By Gary Blankenship
When legislators passed a bill to speed up the handling of foreclosures in Florida’s courts, it was part of a larger effort to reduce the number of foreclosures pending and backlogged on dockets throughout the state.
The law may be succeeding, but in an unexpected way.
Since the law went into effect July 1, the number of foreclosures filed in the state has plummeted. And the backlog of cases, helped by the reduced filings, is also coming down.
Some observers attribute the filing decline to the tougher paperwork standards plaintiffs face under the new law, and it may only be a temporary dip as mortgage servicers and plaintiff attorneys adjust to the law. But others say it exposes a systemic problem of lax paperwork from the housing boom when mortgages were rapidly packaged into securities.
“The biggie is obviously that the new statute requires all kinds of additional information and materials that the plaintiffs don’t have, the foreclosure law firms don’t have,” said Boca Raton attorney Margery Golant, who defends foreclosures. “It’s sort of a testament to how defective the things were before.”
Tampa foreclosure plaintiff attorney Richard McIver agreed the new law has caused a pause, but he expects it to be temporary.
“We expect them [banks and mortgage servicers] to come back in the next few months to a higher level [of paperwork],” he said. “It’s hard to say what that level will be. We don’t have knowledge of what the pending referral volumes of the banks are at the moment, but we do think as the large institutional lenders adjust to the new law, the filings will increase.”
For the first six months of 2013, Florida foreclosures averaged more than 14,000 a month. In June, that dropped to 4,386, less than a third of what it had been. Statewide numbers were not available for September, but a spot check of some counties showed that while the number of foreclosures rose somewhat, it was still below the average for the first part of the year.
In Miami-Dade, foreclosures had been averaging more than 2,000 a month. That dropped to 450 in July and rebounded somewhat to 795 in August. In Orange County, filings were averaging about 900 a month and dropped to 344 for July and then 500 for August. Duval County went from around 650 to 700 foreclosures a month to 257 in July and 388 in August. Palm Beach County went from around 1,000 a month to 344 in July and 578 in August.
(Part of the increase in August may be a routine occurrence, as foreclosures for 2010, 2011, and 2012, showed a slight increase from July to August for each year.)
Palm Beach County Clerk Sharon Bock attributed the filing drop to the new foreclosure law. She noted despite the increase in the August filings, those were still 61.1 percent before the August 2012 filings.
“We haven’t seen our foreclosure case load this low since 2006,” Bock said. “Even though we saw an increase in August compared to July, it is evident that this new law continues to have an effect on our filings.”
The law, which amended F.S. §702.015, made it easier for plaintiffs to use summary judgments to get a quick resolution and required that defendants state a specific defense if seeking to avoid the summary judgment process. But the law, coming on the heels of the robosigning and other paperwork scandals, also imposed stricter requirements that plaintiffs have their paperwork in order before filing a case.
Ron Gaché of Shapiro, Fishman & Gaché and who represents plaintiffs, attributed the delays to banks adjusting to the law and uncertainties about the legislation.
“It has a lot of prefiling requirements that the clients haven’t caught up to yet, and they’re trying to figure out internally what systems they want to put in place in order to be compliant,” he said. “It would be easy if you were doing it one case at a time . . . . But for clients to be doing it at this volume, you have to have a system in place where it’s checked and tweaked.
“The banks are all about getting it right at this point,” Gaché said.
Uncertainties come from many details of the legislation. The law requires certification that the plaintiff is in possession of the note and that a copy is attached. “The question becomes: Does the client certify it and send it to me, or will they send me the note and the law firm will certify it?” said Gaché, adding the banks have asked the Supreme Court for guidance.
“Before July 1, I didn’t have to certify I had the note. Now I file the lawsuit in June, I didn’t do a certification, and then in September my case gets dismissed and I get permission to file an amended complaint. Do I need a certification with my amended complaint?” Gaché said. “There are a lot of unanswered questions . . . the Supreme Court is going to have to clear up.”
Golant noted several states have imposed tougher standards on plaintiffs and their attorneys, which has led to a slowing of foreclosures across the country. April Charney, who has done foreclosures work since before the collapse, agreed states are cracking down, including Nevada pursuing criminal charges against some attorneys. Golant and Charney said the issuing, packaging, and reselling of mortgages during the housing boom was so flawed that it may be impossible to fix the paperwork.
