According to a September report from RealtyTrac, nationwide foreclosure rates have dropped 24% from a year ago. For the first time since the real estate crisis foreclosure timelines have also decreased. Experts suggest the reduction in timelines is the best indication of a full market recovery because it shows states are clearing the backlog of foreclosures.
Unfortunately this improvement has not carried over to New Jersey which still ranks #2 for the highest foreclosure rates. September figures show 1 in every 691 homes went into foreclosure proceedings in September. New Jersey also exhibited an increase in the time to foreclosure with a 7% increase that secured the #1 spot in the nation, averaging of 1262 days. This time estimate reflects proceedings started during the highest periods of foreclosure. It is expected that new foreclosure proceedings will close in a shorter time frame.
September foreclosure rates in cities over 200,000 in population brought good news to New Jersey. Although Atlantic City maintained position #1, its September rate improved month-over-month to 1 foreclosure in every 375 homes (vs. 1 in every 232 homes in August). Even better news is that in September Trenton fell off the Top 5 list (see foreclosure rates across the nation).
The states with the shortest foreclosure times have one thing in common—they have non-judicial foreclosure processes. This is not the case in New Jersey which has a judicial process and the longest foreclosure timeline. In New Jersey a foreclosure must go through the state courts. That means filing documents, finding time on court schedules, attending hearings, and multiple levels of paperwork. The large number of foreclosures started during the housing crisis and today have backlogged the courts and stymied banks from recovering on these bad debts.
What Can Banks Do to Recover on Bad Loans?
Housing inventory in New Jersey has been in a steady decline all year. Unfortunately for buyers the prices have been rising as well. This trend is good news for banks with foreclosure inventory. If they can get title to the desirable houses on the docket they can sell them below market value to recover their loan dollars and perhaps even make an expense-covering profit. If the bank has to wait 1262 days, that is not as likely an outcome—there is no way to predict where the market will be in 3-4 years.
This is where an attorney becomes valuable. A bank that is overloaded with customer service issues or does not have enough experienced negotiators to work with homeowners, should use its attorney to independently reach out to mortgage holders to resolve the foreclosure. Depending on the desirability of the home and the size of the existing foreclosure stock, the best strategy may be to get title by directly offering a deed-exchange. This process allows the borrower to transfer all interest in the property (i.e., transfers the deed) to the lender to satisfy the loan and avoid foreclosure. Both parties win. The bank expediently secures 100% ownership of the property so it can dispose of the liability and the borrower gets out of a loan he cannot pay without going through the foreclosure process.
New Jersey is not experiencing the same kind of foreclosure recovery as the rest of the country. The trends indicate that New Jersey is a long way from market stability. Foreclosure starts continue and time to foreclosure has increased. Simultaneously the market inventory is going down and prices are rising.
If the foreclosure timeline continues to increase, banks involved in the long-term foreclosure process can expect increasing costs and loss of market opportunity to clear inventory during the growing demand period. Given this news, banks in New Jersey may wish to find more creative ways of clearing the docket. The choice a bank makes now—whether it is to complete the long foreclosure process or make alternate arrangements with the borrower—could impact debt-recovery well beyond the running foreclosure completion period.