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So far, expedited foreclosure law stuck in slow lane
The number of new foreclosure filings in Florida is down for the past two months, despite a new law designed to speed up the foreclosure process, say foreclosure defense lawyers and bank lobbyists.
Official foreclosure statistics from the State Courts Administrator’s Office for July and August haven’t been released, but a report from RealtyTrac shows initial foreclosure filings dropped 28 percent in July in the year-over-year comparison.
Rep. Kathleen Passidomo, R-Naples, sponsored HB 87 this year as a way to address the foreclosure backlog in the court system. As of June 30, there were 327,938 foreclosure cases still pending in the courts, where the average foreclosure takes more than two years to complete. She said bankers are still responding to the new law, and the rebounding housing market is causing lenders to think twice about starting a new foreclosure case.
“Because the market is beginning to rebound ... the lenders are now entertaining more short sale offers,” Passidomo said.
Consumer advocates and foreclosure defense lawyers decried HB 87 as it made its way into law this year, fearing an expedited timeline for troubled homeowners to mount a defense would allow banks and lenders to trample over their due process rights, despite well-known cases of foreclosure fraud and mistakes that led to attempts to foreclose on the wrong properties in some cases.
Banks also had their issues with the legislation -- namely provisions that decreased the time to seek a deficiency judgment from a homeowner after a foreclosure from five years to one year -- but were overall supportive of the law.
Faced with the reality of the law, however, banks and lenders have slowed their rate of initial foreclosure proceedings since the law took effect July 1.
“Right now (bankers) are kind of figuring out how to use it,” Florida Bankers Association lobbyist Kenneth Pratt said.
Matthew Weidner, a foreclosure defense attorney, initially threatened to file a lawsuit contending the law was unconstitutional, but has decided to wait to see how the law plays out in practice. He said the banks are groping to comply with new requirements in the law that lenders obtain proof of ownership of the mortgage before filing foreclosure proceedings.
“We’re seeing a pretty dramatic reduction in filing because the banks are unable to comply with the new requirements,” Weidner said. “It’s absolutely not had the intended impact. If anything it’s exactly the opposite.”
It’s too early to tell how the new law will affect the foreclosure process and the housing market, but if foreclosure filing fees drop along with new filings, it could have a significant affect on court funding. The courts receive $770 out of each $1,900 foreclosure filing fee. That revenue stream is expected to bring in $32.7 million this year, or nearly one-third of the projected revenue from all court fees.
Actual revenues through the first two months of the fiscal year are $1.17 million off projections.
When the “robo-signing” scandal involving law firms pushing faulty paperwork through the courts was exposed in October 2010, it led to a voluntary moratorium from banks on new foreclosures and a drop in filing fees. Court leaders eventually asked for and received an emergency $45 million loan to cover expenses.
Now, the court system isn’t nearly as reliant on foreclosure fees as it was then, but another drop in foreclosure filing fees could lead to another shortfall for the courts -- despite an additional $42.6 million in national mortgage foreclosure settlement funds dedicated to reducing the foreclosure backlog.
Passidomo noted that fees from the first wave of foreclosures after the onset of the Great Recession have already been spent, but the cases themselves are still stuck in the system. She said the state needs to become less reliant on foreclosure fees to fund the courts but also that the new law should aid that goal -- if the law works as intended and foreclosure cases don’t get stuck in the system.
“If the case sits there for four years ... you still have to handle the case. All that takes time that was paid for earlier on,” Passidomo said. “The whole judicial system should not depend on foreclosure cases.”
Weidner said the Legislature has failed to account for the potential impact of the new law and filing fees.
“Where are the policy makers preparing for this?” Weidner said. “It’s a mess and getting worse.”
* April 10, 2013 Recommendations of the Foreclosure Initiative Workgroup, Foreclosure Backlog Reduction Plan for the State Courts System
* June 30, 2013 FY 2012/13 Foreclosure Backlog Reduction Initiative, July 2012 through June 2013 Status Report
* FY 2013/14 State Courts Revenue Trust Fund revenue projections, Article V REC
Reporter Gray Rohrer can be reached at firstname.lastname@example.org.