Massive amounts of foreclosures clogging county’s civil courts

MIAMI – Oct. 22, 2009 – Most everyone involved in a foreclosure says they never wanted to go through the process in the first place: Not the homeowners at risk of losing their houses, not the banks that loaned them the money, not the judges who must rule on the cases.

Still, court clerks say more than 135,000 foreclosures could be filed in Miami-Dade, Broward and Monroe counties this year – compared to a tri-county total of about 17,500 in 2006.

The avalanche of filings has overwhelmed the civil courts and prolonged the pain of foreclosure for all: Homeowners are living in limbo; banks are losing money; and the ripple effects are felt from condo associations that can’t collect dues to municipal governments that must spend scarce resources to shutter or maintain abandoned houses.

“Everybody’s getting burned in this thing,” says Judge Jennifer D. Bailey, who oversees civil courts for the 11th Judicial Circuit, which covers Miami-Dade County. “The bank’s not going to come out of this in one piece. The people who owned the property, whether they’re homeowners or investors, are not going to come out in one piece.”

Even the courts are struggling to hold together, as foreclosures crowd the calendars of judges who also must tend to traffic, probate and other non-criminal cases.

“We’re sort of built to handle 25,000 to 35,000 cases a year,” Bailey says of Miami-Dade civil court. “We have almost 35,000 by the end of June that are foreclosures alone, out of a total of 50,000 cases filed.”

Statewide, about 17 percent of the more than 3.5 million mortgages in Florida are somewhere in the process of foreclosure – the highest rate in the nation, according to a second-quarter report of the Mortgage Bankers Association, a real estate finance industry group.

Foreclosures that once took three to five months to complete in Miami-Dade and Broward counties now take nine months to one year to move from initial filing to final judgment and auction. The system comes painfully close to mirroring a Monopoly game gone awry: Miss a court date, cancel an auction, go back three months and start all over again.

The crisis is more than a matter of volume. A labyrinth of rules that vary by judicial circuit is causing confusion among plaintiffs, and many borrowers have gone AWOL, forcing lenders to pursue more time-consuming methods.

Even in less harried times, foreclosure is a paperwork-intensive process, requiring lenders’ attorneys to file loan notes, affidavits and other documents – and clerks to issue summonses, process servers to serve defendants, and judges to review and verify each file.

In this crisis, foreclosing on a property has become even more cumbersome. Because many mortgages involve complex financial transactions, where the original note has been passed from one investor to the next, judges can have a difficult time discerning who has the legal standing to foreclose.

“With securitization and exotic loans, things have gotten much more complicated,” Bailey says. “It makes resolution of the case much more difficult.”

Then there are underwater borrowers who walk away from homes that have lost so much value that they are worth less than what they owe. Some of these borrowers never respond to a foreclosure summons – forcing lenders to pursue default and prove that they’ve made good faith efforts to contact the borrower, such as publishing a notice in the newspaper for 60 days.

Courthouse confusion

Lenders also add to the delay. Many simultaneously negotiate loan modifications with borrowers while also pursuing foreclosure, causing confusion in the courthouse.

“You have a huge problem with the left hand not knowing what the right hand is doing on the plaintiff side of the litigation,” Bailey says. “I will frequently have a borrower saying, ‘I have a deal with the bank’ and the lawyer standing in front of me doesn’t know anything about it.”

Though local property auctions aren’t held on the courthouse steps – here, they’re in air-conditioned rooms – they, too, can create delays. Banks frequently cancel at the last minute, forcing judges and clerks to repeat the steps required to schedule a sale. Under Florida statute, a lender can cancel a sale simply by not showing up, without any notice or explanation.

Because of sales cancellations, auctions in Miami-Dade County are being set 200 days or more after final judgment, compared with 60 days or more in Broward County. Frustrated judges are now adding orders to final judgments, forbidding sales from being canceled.

Even the courts have contributed to delays, though indirectly.

In Florida, two law firms control about 60 percent of foreclosure cases, according to a report by the Florida Supreme Court Task Force on Residential Mortgage Foreclosure Cases, a 15-member panel of judges, attorneys, mediators and state officials.

You might expect those attorneys to be so familiar with the process that glitches would be rare. But because judges across the state’s 20 judicial districts have adopted different administrative procedures to manage their caseloads, attorneys are forced to navigate a complex patchwork of rules – causing them to frequently file unnecessary documents, or to omit required forms.

“What that does is that wastes valuable time,” Bailey says.

