Palm Beach Post Staff Writer
Updated: 9:41 p.m. Saturday, Sept. 24, 2011
Posted: 7:17 p.m. Saturday, Sept. 24, 2011
With hundreds of thousands of foreclosure cases clogging Florida's courts and more defaulted loans in the pipeline, Moody's economists now predict South Florida home prices won't hit bottom until late 2012 or early 2013.
But whether clearing the logjam through an expedited foreclosure process will equal a shortcut to economic recovery is still up for debate. The current timeline to foreclosure in Florida is 676 days -- nearly two years -- the third-longest wait time in the country.
Of seven economists interviewed by The Palm Beach Post, six said they generally believe speedier foreclosures will lead to a swifter rebound in the housing market and a more rapid healing of the economy at large.
None of the analysts, however, could point to a region of the United States and definitively say it is doing better today because its foreclosures are being processed more quickly.
As Florida lawmakers again broach the subject of fast-tracking foreclosures, and the possibility of taking the process out of the court system, the fiscal health of the state will undoubtedly be at the crux of debate.
Florida is one of 21 states to have strict judicial foreclosure proceedings, meaning banks must get a judge's approval before repossessing a home. About 371,000 foreclosure cases are in Florida's court system, even after a one-time stipend of $6 million was used last year to hire additional judges and case managers. That money is now gone, yet Florida's chief economist said she expects 492,576 new foreclosures to be filed through 2013.
Last week, Gov. Rick Scott said he has not yet decided whether he supports taking foreclosures out of the courts, but that he might back it if it encourages more lending in the state.
"We need to take our time, make sure everybody understands if there is a reason to change," Scott said.
But banks cannot be trusted to take people's properties without court oversight, homeowner advocates say. With home loans having sold during the housing boom like $1 shooters at happy hour, they fear having the wrong entity foreclose and worry the amounts banks say are owed are incorrect.
In May, a Miami foreclosure judge sanctioned a law firm after she said the so-called original note and mortgage on a Homestead property were filed months after the bank said those documents were lost. Worse, Miami-Dade Circuit Judge Maxine Cohen Lando said the mortgage and note were to a property in Lehigh Acres –– a town 150 miles northwest of Homestead.
"The biggest problem is there is a sense that we can trust these banks in terms of bringing a non-judicial foreclosure," said South Florida foreclosure defense attorney Roy Oppenheim. "The irony is that time and time again we've seen that we can't trust them."
Still, some economists maintain that while living in a home mortgage-free for two years may benefit the homeowner, it's not good for the overall economy.
But is giving up the right to due process worth a swifter fiscal revival?
Paul Willen, an economist with the Federal Reserve Bank in Boston, said judicial proceedings delay a foreclosure but rarely end with a judgment in favor of the homeowner.
During the delay, the homeowner has no long-term interest in spending money for property upkeep, he said, such as replacing a leaking roof, buying new appliances or hiring a lawn service –– all things that contribute to the economy.
And while some people in foreclosure may spend freed-up mortgage payments on other things, Anthony Sanders, a professor of real estate finance at George Mason University, argues they are more likely stashing it away.
According to research by the Federal Reserve Bank of St. Louis, the personal savings rate dropped to less than 2 percent of annual income in 2005. It jumped to nearly 8 percent in 2009, before slipping to about 5 percent this year.
"When I see it taking more than 650 days for a foreclosure to go through, I think I am in favor of non-judicial foreclosures," said Sean Snaith, director of the University of Central Florida's Institute for Economic Competitiveness. "Think of everyone not going through a foreclosure and what's happening to them as they see their home values erode. It wears away confidence and wealth."
The overriding concern about faster foreclosures is that it will force more families into homelessness. But another economic argument is that it will dump more distressed homes on the market, crashing home prices.
A 2011 study out of the University of California's Haas School of Business claims to be the only one so far to examine economies in states that have non-judicial foreclosures compared to those with judicial foreclosures. It found that non-judicial states had larger price drops in housing, less residential investment in properties and fewer car sales –– a measure of economic health.
Non-judicial foreclosure states also had more foreclosures than judicial states, possibly because of the ease of home repossession.
The more quickly a home is repossessed, the less time there is for an alternate workout to be negotiated.
"A system of non-judicial foreclosures generally tends to encourage unnecessary foreclosures," said Geoff Walsh, an attorney with the National Consumer Law Center. "Each time a foreclosure is completed, the investors, such as pension funds, are losing 60 percent of the value of the loan. Speeding up foreclosures just speeds up how quickly a lot of people lose a lot of money."
Vitner, the Wells Fargo economist, said there is no easy solution, but he too believes a swifter process will lead to a faster economic turnaround.
"There might be a painful adjustment process at first but is it better to take the pain up front or have it hanging over our head for 10 years?" Vitner said.
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