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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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Fannie and Freddie … “Move along, nothing to see here.”

Kimberly Miller of the Palm Beach Post has been on top of the emerging foreclosure stories as any reporter in the country.  Here’s her article today on how Fannie and Freddie have resumed foreclosure sales, essentially ignoring the pervasive fraud and title problems with which we’ve become all too accustomed.  …

By Kimberly Miller; Palm Beach Post Staff Writer

Fannie Mae and Freddie Mac gave the go-ahead this week to restart sales of their foreclosed properties, which had been on hold since September when it was revealed that flawed or fraudulent court documents may have been used to repossess homes.

Brokers received memos Wednesday from the government-sponsored enterprises saying that the homes could once again be marketed and sales finalized on properties already under contract. Fannie Mae’s letter explains that evictions and lockouts are still suspended on its properties.

In South Florida, the move releases thousands of houses for sale that were removed from the market earlier this fall, leaving buyers and Realtors in limbo. 

Brokers were encouraged in Fannie’s letter to contact buyers who chose to cancel delayed contracts to see if they are still interested.  “I’ve already sent e-mails to clients who opted out,” said Bill Richardson, managing broker for the Keyes Company in Boca Raton and president of the Realtors Association of the Palm Beaches. “I had numerous people put on hold, and some of them canceled because it was very uncertain when the auditing process would be done.”

A Lake Worth broker said she received a similar memo from Freddie Mac on Wednesday, but a Freddie spokesman said he could not confirm it today because too many people were off for the Thanksgiving holiday.

Amy Bonitatibus, spokeswoman for Fannie Mae, said the decision to move forward with the sales was made after a review of property acquisitions, including those handled by the Plantation-based foreclosure firm of David J. Stern.

Fannie Mae and Freddie cut ties with the firm last month after former employees, one of whom had been fired, gave sworn statements to state investigators about wrongdoing at the company such as forged signatures on foreclosure documents and the hiding of flawed files from auditors. The Stern firm is one of four so-called “foreclosure mills” in Florida under investigation by the state attorney general’s office.

“Fannie Mae remains committed to ensuring that borrowers are treated fairly in accordance with the legal process and to allowing new homebuyers to close on transactions in a timely manner,” Bonitatibus said.

But some homeowner advocates said there are still too many unanswered questions about whether foreclosures have been handled legally. Concerns about obtaining a clear title are legitimate, said Tampa-based foreclosure defense attorney Mark Stopa.

The foreclosure paperwork problems already have led at least one former homeowner to challenge his foreclosure in Pinellas County. The man’s home, repossessed in 2008 by Bank of America, has since been sold to a family who has had to hire an attorney to defend their title to the property.

“There are still legitimate questions about the validity of title to these homes,” Stopa said. “Unfortunately, too few people in positions of authority care. The fraud is there and we all know it, but too many people think it’s easier or better to ignore it than fix it.”

Fannie Mae and Freddie Mac own or guarantee about half of all U.S. mortgages, or 31 million home loans worth more than $5 trillion.  About 12 percent of Fannie Mae loans in Florida are delinquent, while Freddie Mac has 17 percent of its Florida mortgages in arrears.

The embargo on selling foreclosed properties likely added to last month’s slump of existing home sales, which dropped 12 percent in Florida compared to September and 21 percent compared to October 2009.

Mark Stopa

www.stayinmyhome.com

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The Ethics of Foreclosure Defense

I’ve been stewing about this article, wherein a retired judge questions whether foreclosure defense is “unethical,” for a few days now.  I think that assertion is totally absurd, but I see no need for a lengthy retort.  Instead, I’ll sum it up like this…

The justice system in the United States allows murderers to go free (in certain circumstances) when evidence is obtained pursuant to an illegal search.  The Defendant could have murdered someone – and everyone in the courtroom, including the judge, knows it – yet he walks free because of a violation of his constitutional rights. 

Let’s pause and think about the lawyer who files the motion to suppress the evidence based on the illegal search.  Is he acting unethically?  Personally, I could never file that motion.  However, I suspect every judge sitting on the bench would agree the answer is “no” – filing that motion is the defense lawyer’s job. 

With that in mind, how could anyone say that defending a foreclosure case is “unethical.”  I’m not putting murderers back on the streets – I’m helping homeowners who’ve been screwed over by the banking industry.  If vile criminals can exercise their right to counsel, then certainly homeowners can as well. 

