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.
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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
”
~~Yves Smith~
I told you not to tell me that
!
62 years to clear the backlog. Why the hell don’t they hire some of the unemployed to speed the process….
Yves, this tripe you are shredding is interesting but keeping me from building my sauna. Stop being so entertaining!
After that 62 years, it will take another 62 years to clean up all of the defective titles resulting from this process. Living in NYS, I have seen minor survey errors where a builder built a corner of a house a foot outside a set-back line prevent that house’s sale for a year. Wait until nobody even can figure out all the parties who have interest in the property!
I have found the actions of the NYS courts and AG fascinating from a political perspective. Since NYC is the home of the US financial system, a disruption of the smooth flow of money into that system would be devastating to the NYC and NYS economy and tax receipts. Nonetheless, the courts and AG are continuing to esposue that quaint concept of “the rule of law” and doing their constitutional duties.
I expect to see the financial sector mobilize politically against the court system and the AG over the next couple of years as actual rule of law could destroy their business model.
The business sector *as a whole* benefits greatly from rule of law, which is why NY has such strict “black letter” trust law, for example.
I think any attempt by the crooked financiers to break the NY court system would be met with extreme pushback by the rest of the NY business sector, including even other financiers. Should be interesting.
For all those conservatives who believe private enterprise is superior to government, we can offer this counter-example of the big banks handling of of this entire mortgage mess.
The banks make the Greek government appear competent and efficient by comparison. It’ll probably be easier to clean up the Greek government’s problems than this mortgage mess.
Jay, it was private enterprise that developed the system of procedures, not government. The people developed how property was to be described on paper and transferred. Crooks buck the system. The banking system is anything but free enterprise, a creation of government privilege, not private enterprise. The NYT is beholden to the primary industry in the city.
The people used to tell the government how things were to be through usage and custom. Now we have bureaucrats in government and banks decide what the better way was. If it wasn’t for government regulation, I don’t know how man would have survived the thousands of years he has. (I decided there were few educated people that could reach logical conclusions and the rest of the educated went to work for the government).
Your writing confuses me. The requirement that mortgages be written on paper was established by GOVERNMENT, by statute in fact, back in the 1400s or whenever.
Sure, good, smart businessmen established good procedures early on. But making *everyone* use them so that the crooks couldn’t get away with stuff? That was done by government.
To me, the key “tell” is lack of agency in the prose. We are continually confronted with circumlocutions like “[T]he foreclosure system is bogged down by the volume of cases” when who or what is doing the bogging is not clear.
Obviously, the foreclosure system taking so long is not a measure its efficiency, but of the galactic scale of the economic catastophre caused by over 10 TRILLION DOLLARS OF LOANS GONE BAD. We do not need to reform the states’ court system for dealing with civil economic conflict because there is a failure to efficiently make the banks whole due to their non-performing loans. The non-performing loans are direct result of bad lending, corrupt practices and criminal malfeasance. The additional costs to tax payers, to handle this overload is on top of the costs to bail them out in the first place, so they can exist at all to throw people out their homes by the 10s of millions.
If this is not further evidence of just how bad the consequences are to the collapse of the credit engine of capitalism, and instead, another chance to blame government for not replicating the discredited downsized, low cost, high volume solution craze in corporate management, then the Orwellian transformation of this disaster to right wing reform opportunity is complete.
The only comment I shall make now is about where
the info Is generated from. LPS is not prominent
—it is A fraudulent company who steals homes
they were Supposed to modify. They represent
what a. True conflict of interest stands for.
When are we Going to see that if we rely on any
their information–It is going to be based on
fraud. They have Stolen more homes by far than
any bank. LPS holds 4.5T in loans presently. LPS
and its Entire board and affiliates and friends
were the masters servicers and REO mgrs behind
this scheme. To Recognize them as anything but
a criminal racketeering
Company is ludicrous. They are prominent alright–
In theft and deceit and the best grand forgery
And property stealing scheme of all times.
