Overcast 55° Good Evening
Overcast 55° Good Evening

Schoenthal: Foreclosures bogged down in red tape

"Everyone should be concerned about the massive number of foreclosure filings, not just the homeowners faced with foreclosure.," writes Allison Schoenthal. Photo Credit: Nancy Ohanian / Tribune Media Services

One in every 2,223 homes in New York received a foreclosure filing in October, the most recent month with data, according to research company RealtyTrac. Those are added to the tens of thousands of New York homes already in foreclosure. Queens, Nassau and Brooklyn, in that order, faced the greatest number of new filings in the state in October.

Everyone should be concerned about the massive number of foreclosure filings, not just the homeowners faced with foreclosure. If a neighbor's home is in foreclosure, it can lower the value of your property. That's because appraisers determine value by looking at comparable properties in the neighborhood, and homes in foreclosure -- whether not maintained or sold at a lower value -- make it harder for you to sell your home at the price you want.

Foreclosures also result in banks becoming less willing to lend. People are losing their homes because they cannot afford their mortgage and are unable to refinance, and potential buyers cannot get financing.

If properties can't be bought and sold, the housing market, and the economy generally, cannot recover. The massive number of foreclosure filings -- there were about 75,000 foreclosure cases pending in the state's courts at the end of last year -- confirms that the housing market in New York has not rebounded after 2008.

The number of Long Islanders who received foreclosure notices doubled from December 2011 to September, and it's taking longer to move foreclosures through our court system. New York is a "judicial foreclosure" state, meaning that all residential foreclosures have to proceed through the court system. The process to bring about a foreclosure sale currently takes at least two years, with an average of 1,072 days reported in the third quarter of 2012. That's longer than any other state. The national average is about 380 days.

The solution is not to get rid of foreclosures -- they're a necessary means to allow property to be bought and sold with clean title -- but to streamline it. For some homeowners, a foreclosure sale is inevitable; those cases need to be moved through the system faster, freeing up resources to help qualified homeowners who want to keep their homes.

Courts need more resources, personnel and specialized training to process foreclosures efficiently and address the increasing caseload. Last year, New York instead cut the funding for the already overwhelmed court system by $170 million (about 6.5 percent) and laid off about 350 employees across the state. This year, $15 million was given to legal service agencies in New York to help with foreclosures -- part of the $25-billion settlement between the attorneys general of 49 states and the banks -- but that money has had no effect on relieving the backlogged New York courts.

While there have been two seemingly well-intended initiatives in the past two years to fix New York's foreclosure process, both backfired, causing more delays. First, courts required that the bank and homeowner meet in person in every case to discuss options. Those conferences can take more than a year to complete, weighing further on court resources as a court officer must be present, requiring homeowners to take days off from work and rack up legal bills.

Second, since 2010, courts have required attorneys for lenders to verify in writing the accuracy of court filings. The rule was created to address concerns about "robo-signing," and while it sounds like a decent idea, the obligation to ensure court documents are accurate already existed under the Rules of the Chief Administrative Judge, which binds all New York attorneys, and the Rules of Professional Conduct. The additional requirement imposed in 2010 only meant more paperwork -- causing more delay. It effectively froze foreclosures in 2010 when it was announced, and stalled foreclosures in 2011 and 2012.

The lesson learned is that we need less, not more, bureaucracy and paperwork, and that courts should work with the banks to make the process more efficient and fair.

The foreclosure crisis has strained our court system. We need to fix it so taxpayer dollars aren't wasted on a broken court system, the court isn't bogged down in endless paperwork, homeowners aren't left in a two- to three-year limbo, and property values and our real estate market can revive.

Allison Schoenthal, a partner at Hogan Lovells, concentrates her law practice on lender liability and commercial litigation.