I suppose I can see how the ”lack of standing” defense that foreclosure defense lawyers routinely assert in foreclosure lawsuits is similar to the motions to suppress filed by criminal lawyers, as one could argue that the defendant was “guilty” in both instances and “got away with it” on a technical violation.  The difference, though, is that if I win a foreclosure case based on a standing defense, a murderer doesn’t get to roam free – instead, a bank that’s screwed over homeowners for many years gets a dose of its own medicine.

Mark Stopa

www.stayinmyhome.com

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How Loan Modifications Cause Foreclosure

It’s bad enough that the loan modification process is not helping homeowners as intended, a failure I’ve reported in this blog many times.  Unfortunately, it’s even worse than that.  As numerous media outlets are now reporting, and as I’ve seen in my daily practice as a foreclosure defense attorney in Florida, temporary loan modifications often *cause* a homeowner who was otherwise not behind on mortgage payments to go into foreclosure.  

The New York Times has a real-life story, but here’s the simplified version:

The homeowner is making monthly mortgage payments as required, but finances are tight.  The homeowner asks the bank for a loan modification.  The bank says it needs to review the homeowner’s financial information to make a decision, but agrees to a temporary modification while the application is being reviewed.  The homeowner’s payments are temporarily reduced from $1,500/month to $1,000, pending the review process, which the bank says should take a couple of months.  The homeowner diligently makes the $1,000 payments each month and anxiously awaits approval on the permanent modification.  The process seems simple enough, so the homeowner is optimistic. 

Two months turn into six, then eight, then ten.  The homeowner keep making the required $1,000/month payments, never imagining it would drag on this long.  The homeowner keeps calling, and the bank keeps saying the permanent modification is being reviewed.  Then, bam.  The bank rejects the permanent modification, without explanation (or a flimsy explanation that shouldn’t have taken 10 months to disclose).  But instead of telling the homeowner to resume the $1,500/month payments, the bank requires the homeowner pay all of the arrearages.  In other words, the $500/month that the homeowner didn’t have to pay while the modification was being reviewed – those monies need to be paid, all at once, in one lump-sum, plus interest, late fees, attorneys’ fees, etc.  When the homeowner can’t/doesn’t pay that $7,500 lump sum (10 months x $500/month = $5,000, plus $2,500 estimated interest, late fees, etc.), the bank pursues foreclosure. 

This sounds impossible to believe, but this phenemonon is happening to homeowners all across the country.  Please, don’t fall prey to such “gotcha” tactics.”  Retain a foreclosure defense attorney to assist you through this process.

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Florida courts “clearing” foreclosure cases

This article by Kimberly Miller of the Palm Beach Post explains, in layman’s terms, how the judiciary views foreclosure.  For most judges, it’s all a numbers game – how quickly the judges can “clear” foreclosure cases.  As the article reflects, there is still a huge backlog of foreclosure cases in Florida courts, but senior judges and “rocket dockets” are chipping away at the backlog.  

This is a disturbing trend, one that should make all homeowners facing foreclosure realize the need for a competent foreclosure defense attorney.  Quite simply, without an attorney, your case might be lumped in with all the other cases that judges are all too quick to try to “clear” from their dockets. 

Here’s the entire article: 

Florida’s courts cleared 65,830 foreclosure cases in a three-month period beginning July 1, with 71 percent being decided in quickie hearings before the judge sometimes called “rocket dockets.”  According to a report released today by the Office of State Courts Administration, only 23 foreclosure cases went to trial statewide during the same time period.

The report, the first of its kind, was conducted between July 1 and Sept. 30 to measure how Florida’s 20 circuit courts are using a $6 million state allotment awarded over the summer to hire additional judges and staff to handle foreclosures.  Despite clearing 65,830 cases, 25 percent of which were dismissed for reasons that could include a completed short sale or deed-in-lieu of foreclosure agreement, the report found a backlog of 396,509 cases are still clogging Florida courts.

Lawmakers awarded the $6 million, in part, hoping that getting homes back onto the market will hasten an economic recovery.  “We needed a way to see how we are doing and identify reasons for delays or slowdowns,” said Kris Slayden, who oversees foreclosures for the Office of State Courts Administration. “This shows we are doing what we said we would do, reducing the backlog.”

Palm Beach County’s foreclosure court cleared the most cases in the state during the three-month period, wiping 9,846 suits from its system. About 70 percent of those cases were decided via summary judgment, with just one trial being held, according to the report. 