“In New York ... they imposed a rule that the attorneys filing these things have to personally certify the validity of what they are filing, and filings have fallen away completely because no one is willing to swear to it,” Golant said. “I have doubts they will be able to do that unless they start manufacturing evidence. Yet, I can’t see where they’re going to eat those loans.”
A side effect — and perhaps another reason foreclosure filings are down — is banks are more likely to work out an arrangement with homeowners, either by allowing a short sale or modifying the original mortgage, she said. An increase in the housing demand in some parts of the state is another incentive to allow a short sale rather than fight through a foreclosure.
Charney, who teaches classes on foreclosure defense, pointed to nationwide lawsuits brought by the purchasers and insurers of mortgage-backed securities for examples of the rampant flaws in mortgage paperwork. She likened the market for mortgage-backed securities during the boom to giant, plankton-eating whales, in that it took a mammoth amount of individual mortgages to meet the demands.
“We didn’t have enough credit-worthy borrowers in this country to fuel that. So everyone looked the other way, turned a blind eye to that fact,” she said, and the result was underwriters issued mortgages that didn’t meet the lending standards.
“Once you had illegal loans that were flowing into these securities, why create more documents that people were going to look at? All it did was cost money,” Charney said.
She pointed to lawsuits around the country which claim that mortgages and their notes were not physically transferred to the securities that were being sold to investors within the 90 days required by law. One suit claimed the transfer was made years after the security was sold.
Charney sees this failure as so widespread that she has a standing challenge: “If you show me one timely loan transfer into a security, I will eat the [transfer] paper.”
That also means the chain of mortgage and note ownership necessary to properly do a foreclosure is absent, she said.
But Gaché said many concerns are overplayed, and those disagreements concern only securities packagers and those who bought the securities, not borrowers
“If I’ve got the note and it’s in my possession, I’ve got the right to enforce it,” he said.
The attorneys also expect that the new foreclosure law will be challenged in court.
“From anecdotal comments made by attorneys on both sides, I expect there will be a great deal of litigation on this new law, what it means, and how to comply with it,” said McIver, the plaintiff attorney.
Golant expects a challenge to the section of the law aimed at protecting purchasers of foreclosed properties. That situation provides if it was an independent, arms-length purchaser, then that buyer cannot be divested of the property even if the underlying foreclosure is later found out to be fraudulent or flawed. In those cases, the original, foreclosed owner is limited to getting monetary damages.
For now, the courts are catching up on the foreclosure backlog. The courts received $9 million in the 2011-12 and $16 million to be used in the 2012-13 and 2013-14 fiscal years to address foreclosures.
According to statistics from the Office of the State Courts Administrator, the state had 377,707 foreclosures pending on June 30, 2012, down to around 368,000 in the spring. As of June 29, the number was 329,171 and helped by the drop in filings in July, the number was 313,005 as of July 31.
For July, when those 4,386 new cases were filed, the courts disposed of 20,552 pending cases for a net gain of more than 16,000.
Kris Sladen, who oversees mortgage foreclosures for OSCA, said more case managers were added in July to hopefully speed the process even more. She said OSCA hopes to further refine its data to identify the longest pending cases to help judges attack those cases.
Eleventh Circuit Judge Jennifer Bailey, who oversees mortgage cases in Miami-Dade, said her circuit has been successful in reducing the backlog, adding that delays in recent years have not been caused by the courts but by attorneys not pushing cases.
Bailey said it may take a lot of time resolving remaining old cases because many have problems. She cited a 2008 case of an apparently vacant property she was working to set for trial “and the plaintiff just woke up and realized they never served the borrower. . . . It’s now a five-year old case and they’re saying, ‘We don’t have service.’ Do we dismiss it? Now you have a vacant property sitting in the middle of someone’s neighborhood.”
Gaché predicted foreclosures will return to their former level, but not until early next year.
“The foreclosure volume is still there. I don’t think people are going into default at any less a rate at this particular point,” he said. “I think banks are trying to work their way through the statutory requirements. Until we get some case law and some rules promulgated by the Supreme Court, we’re going to have a slowdown.”
OSCA’s Sladen, after watching years of mortgage filing gyrations, observed: “The most predictable thing about foreclosure activity is it’s unpredictable.”