An article at the New York Times, “Backlog of Cases Gives a Reprieve on Foreclosures,” is more than a little frustrating in that it takes some high level factoids about the mortgage mess and fails to draw the right inferences from them.
The premise of the piece is that in some states, the average time to foreclosure has become so attenuated that it would take decades at current rates to clear the backlog. Consider these dramatic-sounding statistics:
In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real estate data firm.
Clearing the pipeline in New Jersey, which like New York handles foreclosures through the courts, would take 49 years. In Florida, Massachusetts and Illinois, it would take a decade.
In the 27 states where the courts play no role in foreclosures, the pace is much more brisk — three years in California, two years in Nevada and Colorado — but the dynamic is the same: the foreclosure system is bogged down by the volume of cases, borrowers are fighting to keep their houses and many lenders seem to be in no hurry to add repossessed houses to their books.
The convention in writing is to list the most important cause first. Thus by giving “the foreclosure system is bogged down by the volume of cases” pride of place implies that the “foreclosure system” being overloaded is the biggest cause.
But this level of abstraction is misleading. There is no “foreclosure system”; that turn of phase implies a single overarching set of procedures. As the mere mention of judicial versus non-judicial states indicates, each state has its own laws and case history as to what is proper practice. Referring to a “system” when there is none is also likely to lead many readers to think in term of the system that is involved in the foreclosure process, the judicial system, and to incorrectly infer that courts being overloaded is a major culprit. The vagueness of the expression, in other words, has the effect of directing attention away from the fact that it is the banks’ own machinery that is the most gunked up.
Indeed, the failure of the banks’ own processes and procedures is very much underplayed in the story. There is virtually no mention of the fact that the banks cut corners so badly both in how they handled the process of transferring notes to trusts and in their use of the mortgage registry MERS, and then in the foreclosure process itself, that much of the delay is the result of their efforts to remedy major operational shortcomings. Passing references to “documentation crisis” and robosinging are inadequate to describe the scope of the problem and support the mortgage industrial complex’s narrative that this is a mere paperwork problem (the reliably sanctimonious Wells has the temerity to blame its problem on “changes in state laws governing foreclosure”).
The poster child that calls the implicit thesis of this article into question (as to what caused the slowdown) is Florida. Readers may recall that the state had such a bad backlog that it created special courts just to handle foreclosures, the so-called rocket docket. It quickly came under attack, since some of the newly-appointed judges appeared to give reducing the overhang higher priority than administering justice.
But after the robosigning scandal broke, banks halted or very much slowed foreclosures to get their procedures in order. Remember, a basic requirement of evidence is that affidavits are used to stand in the place of testimony, and the person providing the testimony has to have personal knowledge of the matter. Thus dispatching with robosigners, who didn’t even read what they were signing, much the less have any direct knowledge, meant at a bare minimum rebuilding substantial sections of what had been a highly streamlined process. That takes time and also means longer ongoing throughput time.
But even that charitable assumes that the banks’ depiction of the robosigning mess was to be taken at face value, that it was a mere “paperwork” problem. Adam Levitin reminded us last week that the real implications of the scandal were ignored by the media:
We’ve already seen pretty shocking evidence of documentation fraud in foreclosures. Remember that the robosigning scandal was the by-product of depositions that aimed to show backdating of assignments to trusts. The shame of the robosigning press coverage was that it focused on some shmucks signing 10,000 assignments in a month–which didn’t necessarily produce any harm itself, just carpal tunnel syndrome–and overlooked the really quite serious criminal problem of the backdating of assignments. The depositions showed pretty clearly that there was backdating–the notarizations were by notaries who didn’t have their commissions until a couple of years subsequent or were done on Christmas Day, etc.
What are the implications? Well, foreclosures that depended on fraudulent procedures are far less likely to be put forward in judicial foreclosure states (ones where the proceeding takes place through the court system), particularly ones where at least some of the judges are paying attention.
Thus what the article depicts as “backlog” (remember, LPS is including “severe defaults”, meaning deliquencies that have not yet resulted in foreclosure) is far more likely to be the result of foreclosures that either will not be initiated or have been abandoned. In other words, the samples all include a mix of foreclosures that are moving forward to resolution which should be parsed out and analyzed separately to see what the real time to foreclosure is, versus ones that the banks have dropped and/or are not initiating (and I don’t mean dropped by virtue of being contested, I mean left in limbo by the bank).