The concern among foreclosure defense attorneys has been that some senior judges hired with the state money would rush through foreclosures using summary judgments. A summary judgment is held in lieu of a traditional trial when the facts of the case are considered irrefutable. They are often allowed when the borrower is not contesting the foreclosure or represented by an attorney, having possibly walked away from the home.  “Summary judgment is a shortcut that should rarely be used,” said foreclosure defense attorney Tom Ice, of the Royal Palm Beach-based Ice Legal. “In foreclosure cases they are routinely filed and routinely granted. That’s a disturbing trend that there are so few trials.”

Ice said it’s even more of a concern in light of recent revelations that some foreclosure affidavits, which are used in summary judgments, are flawed or fraudulent. Beginning in late September, major lenders including Bank of America, Ally Financial, Inc., and JP Morgan Chase, acknowledged that some of their foreclosure paperwork would need to be re-filed.  “All you need is one issue of fact, such as dispute over note ownership, to get a trial,” Ice said.

Palm Beach County Judge John J. Hoy, who took over foreclosure court today, refused to comment for this story. Hoy replaces Judge Meenu Sasser, who is now hearing civil cases.

Palm Beach County, which is the 15th Circuit Court, received $646,540 of the $6 million, using it to hire two senior judges and six case managers to tackle foreclosures. The Palm Beach County Clerk and Comptroller’s Office received $403,000 out of a $3.6 million statewide allowance given to clerks’ offices to handle foreclosure paperwork.

Today’s report showed Palm Beach County had 46,438 foreclosures backlogged as of June 30. That fell to 36,592 as of Sept. 30.

The 19th Circuit Court, which includes Martin and St. Lucie counties, received $212,729 to hire senior judges, case managers and administrative assistants. As of Sept. 30, it had cleared 951 cases, but still had a backlog of 18,110.

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Living for Free – the Unintended Stimulus Package

One of the under-reported stories of Foreclosure-Gate is the ability of homeowners facing foreclosure to retain a foreclosure defense attorney, live in their homes without paying their mortgage, and either save their money or spend their money on something besides their mortgage.  In some states, such as Florida, the period of time where such homeowners can live for free could be many months or even years.  I’ve seen this phenomenon in place for quite some time, hence the name of this website – www.stayinmyhome.com

Reasonable people can argue about the morality of living in one’s home without paying.  That said, with each new story of foreclosure fraud by banks, there is less and less of a stigma for homeowners employing such an approach.  To illustrate, here is today’s article in the Wall Street Journal: 

The mortgage-foreclosure mess could prove expensive for banks and investors. But in some states, it will also prolong an unintended economic stimulus: free housing for millions of defaulters.

Across the U.S., banks are running into problems foreclosing on homes because of flaws in their paperwork. Their main transgression involves the use of so-called robo-signers, bank employees who signed foreclosure affidavits without properly checking the required loan documentation. Major loan servicers—including Bank of America Corp., J.P. Morgan Chase & Co. and Ally Financial Inc.’s GMAC Mortgage—have at least temporarily stopped some foreclosure sales as state attorneys general probe their practices and loan servicers check to make sure their papers are in order.

The problems will be expensive for banks, and for investors in mortgage bonds, in terms of added processing costs and lost interest income. But for the millions of U.S. homeowners who have stopped making mortgage payments or who are already in the foreclosure process, the upshot is that they’ll get to stay in their homes a bit longer. Given that they’re not paying rent, that time has value.

Defaulters living in their homes are getting a subsidy worth about $2.6 billion a month, according to a Wall Street Journal analysis based on mortgage data from LPS Applied Analytics and rent data from the Commerce Department. That’s 0.25% of U.S. personal income, roughly equivalent to the benefit top earners receive from Bush-era tax breaks.

The longer defaulters stay in their homes, the longer the stimulus lasts. The average borrower whose home is in the foreclosure process hasn’t made a payment in nearly 16 months, according to LPS.

In most places, the foreclosure delays are unlikely to amount to more than a couple more months of free rent, says Ivy Zelman, chief executive of housing-market consultancy Zelman & Associates. But she says it could be six or more months in states such as Florida and New York, where the legal bottlenecks are most severe.

“In places where people get an extra month or two, it probably doesn’t have much effect,” Ms. Zelman says. “But in states where it lasts longer, it’s probably stimulative.”

