New laws in New Jersey and Illinois and a pending bill in Florida aim to clear foreclosure backlogs by shortening the length of time it takes to obtain a final foreclosure judgment. Foreclosure can be a long process. The national average length of a foreclosure proceeding, from first filing to final judgment, is 414 days. But in judicial foreclosure states, like New Jersey, Illinois, and Florida, foreclosures must proceed through overloaded court systems, and as a result, proceedings take an average of two years. The average timeline is longest in New York (1,056 days), New Jersey (966 days), Florida (861 days), and Illinois (628 days). See John W. Schoen, “Foreclosures Slow as Pipeline Keeps Backing Up,”NBCNews.com, Apr. 4, 2012. These long timelines have caused backlogs of foreclosure cases, and according to Sulaiman Law Group, LTD, using existing procedures, it would take 62 years to clear New York’s backlog, 49 years to clear New Jersey’s backlog, and 10 years each to clear the backlog of foreclosures in Florida and Illinois. See “The Positive Side to the Foreclosure Backlog” Sulaiman Law Grp. LTD (posted as of Apr. 6, 2013).
Foreclosure proceedings have been delayed in judicial and nonjudicial states for a variety of reasons. First, increases both in filings and in homeowner objections to such filings have caused processing delays. Second, many states allow mediation or arbitration during foreclosure, and the underlying cases are often stayed until the mediation is complete. Further, in judicial foreclosure states, foreclosures move slowly due to backlogged courts and inefficient court procedures. Current foreclosure processes were often designed by legislatures that did not anticipate the current surge in foreclosures, and such processes provide overly long timelines, which safeguard homeowners’ interests but also impede proceedings.
The Potential Fix
To reduce foreclosure backlogs, legislatures have been searching for ways to shorten foreclosure timelines while still protecting homeowner rights. One solution is permitting expedited foreclosures for vacant homes or in uncontested cases. For example, the New Jersey and Illinois legislatures recently enacted laws that allow mortgagee plaintiffs to request expedited hearings for foreclosures of abandoned or vacant homes. In Florida, the legislature is considering a similar bill that would allow more types of plaintiffs to use the state’s existing expedited foreclosure process.
New Jersey: Expedited foreclosure for vacant properties. On December 3, 2012, Governor Chris Christie signed New Jersey Senate Bill 2156, which authorizes lenders to request summary foreclosure actions for residential properties that are deemed “vacant” or “abandoned.” S. 2156, 215th Leg., Reg. Sess. (N.J. 2012). The act makes it possible for a mortgage holder to obtain a final foreclosure judgment and complete a sheriff’s sale in as few as 120 days, as opposed to the 324-day minimum for traditional foreclosures, according to Fox Rothschild LLP’s website (“New Jersey Commercial Mortgage Foreclosure Timeline,” Dec. 2011). Under the New Jersey act, a court may enter a final residential foreclosure judgment if it finds, by clear and convincing evidence, that a residential property is “vacant and abandoned” and a mortgagor has filed no answer, appearance, or other written objection asserting valid defenses or objections.
The New Jersey act, which became operative on March 1, 2013, allows lenders to expedite a foreclosure proceeding either by filing a summary foreclosure action or by converting an existing foreclosure action to a summary foreclosure. To obtain a final foreclosure judgment through this procedure, a lender must show that a process server has made two unsuccessful attempts at least 72 hours apart to serve the mortgagor or occupant at the property and that the property is “vacant and abandoned.” A property is defined as “vacant and abandoned” if (1) it is unoccupied by a mortgagor or lease-hold tenant before the mortgagee served notice of intention to commence foreclosure, and (2) there exist at least 2 of 15 enumerated conditions that indicate vacancy and abandonment. These 15 conditions include overgrown vegetation, garbage accumulation, and disconnected utilities.
After a property is deemed vacant and abandoned, a foreclosing plaintiff has no obligation to issue a notice to cure, as is typically required by section 6 of the Fair Foreclosure Act. N.J. Stat. Ann. 2A:50-58. Further, the act directs that once a court issues a final residential foreclosure judgment, a sheriff is to sell the property within 60 days. If a sheriff cannot complete the sale quickly enough, a foreclosing plaintiff may apply to the court for an order appointing a special master or judicial agent for the foreclosure sale.
As for the expected impact of the act, legislators are unsure how many plaintiffs will apply to proceed in a summary manner, but they hope that the act will help reduce New Jersey’s backlog of more than 60,000 pending foreclosure cases.
Illinois: Expedited foreclosure and increased filing fees. On February 8, 2013, Governor Pat Quinn signed Illinois Senate Bill 16, which allows summary foreclosures for vacant properties, decreasing the foreclosure timeline from 500 days to 100 days, and also increases foreclosure filing fees. S.B. 16, 97th Gen. Assemb., Reg. Sess. (Ill. 2012). The Illinois act, which becomes operative on June 1, 2013, allows mortgagees to request an expedited foreclosure judgment and sale for abandoned properties when the mortgagee files a foreclosure complaint or anytime thereafter. Courts must promptly conduct hearings on such requests, and if a court deems the property to be “abandoned,” the case is to proceed immediately to trial on the issue of foreclosure.