Debra. 5613899339
Don’t hold back, Deb. :-)
The original so-called contracts are not enforcable because the purpose of the agreements was to achieve an illegal end.
But since this idea would make peoples heads explode, much like the idea of cramdown did (even though vacation homes, motor boats, rural whore suites are routinely written down by bankruptcy judges) The po’ folk aren’t permitted to do this with their loan sharked hovels. Why millions of Americans tolerate this shit is unknown.
What kind of a banana republic do we live in where we need to cross our fingers and hope a “judge is paying attention”?
The contracts aren’t enforceable, not because they were illegal, but because those that appear in court cannot prove they either own or have the right to appear for the owner of the contracts being litigated. Clearly the mortgage, as opposed to the note, represented title to the property. Titles cannot be endorsed in blank, at least I doubt they can, because there is a holder of record. They are not negotiable instruments in the classic sense, but instead attachments of another instrument that conveys ownership to property situated at a specific location.
If I had to guess, the robosigners were up to something else, like trying to fix the paperwork for all the crappy mortgages put into the mortgage trusts administered by Bank of NY Mellon and US Bank. No one did their jobs in these transactions. In fact, having been in the mortgage business when rules were followed some 25 years ago, I can tell you this mess would have stopped long before it did had the industry done their jobs. The pipelines would have been reversed and a lot of mortgages put back. The originate and pass on was supposed to have a screw up through negligence or fraud and take back and refund the money. There was a suit filed between FHA and Deutsche Bank that involved direct endorsement privileges. The fact of the matter was no one was minding the store at FHA when they were taking that paper. Had they been, Deutsche would have been getting the stuff back so fast their division would have gone broke.
The truth of the matter was at every stage of mortgage financing, the model had been discarded for something easier for the people involved. There was no system to detect fraud or poor product. What was taken and sold as a marketable security was no more marketable than the stuff your dog leaves in the yard on a daily basis. It is hard for anyone involved to say “You screwed me” when procedure had been abandoned.
Procedure was abandoned because
(1) The homeowners were too ill-informed to know correct procedure, and were being offered “too good to be true” deals (so they really were cheated),
(2) the originate-and-distribute model eliminated any incentive for the originator to do their job
(3) The package-and-sell model eliminated any incentive for the packager to do their job
(4) The pay-for-rating system eliminated any incentive for the credit ratings agency to do their job
(5) The system of bonus pay for individuals meant that even when a company had an incentive to do its job, none of the actual people working for it had the same incentive to do their job, but instead to collect their bonuses and leave
(6) There were sufficient investors who were insufficiently diligent about looking for 20s-style outright fraud, because they were used to the SEC being on the job
(7) The SEC had abdicated its responsibilities
….decent catalog, but I’m missing some of it. :-P
Is it any wonder that Las Vegas collapsed when “the house” moved to Wall Street?
The article’s author is David Streitfeld. This is bio per the NYT:
“David Streitfeld joined The New York Times in December 2007 and writes about agriculture and real estate for the business desk. He came to The Times after lengthy stints at The Los Angeles Times, where he covered residential real estate, and The Washington Post, where he wrote about the literary scene. He is based in Chicago.”
Glancing through the titles of his most recent articles, I see no real awareness of the mortgage issues that have been treated here so much and at length.
Yes, Yves has a few problems here:
1. She thinks writing for a newspaper is more than an entry level position.
2. She thinks people are, by and large, competent to do the jobs for which they have been hired.
3. She thinks that more than a small fraction of people care or even have the ability to understand or process reality.
I jest, of course, but at the same time…
On a related note, if you walked 20 miles a day, it would take you more than 30 years to walk to the moon.
There might be a new twist in the status of
the applicability of Administrative Order of
Judge Ann Pfau, New York’s chief administrative judge.
It raises the question of whether administrative judges can
make rules as broad as the New York one.
