While two of New Jersey's largest mortgage lenders are vigorously filing new foreclosures, the state is still waiting for them and other major banks to certify the accuracy of documents in a huge backlog of pending cases.
The parallel trends have worried some foreclosure counselors who fear the reckoning, when it arrives, will be worse for the state's housing market than previously predicted.
The retired judge appointed to review foreclosure cases of the state's six largest lenders said the hardest part of his job also lies ahead -- analyzing “hundreds from each of the banks” to determine whether they are implementing ostensibly improved procedures to protect against fraud.
Even before those reviews commence, participants say the foreclosure process in New Jersey is in a state of flux. As a wave of legal cases approaches, banks are changing their approach. At least some large lenders are doing more public outreach, holding meetings around the state to talk to customers already in foreclosure or threatened with possible foreclosure.
Some of that may be public relations in the wake of a nationwide settlement with state attorneys general. Under the terms, they will pay about $26 billion in mortgage modifications, payments to states, penalties and fees, plus token compensation to people illegally forced from their homes. In exchange they will be protected of claims of fraud and abuse from those previous foreclosures.
But in addition to strategizing and avoiding damages, some housing counselors see changes in attitudes among the banks following the settlement, with some becoming easier to work with, others harder.
“Some of the banks do more than the others” to help customers stay in their homes, said Elaine Molen, a counselor with Novadebt, a consumer debt management service in Freehold.
Lenders attitudes are critical, because the trend in foreclosures here runs counter to most of the nation, according to Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action.
Nationwide, foreclosure rates were flat in March, although the inventory of 1.4 million homes was down slightly from a year ago, according to the CoreLogic property data service in Santa Ana, Calif. But New Jersey ranked second -- behind only Florida -- because of new cases piling up on top of the backlog.
“In New Jersey, we're not even at the top yet” of the surge in foreclosures, Salowe-Kaye said. "What's coming is larger than anyone has imagined."
While the courts hope a moratorium and the review of bank procedures are reducing foreclosure fraud, state and federal officials advise borrowers to be wary. They urge homeowners to seek free counseling and free legal help, before they receive foreclosure notices if possible, and quickly afterward if necessary. The New Jersey Housing and Mortgage Finance Agency has grant programs for some in foreclosure, and assigns non-profit counselors.
Molen and other counselors advise clients to keep supporting paperwork up-to-date on applications for mortgage modifications, and to set aside funds to cover payments due that can mount up during the lengthy process.
Many borrowers caught up in foreclosure do not realize that they can request stays and extensions throughout the process, from the initial order and hearing to the sheriff's sale and eviction, said June Peters of the court's general equity and foreclosure division in Essex County.
“If sheriff's officers come into your home, you still have a right at that moment to file for an extension,” she said.
In one sense, foreclosure activity in New Jersey has returned to “normal,” at least measured in pre-recession levels. Through May 1 this year, lenders had brought 7,954 new cases, according to state court data. That is on track to approach the 24,857 cases in 2006, when foreclosures were creeping upward as the housing bubble stretched ever thinner.
By the depths of the recession in 2009, the total hit 66,717 new cases, most uncontested by borrowers.
Along with the sheer number of cases, the amount of irregularities also soared, fostered in part by a surge to repackage mortgage notes as securities and divvy them up among investors. Responding to court cases here and elsewhere that uncovered dubious documentation and false swearing, state Chief Justice Stuart Rabner imposed a moratorium on foreclosures by major lenders in December 2010.
Through the first four months of 2011, with Rabner's moratorium in place, only 2,772 foreclosures were filed here. One-third of those were tax cases, a part of the system with its own set of legal troubles. With the moratorium lifted, foreclosures began to pick up in the last half of last year.
But even the 2012 data does not fully reflect the lingering impact of the market downturn. This year's foreclosures have been launched mainly by local or regional banks, which issue a fraction of the state's mortgage loans.
Of the six largest residential mortgage lenders in New Jersey, only OneWest Bank and Wells Fargo have started new foreclosures, filing dozens of cases in April. Once the others join in, the reverse boom times of 2009 could return. State officials estimate 50,000 to 100,000 previous cases are still pending.