It’s hard to know how much of that money will find its way into the economy through consumer spending. Some defaulters sock away their mortgage payments, in hopes that they’ll strike a modification agreement with their bank and get current again. Others have lost their jobs and hence most of their income, though the free housing might allow them to make purchases they otherwise would have to forgo.

Yolande Walker, who lived for two and a half years in her three-bedroom home in the Las Vegas suburb of Henderson, Nev., after defaulting on her $1,700-a-month mortgage payments in 2008, said the free housing helped her make ends meet after she lost her job as a commercial-loan processor. “I was able to make my car payment and keep from losing my car, and I was able to pay the utilities,” said the 50-year-old Ms. Walker, who finally lost the home to foreclosure last month. She is still looking for work, and says her unemployment benefits are scheduled to run out in December.

Some homeowners who have defaulted on their mortgage payments are cashing in by renting out their homes. Joe Mayol, a real-estate agent in Palmdale, Calif., estimates that in his area about two-thirds of houses with defaulted mortgages are occupied, and half of those by renters. “People are getting money out of these houses,” he said.

Ms. Zelman says her research suggests defaulters do spend much of the money on consumer services and goods. “People are taking what they would have been spending on a mortgage and spending it somewhere else,” she says.

To be sure, while the free rent might help some people through periods of unemployment, it’s not particularly encouraging to people who keep paying their mortgages, and it’s not going to drive a recovery. It’s also painful for local governments and school districts, which typically can’t collect property taxes from defaulters. The foreclosure troubles can also add to uncertainty in the housing market and delay its return to healthy growth.

“I don’t think that’s the kind of consumer recovery we want, if the only reason they’re spending a bit more is that they’re not paying their other bills,” said Joseph Carson, director of global economic research at AllianceBernstein in New York.

Another question is what might happen in the housing market if banks caught up in robo-signing controversy can’t put as many foreclosed homes up for sale. By taking some supply off the market, it could help support prices at a time when demand has been exceedingly weak.

Given the number of foreclosed homes that have already piled up in their inventory, though, banks already have more ready-for-sale houses than the market can bear. As of September, banks owned nearly a million homes, up 21% from a year earlier. That alone would take 17 months to unload at the most recent pace of sales, and doesn’t include the 5.2 million homes still in the foreclosure process or those whose owners have already missed at least two payments.

Meanwhile, banks and investors suffer. It’s hard to estimate how much it will cost to fix the paperwork problems. But the interest they could earn on the money from selling all the homes they own, together with the ones attached to delinquent mortgages, amounts to more than $10 billion a month.

Still, at least some of the banks’ loss is the borrowers’ gain.

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“Temporary” loan modifications – Trick or Treat?

If you’re evaluating whether to enter a “temporary” loan modification, read this article closely.  I’ve spoken with hundreds of homeowners with similar experiences, and it’s not a pretty picture.  It’s so bad, I’d argue that most people who can’t afford the normal monthly payments are better off not paying at all.  

As it’s Halloween, let’s call “temporary” loan modifications what they are – a trick.

By Cami Joner
Columbian Staff Reporter

Sunday, October 31, 2010

Joseph and Jacqueline Freeman at their Battle Ground-area farm, Friendly Haven Rise. The 10-acre farm and home have been on the brink of foreclosure since 2008, when the Freemans lost income from the farm business. The Freemans operate the farm like a school, where people pay to learn about raising crops and livestock and using tools.

Jacqueline and Joseph Freeman thought they were doing everything possible to keep from losing their Battle Ground house and farm when they obtained a temporary mortgage modification through a federal program in 2009.  But despite not missing a single month’s payment during 12 months at a “trial” reduced mortgage rate, the Freemans are worse off now than in late 2008, when their income fell dramatically due to canceled bookings at their farm-school business, Friendly Haven Rise. 

Last month, the Freemans received a foreclosure notice from their lender, Wells Fargo, which said the couple’s mortgage is $23,000 in arrears. They feel betrayed by the federal program that was set up to help, Jacqueline Freeman said.  “We had no clue we were headed toward foreclosure,” she said. “We thought we were taking part in a national program that was helping people.”

The Freemans are not alone. They are among millions of American home owners who are frustrated with the Obama administration’s Home Affordable Modification Program, or HAMP, a $75 billion federal program that was supposed to be their salvation. Instead, the program appears to be failing droves of homeowners who, like the Freemans, have been drawn into trial modifications that leave them with more principal outstanding on their loans, less home equity and worse credit scores.