It seems that even New York judges disagree in this point …
From an article by George Bundy Smith and Thomas J. Hall
in the New York Law Journal for April 15 2011 :
“A split has now emerged at the state trial court
level on the enforceability of Administrative
Order #548-10.” [I think that Order #548-10
is/was Judge Pfau’s procedural rule.]
The article in the New York Law Journal is
entitled:
“Limitations on Chief Administrative
Judge’s Rule-Making Authority”
Given that the question of how broad NY judges’ administrative rules can be will go, in the end, to the NY Court of Appeals, any rule coming from the Court of Appeals is probably going to stick.
The only entity which could overrule it is the NY Legislature, but it’s essentially in suspended animation right now thanks to the Republicans in the State Senate fighting to keep control, which they’re about to lose for good after redistricting.
There is little doubt that the order is in effect and almost universally enforced. Judges here are ever-more jealous about protecting their courtrooms against what they now understand to be non-evidentiary junk foreclosure documents. There is a “split” on this issue only to the extent that a single trial judge has taken it upon himself, sua sponte, to declare the administrative order of the Chief Judge unenforceable without the issue even being litigated.
The article is way off the mark because it relies on examining written decisions. If you examine only written decisions, there are a handful of decisions where judges enforce the rule, and a single decision to the contrary, which gives the appearance of a genuine controversy. But if you look at actual courtroom practice, trial courts are enforcing this rule without fanfare. They are simply rejecting banks’ papers that lack the required affirmation. These sensible, daily, routine actions do not result in written decisions. You will not find these actions plastered over the New York Law Journal. But practitioners from both sides of the issue will tell you that judges overwhelmingly enforce the rule. Bank counsel are terrified of running afoul of the requirement because they know their clients’ give them junk paperwork and that judges are watching to see if they are willing to vouch for said junk. The rule is working.
And NASA will build a space station every 20 miles along the way.
But I’m glad New Yorkers now know they can just stop paying the mortgage and wait for it to expire in 30 years. That should cut the 30-62 year portion of the court docket to nothing right there!
I think I’d buy a place, not pay starting the first month, rent it out and get on the year 63 docket. I’d lose the house eventually, but the cash flow would be great! Not to say New Yorkers haven’t thought of it already. I should probably look around for an ETF.
The residential mortgage industry got off the ground during the New Deal. The government supported the market through various mortgage guarantees and things worked pretty well—until the private sector took over. Gross market failure, fraud, and inefficiency. The NYT missed that too.
Now that’s what I’m talking about.
>>> 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. <<<
Given the state's proximity to Cuba, I would like to suggest that we employ extraordinary rendition techniques to whisk Florida deadbeats to Guantanamo so that we may process their foreclosure in kangaroo military tribunals. Strategic defaulters should also be waterboarded, to get them to confess where they hid the left-over food stamps unaccounted for during "discovery".
Psychoanalystus
Dear Psych;
Having spent my teenage years in Miami and the Beach, I can tell you in all sincerity that the southern half of Florida IS Cuban soil. (How to start a fight in a Calle Ocho bar: Claim that Patterson NJ, and not Miami is the biggest city in Cuba.) Besides, what’s so unusual about the home of “Cheap Waterfront Property” also being the poster child for mortgage fraud?
“The phrase consent of the governed has been turned into a cruel joke. There is no way to vote against the interests of Goldman Sachs. Civil Disobedience is the only tool we have left.” — Chris Hedges
“robosinging” – play me a melody so sweet it’s gonna knock me off my feet.
My typos are this blog’s version of “Where’s Waldo?”
I would double down that writing an article that is almost entirely PR from LPS, which had a freaking price list for forged documents publicly posted on its web site, without mentioning these allegations is journalistic malpractice.
Absoultey. LPS, being sued for securities fraud by shareholders, under investigation in several sates for criminal foreclosure fraud, and even reprimanded by the commit fraud. And it appears on the front page of the Sunday NY Times!
