GMAC Mortgage, Bank of America and JP Morgan Chase, three (3) of the country’s largest and most troubled home lenders, recently announced that they were imposing a moratorium on their default mortgage foreclosures as they tried to ensure they were correctly executed.
Typically, an owner of a home in a common interest community who has a default on mortgage is also delinquent in the payment of the special assessment fees, HOA fees, monthly maintenance fees, and/or other condo fees for the common elements. The lenders connected with those units typically become responsible for any ongoing fees following their foreclosures and sheriff’s sales. Hence, condominiums and HOAs often eagerly await the end of a lender’s foreclosure so that regularly paid special assessment fees, HOA fees, monthly maintenance fees, and/or other condo fees for the common elements from a delinquent unit can begin to be collected into the association’s coffers.
GMAC advised that the suspension might last from a few weeks to the end of the year. The pace of foreclosures across the country has already slowed to a crawl, often resulting in empty units throughout condominiums and HOAs which are unable to receive revenue for the services necessary to maintain the Unit and its common elements. This ‘moratorium’ by the country’s largest lenders will only exacerbate this problem, further threatening the already weak financial position of our condominiums and HOAs. The lenders’ foreclosure moratorium affects New York, Pennsylvania, New Jersey and Connecticut, amongst at least 19 other states, mainly on the East Coast and in the Midwest. JP Morgan Chase has over 56,000 pending foreclosures throughout the country due to the high mortgage default rate, which will now be suspended. Bank of America’s position goes beyond halting action on foreclosure judgments: it will “amend all affidavits in foreclosure cases that have not yet gone to judgment.”
Foreclosures in these states, otherwise known as “judicial foreclosure states”, are processed via the court system. The moratorium stems from pending foreclosures, and other litigation, in which GMAC employees were found to have falsely stated under oath that they had knowledge of the facts of certain mortgage and/or foreclosure cases before executing their foreclosure judgment affidavits. GMAC is even investigating the nature and facts of foreclosures and evictions from the past that have already been completed, even in cases where there may be new owners living in the Units). The GMAC moratorium even applies to the ‘short sale’ of distressed properties. Lenders with no known problems are expected to approach defaulting homeowners more cautiously and look more aggressively for alternative dispute resolutions short of outright eviction. The turmoil and fear is so great that if completed foreclosures were not properly done, the new title holders of troubled homes could be vulnerable to claims by the former owners. In turn, one of the country’s largest title insurance companies, Old Republic National Title, has sent a bulletin to agents saying that, until further notice” it would not insure title to properties foreclosed upon by GMAC. Attorneys general in half a dozen states are demanding action or opening investigations. The Treasury Department recently said that it was asking regulators to look into “these troubling developments.” In depositions taken by lawyers for homeowners, executives at GMAC and Chase said that in any given month, they or their teams signed at least 10,000 foreclosure-related affidavits for mortgage defaults. They each admitted that this volume impeded their employees’ abilities to properly review each of the individual cases.
According to LPS Applied Analytics, a mortgage data firm, 2 million households are in foreclosure. Another 2.37 million households are “seriously delinquent” and waiting for their lender to take action. Sometimes these loans are still owned by the lender, but oftentimes the banks are merely the loan servicer acting on behalf of the owner. Many of the loans are owned by Fannie Mae and Freddie Mac, the mortgage holding companies now controlled by the federal government. In other cases the loans have been sold to private investment pools. Confronted with so many cases, the lenders tried to process them on a wholesale basis to receive summary judgments, with the goal of avoiding the expense of a full trial. The tool for doing this was the so-called robo-signers, in which mid-level bank executives would sign thousands of affidavits a month attesting that they had personal knowledge that the facts of the case were as presented. The affidavits were prepared by lawyers who were paid a flat fee, which also placed a premium on volume. When defense lawyers started deposing these robo-signers, they acknowledged that they could not possibly have knowledge of all the cases.
It is imperative that every condominium and HOA develop a collection strategy that does not depend on the rapid ‘turnover’ of delinquent units, and the payment thereafter of ongoing assessments for common elements by the lender. There are several available collection strategies that can be employed to lessen the blow of this delay and/or moratorium; and some strategies that can even benefit the condominiums, and HOAs.