Foreclosures in New Jersey in a Troublesome State of Flux

While two of New Jersey's largest mortgage lenders are vigorously filing new foreclosures, the state is still waiting for them and other major banks to certify the accuracy of documents in a huge backlog of pending cases.

The parallel trends have worried some foreclosure counselors who fear the reckoning, when it arrives, will be worse for the state's housing market than previously predicted.

The retired judge appointed to review foreclosure cases of the state's six largest lenders said the hardest part of his job also lies ahead -- analyzing “hundreds from each of the banks” to determine whether they are implementing ostensibly improved procedures to protect against fraud.

Even before those reviews commence, participants say the foreclosure process in New Jersey is in a state of flux. As a wave of legal cases approaches, banks are changing their approach. At least some large lenders are doing more public outreach, holding meetings around the state to talk to customers already in foreclosure or threatened with possible foreclosure.

Some of that may be public relations in the wake of a nationwide settlement with state attorneys general. Under the terms, they will pay about $26 billion in mortgage modifications, payments to states, penalties and fees, plus token compensation to people illegally forced from their homes. In exchange they will be protected of claims of fraud and abuse from those previous foreclosures.

But in addition to strategizing and avoiding damages, some housing counselors see changes in attitudes among the banks following the settlement, with some becoming easier to work with, others harder.

“Some of the banks do more than the others” to help customers stay in their homes, said Elaine Molen, a counselor with Novadebt, a consumer debt management service in Freehold.

Lenders attitudes are critical, because the trend in foreclosures here runs counter to most of the nation, according to Phyllis Salowe-Kaye, executive director of New Jersey Citizen Action.

Nationwide, foreclosure rates were flat in March, although the inventory of 1.4 million homes was down slightly from a year ago, according to the CoreLogic property data service in Santa Ana, Calif. But New Jersey ranked second -- behind only Florida -- because of new cases piling up on top of the backlog.

“In New Jersey, we're not even at the top yet” of the surge in foreclosures, Salowe-Kaye said. "What's coming is larger than anyone has imagined."

While the courts hope a moratorium and the review of bank procedures are reducing foreclosure fraud, state and federal officials advise borrowers to be wary. They urge homeowners to seek free counseling and free legal help, before they receive foreclosure notices if possible, and quickly afterward if necessary. The New Jersey Housing and Mortgage Finance Agency has grant programs for some in foreclosure, and assigns non-profit counselors.

Molen and other counselors advise clients to keep supporting paperwork up-to-date on applications for mortgage modifications, and to set aside funds to cover payments due that can mount up during the lengthy process.

Many borrowers caught up in foreclosure do not realize that they can request stays and extensions throughout the process, from the initial order and hearing to the sheriff's sale and eviction, said June Peters of the court's general equity and foreclosure division in Essex County.

“If sheriff's officers come into your home, you still have a right at that moment to file for an extension,” she said.

In one sense, foreclosure activity in New Jersey has returned to “normal,” at least measured in pre-recession levels. Through May 1 this year, lenders had brought 7,954 new cases, according to state court data. That is on track to approach the 24,857 cases in 2006, when foreclosures were creeping upward as the housing bubble stretched ever thinner.

By the depths of the recession in 2009, the total hit 66,717 new cases, most uncontested by borrowers.

Along with the sheer number of cases, the amount of irregularities also soared, fostered in part by a surge to repackage mortgage notes as securities and divvy them up among investors. Responding to court cases here and elsewhere that uncovered dubious documentation and false swearing, state Chief Justice Stuart Rabner imposed a moratorium on foreclosures by major lenders in December 2010.

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