty deed and a quit claim deed is huge.  With a warranty deed, Wells Fargo is making an affirmative representation that it owns the property, giving the purchaser legal recourse against Wells Fargo if the bank’s title is defective.  With a quit claim deed, Wells Fargo is making no such representation, giving the purchaser no recourse if the bank did not own the property.  I know that sounds crazy – how can a bank sell a property, pocket the money, not actually own the property, and have no liability?  The absurdity of that proposition is the point of the article.  Essentially, banks are trying to set it up where they can keep the money from the sale of a house (that they did not own) even though the homeowner couldn’t keep the house. 

The question that arises, of course, is this – why would a bank like Wells Fargo be unwilling to warrant title to its own, foreclosed properties?  For me, the answer is clear:

Banks like Wells Fargo realize there are title defects to these properties and they don’t want to face the liability associated with selling properties they don’t actually own. 

In other words, Wells Fargo undoubtedly realizes that it may not be the owner of that property, so instead of warranting that it owns the property, and facing a potential lawsuit later, Wells Fargo wants to shift the risk that it doesn’t own the property onto the purchaser.  Would this happen in every case?  Certainly not.  But for Wells Fargo, it’s a numbers game.  If they’re selling 500,000 houses, they know this problem is going to arise on a certain percentage of them, so they want to transfer the risk from itself to the purchaser. 

This raises perhaps another significant question – if banks won’t warrant title to foreclosed properties, and title insurance companies won’t issue title insurance policies, then what is going to happen with all of the foreclosure cases that are pending?  And all of the homes for which foreclosure is sought?  Candidly, I’m not sure.  Lest you think that’s a copout, I don’t think I’m alone in that feeling of uncertainty.  In fact, I believe the reason GMAC has halted foreclosures in 23 states is because it doesn’t know the answer to these questions, either.  If you disagree, you tell me –

Why would GMAC suddenly stop all foreclosure cases in 23 states? 

What other explanation could there be?

To illustrate my point, suppose you’re the CEO of GMAC.  Would you want to keep foreclosing on properties for which you cannot obtain title insurance policies?  What are you going to do with all of those properties?  You can’t sell them without title insurance (certainly not for fair market value anyway, as few people will want to buy properties without clear title).  What good is a Final Judgment of Foreclosure if you can’t sell the property you’ve obtained? 

I realize I’m speculating a bit.  But doesn’t it make sense that GMAC is stopping all foreclosures, and Wells Fargo is refusing to warrant title to its properties, because they realize the inherent unreliability of the title they’ve obtained via foreclosure? 

The way out of this quagmire is perhaps scarier than the quagmire itself.  As I see it, every property in which there is a title problem is going to have to have another lawsuit filed, either for another foreclosure or a quiet title lawsuit.  That’s how the law works, at least in Florida – if there’s a title problem, the way to fix it is with a quiet title suit or a foreclosure suit.  This raises perhaps my biggest point of all:

every foreclosure mill and every judge that is rushing to “push through” foreclosure cases may be staring at a second round of these cases, on the exact same properties, because the cases were not done correctly the first time. 

If you think that’s an absurd proposition, remember – that’s precisely how Florida law works with respect to tax deed sales, and, in a lot of ways, tax deed sales are just like foreclosure sales (public auctions at the courthouse, high bidder gets a deed from the clerk).  A key difference, at present, is that when someone purchases a property at a tax deed sale, the deed from the clerk does not convey marketable title. After a tax deed sale, the way for a purchaser to obtain marketable title is to file a suit to quiet title (or wait four years).  Given what’s happening right now in our economy, I don’t think it’s a stretch to say this is where we’re headed with foreclosures.  A scary proposition, yes, but this may be where we’re headed. 

If your head is spinning right now, I don’t blame you.  For the average person, here’s what you should take from all of this:

MAKE SURE YOU HIRE AN EXPERIENCED LAWYER TO DEFEND YOUR FORECLOSURE CASE.

After all, things are absolutely crazy right now.  If you retain an experienced foreclosure defense attorney, and are able to avoid a final judgment of foreclosure, who knows what the future may bring.  Maybe the government will step in and fix this mess.  Maybe the banks will be forced to negotiate with homeowners (because the foreclosure process isn’t working).  There are a ton of possibilities if you defend yourself.  But if you give up, lose your case, and something changes in the future, it may be too late for you to do anything about it. 

If you’re a judge reading this, ask yourself this.  If/when this all comes crashing down, are you going to be able to look at yourself in the mirror, like Judge Anthony Rondolino in St. Petersburg will, and know that you followed the law and forced the banks to prove their entitlement to foreclosure?  Are you going to feel good about how you handled the foreclosure crisis?  Or are you going to realize that you signed thousands of final judgments of foreclosure without evaluating those files, contributing to the problems we’re now facing? 

I realize you cannot change the past.  But isn’t it time that you start being part of the solution and not part of the problem?  The laws are in place for a reason.  Please.  Force banks to prove their case.  Read their affidavits.  Read their motions.  Give each case an honest assessment.  I know you have a lot of cases, but that’s your job.  If you shirk that responsibility, and just “push through” more foreclosures, you may think you’re removing another case from your docket, but all you’re really doing is contributing to the problem that has brought our economy to its knees. 

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Who benefits from foreclosure?

When I see judges (some, not all) doing everything possible to “push through” foreclosure cases – often on behalf of a plaintiff nobody can identify – I often wonder:

Who do you think you’re helping, judge?

This is more than an esoteric, equitable concern.  Many times, the plaintiff filing the mortgage foreclosure lawsuit is not a Florida corporation (which are required to be registered on the Florida Department of State, Division of Corporations, and can be found at www.sunbiz.org), a foreign corporation, or a national banking association.  Often, the plaintiff seeking foreclosure of our neighbor’s home is not an entity that exists in a way that the laws of the State of Florida require.  In these cases, the plaintiff lacks the capacity to sue and the Complaint should be dismissed, as one Florida judge recently ruled in this Order granting the Motion to Dismiss

Candidly, though, it’s the equity of it all that really bothers me.  Remember, mortgage foreclosure is supposed to be an equitable remedy, not an action at law.  With that in mind:

What is equitable about hundreds of Florida homeowners being foreclosed EVERY DAY?

Why should a small handful of rich and powerful bankers benefit so tremendously when so many of our neighbors are thrown on the streets? 

Today’s St. Pete Times provides a glaring illustration of how foreclosure is harming thousands for the benefit of a select few.  http://www.tampabay.com/news/foreclosures-bring-wealth-rebukes-for-florida-lawyer/1109664  As the story details, David J. Stern, whose south Florida law firm handles approximately 20% of all foreclosure cases in Florida, recently raked in 58.4 million dollars via the sale of his back-office operations to an overseas company in which he is a significant shareholder.  In fact, Stern lives in a mortgage-free, 16,500 square foot house in Fort Lauderdale, with a tennis court and five yachts. 

I realize banks are entitled to representation by an attorney just like homeowners are.  That said, am I the only one who views this as excessive?  Why should Stern rake in millions of dollars while his neighbors get foreclosed?  Worse yet, why should he get to do so as a result of outright fraud (as outlined in the article)? 

Judges, the next time you have a foreclosure case in front of you, I hope you’ll ask yourself “who am I helping here?”  This is a key question not just on the issue of capacity, above, but in evaluating the equities of the foreclosure cases before you.  Remember, foreclosure cases are proceedings in equity, and there has to come a point when we stop throwing more homeowners on the street for the benefit of a select few.

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