LawGC Featured in South Florida Business Journal

Monday, March 26th, 2012

Friday March 23, 2012 - Mortgage Heartburn

Banks stall on foreclosures, courts overwhelmed, attorneys say -

South Florida Business Journal by Paul Brinkmann

There is some anxiety these days about the damage to Florida's massive foreclosure backlog as a result of court budget cuts.

For example, Palm Beach County Clerk and Comptroller Sharon Bock recently said that budget cuts will slow down her ability to process new foreclosure cases, further bogging down a system already clogged by thousands of foreclosures.

But there is another factor many attorneys say is more important: inaction by banks on stalled foreclosure cases.

"The backlog of cases is going to be a problem until the courts are funded properly. I would put a lot of the blame on court funding," said Tom Ice, a foreclosure defense attorney in Boca Raton. "My biggest frustration is not getting answers. When I have a client who actually has money to put down and cut a deal with a bank, I can't get answers about whether they will accept an offer or not."

Jay Brinkmann, chief economist for the national Mortgage Bankers Association, recently told NPR that local markets can be damaged by foreclosure backlogs.

"We're really seeing it's not so much a national problem," Brinkmann said. "It's an Illinois problem. It's a Florida problem. It's a New Jersey problem." He said the backlog creates a lack of certainty for potential homebuyers because they worry about a flood of foreclosed homes hitting the market.

On one hand, Ice said, banks seem to be avoiding a big push on foreclosures because they know a flood of homes for sale will depress the market.

But he acknowledged that staying in foreclosure can be costly to banks and to homeowners. He said his clients are usually committed to basic maintenance if they have reason to hope they will stay in the home.

"The banks, I would suggest, don't really want to push this through," Ice said. "Banks are manipulating this backlog. They know if they dump all these houses on the market, the price they will get is going to go down."

Ice's firm, Ice Legal, handled a case for homeowner Roman Pino, which is pending in front of the Florida Supreme Court.

Bank of New York Mellon foreclosed on Pino, but the bank was shown to have false documents about the mortgage, "robo-signed" by Plantation attorney David Stern's firm, which is now out of business. The bank withdrew the case, but Ice Legal filed to reopen the case so Ice could take depositions and possibly seek sanctions. Two lower courts denied the request to reopen the case. Ice appealed to the Supreme Court. At that point, the bank reached confidential settlement with Pino.

But the Supreme Court ordered the attorneys to present the case anyway so it could hear arguments.

Should courts care about economy?

Ice said the economy should not be the court's top concern.

"It's not the court's concern that the economy might be affected by this; the court's concern should be due process and administration of justice," he said. Otherwise, the integrity of property ownership rights and records is compromised, he said.

In fact, attorneys have said that title companies are reluctant to insure properties that have been caught in the robo-signing scandal until greater clarity is provided.

The Florida Legislature has authorized $400 million for courts to hire part-time judges to help with the backlog, but that is $200 million less than the last appropriation, and comes as clerk's offices have suffered budget cuts.

George Castrataro, a Fort Lauderdale attorney who handles foreclosure and bankruptcy, said recent upticks in foreclosure volume will be dwarfed by what is coming.

Castrataro pointed out that national settlements with banks on robo-signing allegations will feed the pipeline, and Florida's delinquency rate on mortgages has grown.

"There are hundreds of cases where there hasn't been any activity for longer than 400 or 500 days," he said.

Castrataro said one new tactic for him is filing actions against lenders seeking to enforce temporary modification agreements. The homeowner makes payments thinking there will be a final agreement, but the bank often stalls further or forecloses anyway, he said.

"We're saying the lender engaged in modification, but didn't resolve it in a timely manner," he said. "We've had some fees paid, or settlement on some terms."

Castrataro said it is not clear to him if banks "want the delay or if they just can't get their act together."

One thing is for sure, Ice said: Clients can't stay in limbo forever.

"We lose a lot of clients who just give up," he said. "It's too stressful, and they tell me, 'I need to get on with my life.' I've even had clients drop out who have very good defenses."

Oral arguments in the Pino case are set for May 10. Amanda Lundergan, an attorney with Ice Legal, will argue the homeowner's side.