Launched in February 2009 with $50 billion from the U.S. Treasury Department and $25 billion from taxpayer-owned enterprises Fannie Mae and Freddie Mac, HAMP promised to help between 3 million and 4 million homeowners modify their mortgages. Twenty months later, only 495,898 U.S. borrowers have received permanent loan modifications, according to a newly released federal report.

In Washington, 9,054 homeowners have been helped with permanent mortgage modifications through HAMP, and another 3,390 are in trial modifications. Many others have entered the program and then exit without receiving a permanent modification. Meanwhile, 17,670 Washington households faced foreclosure in the three months ending Sept. 30.  The program and its predecessor, Making Home Affordable, have helped very few troubled homeowners in Clark County, a suburban community where the foreclosure rate is the fourth-highest in the state with one out of every 374 housing units in foreclosure.

HAMP runaround

According to a Vancouver foreclosure counselor, the problem with HAMP is that banks don’t stick with its trial payment period guidelines, which state that temporary help should last no more than three months before borrowers receive permanent modifications to their mortgages. Instead, many lenders stretch trial modifications out for months or years as homeowners deplete dwindling savings accounts in a futile effort to get stable relief.

“I’ve got clients I’ve been working with for over two years that have had no permanent resolution,” said Kevin Gillette, program manager at the nonprofit Community Housing Resource Center in Vancouver.

The agency provided counseling to more than 1,000 local households from Oct. 1, 2009 through Sept. 30, but Gillette said he has few success stories to share.  He said the HAMP trial period is supposed to last only long enough to test whether the homeowner is committed to making the modified payment. However, Gillette said lenders often keep taking the reduced monthly payments for six months or longer.  “In the end, they deny the permanent modification,” leaving bewildered borrowers wishing they had saved the money instead.

Gillette finds the situation appalling. He blames mortgage banks, which, he said, have little to gain from permanent HAMP modifications and just waste the homeowners’ money and time while keeping them suspended in trial payment limbo.  “Why not tell homeowners no, you’re not going to help them and let them go on about their business?” he said.

That might have helped the Freemans, who contacted their lender at the first sign of mortgage distress. They were told they would be eligible for HAMP if they skipped two months’ worth of payments.

“It was actually easier those months,” said Jacqueline Freeman, who used the reprieve to pay off other bills.

Gillette warns his clients not to follow the advice to skip monthly payments, which will immediately put an already-troubled homeowner in mortgage default.  “Nobody should be telling anybody this, but they do,” Gillette said.

Though few in the mortgage industry defend HAMP, many bank lenders deny claims that they’re giving bad advice. The challenge, according to a Wells Fargo Bank spokesman, is that a mortgage modification often can’t help a homeowner who’s been caught in the downward spiral of economic recession and unemployment.

“The bottom line is, if you had a job before and now you’ve lost it, even if we modify the loan, with zero income, the customer cannot afford to pay it back,” said Tom Unger, a Portland-based spokesman for Wells Fargo.

Unger said Wells Fargo and other banks often see more success with in-house modification programs that avoid the confusion of the government-driven HAMP.  “When the government programs were first announced, people’s expectations ramped up and then the (program’s) rules kept changing,” he said.

Mortgage black hole

The Freemans thought they were benefiting from the trial modification that reduced their monthly payment from $2,150 per month to a more manageable $1,390. Now Jacqueline Freeman would like to know what happened to the total $16,680 they shelled out over the course of 12 months.  “How could the bank say we are $23,000 behind? That part doesn’t make sense to us,” she said.  Gillette said most homeowners don’t understand that trial reduction does not reduce the loan’s interest rate.

“All the while, that loan balance is growing until (the homeowner) is so far in the hole there’s no way they can ever come out of it,” said Gillette, who has seen numerous homeowners devastated by trial modifications.

Some have left his clients in arrears by as much as $70,000, he said.

“The banks are setting these people up to fail,” said Gillette, a former mortgage professional who theorized that mortgage lenders would rather foreclose on the house and write off the bad debt.  Banks, on the other hand, insist that their institutions want to help, rather than end up in the real estate business.

“A foreclosure is not good for the customer, not good for the community and not good for us. It’s always going to be the last option,” Unger said.  That said, banks have lately run into problems for rushing the foreclosure cadence.

