Rising foreclosures hurt Island as nation recovers

New foreclosure cases on Long Island are spiking, even as the mortgage crisis fades in the rest of the United States.

Despite rising home values that suggest a housing rebound on the Island, lenders filed 12,271 initial foreclosure cases here in the first eight months of this year, a nearly 53 percent surge compared with the same period in 2012, according to data from real estate information firm LI Profiles, based in Brightwaters.

Nationwide the number of initial filings dropped 34 percent during the same period, national data provider RealtyTrac reported.

"We're definitely seeing the Long Island area buck the national trend when it comes to foreclosure activity," said Daren Blomquist, vice president of RealtyTrac, based in Irvine, Calif.

The share of Island mortgages in distress is more than double the national average, according to national data provider Lender Processing Services, of Jacksonville, Fla. In July, 8.2 percent of all homes with mortgages in Suffolk County and 6.1 percent of homes with mortgages in Nassau County were in the foreclosure pipeline, compared with 2.8 percent of homes with mortgages nationwide, LPS reported.

LPS collects data from mortgage servicers. Its definition of foreclosure includes cases that have been referred to bank attorneys but not yet filed in court, as well as those making their way through the court system.

Experts say Long Island continues to struggle with foreclosures for a complex set of reasons. They range from New York's almost three-year foreclosure process -- tied with New Jersey for the longest in the nation -- to Long Island's riskier-than-average mortgage loans before the collapse of the housing market in 2008.

Another factor: the region's difficulties in bringing back high-paying jobs. Nassau's median household income was $93,214 last year, a decline of nearly 7 percent since 2008, according to census data. In Suffolk, median income has dropped nearly 5.7 percent over the same period, to $86,334.

Loan modification problems

Long Islanders facing foreclosure also encounter the same troubles as distressed homeowners nationwide, such as difficulties negotiating with banks over loan modifications. In a $25 billion settlement reached last year with federal and state agencies, five major lenders agreed to overhaul their foreclosure practices and offer more help to homeowners.

Four out of the five banks -- Bank of America, Citibank, JPMorgan Chase and Wells Fargo -- have violated terms of the settlement, most often by failing to quickly notify homeowners of missing documents, according to a June report by the settlement's monitor, Joseph Smith. The banks have said they are working to fix the problems.

The high rate of foreclosures on Long Island poses problems for all homeowners, not just those at risk of losing their residences, housing experts said. A large backlog of distressed homes -- there were 6,070 pending foreclosures in Nassau and 12,693 in Suffolk in August, according to the state Office of Court Administration -- is weighing down the Island's housing market amid a recovery in the rest of the country.

Suffolk home prices have risen 19 percent as of August since hitting a post-housing crash low in January 2012, according to data from the Multiple Listing Service of Long Island. In Nassau, prices have risen 22 percent since their post-crisis low in March 2012. Nationally in August, home values had rebounded 37 percent since bottoming out in January 2012, according to the National Association of Realtors.

Negative impact on region

A glut of foreclosures typically "puts downward price pressure" on a region's housing market because many foreclosed homes fall into disrepair, causing their values and those of surrounding properties to drop, said Jaison Abel, a senior economist with the Federal Reserve Bank of New York.

The people hit hardest, of course, are the families at risk of losing their homes in foreclosure. There were 43,385 Long Island households in July that either were in foreclosure or had been referred to bank attorneys, according to Lender Processing Services, down nearly 8 percent from a year before, but still more than twice the number in July 2008. The national housing rebound -- and the more modest uptick in values here -- is leaving them behind.

Victor Alexander Osorio is among the Long Island homeowners in distress.

Osorio lives with his wife and their two daughters in a Baldwin home they bought in 2002 for $305,000; they took out a mortgage of $289,750, according to Osorio and public records. He lost his six-figure job as a Bronx-based district manager at a fitness chain in 2009. He got a lower-paying job as a store manager for a wireless company, but he lost that job in a downsizing in 2011, he said. Now the family relies on his wife's income as a registered nurse.

He said he requested a loan modification from his lender, Citibank, in 2009, but he never got approved for a permanent modification. He borrowed money from relatives to make partial payments on the roughly $3,200 monthly mortgage, but in 2010, he said a Citibank phone representative told him that his partial payments were not being applied to his mortgage. Frustrated by his inability to get a permanent loan modification and believing his payments were going "nowhere," he said, he stopped making payments.

Exploring options

A spokesman for Citibank said, "We take these matters very seriously and are taking another look at this case to explore any potential options for the borrower." The spokesman said partial payments are kept in a separate account until enough money accrues to make a full payment; at that point, the full payment is applied to the mortgage.

When Citibank foreclosed in 2011, the outstanding balance was $352,000, public records show. Osorio confirmed that figure, saying he had refinanced in 2005. After the bank started foreclosure proceedings, Osorio hired a lawyer. The bank offered him a trial modification in March 2013, with a monthly payment of $2,608, he said, which he has not accepted because he says he and his wife cannot afford it.

Banks also experience losses in the foreclosure process, said Keith Gumbinger, vice president of HSH.com, a Riverdale, N.J.-based mortgage information website.

"A lender taking a home back for a loan that was originated with very little down payment in 2005 or 2006 faces a substantial loss," due to the decline in home values, legal fees and the cost of preparing the home for sale and selling it, Gumbinger said.

