New York foreclosure: Process protecting defaulters

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    New York foreclosure

    Foreclosure homes. (AP Photo/Isaac Brekken, File)

    New Yorkers Paul and Angelica Kashman, declared in default on their mortgage in July 2010 and foreclosed on by Wells Fargo in February 2011, say they aren’t deadbeats.

    “We always knew that when we get into a court of law and show that we have all the information and backup, the truth will come out,” said Paul Kashman, 37, a manager in the hospitality industry. The couple, stuck in limbo by legal bureaucracy, says they were mistakenly pushed into foreclosure, and are eager now to save their home, using court mediation.

    Their case is among 72,000 pending in the New York system, accounting for a quarter of the civil caseload, and highlighting the strength and weakness of the state foreclosure process. While borrowers have protections unavailable in many other states, it takes more than 1,000 days for banks to repossess a home, stalling a housing recovery by keeping pressure on values for years to come as a constant drip of distressed properties enter the sales market.

    The New York area was one of only two in the country to post year-over-year home price declines in the latest Case- Shiller 20-city index. Homebuyers also could lose, with the Federal Housing Finance Agency considering a fee increase to compensate Fannie Mae and Freddie Mac for doing business in New York and four other states with slow, costly foreclosures.

    “New York suffers from what appears to be altruism, in that it postpones foreclosures as long as possible — the problem is that altruism can be expensive,” said Anthony B. Sanders, an economics professor at George Mason University in Fairfax, Va. “It slows down the housing market and it results in lenders being almost unwilling to lend. New buyers will pay the price for this.”

    New York foreclosures

    New York’s pending foreclosures are more than a quarter of its civil caseload, according to a 2012 report from the state’s chief administrator of the courts. New York requires lenders and borrowers to come to the bargaining table to work out modified payments or other foreclosure alternatives before a case can move to litigation. The average age of a case in the settlement program was 15 months old and the courts oversaw an estimated 77,000 settlement conferences in 2012.

    It’s one of five judicial foreclosure states, including New Jersey, Connecticut, Florida and Illinois, in which home repossessions require court review that the FHFA is targeting. The agency has said it’s seeking to compensate Fannie Mae and Freddie Mac by bringing their pricing of risk more in line with how private lenders operate. The FHFA last year had the two government-controlled companies almost double the annual fees they charge for guaranteeing mortgage bonds, with increases averaging 0.2 percentage point.

    It’s considering imposing one-time upfront fees in the five states of between 0.15 percent and 0.3 percent of the loan amount. The average cost per day to carry foreclosures in New York is 112 percent of the national average, according to an analysis by the agency.

    “If those states were to adjust their laws and requirements sufficiently to move their foreclosure timelines and costs more in line with the national average, the state- level, risk-based fees imposed under the planned approach would be lowered or eliminated,” Edward J. DeMarco, the agency’s acting director, wrote in a September notice on the proposal. “Unusual costs associated with practices outside of the norm in the rest of the country should be borne by the citizens of that particular state,” he wrote.

    The agency, which will announce its decision as soon as April, is pressuring states to speed up the process by removing safeguards for homeowners, New York’s state bank regulator said in a Nov. 26 letter to DeMarco opposing the plan.

    Perverse Incentive

    “The proposal would create the perverse incentive that states should either give up the fight against mortgage fraud and roll back consumer protections or face the consequences of higher mortgage rates for consumers,” Benjamin Lawsky, superintendent of the New York Department of Financial Services, wrote in the letter. “The proposal would also shift the cost of the failures of lenders and servicers onto New York State borrowers.”

    For the Kashmans, who live with their two children in the two-bedroom brick row home in Brooklyn’s Dyker Heights neighborhood that they bought for $368,000 in 2003, the clogged foreclosure system has allowed them to stay in their home, even as it delayed resolution of their case.

    They defaulted in 2010 after cutting their monthly payments to Wells Fargo based on a modification agreement they said they signed and returned. The bank later said it never received the documents, so considered the lowered payments a default. The bank for years prevented the case from entering mediation, adding it to the backlog of thousands of inactive lawsuits across the state, according to Aaron Jacobs-Smith, a staff attorney at MFY Legal Services Inc. who represents the Kashmans.

    Wells Fargo offered a permanent modification to the Kashmans on Jan. 17, the Kashmans said. The couple, who said they haven’t decided whether to accept, recently began meeting with bank representatives as part of a pilot program in Brooklyn’s Kings County that allows willing homeowners to begin settlement talks in stalled lawsuits.

    Outside of the court’s oversight, the Kashmans’ negotiations with Wells Fargo have been a bureaucratic carousel, requiring them to continually resend documents they had previously faxed, according to Jacobs-Smith. While the couple said they successfully completed three trial payment plans, the mortgage servicer didn’t convert any of them into permanent modifications.

    They’ve been considering filing a request for judicial intervention by paying a $95 fee to reanimate the case that has languished since it was filed in early 2011, Jacobs-Smith said.

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    Source: Prashant Gopal

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