NJ Foreclosures In the Wake of the Superstorm

Joe Tyrrell | June 24, 2013 | Housing, More Issues
The housing market takes another big hit, while many NJ homeowners struggle to deal with a raft of new mortgage problems

The aftereffects of superstorm Sandy have added to the confusion in New Jersey’s housing markets, its foreclosure caseload, and its policy decisions.

Just drawing a bead on the situation can be daunting. Positive indicators often turn out to be less than they first appeared. For example, New Jersey no longer has the dubious distinction of being the state with the second-highest foreclosure rate in the country. It even dropped out of the top 10, albeit briefly. But that reshuffling has less to do with changes to New Jersey policies than with mortgage spikes in other states. And Hurricane Sandy has made the entire situation more complex: damages and delays in insurance payments are creating a class of storm-related foreclosures.

The recent experiences of Carol Davis of Toms River exemplify the state of the state. On May 24, she stood with Gov. Chris Christie, holding onto the ribbon that he cut to symbolically mark the Jersey Shore’s rebound from the monster storm.

“I was overjoyed for one moment,” Davis recalled when she came to Trenton two weeks later. But she was there to bring the Legislature a different message, “We still need help.”

Her husband and dog narrowly survived a night when a four-foot “wall of water” washed through their house. With that as background, Davis confidently declared recovery is not a political process.

Yet almost eight months after the hurricane, of two dozen homes in her neighborhood, “only 10 are occupied,” Davis said. Something needs to change, she said.

After fighting bank, insurance and government bureaucracies since the storm, Leysly Roldan and her family are ready to walk away from their Newark home.

After getting a couple of feet of water in their basement during Hurricane Irene in 2011, they thought they were ready for Sandy with sandbags, supplies, and a portable generator, Roldan said.

But their home on Esther Street in the Ironbound, near the Benjamin Moore paint plant, also was swamped within moments by a wave of water, she said. Her husband is an Emergency Medical Technician, and early the next morning it was his crew that rescued the family and their neighbors, Roldan said.

With their house uninhabitable, “we’ve had to move into an apartment,” she said, “and we can’t afford to pay the rent and the mortgage.” With $60,000 in damage, their insurance check has been entangled between Travellers Insurance and M&T Bank, which now holds their mortgage note, she said.

Meanwhile, they have applied for storm recovery assistance, but were rejected for one administered by the state and are otherwise lost in federal paperwork, Roldan said.

“At this point, if the bank will accept the insurance check to settle the mortgage, we’re willing to just walk away,” Roldan said.

Some 200 residential properties in the neighborhood have been condemned as a result of Sandy damage, said Drew Curtis of the Ironbound Community Corp. In the aftermath, disorganized recovery programs threaten to create “a manmade disaster,” he said.

Roldan related her story days after the state Department of Community Affairs opened “housing recovery centers” in nine counties hit hard by Sandy: Atlantic, Bergen, Cape May, Essex, Hudson, Middlesex, Monmouth, Ocean, and Union.

At the same time, the state Housing and Mortgage Finance Agency applied a $197,802 federal grant toward a series of six foreclosure assistance workshops, including August 24 at Rutgers University Newark.

The efforts have won DCA Commissioner Richard Constable 3rd praise from housing advocates who have otherwise been critical of the Christie Administration’s treatment of struggling homeowners and renters.

But a department spokeswoman said “there are too many variables” to say whether homeowners threatened with foreclosure could even be eligible to apply for storm-damage assistance.

Conflicting Trends

The muddle reflects the conflicting trends in New Jersey’s housing and foreclosure marketplace.

The good news comes via May reports from real-estate tracking firms. After spending much of the past two quarters with the second-highest foreclosure rate in the nation, New Jersey dropped all the way out of the top 10 for the month, according to RealtyTrac of Irvine, Calif.

The bad news arrives as context. Part of that drop occurred because foreclosures surged again in places like Florida, Nevada, and Ohio. Chronically troubled since the Great Recession, they had been recovering until suddenly reversing course last month.

Meanwhile, several states with relatively low unemployment and strong economies, including Maryland and Connecticut, also saw sharp rises in foreclosure filings.

In contrast, New Jersey keeps chugging along. So far this year, the state has seen a monthly average of about 3,700 new foreclosure filings. That was bad enough to rank fifth nationally in May, and the trend has continued so far this month, according to state court computer records.

If the rate persists throughout the year, it would be well under the all-time high of 66,717 cases in 2009. But the total would still be the state’s fourth largest. New Jersey’s May foreclosure rate was nine times the national average, according to RealtyTrac.

Holding Steady

Nonetheless, some numbers are relative. The company’s figures show that the resale price on New Jersey foreclosed homes remained steady last month at $170,000. That was the average price for market housing in the nation as a whole, where the typical foreclosure went for about $118,000.

That silver lining comes complete with its own cloud. For months, New Jersey housing activists have been pointing to a growing number of foreclosed properties sitting vacant in Newark and other communities. Even previously stable neighborhoods “continue to be plagued by foreclosure and abandonment,” Curtis said.

Three years into an ostensible recovery from the Great Recession, more than 10 percent of the nation’s housing stock remains vacant, according to the U.S. Census Bureau. For comparison, that is about twice the rate of 50 years ago, when America had a vibrant and growing middle class.

Despite this, the National Association of Realtors reports the number of homes currently listed for sale is down 13.6 percent from a year ago, “with current availability tighter in the lower price ranges.”

Some in the industry are beginning to echo the activists. In a June 12 blog post, RealtyTrac’s Octavio Nuiry called national media reports of housing shortages “a myth.” Major investors such as the Blackstone Group and Colony Capital are buying up homes at bargain-basement prices but not reselling them, Nuiry said.

“The artificial shortage of homes for sale and the subsequent rising home prices are being driven by the two forces: major banks and their Wall Street buddies, many of whom were subprime lenders five years ago and now have transformed themselves into real estate ‘investors,’” Nuiry wrote.

At the same time, the NAR reported the number of renter households has increased by 3 million since 2008. It projected that will continue, growing by another 5 million to 6 million over the next decade.

At a recent NAR forum, Lisa Sturtevant of the Center for Regional Analysis at George Mason University in Virginia, noted home ownership rates have declined fastest for the “millennial generation,” people born in the late 70s, early 80s or thereafter, “most likely the result of fewer job opportunities and higher student debt.”

Responding to pleas from Davis and others, the Assembly Housing and Local Government Committee showed it was aware of at least some of these trends. It advanced a package of housing and foreclosure bills, such as A3072 and A4301a, giving municipalities more leverage to enforce upkeep of vacant properties, including those where lenders obtained a foreclosure order but did not complete the action.

Another, A3570, would establish a pilot program to allow municipalities to hold some tax liens rather than auctioning them off. An ongoing FBI investigation has drawn guilty pleas from bidders here and several other states, establishing a pattern of pervasive bid-rigging that has diminished the returns to municipalities. The new program would allow them to cut out the middlemen and collect fines and interest directly.

Democrats are trying again to assist homeowners who are “underwater” since the bursting of the housing bubble, with mortgages higher than the current value of their homes. To that end, A3915 would create a pilot program for HMFA mortgages, offering reductions in principal that would be repaid over 10 years of when the properties are resold.

As usual, the bills advanced with little Republican support, raising the possibility that the governor will again veto any significant aid for homeowners. But this time, the opposition is not total. For example, Assemblyman Michael Patrick Carroll (R-Morris) said he believes the property maintenance enforcement bills could be strengthened.