Law Suits & Courts

Foreclosure Armageddon’ looms

Posted on Monday, October 18, 2010

1. Stays on foreclosure proceedings involving four major lenders create such a state of legal flux that one real estate lawyer refers to it as “foreclosure Armageddon.”

The lenders, including Bank of America and GMAC, recently suspended foreclosures while they conduct internal investigations into possible problematic paperwork and the practice of “robo-signing” documents.

Tampa Bay area courts already struggling with huge civil case backlogs because of foreclosures now face even more delays, and lawyers on both sides of foreclosure are trying to figure out what’s next.

For Bay area businesses, it is the perfect storm of costly problems potentially resulting in losses. A business litigation partner in a large Tampa firm estimated it takes an average of four months now to get a court hearing scheduled when it used to take about three weeks, which leaves clients with conflicts without resolutions and more legal expenses.
(1) Cost of delays rising
A study last year for The Florida Bar estimated that on an annual basis the additional legal costs associated with civil case delays were nearly $184 million, with delayed case resolutions translating into a $17 billion loss in economic output by businesses.

Now, it could get worse.

“We will be going back and looking at [foreclosure] cases when requested, which is more work for the courts,” said J. Thomas McGrady, chief judge for the Sixth Judicial Circuit, which includes courts in Pinellas and Pasco counties. “It slows our ability to handle all other civil cases.”

The circuit received stimulus money appropriated by the Legislature to hire case managers to help senior judges resolve a backlog of nearly 22,000 foreclosure cases by next July. The goal is to hold 100 foreclosure summary judgment cases per day twice a week at the four courthouses, resolving 800 cases weekly.

These hearings — the final step in the foreclosure process before property is sold at auction — now are being cancelled because of lenders’ stays.

Nearly 100 hearings — about half the number scheduled — were cancelled this week in Pinellas and Pasco. Most involved JP Morgan Chase and Bank of America mortgages.

In one case, Chase noted that foreclosure files were being systematically re-examined to determine whether paperwork or affidavits are flawed, McGrady said.

If cancellations continue at this rate much longer, it is possible the circuit may have to cut back on the calendars of senior judges hearing foreclosure summary judgment cases, McGrady said.

“I think what will happen is as these cases come up, attorneys will call the court and cancel them,” he said. “It’s outside our control. Foreclosure is a very simple breach of contract. Lenders have taken a simple process and screwed it up. I attribute most of that to volume, but we want to do it right the first time.”
(2) Some cases move ahead
Not all foreclosure proceedings may be suspended. A lawyer in a Bank of America foreclosure related to a $400,000 mortgage declined last week to cancel a pending hearing involving motions on the merits of the case, said Charles Gallagher, a St. Petersburg foreclosure defense lawyer.

“It appears that despite very public pronouncements of stays that some proceedings are not being cancelled,” he said. “The court punted in this case and rescheduled the hearing. Courts might be a wee bit offended if nothing changes.”

Lenders’ attitudes seem to be changing, reflecting a desire to cut their foreclosure litigation costs and work out resolutions, said Mike Pitchford, a lawyer at Shumaker Loop & Kendrick in Sarasota.

The stays provide some good news for property owners because lenders are more likely to shoot for sales instead of foreclosure, said Anne Weintraub, a real estate lawyer who specializes in negotiating with lenders for short sales and a partner at Sarasota-based Syprett Meshad Resnick Lieb Dumbaugh Jones Krotec & Westheimer.

“It’s made my life a little easier,” she said. “Lenders are more willing to deal. I’ve received calls from some banks that want borrowers to submit paperwork for short sales. They want to get cash now instead of spending $30,000 to $50,000 on a foreclosure.”

A major question remaining is what happens if property has been sold through a flawed foreclosure.

“Will lenders have to re-foreclose and what happens when a new owner is in a home?” Weintraub said. “That’s the question.”
Tampa Bay Business Journal - by JANE MEINHARDT

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