With new foreclosure cases continuing to pour into New Jersey courts, administrators have taken a key step to unclog the legal system.
Lenders filed more than 49,000 new foreclosure cases here in 2013, the fourth highest total in New Jersey history, according to data from the state Administrative Office of the Courts. But even that significant figure lagged far behind last year’s astounding number of foreclosure dismissals -- 83,500 cases.
The explanations behind the numbers are simple, but deciphering their ramifications is challenging even for attorneys close to the process. Court officials describe the change as potentially beneficial to all parties involved, but results may vary.
Seven years after the housing bubble began to burst, New Jersey has not gotten clear of the mess. The state has consistently ranked second, behind only Florida, in percentage of homes already in foreclosure or with mortgages listed as more than 90 days delinquent.
Municipal officials, lawyers, and housing counselors have all pointed to a related phenomenon: foreclosure cases never finalized, or judgments never taken to sheriff’s sale, with homes sitting vacant.
That dramatic wave of dismissals became possible once the court system automated its tracking of foreclosure cases, according to Kevin Wolfe, administrator of the civil practice division. The system flags those cases where there has been no action for a year or more, he said.
Notices go out to lawyers on those cases, giving them “30 days to file an appropriate pleading or a certification of exceptional circumstances, such as when a defendant has filed for bankruptcy,” said Kathryn Shabel, an attorney in Wolfe’s division. Without a timely reply from the plaintiff attorneys, the case gets booted, she said.
As the computerized system kicked in, that happened a lot last year, the court officials said.
“We cleaned out all the old deadwood,” Wolfe said. “The oldest of these cases go back to the 1990s, although most are more recent.”
While court personnel have not broken down the reasons for delays, many of the drifting cases were ensnared by changes in financial markets, Wolfe said. At the turn of the century, many institutions began selling mortgage-backed securities, which packaged large number of mortgages and were often divided among multiple investors.
The problem was that after the deregulation of financial markets in 2000, many mortgages wrapped into these securities were risky, even fraudulent. Although ratings agencies like Moody’s and Standard & Poor certified them as safe investments, they were doomed from the start. And when the investments went bad, the foreclosures began. But then the paperwork went bad.
New Jersey is among 20 states that require courts to approve all foreclosures, while another four sometimes do. The other 26 states and the District of Columbia usually or always allow lenders to act on their own.
But it wasn’t just the volume of foreclosures that caused problems for New Jersey courts. Little more than 5 percent of defendants contest foreclosures. Here and elsewhere in the nation, though, enough irregularities surfaced in such cases that in December 2010, state Chief Justice Stuart Rabner ordered major lenders to demonstrate that their foreclosure practices are clean.
“It’s important that the judiciary ensures that judges are not rubber-stamping documents of questionable reliability,” he said at the time.
While Rabner’s actions covered all lenders that brought 200 or more foreclosure cases, he took particular aim at six big players: Ally Financial (GMAC), Bank of America, Citigroup, JP Morgan Chase, OneWest Bank, and Wells Fargo.
The big banks had been caught up in the use of false documents and testimony, so-called “robosigning,” in some foreclosure cases. Another issue was that major lenders rely on their private electronic mortgage registry rather than maintaining public records with county clerks. The private system, known by the acronym MERS, often lost track of which bank or investment group actually owns mortgages bundled into various mortgage-backed securities.
Rather than proceed case by case to address Rabner’s concerns, those big banks sought court approval for their internal practices. While they did so, new foreclosure cases slowed to a trickle during 2011 and the first half of 2012.
“Some of those 83,000 dismissals are undoubtedly coming back as new cases,” Wolfe said. “As a trend, what we’re seeing is bank attorneys being much more active” managing cases, he said.
In instances where supporting documentation for the initial foreclosure was questionable, it is often easier for an attorney to pull the case and start over, he said. But court officials have not determined that percentage, he said. Especially with mortgage-backed securities that have been sold and resold, the names of the plaintiffs may have changed, he said.
The automatic dismissals do not reflect cases where lenders and borrowers notify the courts that they have resolved the dispute, such as mortgage modifications or short sales, or decide to end proceedings, according to Shabel.
Last year, the court system reported 12,639 default judgments against homeowners, but another 7,231 “other” resolutions. “Other is much more likely a voluntary dismissal,” Shabel said, though many attorneys do not follow the proper procedure of listing a reason.
Essex County led in all foreclosure categories, with Ocean second in defaults and dismissals. But in a clue as to where mortgage negotiations might be happening in the wake of Hurricane Sandy, Monmouth was a close second for “other” case resolutions.