In states such as New York, where courts oversee foreclosures, he said, many homeowners "haven't made a mortgage payment in years and are still living in their homes . . . These are legal obligations and if you fail to meet your obligations, the lender has recourse, which is the foreclosure process."

Island's risky loans

One key reason for the Island's distress precedes the financial crisis, foreclosure experts say. Long Island homeowners had more risky mortgage loans than the nation at large back in 2006, before the housing bubble burst, and the low quality of those loans made them more likely to slide into foreclosure, the Fed's Abel said. In 2006, 74 of every 1,000 homes on Long Island had a mortgage that was considered "risky" -- classified as either subprime or a borderline category known as "Alt-A" -- compared with 56 out of 1,000 homes across the country, Abel said.

"It's not the banks' fault that the value of the homes decreased," said Gale Berg, director of pro bono attorney activities for the Nassau County Bar Association. "But what is the banks' fault is that they may have given more money than the people were eligible to pay."

Another critical factor: the Island's struggle to recapture high-paying jobs makes it hard for families to emerge from financial troubles, advocates for homeowners say.

And New York's court protections for homeowners have extended the time it is taking for the state to recover from the foreclosure crisis, said RealtyTrac's Blomquist. New York and New Jersey are the slowest states in the nation to process foreclosures, with an average delay of 1,033 days, according to RealtyTrac. Florida is next, at 907 days.

Across New York State, 5.7 percent of homes with mortgages were in foreclosure or had been referred to bank attorneys as of July, according to Lender Processing Services.

"Most of the country has a much quicker, unencumbered foreclosure process, and as a result the majority of the country is already healing and getting back to normalcy while we're still dealing with the collateral damage of the financial meltdown," said Todd Yovino, owner of Island Advantage Realty, which has offices in Island Park and Hauppauge.

Besides those three key reasons for the crisis, other factors contribute to the problem.

The Island's high property taxes mean that even those who can get their mortgages modified still face high housing costs. "Sometimes it just can't be done, even if the bank comes to the table with a 2 percent modification," said Carol Yopp, foreclosure prevention manager at the Long Island Housing Partnership, referring to the lowest mortgage interest rate homeowners can get under guidelines for the federal Home Affordable Modification Program, which offers incentives to lenders for modifying loans. "Even with a magic wand, you couldn't create an affordable payment."

Harvey Sorid, a Uniondale attorney who counsels homeowners in distress, said at least half his foreclosure clients have dealt with job loss and about one-fourth have gone through divorce. Almost all his clients have sought loan modifications from banks, but decided to hire an attorney when they were unsuccessful, he said.

"It's not personal extravagance," Sorid said. "People want to work and have a good life."

Superstorm Sandy could also be a factor. It is still unclear whether storm damage will cause a significant spike in foreclosures, but the cost of rebuilding puts more homeowners at risk of losing their residences, housing experts said.

After the Oct. 29 storm, many homeowners got temporary reprieves from their mortgage lenders, which allowed them to skip payments.

"What a lot of people didn't understand is that at the end of it, they'd have to catch up," said Marianne Garvin, chief executive of Community Development Corp. of Long Island, which counsels homeowners in distress and buys and rehabilitates blighted residences.

Impact of firm's collapse

New York is also experiencing the delayed impact of the 2011 collapse of the law firm of Steven Baum, located in Westbury and upstate Amherst. Baum's firm announced it would close after a federal investigation into its foreclosure practices that resulted in a $2 million fine, and a scandal over photos of employees dressed up for Halloween as families in foreclosure.

Some experts estimated that Baum handled 40 percent of New York's foreclosures before the firm closed. Many of those cases are now being refiled by new lawyers after further review, said Kirsten Keefe, a senior staff attorney with the Empire Justice Center in Albany, which provides legal assistance and advocacy.

And while more local homes are sliding into foreclosure, fewer are coming out. In Nassau from June through August, just 12 homes were sold in foreclosure auctions, and lenders repossessed 49 homes, court officials said. Put together, that's down 73 percent from the same three-month period in 2010 -- before the robo-signing scandal broke and banks put the brakes on foreclosure sales and repossessions -- when 53 homes were sold at auction and lenders repossessed 177 homes. Suffolk does not track the number of foreclosure sales and repossessions, a court official said.

"The banks are letting this stuff linger," said Susan Vincennie, president of LI Profiles, which collects real estate data from Nassau and Suffolk. As for the low number of foreclosure auctions over the past two years or so, she said: "The banks started wanting top dollar for the properties, and the investors were walking away."

Across New York State, lenders filed 26,754 new foreclosure cases in the first eight months of this year, almost 66 percent more than in the same period last year, RealtyTrac reported. That includes cases that were refiled; foreclosure cases still in the system after three years must be filed again. Almost 23 percent of all foreclosure starts on Long Island this year were refiles of cases from 2010 or before, with a few dating to 2003, according to data supplied by LI Profiles.

Mortgage lenders and homeowners alike contribute to the delays, said Garvin of Community Development Corp.

Although New York's court rules have slowed the foreclosure process, they also have prevented improper foreclosures, advocates said. "By taking it to a judge, you have an opportunity to make sure mistakes aren't being made," Garvin said.

Even so, many homeowners who received loan modifications during foreclosure proceedings ended up in default again, said Vincent Cuocci, an attorney in Sayville.

If homeowners cannot afford even a modified payment, he said, they may be better off filing for bankruptcy protection, which allows them to restructure their debts.