As we suggested earlier, the Florida example strongly suggests that bank inaction is a major reason for the rising backlog. As Florida attorney Mark Stopa wrote in March:
The hearing was brief but very interesting. With very little argument, the judge [Parsons] apologized for entering the Order ex parte, noting that such matters are often uncontested and he did not realize this one was contested. Quickly, the issue became whether the motion to correct the alleged scrivener’s error should be heard right then or at a future hearing [The bank’s lawyer had admitted the securitized trust that filed the lawsuit, sought summary judgment, and filed an affidavit in support did not exist].
The bank’s lawyer asked it to be heard right then, arguing the case had been delayed. The judge interjected, saying something to the effect of:
The bank is complaining about delay? I find that ironic. In October, I was handling 40-50 foreclosure cases at a time. Nowadays, I can’t get a bank to come have a hearing. The banks all shut down in October, stopped prosecuting these cases. I don’t see how the bank is now in a position to complain about delay.
And it is not accident that the apparent longest time to foreclose is in New York. Judges here have become particularly bloody minded about adhering to the law; the notorious curmudgeon Judge Schack now has plenty of company, with other judges issuing rulings that have gotten attention nationally (I particularly enjoyed the MERS smackdown that basically said, “I don’t really care if you have 62 million mortgages, rules are rules”). The article points out some of the procedures New York has implemented:
And many foreclosure lawyers seem unable to meet a requirement, made last October by the New York Chief Judge Jonathan Lippman, to affirm the accuracy of their documentation.
“The affirmation has had a pretty chilling effect,” said Ann Pfau, New York’s chief administrative judge. “The attorneys for the banks tell us they can’t get through to the right people at their clients who can verify the information.”
This is a stunning admission. Note that the New York procedure did not impose a new legal standard per se; lawyers are supposed to verify the accuracy of filings that as a matter of course. But it increased the consequence of casual violations. As a reader noted:
Judge Lippman’s recent rule has several lauditory benefits. First, the onus falls on counsel to affirmatively confirm compliance. Ordinarily, the duty to ensure the accuracy of the contents of any civil pleading or motion paper filed in a federal court, for example, is not self-actuating. In other words, when opposing counsel suspects that his or her counterpart has knowingly filed a pleading that is not well grounded in fact, or in law, or both, then the aggrieved counsel may choose to proceed by way of Rule 11 to seek sanctions, after giving the alleged offender the opportunity to cure. A Rule 11 motion is very much a last resort rather than a first one. The attorney who files such a motion may well find himself or herself facing a retalitory Rule 11 motion in response.
Also, from my own 20 years of experience in various courts, I can say with some confidence that judges internally groan when presented with such motions as they are considered to be satellite litigation that is disruptive of the orderly flow of the underlying claims. A Rule 11 motion is considered the equivalent of a declaration of war and the possibility of future cooperation or even civility between counsel vanishes with the filing of such a motion. Judge Lippman’s approach avoids all of these problems while placing plaintiff’s counsel on notice of the court’s decidely dim view of a party materially misrepresenting any significant aspects of its claims.
Finally, the N.Y. Judge’s approach also raises the prospect of a perjury prosecution for those who knowingly violate the rule, which otherwise would be a extraordinarily remote prospect absent the new rule. On the whole, the approach is logical, cost efficient, self-executing and extraordinarily timely. Let’s hope other state courts act in such a timely fashion.
Now in fairness, New York has imposed a new requirement, that banks and borrowers need to meet to “discuss terms”; this is allegedly leading to lots of conversations and considerable delay (I’d very much like to get informed reader input as to whether this is a burden to banks, which is the subtext).
Finally, the fact that state attorney general Eric Schneiderman is turning over lots of rocks also has to be leading to a good deal of caution on the part of banks and servicers.
The article suggests that some borrowers are gaming the system; it points to a remark by the same Florida attorney, Mark Stopa, that 1/3 of his current cases are strategic defaulters, some of whom are renting out foreclosed homes. The fact that they are renting them is consistent with what I have heard from other attorneys: that strategic default is a less common phenomenon than the media would have you believe, and occurs almost entirely in second homes (or investment properties that were improperly financed as primary residences). But it also points out that many borrowers are not benefitting from the attenuated process; they’d like to see if they can get a mod, and they instead are in an anxious limbo. Readers have also written about considerable delays in getting resolution on short sale offers.
Given how mortgage market and foreclosure practices vary by state, making generalizations is always going to be a bit fraught. Nevertheless, it is remarkable to see a story of this sort give such short shrift to the banks’ self-inflicted wounds and fraudulent behavior.