The Illinois act protects homeowners by allowing them to contest an abandonment decision at any time before a foreclosure sale. If a homeowner or an occupant appears before the expedited foreclosure sale and shows that the property is occupied, a court must vacate the expedited foreclosure order.
The Illinois act also requires plaintiffs that file large numbers of foreclosure complaints to pay higher filing fees. Plaintiffs that file more than 175 foreclosure actions per year must pay an additional $500 fee for every foreclosure filing, those that file 50 to 174 actions must pay an additional $250 per filing, and those that file fewer than 50 must pay an additional $50 per filing. These fees will be used to fund the newly created Abandoned Residential Property Municipality Relief Fund, which will help municipalities maintain and secure vacant and abandoned homes, and the Foreclosure Prevention Program Fund, which will provide assistance and counseling to struggling homeowners. Lawmakers have issued no predictions about whether the act will reduce foreclosure timelines, but they expect the new additional foreclosure filing fees to generate more than $120 million over the next three years.
Florida: Expedited foreclosure and protections for homeowners. The Florida legislature is considering an expedited foreclosure bill this session. H.B. 87, 2013 Reg. Sess. (Fla. 2013). Florida is a judicial foreclosure state, but existing Florida law provides for expedited judicial foreclosure proceedings in uncontested cases or cases in which the homeowner has no valid defense. Under existing law, a mortgagee may request an expedited procedure by filing an order to show cause. Fla. Stat. § 702.10. The court must immediately review such a filing and conduct a hearing. If the defendant fails to appear or presents no valid defenses, the court must enter a final foreclosure judgment.
The Florida bill would amend the existing expedited procedure to allow any lienholder, not just the mortgagee, to file an order to show cause requesting an expedited foreclosure. It would also reduce the number of hearings required from two to one by allowing a court conducting an expedited proceeding to address not only the issue of foreclosure but also the issues of eviction and of further payments on the mortgage during the foreclosure. Finally, for traditional foreclosure proceedings, the Florida bill would allow any party to request a case management conference to expedite the lawsuit.
The Florida bill would also benefit homeowners. To prevent fraud in the foreclosure proceeding, the bill would require banks to produce the note and mortgage before filing for foreclosure. If the note or mortgage is lost, the plaintiff would have to present an affidavit detailing a clear chain of assignment and showing that the plaintiff is entitled to enforce the note. As to banks’ ability to seek monetary damages after a foreclosure, the bill would reduce the amount of time banks have to file for deficiency judgments from five years to one year.
This is the fourth consecutive session in which an expedited foreclosure bill such as this has been up for legislative debate in Florida. The first three bills faced opposition from activists who claimed that the bills provided inadequate protections for homeowners. The pending bill, which faces similar opposition, passed the Florida House Civil Justice Subcommittee and Justice Appropriations Committee on February 7, 2013, and is now before the Florida House Judiciary Committee. Both Democrats and Republicans are optimistic that the bill will pass this year.
Will These Laws Work?
It is questionable whether these pieces of legislation will materially affect foreclosure backlogs. The impact of these laws is likely to be limited because it applies to only a subset of foreclosure cases—namely, vacant properties or uncontested cases. Vacancies are sometimes associated with foreclosure but represent a minority of the total loans in default or foreclosure. Homes may become vacant during foreclosures because homeowners, confused about their right to remain in the home, leave their homes during prolonged foreclosure processes. No precise data exist regarding the number of foreclosure cases involving vacant homes in any of these states, but estimates suggest that about 10 to 20 percent of the properties are vacant when foreclosure cases are initiated and about 40 to 50 percent are vacant at the date of the foreclosure sale. U.S. Gov’t Accountability Office, GAO-12-34, Vacant Properties: Growing Number Increases Communities’ Costs and Challenges(Nov. 2011). In addition, homes that have been completely foreclosed typically become vacant prior to resale, but the new legislation has no impact on foreclosures for these vacancies.
Thus, it seems that the New Jersey and Illinois acts and the law under consideration in Florida will affect a small percentage of foreclosures. The New Jersey act would allow expedited foreclosures for only the 10 to 20 percent of homes that are vacant before the foreclosure case begins, while the Illinois act would allow expedited foreclosures for the 40 to 50 percent of homes that become vacant at any time during the foreclosure process. It is unclear how many cases would be affected by the Florida bill, which broadens the types of plaintiffs that can seek expedited foreclosures. If these laws affect only a small number of cases, they likely will have no effect on average foreclosure timelines. As a result, it appears unlikely the laws will clear foreclosure backlogs, and legislatures may soon have to search for another fix.
Keywords: real estate litigation, New Jersey S2156, Illinois S.B. 16, Florida House Bill 87, vacant properties, eviction, lease-hold tenant, mortgagee, mortgagor, summary foreclosure