Home price improvement is something that is occurring very slowly right now, as foreclosure backlogs processing is causing an extreme delay that could have an impact on the cost of a mortgage. If the cost increases as anticipated, then the number of prospective homes a buyer has to choose from could be very limited.
The problem seems to be at its worst in New York where the current average time period to process a foreclosure is three years. New Jersey is not much better with the average number of days to complete the foreclosure process standing at around 931 days. In Florida, it is taking approximately 858 days for the foreclosure process to complete. These numbers are much higher than the national average of 382 days. While 382 days seems like nothing compared to New York’s 1,072 days or Florida’s 858, it is still a long time compared to the same time last year when the average was 336 days. At the same time in 2007, the average time to process a foreclosure was 140 days.
At this rate of processing, it is no wonder that the number of foreclosures that are still in process is high. Even with the economy improving and fewer homeowners becoming delinquent on their mortgages, it is believed that it will be another two years before we start to see foreclosure inventories decrease. This is not good news considering it benefits a community more when a house that has been foreclosed upon can be filled by a new homeowner as soon after foreclosure as possible. This keeps mortgage rates down so that buyers can have as many options as their finances will allow.
Why is Foreclosure Taking so Long?
First of all, the states that use judicial foreclosure procedures are those that usually take the longest. The courts have to finalize the foreclosures and they are extremely backlogged. This is especially true in New York. New York requires settlement conferences for each individual foreclosure case and that means more court appearances are needed in a system that is already tied up.
Florida’s issue is that the documentation requirements are high and that has caused a judicial backlog. The number of judges available is very low and each case has to be given due process, although in the grand scheme of things there are very few individuals being foreclosed upon that shouldn’t be. Nonetheless, there is a process that has to be followed despite how many cases there are and how few judges there are to process them.
All of this chaos has brought about hope that the judicial states saw their peak in foreclosure inventories in 2012. The rate already peaked in 2009 in non-judicial states and has continued to fall ever since. This difference between judicial and non-judicial states has really become obvious during and after the housing crisis. In fact, the end of the third quarter, according to the Mortgage Bankers Association, showed that 2.4 percent of the loans in foreclosure were in non-judicial states and 6.6 percent of them were in judicial states.
Does a Decline Trigger False Hope?
Although Florida does not have an average processing time as long as New York’s, Florida is an example of the problems that foreclosure backlogs can cause.
In recent months, a majority of the foreclosures that were cleared were simple dismissals. When a foreclosure is dismissed, it can enter back into the already overloaded judicial system. These dismissals can cause a great deal of false hope and here is why:
Some of the dismissed foreclosures boomerang back into the system when the lender is better able to continue. Florida was able to rid itself of over 69,000 cases between July and November 2012 due to a $4 million stipend awarded by the state. However, this is not an achievement to be celebrated, as there were just as many new foreclosures that were filed during that same time period.
Despite the discouraging figures in regards to dismissals, they are necessary in that they cover a variety of situations, such as deed-in-lieu of foreclosures, short sales, or loan modifications. Those that enter back into the system are initially dismissed because the banks simply didn’t have their cases ready for the foreclosure proceedings to proceed. This means that the foreclosure can be filed with the court again at a later date because banks have to have evidence that there is reason to foreclose. If they do not have that evidence, they cannot go forward with the process. This is to prevent wrongful foreclosures.
As for the many opinions that have been expressed regarding the backlogs, individuals within the system hold firm that banks having their paperwork in order could prevent properties from re-entering the process. This would mean that they could be processed faster and less time would be spent on dismissals. Some attorneys contend that banks have gotten so used to winning in court that they are moving forward with the process despite how well they have secured their evidence. This is now resulting in judges dismissing cases for filing when that evidence is ready.
The Housing Market Hurts
Because approximately half of the states use a judicial system, the backlogs do hurt the housing market in more ways than just limiting housing choices due to increased mortgage prices. Housing choices become even more limited as the homes are allowed to sit. They are eventually vandalized or parts of them deteriorate due to lack of regular care and maintenance. Not everyone wants a “project home” that could cost them more than the home’s value.
In addition, the value of the properties surrounding a foreclosed home that is not sold quickly goes down. All in all, the best course of action is to prevent the foreclosure in the first place. Unfortunately, not every foreclosure can be prevented. This has resulted in a large number of neighborhoods being dealt a heavy blow.
In the end, the good news is that new foreclosures are moving along a little quicker now that lenders know they need to present their evidence from the very start. It is when the old foreclosures start coming back around into the system that additional problems could be seen. If this would have a negative impact on mortgage prices, it is possible to see home values remain stagnant for longer. The hope, however, is to ensure that the backlogs are resolved by 2015 so that mortgage prices can be controlled, opening up the number of prospective homes for the millions of individuals looking to achieve home ownership under a better economic situation.