Sunday, January 15, 2012

Looming wave of new foreclosures threatens rebound of Staten Island's real estate market

-- Any hope for a rebound in the Staten Island real estate market this year is being strangled by a looming wave of foreclosures that will add homes to an already flooded market.

Foreclosure filings on Staten Island last year dropped by nearly one-half from 2010, but lawyers say those figures are misleading.

Pointing to a still-sluggish economy, they predict foreclosure filings will jump dramatically this year and say last year's drop-off resulted from several factors, including tougher filing requirements and the shutdown of the law firm that handled the lion's share of the litigation for lenders and servicers.

"I don't think it is at all a sign that things are getting better. People still aren't paying their mortgages," said Robert E. Brown, a New Dorp-based foreclosure defense attorney. "All it means is it's piling up. I think it's going to be a tsunami."

In fact, a June 2011 study by the Federal Reserve Bank of New York revealed that one in 10 residential mortgages in the city either was in foreclosure or "seriously delinquent" -- defined as 90 or more days past due. Figures weren't available for Staten Island.

"I think it's the lull before the storm," said Paul Hollender, a bankruptcy lawyer and partner in the Bloomfield-base firm, Corash & Hollender.

Last year, 997 new foreclosures were brought on Staten Island -- a 46 percent drop from the 1,846 filings commenced in 2010, according to information maintained at the Richmond County Clerk's office.

The dip was even sharper (almost 58 percent) compared to 2009, when 2,361 new foreclosures were started on Staten Island. There were 1,954 filings in 2008.

While each of last year's monthly filings declined compared to 2010, the lowest numbers were recorded in the first and last third of 2011.

Brown attributed the drop over 2011's first four months to the stringent new requirements enacted by New York state's chief justice in October 2010.


In cases involving one-to-four family homes, bank lawyers must submit a "due diligence" affirmation, certifying they've taken reasonable steps to verify the foreclosure documents' accuracy. A supporting affidavit is also required from a representative of the lender or servicing company bringing the action.

Brown said the dip over the final four months of 2011 resulted largely from the closure of the upstate Steven J. Baum law firm. Baum's company -- decried as a foreclosure mill -- handled about 40 percent of the 46,572 foreclosure proceedings brought by plaintiffs statewide in 2010, the New York Law Journal reported. It was not immediately clear how many are on Staten Island.

Brown said he expects foreclosure filings will be low early this year as banks and lenders determine Baum's replacement.

The firm agreed in October to pay $2 million after admitting to errors in legal filings. It also aroused ire when The New York Times published pictures from the company's 2010 Halloween party, showing people dressed to look homeless and part of the office decorated to resemble a row of foreclosed homes.

"There's no firm in New York state to handle the volume that Baum's handling," Brown said. "Foreclosures are highly technical. It's not like you can hire any attorney to do it. There's going to be a feeling-out process."

Brown anticipates foreclosures will spike once such matters are resolved.

"There's going to be a lot more filings," he said. "I don't think the economy has turned around."


Realtor Joan Camerlengo has seen some activity in the first two weeks of the year, but she expects a release of shadow inventory -- pending foreclosures that haven't been processed yet -- will depress the market further.

"I think this is going to be an uncertain year," said Ms. Camerlengo whose namesake firm is in Grant City. "Are they going to open the floodgates and release the shadow inventory they are holding or are they going to continue to hold them and delay a recovery. If they do release the inventory, there may be a little bit more of a decline in prices."

The county clerk's foreclosure data notwithstanding, one defense lawyer said she hasn't witnessed a decline in cases.

"We're seeing no diminution in filings of summonses and complaints," said Margaret Becker, lead attorney with the Homeowner Defense Project of Staten Island Legal Services in St. George, referring to the legal papers filed to start foreclosure litigation. "The foreclosure problem hasn't decreased. We answered more summonses and complaints in 2011 than in 2010."

To document that point, Ms. Becker provided a July 2011 report by MFY Legal Services, the Manhattan-based non-profit that, like Staten Island Legal Services, offers homeowners free legal aid. The study states the foreclosure crisis "shows no signs of ebbing, and foreclosure filings are expected to remain at a crisis-level high."

Just as troubling, both Ms. Becker and John Brancato, loss mitigater for Brown, the defense lawyer, said lenders, servicers and their lawyers are dragging their feet in filing the "due diligence" affirmations that get the cases rolling. Those affirmations, filed after the foreclosure summons and complaint is served, help start the clock for the mandatory settlement conference.

Without them, the cases languish, and late fees and other charges accrue against homeowners, decreasing their chances for a loan modification.

Eligible residents can apply for mortgage modifications through the federal Home Affordable Modification Program (HAMP). Lending institutions can also offer their own loan modifications.

Brancato contends that banks make homeowners jump through hoops to obtain a HAMP loan, and, as a result, most don't qualify.

"It's unfortunate that the only things banks understand is when you take them to court," he said. "This is not going to get better until they modify loans that can truly be modified."

Ms. Becker, however, said HAMP, while not perfect, is working.

"We're seeing more modifications," she said. "It has always been effective [and] it can be hugely effective, and it is getting better because more banks are complying with it. It does work, and it can work a whole lot better. HAMP needs better enforcement and compliance."


Even with the potential for an increase in foreclosures, local Realtors are hoping the sales numbers from the last three months offer a glimmer of what may come in 2012.
Prices have moderately dropped year-over-year, but the borough experienced a 12 percent increase in houses sold in September, October and November compared to the same time period in 2010, and a nearly 6.5 percent gain in houses going to contract.

"My people are telling me their phones have been busy," said Sandy Krueger, chief executive officer of the Staten Island Board of Realtors. "I expect to see a nice bump down the road. We should start the year off better."

The borough numbers are in line with the market taking shape around the country, where November sales reached their highest levels in 19 months with a 7.3 percent increase. The only time they were higher was in April 2010 when buyers were racing to cash in on the one-time-only home buyer tax credit.

Krueger also cited the still record-low interest rates, which are hovering at about 4 percent, as an incentive to buyers. But he noted that banks are being stiffer in approving mortgages.

"The lenders are making it more and more difficult to close these things out," he said. "I think word is getting out on that, and it is making people leery about jumping into the market. They are holding back a little."

George Wonica Jr. has also noticed that trend.

"People are recognizing this is a very good time to buy," said Wonica of Wonica Realtors and Appraisers, which has offices in Castleton Corners, Midland Beach and Rossville.

"But unfortunately, the banks are being more rigorous now. They are getting difficult to deal with and that is stirring buyer frustration. In the advent of tougher regulations, it's not uncommon for the banks to ask for 15 pieces of documentation that all say the same thing."

Still, Wonica is selling homes.

"People see the value in home ownership and realize that like stock and investments go up and down, the real estate market goes up and down," he said.

One of Wonica's most recent buyers did the opposite of many. Instead of trying to downsize, he went bigger.

"There were houses on the market that were a nice size on the inside, but didn't have a lot of property," said John Vitucci, a criminal court lawyer who was in the market for square footage, the right price, a good neighborhood and mostly, a big backyard for his two young children to play.

Vitucci and his wife, Randie, closed in October on a corner property in Westerleigh for $515,000 -- down from the $535,000 asking price -- and an interest rate of 4.1 percent.

"I found a lot of houses were overpriced for where the market was," said Vitucci, whose new home was on the market for 160 days before he bought it. "We were looking for something we wanted to spend the rest of our lives in."

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