Daytona Beach Real Estate Law Blog

Relief may finally be here for those dealing with record delays in the foreclosure process in Florida courts. According to the Office of the State Courts Administrator, the backlog in foreclosure cases from fiscal year 2006-07 through fiscal year 2010-11 is approximately 559,945 cases statewide.

To deal with that record backlog crisis and the delays both homeowners and banks have to deal with as a result, the Legislature allocated $9.6 million in nonrecurring dollars to be put to work by Florida's 20 court circuits. Six million dollars will go to the trial courts, which handle the bulk of the foreclosure process, and $3.6 million will go to court clerks to handle the administrative backlog.

The Legislature only allocated 62 percent of what the courts requested, so the courts hope they can reduce the backlog by 62 percent -- or 347,165 cases -- by June 30, 2010.

"The Legislature said we'll never get out of the housing slump if houses are sitting out there vacant. This is going hand-in-hand with managed mediation that has a time frame goal of 120 days in resolving cases," said Kristine Slayden of the Office of the State Courts Administrator.

"Hopefully, this is providing an opportunity for homeowners to have a voice in what is important: to stay in their homes."

The National Association of Realtors announced this week that existing home sales plunged more than 27 percent -- the largest monthly drop since the organization began keeping records in 1968. Despite that steep drop, local realtor organizations think that Central Florida's real estate values show signs of having stabilized.

Economists worry that July home sales dropped despite record-low mortgage rates and the bargain prices to be had. High unemployment and the expiration of federal homebuyer tax credits are generally considered to be responsible for the slow pace of sales.

In Florida, sales of existing single-family homes fell 14 percent. In Flagler and Volusia counties, those sales were down 12 percent.

Although prices for these houses dropped again in July, it wasn't enough to overcome the lack of tax incentives, tight credit markets, and unemployment. The median sales price for existing single-family homes in Volusia and Flagler counties was $122,500, a drop of 7 percent from  a year ago, when the median price was $131,600.

This was bad news -- it ended an upward trend in year-over-year home prices that had lasted for 20 consecutive months. Nevertheless, it wasn't unexpected to realtors.

"This was not unanticipated. It's not a surprise," Scott Nieminen, head of the Flagler County Association of Realtors, told the Daytona Beach News-Journal. "It's the lack of the tax credits."

Good News: Condo Sales Are Up Statewide

Although Pensacola Bay has been one of the areas hit hardest by the Gulf oil spill, the government says there is virtually no remaining threat to other areas in Florida. Early computer models revealed a potential for the oil to travel around the Florida Keys and up the east coast, but it now looks like that won't happen.

Nevertheless, real estate values may already be dropping throughout coastal Florida. Potential buyers are concerned that tar balls could wash up even on beaches that are currently unaffected.

Worse, a self-fulfilling cycle of fear may be developing. As buyers hold back because they fear property values may be about to drop, the continuing lack of sales could itself cause a drop in real estate values.

According to a recent report from Fitch Ratings, real estate values in some coastal areas in Florida are already dropping. Florida is already in the midst of a storm of real estate problems, ranking the worst nationwide in foreclosures and mortgage delinquencies across all types of properties.

Damage to the fishing and tourism industries from the spill is likely to increase default rates, which could further drive home values down.

The economic crimes division of the Florida attorney general has issued subpoenas to three South Florida law firms that represent mortgage lenders. The firms are suspected of fraud in the foreclosure process.

The attorney general's investigation targets three firms representing mortgage lenders. The three law firms have handled the largest number of foreclosures in the state. In some cases, the firms handled thousands of foreclosures a month.

The investigation centers on allegations that the law firms used forged and fabricated documents in the foreclosure process, sometimes filing false documents with courts as they sought judgments against homeowners. Potentially thousands of foreclosed homeowners could be affected by improper actions by the firms under investigation.

The three firms under investigation are the Law Offices of David J. Stern in Plantation, the Law Offices of Marshall C. Watson in Fort Lauderdale, and Shapiro & Fishman, which has offices in Boca Raton and Tampa.

"Law firms are not immune to Florida deceptive and unfair trade practice" laws, said Attorney General Bill McCollum said in a July 11 press conference. "I want law firms to really think about it before they go through this volume."

McCollum compared the work of the law firms to mills churning out a large volume foreclosures.

Homeowner Complaints, Lawsuit Prompted Attorney General Investigation

In an August study, property data provider CoreLogic estimates that short sale fraud could cost mortgage lenders $310 million this year alone and recommends some changes in lender practices that could reduce those losses. Unfortunately, additional fraud prevention steps could further slow the pace of short sale approvals for homeowners desperate to get out of underwater mortgages.

According to the study, the number short sales has more than tripled since 2009 as the housing crisis has dragged on. More than half of the approximately 400,000 short sales in the past year have occurred in Florida, Arizona, California and Texas.

CoreLogic estimates that fraud costs lenders an average of $41,000 per short sale -- with one in 53 of the transactions involving fraudulent activity such as property flipping or misrepresentation of offers.

Tactics Used in One Common Short Sale Fraud

Here is how the study describes one common type of short sale fraud involving offer misrepresentation by a real estate agent:

The Obama administration announced yesterday that it will extend an additional $3 billion to expand foreclosure-prevention aid to jobless homeowners. Distressed homeowners who are unemployed will be eligible for no-interest bridge loans of up to $50,000 to help them make mortgage payments. The interest-free loans will be for up to 24 months.

A third of the aid will be used to provide additional bridge-loan programs in the areas hit hardest by unemployment, although not all of those areas have been identified yet.

The existing HAMP loan modification program was designed for the subprime crisis, and it has little help to offer those who are threatened by foreclosure due to unemployment or decreased income. Under that program, unemployed borrowers can only get a three-month forbearance on their payments.

Adding to the confusion about the success of the Home Affordable Modification Program (HAMP), the Treasury Department has had to release a correction to last month's performance numbers because other analysts pointed out substantial errors.

In its original report last month, Treasury touted the success of the program in helping distressed homeowners get sustainable loan modifications. The original report claimed that only 8% of homeowners who received permanent loan modifications in the third quarter of 2009 were delinquent after nine months.

Analysts at Barclays and other market watchers questioned those figures, however and Treasury had to retract them, explaining that Fannie Mae had apparently used flawed methodology.

The corrected report does show that HAMP loan modifications are gaining ground in preventing re-defaults.

Just under 10 percent of homeowners who received permanent loan modifications through HAMP in the fourth quarter of 2009 were delinquent after six months, compared to an average of 15% of those receiving them in the third quarter. Overall, 20% of all homeowners with HAMP loan modifications are delinquent by 60 or more days -- 15% delinquent by 90 days or more.

According to a recent announcement by the Department of Housing and Urban Development (HUD), mortgages insured by the Federal Housing Administration (FHA) will soon be eligible for loan modifications similar to those offered by the Home Affordable Modification Program (HAMP). The new program, which will be called FHA-HAMP, should be up and running by August 15.

"Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the Administration's Making Home Affordable program," said HUD secretary Shaun Donovan in a statement.

How Will the New FHA-HAMP Loan Modifications Work?

FHA-HAMP is expected to permanently reduce participating borrowers' monthly payments. How it works is to allow a loan servicer to set up a new, interest-free mortgage for the distressed homeowner, which is not due until the original mortgage is paid off.