Limited resources

And Florida judges cannot afford to waste time, she adds, because there simply aren’t enough of them, not after state budget cuts forced civil court judges to lay off personnel and switch more resources to the criminal courts to guarantee timely trials for defendants.

The state’s Clerk of Courts offices, where foreclosure cases enter the courts and are guided through resolution, also slashed their budgets by 18 percent, eliminating 140 jobs in Broward and 225 in Miami-Dade.

“We have less people and we have more foreclosures,” says Broward Clerk Howard Forman, who projects his office will receive nearly 60,000 new foreclosures this year.

In Miami-Dade, Clerk Harvey Ruvin is staring at a projection of 75,000 new foreclosure filings by year’s end.

Miami-Dade’s civil court received nearly 9,800 foreclosures in 2006, compared with 56,000 in 2008 – a 471 percent increase. The number of foreclosures filed in Miami-Dade through Sept. 30 is 49,325.

Monroe County received 323 foreclosures in 2006, compared with 1,441 in 2008 – a 346 percent increase. The number of foreclosures filed in Monroe through Aug. 6 is 1,197.

Kriz Mazzeo, the Broward clerk’s director of circuit civil division, says the court’s administrative operations have slowed under the crush of new foreclosures and the tasks required to move those cases through court.

“Everything is taking longer,” she says, “just by virtue of the fact that we have so many more foreclosures than we’ve had in the past.”

The 17th Circuit, which covers Broward County, received 7,400 foreclosures in 2006, compared with 46,000 in 2008 – a 521 percent increase. The number of foreclosures filed in Broward through Sept. 30 is 39,691, Mazzeo says.

“This has been really crushing,” she says.

One of the most intensive aspects of foreclosure for the clerk’s office is mailing judgments, notices of sale, certificates of disbursements and other official documents to every defendant in a suit – from the borrower to the tenant and any lien holder on a house.

“We have buckets and buckets of work that we do just to get ready to do the mailings,” Mazzeo says.

As delays build in the foreclosure process, the volume of new filings shows little sign of easing.

Many mornings, pick-up trucks loaded with boxes of new foreclosures arrive at the Broward courthouse for filing, Mazzeo says. Process servers unload the cargo onto hand trucks, and file cases by bulk.

“Sometimes they sit there all day and we just file case after case after case,” Mazzeo says. “We do it as fast as we can. But there’s always more.”

Solutions murky

What to do? The solutions are not yet clear.

Some proposals, such as mandatory mediation, are focused on the long term, and would apply across the breadth of Florida’s 20 judicial circuits; others are more immediate, such as the hasty assembly of special teams to clear backlogged cases in local courts. All are designed to streamline the foreclosure process and to move the unprecedented number of cases through the courts in a timely manner.

“There’s just a lot of chaos,” says Bailey, who chaired the Florida Supreme Court Task Force on Residential Mortgage Foreclosure Cases, the panel charged with finding solutions to the crisis.

The task force delivered its findings in August. Among its recommendations is mandatory mediation for cases involving homesteaded properties – primary residences.

Bailey says too many lenders are foreclosing while simultaneously negotiating with borrowers, with many reaching settlement just as a case nears closure. The result: “A case settles, but not until it’s consumed every bit of judicial resource necessary to push that case through the system.”

Among the task force’s other recommendations: standardize a patchwork of incongruous rules adopted by judges struggling to manage growing caseloads, and create a Web-based repository for the many documents required for foreclosure.

The Florida Supreme Court will schedule public hearings on the task force’s report and then will determine whether to implement, decline or modify the recommendations.

Mediation

The issue likely to receive the most attention is mandatory mediation for residential mortgage foreclosures, which is now the rule in three judicial circuits, including Miami-Dade’s.

Since mandatory mediation was adopted in May, lenders foreclosing on homesteaded properties in those districts have been required to meet with borrowers who want to stay in their homes – before a judge will hear the case. (In Broward and Monroe counties, mediation is not mandatory.)

The 11th Circuit Homestead Access to Mediation Program (CHAMP) in Miami-Dade is managed by the nonprofit Collins Center for Public Policy, and has achieved a nearly 78 percent success rate.

In the three judicial circuits where mediation is mandatory, the program has achieved a 76 percent success rate – leading to settlements in 1,072 of the 1,401 cases scheduled for mediation through Oct. 12.

“It’s been one of the most successful models,” says Program Director Ned Pope.