Is Judith Miller back?
Remember when the neocons paid the NY Times to post bogus pro-Iraq war stories and then would quote the very stories as proof of their claims?
What an absolute rag the NY Times has become!
Edits to post:
Absoultey. LPS, being sued for securities fraud by shareholders, under investigation in several sates for criminal foreclosure fraud, and even reprimanded by the Federal reserve issues a report to justify why they had to commit fraud. And it appears on the front page of the Sunday NY Times!
Is Judith Miller back?
Remember when the neocons paid the NY Times to post bogus pro-Iraq war stories and then would quote the very stories as proof of their claims?
What an absolute rag the NY Times has become!
In a way, you can understand some of the articles that have been written (or blog posts) in that people who write them are looking at the situation as mostly “sour grape” contentions – and impart a presumption of credibility and truth the Banks/Actors. They can’t imagine that the Banks acted unlawfully, fraudulently or with neglect (intended or not). It just doesn’t compute.
It doesn’t excuse them, because as journalists, they should not inpute credibility to the Banks. Neither should the Courts, BTW, but they routinely do in most states outside of NY.
Diana Olick, who for years I’ve read/viewed and have generally admired as a journalist is a case in point. She reports extensively on the Banking/real estate sector and dances all around the edges of the issue, yet won’t dive to the heart of it. She tends to cite any abuses and underlying wrongdoing as “exceptions” or “one-off’s”. The problem is that those instances are cropping up in hundreds, thousands of cases.
Maybe she’s just trying to keep her job. Maybe she really believes that ultimately the “deadbeats” -as it is evident she and others in the MSM view the afflicted property owners – voices will wane and it will be back to business as usual. Either would be misfortunate.
Where there’s smoke, there’s fire. Sooner or later that notion is going is going to take hold in the MSM…it has to, doesn’t it?
You ask whether New York’s requirement that banks and borrowers need to meet to “discuss terms” is a burden to banks. You are referring to mandatory home loan settlement conferences under New York Rule of Civil Procedure 3408. I have represented homeowners in these conferences for almost 3 years now (the statute will be 3 years old in September), and my take is that banks moan and groan about how onerous settlement conferences are. Their groaning is not to be taken seriously.
Cases do get held up in mandatory conferences, but it is banks who are delaying them. CPLR 3408 by and large does not impose new substantive obligations on banks. Rather, the conferences are a procedural check wherein courts require banks do what they are already obligated to do with distressed home loans before they may liquidate them through foreclosure auctions.
Judges, referees, or hearing officers oversee CPLR 3408 conferences. If the homeowner attends conferences and requests consideration for a loan modification, the court must be satisfied that the foreclosing plaintiff has made a good faith attempt to determine whether the borrower qualifies for a loan modification before the plaintiff is allowed to foreclose. Although practices and results differ by county, generally, CPLR 3408 conferences do two things: (1) they do away with “dual tracking” as long as the homeowner is active in conferencing their case and (2) they create a semblance of accountability with respect to banks’ loss mitigation obligations.
Banks generally get away with paying lip service to the effect that they “work with homeowners”. With rare exception, this is a laughable claim. One exception is in CPLR 3408 conferences where judges take an active role in ensuring compliance with loss mitigation guidelines. Courts tend to require HAMP compliance where applicable, FHA loss mitigation guideline compliance where applicable, GSE guidelines where applicable, etc.
CPLR 3408 conferences, as Ann Pfau indicates in the Times article indicates, can take several months before a resolution is reached and eligible homeowners receive modifications. The fault is with banks, who so underinvest in their loss mitigation programs that they cannot meet their obligations in a timely manner, even in a court supervised setting where they are routinely penalized for their dilatory behavior and cavalier attitude toward deadlines, good faith negotiation, and even court orders. Compliance often comes only at the barrel of a contempt order.