Judges blame banks for foreclosure slowdowns, but some see good in delay

Half a decade since the housing bust, many foreclosures are showing their age. A quarter of cases now in Hillsborough court are at least 3 years old.

So who's keeping Florida's more than 350,000 pending foreclosures in court? Judges largely blame the banks. State court data show banks regularly delay cases so long that judges drop them for lack of action.

That's right: The same industry facing billions of dollars in punishment for hastily whizzing foreclosures through court a few years ago now isn't moving fast enough, court leaders say.

"Foreclosures should be one of the simplest forms of civil litigation … but the lenders are sometimes their own worst enemies," said Thomas McGrady, chief judge of the Sixth Judicial Circuit over Pinellas and Pasco counties.

"For whatever reason — a business decision, moratorium issues or they're just overloaded — they don't seem willing to push the cases they've filed," he said.

Banks defend their foreclosure practices by blaming overloaded courts for the slog.

"We're trying to speed (cases) up after we get to the point where we can't work with the borrower anymore," but court overloads are a bottleneck, said Anthony DiMarco, the head state lobbyist for the Florida Bankers Association. "I don't think anyone was geared for the magnitude of what was coming."

Whoever is to blame, you won't find many lawyers or homeowners complaining. In fact, they argue slowdowns are exactly what most cases need.

They allow homeowners to work on short sales or loan modifications that save the banks money and keep people in their homes. And they keep repossessed homes from flooding the market, preserving local home prices and helping neighborhoods.

But with a "faster foreclosures" bill approved by lawmakers and now awaiting Gov. Rick Scott's response, lawyers worry the cases will be squeezed through court, hurting both homeowners and banks.

Hurried foreclosures would force banks "to throw people out of their houses when they don't want to," St. Petersburg foreclosure-defense lawyer Matt Weidner said. "What if the judge could wave a wand and all those foreclosures were instantly granted? Where would we be?"

• • •

State civil court standards in Florida say nonjury cases like foreclosures should take a year at most. The average Florida foreclosure, research firm RealtyTrac said, lasts about 900 days.

Pinellas and Pasco courts had nearly 29,000 pending foreclosures by April, more even than a year ago, showing judges were unable to clear old cases quicker than new ones piled on, state court data show. And half of Hillsborough courts' 24,000 pending foreclosures are more than 2 years old.

It's obvious why homeowners don't want to speed along their eviction. But what do banks, who drive the cases and have so much money on the line, stand to gain from slowing down?

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It's not sloth, lawyers said, but shrewd calculation. The faster they take over a home, the quicker they assume full liability and the costs of upkeep, fees and resale. Negotiating a short sale or modifying a loan can often net them less hassle while preserving their bottom line.

"Even when the right to foreclosure is clear," judges wrote in a backlog reduction plan in April, "a lender may have a disincentive to proceed."

Because the banks want cash flow, not old homes, lawyers said they're agreeing more often to allow homeowners to sell their homes for less than they owe or pay back loans with terms they can afford.

As part of a nationwide "robo-signing" settlement, five of the biggest banks are also on the hook to avoid foreclosures using more than $8 billion in short sales, principal reductions and loan modifications in Florida alone.

But banks wait for short sales to close and trial modifications to succeed before they drop the foreclosures entirely, leaving many cases to grow old in court.

Slowed foreclosures also benefit the banks, lawyers add, because they appear more solvent than if all bad loans were foreclosed at once. As Georgetown law professor Adam Levitin wrote in November, "The game plan has always been to run the clock."

• • •

It's not just bank strategy that's slowing cases to a crawl. After years of lenders chopping up and reselling mortgages, questions abound over who owns the loans. Cases dawdle through homeowner bankruptcies and defense stall tactics. And slipshod paperwork, skipped hearings, switched attorneys and stalled negotiations from both sides slow cases even further.

Courts were largely caught off guard by recent years' tsunami of bad loans. Florida has seen 1.5 million foreclosures in the six years since the housing bust, state data show, and courts expect another 680,000 foreclosures within a few years.

Most courts, a state workgroup of judges said, lack systems to track case details as basic as how many times a foreclosure was delayed, making it tough to pinpoint problems. And the Florida Supreme Court said last month that lower-level officers with less experience than judges, called magistrates, should jump in to rule on cases.

But even when foreclosures are on the schedule, judges often opt to dismiss them due to a banks' "failure to prosecute." Judges dismissed 45 percent of the state's foreclosures last year, court data show, often because they thought banks were too slow to act. Banks often refile those cases, judges said, resetting the clock.

To ease the gridlock, some Florida judges have opted to set trials without either side's request. But lawyers said that can end up disrupting negotiations and delivering results neither the bank nor homeowner wants. Weidner called it "justice served at fast-food-restaurant speed."

And closing a foreclosure case doesn't always mean its over. Often, banks must reopen cases to cancel or reschedule the dates of a home's sale, as owners secure short sales or loan modifications that would save their homes from repossession. About 10,000 closed cases were reopened in Tampa Bay last year.

Judges said seeking to speed up even the slowest cases can lead to concerns over allowing for a proper defense. In Hillsborough courts, cases from 2009 or older are isolated and given extra attention from court staff, but judges said there's only so much they can do to whisk cases along.

"Lenders and borrowers," judges wrote in their backlog reduction plan, "must be ready, willing, and able to proceed."

• • •

Slowed foreclosures have given homeowners time to negotiate with banks, try out modified loans and, in some cases, get hired or pay off debt. Many homes have also risen in value, buoying some underwater homeowners.

But many cases remain problematic, including for the home- owners who don't know the bank's next move.

"If the lender isn't moving the case forward, what is (the home- owner's) responsibility?" lawyer Chae duPont said. "They're not allowed to make mortgage payments. They don't want to abandon it and let vandals take over, because they're still liable."

Still, she added, "It's not an enviable position to be in. It's scary. They don't know how long it's going to last, they're in limbo, their credit scores are depressed. And on top of all that, it's embarrassing."

Real estate agents said speeding all foreclosures to repossession would bring problems of its own. Selling swaths of distressed homes all at once could lead prices to plummet, enticing investors and bargain hunters but hurting neighborhood home values. Worries over a "shadow inventory" of foreclosures thudding onto the market have subsided largely because banks' case slowdown helped keep prices from plunging.

Courts have suggested speeding up foreclosures by punishing problem lawyers, fast-tracking uncontested cases and grouping foreclosures by attorney to allow for block trials. And the state's "faster foreclosures" bill, approved by the Senate during the legislative session's final hours, landed on Gov. Rick Scott's desk Tuesday, leaving him 15 days to sign, veto or become law without his support.

But some judges argue that legislated pushes to hurry along foreclosures can do more harm than good if the rules are too rigid. Hasty demands to close cases can undermine the ability for all sides in a case to reach agreeable results.

"Speeding it up is not better for everybody," said Herbert Baumann Jr., an administrative judge for Hillsborough's Thirteenth Judicial Circuit. "Court cases don't lend themselves to bright-line rules. There are goals, yes, and we're aware of the goals, but … if it takes long, it takes long. If it takes short, it takes short. It takes what it takes."

Contact Drew Harwell at (727) 893-8252 or dharwell@tampabay.com.