Rushing the cadence

Earlier this month, banks came under scrutiny in the wake of the disclosure that many had used “robo-signers,” or people who rushed to sign thousands of documents a day without reviewing the details.

“Some of these practices can deprive homeowners of their legal right to save their homes,” said Rob McKenna, Washington state attorney general.

As a result, the nation’s largest mortgage company, Bank of America, temporarily halted foreclosures. The attorneys general from all 50 states launched an investigation. Other large lenders, JPMorgan Chase, Ally Financial Inc. and PNC Services stopped foreclosing in up to 23 states.

However, the hoopla has largely died down, as Bank of America is pushing ahead with a new wave of foreclosures, according to The Associated Press.

Some say putting the blame entirely on banks and the government isn’t fair. After all, homeowners sign a contract, a note and deed of trust that shows an obligation to make the payment, said Mark Saftich, a senior mortgage director for Director’s Mortgage Inc. in Vancouver.

“That’s why there is so much paperwork at the closing table,” Saftich said. “It is signed by all parties stating they will pay the lender the amount over the life of the loan with a clause that says, if it’s not paid, notice will be given and the house will be foreclosed.”

Jacqueline Freeman said the notion of foreclosure never entered her mind when she and Joseph purchased their home and 10-acre farm in 2003.

Lessons learned

But the Freemans say they’ve learned some hard lessons about trusting mortgage providers and the government’s HAMP program.  “The main thing is, it doesn’t stop the clock on the foreclosure, in spite of paying out all that money,” Jacqueline Freeman said, adding that she remains optimistic about saving the farm.

The Freemans put in a call to Sen. Patty Murray at the height of the senator’s election rebid. Murray’s office has pledged to help the Freemans, who say they will do whatever it takes to avoid foreclosure, Jacqueline said.  “We are fine, upstanding, taxpaying citizens with a farm,” she said. “It’s not just a house. It’s our business and everything we do.”

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Foreclosure Mills Pad the Bills

Have you ever wondered why banks sue “unknown tenant 1, unknown tenant 2, unknown spouse of John Doe, and unknown spouse of Jane Doe,” in addition to the homeowners?  Sometimes, these individuals are necessary in a foreclosure case.  For instance, if the property in foreclosure is a rental property, then the tenants must be sued and served with process.  

Often, though, as the Tampa Tribune explains, banks and their lawyers know there is no need to sue these parties, but they do so anyway – just to pad the bill.  And who receives that bill?  The homeowner, of course.  Incurring expenses that don’t need to be incurred just to pass on an expense to homeowners – ya gotta love the foreclosure mills.

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Judges Cannot Prosecute Foreclosure Cases; My Solution

Several days ago, I blogged about the flawed procedures being utilized in foreclosure cases in Brevard County, precipitating this Motion to Disqualify Judge.  Since filing that motion, I’ve continued to reflect on the issues addressed therein, and I remain comfortable with my position.  In my eyes, the issue boils down to one inescapable conclusion:

Judges cannot prosecute foreclosure cases!

Today, the Brevard judge agreed with my argument and issued this Order Granting Motion to Disqualify.  The Order is quite vanilla, but it contains a phrase that I find telling.  The judge notes that “from Defendant’s perspective,” the Motion to Disqualify is legally sufficient and requires disqualification.  The key phrase, of course, is ”the Defendant’s perspective.” 

From the Defendant’s perspective, when a judge takes it upon him or herself to set a hearing in a case that the Plaintiff has chosen, for whatever reason, to let stagnate, the judge is siding with the Plaintiff.  A judge may argue (and may truly believe), that all he/she is doing is advancing the case forward, without bias towards one party or the other with regard to the hearing being scheduled.  Particularly in foreclosure cases, though, it’s the mere advancement of the case, at the judge’s initiative, that reflects the bias.  After all, the Plaintiff is seeking relief in the case; the Defendant is not.  Hence, when the judge is advancing the case, sua sponte, the judge is necessarily helping one party to the detriment of the other. 

Let’s put it this way … If a case is languishing, whose job is it to advance the case forward, towards judgment?  The Plaintiff.  Undoubtedly, the Defendant has no obligation in this regard.  I’m not saying the Defendant can stall; I’m saying the Defendant has no obligation to accelerate the case if the Plaintiff lets it stagnate.   