That situation worries housing counselors. “We have a huge backlog of folks trying for modifications that have not moved forward,” while payments due keep piling up, said Salowe-Kaye.
“There are some banks that don't participate in making homes affordable,” Molen told a foreclosure forum in Montclair arranged by Sen. Frank Launtenberg's (D-NJ) staff. “If you're dealing with one of them, you're going to need lawyer to get a modification if they participate at all.”
But even for professionals, it can be hard to gauge what stance a bank will take.
Bank of America was assessed almost half the national settlement fund after being widely criticized for behavior ranging from financially risky to ethically dubious to borderline criminality. But lately in New Jersey, it “has been the best,” Molen said, smiling to acknowledge the surprise.
Among lenders here, “everything has turned around,” she said. “The one we're having trouble now with is Wells Fargo,” previously considered among the more reasonable banks.
Wells Fargo spokeswoman Veronica Clemons described foreclosure as “a last resort.” The bank held five foreclosure information sessions for New Jersey customers last year, and two so far this year, she said.
“We are successful in encouraging 80 percent of our customers who are 60 days or more delinquent to work with us,” she said, adding that of those, seven in 10 avoid foreclosure.
“Bank of America has numerous efforts underway to help New Jersey homeowners,” said spokeswoman April Deocariza. The bank has held 10 foreclosure outreach events here since 2009, and operates customer assistance centers in East Hanover and Pennsauken, she said.
For whatever reason, though, customers have not responded in mass. A recent series of meetings in Trenton, Atlantic City and Clinton “targeted more than 24,000 homeowners,” according to Deocariza. But bank representatives “were able to meet with more than 300 customers,” she said, with no details on those seeking mortgage modifications.
Only about a dozen Bank of America and Ally customers met with bank representatives in Montclair. Two said the event was useful, but were awaiting further results. One reported a bank official said he could do nothing immediately because the case had been referred to the U.S. Department of Justice.
Elaine Guerrero, a housing counselor for the Tri-City Peoples Corp. in East Orange demurred when asked if any of the major lenders have become easier to work with, saying, “I wouldn't be that liberal.”
Whatever the intentions expressed in the media relations offices, the big banks are just too, well, big to keep everyone on the same policy page, according to Salowe-Kaye.
“There's just so many points of entry into these banks, and people just get lost in them, like a black hole,” she said.
If the housing counselors do not relish navigating those murky waters, they find a sympathizer in retired judge Richard Williams, the special master charged with reviewing foreclosure actions by New Jersey's six major lenders, the five banks in the national settlement plus OneWest.
“If there are 60,000 cases, then 50,000 of them are mine,” Williams said.
During last year's moratorium, Williams was assigned to review the procedures of those big lenders, while another judge looked at two dozen banks that each brought at least 200 foreclosure cases. Both judges accepted assurances from the institutions, which were cleared by the courts last summer and fall to resume prosecuting foreclosures.
But Williams' role came with a second part. Monitor cases to make sure the banks actually followed their new fraud-prevention procedures.
Even as banks file new foreclosures, Williams is waiting for clearance from the state courts' foreclosure office to resume looking at the previous cases to determine whether the big lenders have implemented their announced fraud-reduction procedures. But attorneys for the big banks have not yet filed certifications covering documents in the backlog of cases, he said.
“We don't have anything up until now,” Williams said.
While his analysis “will involve both pending cases and new cases being filed,” Williams said the filing of the certifications for each bank starts the clock for the process. Under last year's stipulation, he has one year to study each bank's handling of foreclosure cases from the date its certification is filed. So the entire review is likely to take more than a year, depending on when each bank certifies the accuracy of its documents.
Williams compared his plans to an audit, saying he will examine random uncontested foreclosures to see that they are conducted properly, without the fraudulent documents and false testimony often lumped under the euphemism “robo-signing.”
Meanwhile, many notices of intent to foreclose sent to borrowers here gave only the name and address of the company servicing the loan. The state Supreme Court addressed that in February, affirming that the loan requires that the mortgage holder be listed, to allow a borrower to seek a modification, extension or negotiate a repayment plan.
But Williams' findings may bring little comfort to borrowers, since the idea is to “look at completed cases, so I can follow the process all the way through to the end.” He will submit reports to the courts.