A new industry survey by the Mortgage Bankers Association shows a record 5.4 million U.S. mortgage holders were either behind on their payments or in foreclosure at the end of last year.
The sharpest increases in loans 90-days past due were in Louisiana, New York, Georgia, Texas and Mississippi, reflecting a spreading recession and massive job losses nationwide.
Meanwhile, another report by the National Consumer Law Center, a consumer advocacy legal organization, predicts foreclosure filings from 2008 will top 1 million nationwide, an 81 percent increase over 2007.
The report also ranked foreclosure protection laws by state. For example, more than 30 states, including Alabama, Minnesota and Utah, do not require court involvement in foreclosures.
New York scored strong with laws including mandatory court conferences for subprime residential mortgage foreclosures but ranked behind other states in categories such as allowing homeowners the right to redeem their default post-sale and requiring a housing emergency access fund.
While there are no pending proposals to amend the New York law, attorneys hailed last week’s Capitol Hill move to allow Chapter 13 bankruptcy judges to amend loan terms as a necessary next step.
“The current law provides a good framework but the law itself could be tightened up,” said Josh Zinner, a co-director of legal service and consumer advocacy group NEDAP. Mr. Zinner said the law could be extended to cover loans other than subprime and nontraditional loans and provide protection to homeowners.
Allowing judges to modify home loans would “help those who can help themselves” said Long Island bankruptcy attorney Richard S. Feinsilver, because it would allow homeowners to make lower payments reflecting the decreased value of their homes.
The congressional vote on the bill, which is part of President Barack Obama’s $75 billion housing plan, is set to take place this week.
The conference provided a glimpse inside the practical application of Chapter 472 of the Laws of 2008, passed by the New York Legislature last August, requiring mandatory court intervention in response to the mortgage foreclosure crisis (NYLJ, Oct. 1, 2008).
The law covers foreclosures on subprime or “high-cost” mortgages on one- to four-family residences since Jan. 1, 2003. It requires a lender to file a specialized request for judicial intervention when initiating a foreclosure summons and complaint. Courts then notify property owners of their right to a resolution conference and provide details about legal service providers who can represent them.
More than 150,000 foreclosure proceedings are pending statewide dating back to 2003. And as many as 30,000 cases will need mandatory court intervention over the next 10 to 18 months, according to Office of Court Administration officials.
Before the law’s enactment, subprime mortgage holders facing foreclosure defaulted 90 percent of the time, said Paul Lewis, chief of staff for Chief Administrative Judge Ann Pfau. Attorneys for lenders would simply file a summons and complaint and wait for the homeowner to default, Mr. Lewis said.
“We saw that the numbers were creeping up,” Mr. Lewis said of the number of defaults, before the courts’ attempt to change foreclosure filings from a “paper process to a people process.”
More than 5,400 foreclosures were filed in Queens in 2008, compared with just over 1,800 in 2005, according to court records.
Under the new rules, the conference must be held within 60 days, before a judge, a judicial hearing officer or a court attorney-referee.
In Queens, that man is Mr. Florio, 42, an eight-year court veteran with close-cropped hair and an impeccable tie knot. He oversees the conferences with obvious knowledge of the law. A former insurance defense practitioner, Mr. Florio takes a no-nonsense approach that aims to “cut through the red tape” and bring parties to a practical agreement that, in a best case scenario, allows homeowners to keep their homes.
“We have to look at where the income is and whether the person will be strapped,” Mr. Florio said, noting that homeowners are sometimes too eager to accept proposed terms without actually considering the cumulative state of their finances.
“[People] say, ‘I can do it, I can do it . . . if I cut the phone in the house and then the gas and the lights,’” he said, adding that the ideal situation is a “meeting in the middle” between homeowner and lender.
Uphill Battle
But practitioners representing homeowners say such agreements are few and far between, due to an untenable economic situation.
“A lot of people are in trouble because they have overextended themselves and taken these loans and are in danger of losing their homes,” said Glendale attorney Andrew L. Jaloza, who has represented a dozen homeowners in conference proceedings pro bono.
On the other hand, he said, “banks are overwhelmed and their hands are tied because they sold off the loan to another investor,” in some cases, years ago.
“It’s very rare that a settlement conference itself leads to a different resolution than otherwise would have happened,” Mr. Jaloza said. The ultimate solution would be to amend the bankruptcy laws and allow judges to modify the terms of the loan, he said (NYLJ, Feb. 26).
Official settlement conference statistics are not kept but despite the mandatory conferences, around 90 percent of foreclosures still proceed unopposed, according to court officials. Of the remaining 10 percent, resolutions are reached in few cases.
Queens County Supreme Court Justice Jeremy S. Weinstein, the county’s administrative judge, said that in his opinion the program is a success “for the one homeowner who stays in their home” as a result of the conference.
“Like any other administrative program, it takes time,” Justice Weinstein said.
