Effects of Foreclosure Freeze in NYC Remain to Be Seen
Posted on 19. Oct, 2010 by Eleanor Miller in Uncategorized
On the heels of a new report that showed the New York City real estate market may finally be improving, revelations about improper handling of foreclosure proceedings across the country may prove a set back.
New York State Attorney General Andrew Cuomo announced last Tuesday that he was launching a probe into foreclosure practices by banks in New York State. On Wednesday, it was announced that all fifty state attorneys general were launching a probe into foreclosure procedures.
“The problem that has been discovered—or publicized, because I think people knew about it all along—is a very serious problem,” said Kirsten Keefe, a senior staff attorney with the Empire Justice Center who works on housing rights issues in New York State.
“I will not allow New Yorkers to lose their homes due to mortgage goliaths that buck the system by submitting affidavits signed without knowledge of the facts,” Cuomo said in a statement.
Keefe and other experts don’t necessarily think a moratorium is the answer, however.
Stopping all foreclosure proceedings clogs up the judicial processes necessary for both homeowners and banks to move on and will adversely affect those whose foreclosure cases are legitimate. Stalled foreclosure proceedings could also prevent new owners from taking over repossessed houses and leave former owners in a limbo.
Beyond foreclosure, properties could still be in trouble: some major title insurance companies, such as Old Republic National Title Insurance, have announced they will not insure homes foreclosed by certain major banks.
Josh Zinner, an attorney and co-director of the Neighborhood Economic Development Advocacy Project in Brooklyn, doesn’t think the moratorium itself will solve anything, but welcomes the increased scrutiny of banking practices.
“The only way it’s going to be righted is not by the lender refilling all of these foreclosures, but by them shifting the whole framework of this process and getting people into affordable loan modifications,” said Zinner. “It’s not good news. It’s a mess.”
Jack Mangra, a real estate agent working in eastern Queens, has been working on the front lines of the foreclosure crisis the past two years. Mangra says a hurdle he faces, ironically, is the slow pace of new loan approvals by banks for houses under threat of foreclosure.
“I had a house on the market for about two years,” Mangra recounted. Even though there had been several offers for the house, the bank that owned the mortgage counter-offered each time with a higher price and took several months to make a decision. Each time, the potential buyers couldn’t wait, and they backed out of the deal.
“Next thing we know, the bank foreclosed on the property,” said Mangra.
Mangra says he and other real estate colleagues aren’t sure exactly what banks are doing.
“You don’t have enough people to handle it,” said Mangra of the foreclosure system, who thinks a moratorium may be a good chance for banks to get their systems straightened out. “There are so many variables.”
Large numbers of foreclosures have hit hard in an economy already struggling to recover from the downturn of the last two years.
Figures from the Furman Center for Real Estate and Urban Policy show 7,487 lis pendens, or formal foreclosure proceedings notices filed in New York City alone in the first two quarters of 2010.
Just before the foreclosure moratorium was put in place, a report from ResidentialNYC.com showed the value of residential sales in the third quarter increased 26% compared to last year. Mangra, for example, says he’s seen an uptick in business in recent weeks.
Zinner and other experts believe the moratorium could have a negative impact on real estate in the U.S.—but not necessarily in New York City.
“New York City is kind of unique in that home prices are kind of stable anyway,” said Zinner. “In most of the country where there is sort of a ‘normal’ market this could have a real adverse effect on home prices.”
As a reflection of the problems in the financial industry, the moratorium may not be good news but some people say they welcome anything that provides a small respite from the breakneck pace of recent foreclosures.
“What a moratorium will do will allow everyone to step back and find a way out of this mess,” said Zinner.
“The way out is for the industry to step up and be pushed by regulators and pushed by this AG investigation to systematically do affordable loan restructuring.”
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