Court programs, economy among focuses of foreclosure conference

When it comes to the problem of mortgage foreclosures in Indiana, there appears to be no end in sight, at least not yet. The Hoosier state is no longer a national leader in foreclosures, but that is only because numbers are on the rise in other states.

That’s the bad news.
 

Zoeller

The good news is that many people are working to help homeowners, neighborhoods, and municipalities deal with the issue – the topic of discussion at the Civil Justice Summit at the University of Notre Dame Nov. 16. The summit was organized by the Indiana Attorney General’s Office and featured comments from AG Greg Zoeller and assistant AG Abby Kuzma, who leads the Attorney General Office’s Consumer Protection Division.

One program that has been helping Indiana homeowners since March is the Mortgage Foreclosure Trial Court Assistance Project.

Kuzma

The counties involved in this program, listed in the order they joined, are Allen, Marion, St. Joseph, Monroe, Lake, Madison, Clark, Hamilton, Vanderburgh, Hendricks, and Tippecanoe counties. These counties were on board by November 2010, and Elkhart, Delaware, Parke, Bartholomew, and LaPorte counties will be added to the list by January.

While 16 out of 92 counties may seem like a small number, said Elizabeth Daulton, project manager of the MFTCAP, those counties make up about two-thirds of all foreclosure filings in Indiana. She added Marion and Lake counties combined make up about one-third of state filings.

For all courts with pilot programs, the process is similar. All borrowers in foreclosure filings receive notice in the mail that they are entitled to a settlement conference with their lenders per a statute that went into effect July 1, 2009.

Borrowers who have filings in courts that aren’t part of the pilot program can still request a settlement conference, but even with the state statute, the courts were receiving very few requests.

Of the 1,491 orders for phone conferences that were mailed in Allen, Marion, St. Joseph and Monroe counties between March 1 and Nov. 12, 737 phone conferences took place, 681 borrowers from those conferences were found to be eligible for settlement conference, 623 conferences were requested, and 541 conferences had taken place so far.

Daulton

Of the conferences that took place, about 40 percent resulted in a stay-in-home workout, about 9 percent resulted in other workouts, such as a short sale, and 30 percent resulted in foreclosure. The rest needed follow up from a facilitator, which was likely because the borrower or lender needed to supply more information than was available at the settlement conference.

If all borrowers in Indiana were part of an opt-out program like this one and numbers for foreclosure filings similar to those above were applied, Daulton estimated 18,406 borrowers would request a settlement conference and that 9,203 homes would be saved.

Foreclosure expert and summit participant Alan White of Valparaiso University School of Law said these numbers meant the outreach was effective and worthwhile. He added that while a similar program in Staten Island, N.Y., had about an 80 percent rate of settlement conferences, about half of those conferences resulted in a workout.

One of the common factors of the conferences in the pilot program that ended in a stay-in-home workout was that the borrower had some kind of income, Daulton said. They might have less income than before the foreclosure proceedings, but they still had something that was workable.

“I want to compliment their work,” Kuzma said. “It is making a huge difference.” She added that up to 97 percent of borrowers were unrepresented in mortgage foreclosures, which makes the job of the facilitator at settlement conferences that much more important.

Following the discussion of the MFTCAP, White explained that the country is still at the peak of the foreclosure crisis, and until the numbers go down, the economy cannot recover. He added that even if no more foreclosures were filed, it could take five to seven years for the housing market to recover.

He also explained that there is currently a 12-month housing inventory in the U.S., but with the number of homes that banks are keeping off the market, it is possible there is actually up to a 24-month housing inventory.

It is more likely for smaller, local banks to make modifications to mortgages, he said. However about 60 percent of mortgages are owned by the larger banks. If lenders are willing to come to the table and can make a modification to keep a borrower in his or her home, it’s a better deal for homeowners and investors.

It’s also a better deal for taxpayers, said Judith Fox, who spoke about vacant properties. Fox serves as a facilitator in St. Joseph County and also leads the legal clinic at Notre Dame Law School.

The reality, she said, is that there is almost $5.5 million in unpaid taxes in Indiana because of vacant bank-owned properties. This does not include the cost to a city of demolishing vacant buildings that have fallen into disrepair.

However, sometimes that cost can revert to the homeowner, who may have thought she no longer had a responsibility for the home.

In one example, a client’s home had been foreclosed on and she had moved out. Without her knowledge, the bank canceled the sheriff’s sale. The house sat vacant for a year and fell into disrepair. The home was still listed in the owner’s name, and she received a notice that the home was in violation of various codes and that she was responsible for the fines.

Fox said at the code enforcement hearing, she learned from the code enforcer that this was a fairly common occurrence.

Another case involved a borrower who moved out of her home because it was going to be foreclosed on as part of her bankruptcy proceedings. She wasn’t told the sheriff’s sale was canceled, and the home was vacant for two years. When another bank took over the mortgage, the new bank filed for foreclosure against the homeowner. The second bank couldn’t produce the note to prove it owned the mortgage, so the case was dismissed.

In a third case, Fox learned that refinance papers were robo-signed. In other words, they were forged to look like someone else signed them. The clinic couldn’t afford to do a deposition, but they were able to get an affidavit from the person whose name was signed to the paperwork. That was in 2007, Fox said.

Fox said she would like to see either local ordinances or a state statute that would require notice to homeowners that they can stay in their homes until the sheriff sale occurs. That is probably in the homeowner’s best interest, she said, to avoid vandalism. She added if sheriff sales are canceled, someone should notify the borrower.

To wrap up the conference, U.S. Trustee Nancy J. Gargula and Gabrielle Owens, deputy director of the AG’s Licensing Enforcement & Homeowner Protection Unit, discussed common fraud.

A common threat involves agencies that file bankruptcy on the borrower’s behalf, then collect the checks but don’t make payments toward the borrower’s debt. Bankruptcy stops collections efforts, and there’s an automatic stay on foreclosures, sheriff’s sales, and lawsuits, so the borrower has a false sense of security that everything is OK.

There are also a number of schemes involving flipping, where fraudsters tell borrowers they’re investing in properties, but the borrower overpays and the fraudsters collect the difference; and reverse mortgages, where the borrower gives power of attorney to the fraudster, who then receives a lump sum payment but does not give the borrower his fair share.

A newer scheme involves California homes facing foreclosures. In that case, non-California residents who have filed for bankruptcy are named as 1 percent owners of the California homes without the knowledge of the person who has filed for bankruptcy. Whenever there’s a bankruptcy on a homeowner, it stays the foreclosure, which is the reason for this scheme.

While the conference highlighted a number of issues regarding foreclosures in Indiana, the underlying theme seemed to be how to help people and what to look out for in the future.•