Some people reading this may argue I’m a slimy foreclosure defense attorney who’s just trying to delay foreclosure lawsuits.  Not so.  My concern is ensuring the system is fair for my clients.  Lest you doubt that a judge setting a hearing on his/her own initiative is unfair, consider this:

I’ve represented Plaintiffs and Defendants in hundreds if not thousands of lawsuits throughout my career – all types of lawsuits, not just foreclosure cases.  Other than recently (in the context of foreclosure cases), I can’t ever recall a judge setting a hearing on his/her own.  It’s just not done.  For example, I’ve filed dozens of lawsuits for Plaintiffs against insurance companies, seeking monetary relief.  I think most of my litigation clients would tell you that I litigate those cases aggressively, but, on occasion, for one reason or another, some of those lawsuits have languished a bit.  When that happens, do you think there’s ever been a time when a judge took it upon him or herself to set a hearing?  Of course not.  Do you think the judge ever tells the insurance company or its lawyer that they need to accelerate the case?  Yeah, right.  Never happens.  As the Plaintiff’s lawyer, if I don’t set a hearing, the hearing never gets set, and the case stagnates.  That’s just how it works.  The insurance company has no obligation to advance the case forward (and risk entry of an adverse judgment sooner), nor would I expect them to.  My client wants affirmative relief through the court system; it’s my duty to move the case forward to obtain that relief. 

My point, essentially, is this – when this is how it works in litigation files, why should foreclosure cases be any different?  Because the homeowner (allegedly) has not paid?  Because the judge perceives the Plaintiff will win?  Because the Judge has a lot of cases on his/her docket and wants to remove the backlog?  Respectfully, that’s the rub.  If a judge is setting a hearing on his/her own initiative, for any of those reasons, it reflects a bias that should not be present among the judiciary.  Judges should treat my clients just like they treat insurance companies when I represent Plaintiffs – without any preconceived notions of who is going to win the case and without any agenda as to how quickly the case moves forward.

I can totally understand the judges’ desire to eliminate the high volume of cases with which they are dealing.  The answer, though, isn’t for judges to exceed their role as neutral arbiter and act as prosecutor.  The solution is to change to the rule on lack of prosecution. 

Fla.R.Civ.P. 1.420(e) is currently set up in such a way that it’s virtually impossible, as a practical matter, for a case to be dismissed for lack of prosecution.  For such a dismissal to be entered, (1) there can be no activity in the court file at all for 10 consecutive months; (2) the Plaintiff must be notified of the lack of record activity; (3) there must be no record activity in the ensuing 60 days; (4) an interested party must seek dismissal; and (5) there can be no “good cause” to prevent dismissal.  Under this standard, cases can languish forever.  I can file a Notice that I’m going on vacation for Christmas, and the 10-month clock starts all over again.  Respectfully,that’s crazy, particularly vis a vis foreclosure cases. 

If the judiciary wants cases to move quicker, it’s time for the Florida Supreme Court to implement an amendment to this rule.  How about something like … if six months have passed with no record activity in a foreclosure case, then, boom – automatic dismissal.  If that sounds too harsh, then give the Plaintiff a chance to prove good cause after six months.  The point isn’t how the rule is amended; the point is that some amendment is necessary to ensure that foreclosure cases progress at the pace the judiciary desires.  In other words, what I’m suggesting is this:

Judges, don’t prosecute foreclosure cases just because the bank has let those cases languish.  Instead, convince the Florida Supreme Court to amend Rule 1.420 so it’s not so impossible to dismiss a foreclosure lawsuit for lack of prosecution. 

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Rush to Judgment – Why?

I’m seeing an increasing number of reports that banks are cancelling foreclosure sales, and, candidly, I’m as perturbed about it as the judges, but for different reasons. 

Judges are upset because they want to keep “pushing through” foreclosure cases so as to reduce their caseloads.  I’m perturbed because these cancellations show that the entire foreclosure process is senseless. 

When a foreclosure case gets to the stage that the bank is cancelling a foreclosure sale, that means the bank has convinced a judge to grant a Final Judgment of Foreclosure, and caused the homeowner to vacate possession (presumably), but won’t take title to the property.  I suppose I could sort of understand, maybe, a little bit, sort of, if the property was going on the market.  But if it’s just going to sit, abandoned, then what’s the point?   

Judges, why rush to enter judgments, and foreclose on Florida homeowners, when banks are leaving the houses vacant (and aren’t even taking title)? 

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