Under the program, borrowers are required to disclose their financial status, and to attend credit counseling before meeting with the lender and a neutral mediator. The lender is required to pay the $750 fee for mediation, and to provide a representative with the authority to amend a loan.

Pope says the number of eligible cases has grown each month, from 261 in May, to 1,300 in June, 1,800 in July and more than 2,200 in August. Collins Center mediators are charged with contacting borrowers, but often that can be difficult, particularly if a debtor has walked away from a home.

Many bank executives disagree with mandatory mediation, says Barb Godin, a vice president for Regions Bank.

“It’s rather sad,” Godin says, “that someone thinks we need this in the industry.”

Regions, which holds about $5.5 billion in mortgages in Florida, launched a program in October 2007 to help customers that were falling behind on loan payments.

The program began with about 10 employees helping customers in the 16 states where Regions operates. There are now about 60 employees dedicated to the program, Godin says.

“We’ve talked to roughly 200,000 customers across country,” she says. “Of those, in Florida, we have helped 5,356 customers.”

The foreclosure rate for Regions’ Florida mortgages is about 3.3 percent, Godin says, compared to about 17 percent statewide. In the cases where Regions has modified a loan, as opposed to short selling for less than the mortgage value or taking a deed in lieu of foreclosure, the default rate is about 12 percent, she says.

But most of Regions’ Florida mortgages are for second homes, Godin says. So they don’t qualify for mandatory mediation.

Ed Wilburn, managing director of Great Florida Bank’s residential lending division, says some lenders had been hesitant to invest in loan modification efforts because, “It’s a losing proposition for most companies to engage in the process.”

But, Wilburn says, lenders now see value in dedicating staff and dollars to helping borrowers keep their homes.

“They are looking at it now from a different perspective,” he says. “They can save money by being more proactive in looking for solutions.”

When banks work with borrowers, the foreclosure process moves faster. An adversarial relationship often leads to delays as homeowners ignore summonses, and lenders file motions for default and cancel sales.

Still, some attorneys and condo associations allege lenders are deliberately delaying foreclosing to avoid the costly hit to their balance sheets, as well as the expense of association fees, insurance and maintenance costs.

Inaction

Florida lawmakers have tried at various times to address the foreclosure crisis, but little has come of their efforts.

Gov. Charlie Crist named a foreclosure task force in February 2008, which included elected officials and bankers and Realtors. But the panel issued just one recommendation to the state Legislature: Increase protections for people with subprime loans. Lawmakers did not adopt it.

Lost in legislation

During the state Legislature’s spring session, lawmakers introduced 15 bills to address foreclosure issues. But 10 bills never received a hearing, including several that would have required mediation between lenders and borrowers.

Lawmakers also approved two foreclosure-related bills – one to comply with new minimum federal regulations for lenders, and another to increase court costs for foreclosure cases from $300 to as much as $1,900.

Still, new foreclosures continue to roll in.

To tackle the mountain of mortgage foreclosures, Miami Dade Clerk Ruvin assembled in early August a “Dream Team” of about 40 managers pulled from the clerk’s traffic, recording, accounting and other divisions to work exclusively on the foreclosure backlog.

Ruvin also negotiated an overtime pay waiver with the employee union, allowing about 100 volunteers to work nights and weekends on foreclosure cases for compensatory time. There is no money in the budget to pay overtime, Ruvin says.

In a six-week span, the team buzzed through a backlog of 6,600 default cases and converted more than 1,000 filings into new cases.

“Everybody at every level is putting their shoulder to the wheel, and it’s turning,” says Ruvin, who expects to keep the team in place until December.

Long-term plans

But these are stop-gap measures. Ruvin’s long-range plan is to implement an electronic filing system for all civil cases, reducing the amount of paperwork required of clerical staff.

He also plans to hold foreclosure auctions online beginning in December, which will allow the clerk’s office to hold about 200 to 250 sales per auction, compared to 150 to 200 now.

Online auctioning also is expected to reduce the need for time-consuming manual tasks, such as scheduling.

Broward Clerk Howard Forman also plans to use online auctions for foreclosure sales by January. Broward is setting sales about 60 days after final judgment, but Forman expects that electronic filing will speed the process. “That’s going to free up eight or nine employees,” he says. “This will help a great deal.”

Copyright © 2009 The Miami Herald, Daniel Chang. Distributed by McClatchy-Tribune Information Services. Miami Herald Staff Writer Monica Hatcher contributed to this report.