In the years since South Floridas housing market began its historic crash, a debilitating ripple effect has spread to many of the regions institutions, sparking a number of satellite problems, ranging from fabricated foreclosure documents to faulty mortgage note transfers.
Major lenders, local governments and county courts have spent the last three years trying to deal with the fallout from the housing crisis. Each institution quickly found out it was unprepared and undermanned to handle the crisis, and most have been trying to play catchup ever since.
I dont think they realized how long it was going to extend and how deep it was going to go, said Shari Olefson, a Fort Lauderdale lawyer and author of Foreclosure Nation. People made mistakes rushing into the crisis, but I think people are making the same mistakes trying to rush out of it.
Banks losing track of mortgage notes and foreclosure law firms fabricating documents are perfect examples of those mistakes, she said.
As institutions have struggled to adjust to the housing downturn, distressed homeowners have borne the brunt of the crisis, falling prey to long wait times, lost documents and, in some cases, fraud.
The long-term impact of these institutional log-jams remains to be seen, but housing analysts say the robo-signing scandal, modification mix-ups and growing foreclosure case backlogs are likely to extend the housing downturn for years to come.
The foreclosure process now takes nearly two years to run its course in Florida, meaning the local court system will be dealing with this crisis long after the default rate returns to normal.
And major banks have spent much of the past three months retooling their foreclosure processes under the watchful eye of 50 attorneys general that have launched an investigation of lender malpractice in foreclosure cases. The investigation may result in some kind of settlement, forcing the banks to significantly reform their practices.
When the housing and lending markets will return to a pre-boom normalcy or if they ever will is anyones guess.
By the time the housing crisis hit full swing in 2008, the nations largest banks were struggling just to remain solvent as the financial system was on the brink of collapse.
Given a shot in the arm by a taxpayer bailout of $700 billion, banks quickly focused their efforts on facing the worst mortgage meltdown in recent memory, hiring scores of mortgage counselors, call center reps and loan specialists.
But the deluge of defaulting loans overwhelmed most lenders, and the complaints of several distressed homeowners paint a picture of a chaotic banking system prone to losing documents, spreading misinformation and foreclosing under questionable circumstances.
Patricia Taime, of West Broward County, said she spent 18 months trying to get a mortgage modification from Wells Fargo after her income decreased due to an illness.
I sent them my information at least 10 times, said Taime, who was eventually denied and is now facing foreclosure. They lost the papers. Each time they said they couldnt find any of the documents. Its a facade.
A Wells Fargo spokesman said that while the banking industry was not initially prepared to deal with the deluge of modification requests, the lender had become much more organized in the last year.
Bank of America, which services more distressed loans in Florida than any other lender, hired 10,000 new employees nationwide last year to assist homeowners like Taime, but it still faces an uphill battle in the Sunshine State. About 20 percent of the banking giants non-performing mortgage loans are in Florida.
The probability that those loans might be modified into more affordable packages for borrowers is low. Bank of Americas success rate in the federal governments Home Affordable Modification Program, or HAMP, is 28 percent, third worst among HAMP participants.
HAMP, and other foreclosure prevention efforts, have fallen short of expectations, as lenders have struggled to keep up with the demand for mortgage modifications.
Testifying before the U.S. Senate Banking Committee in November, Bank of America home loan chief Barbara DeSoer said the banking system was never designed to handle the current wave of defaulting mortgages.
These are not normal times, and the traditional solutions of the refinance of debt, or the sale of a home at sufficient value to repay the debt, do not exist for many, she said. [Economic conditions] have dramatically increased the volume of modifications and foreclosures, severely straining industry systems and resources designed around much lower volumes of activity.
The final stage of the default process has been particularly chaotic, as banks have ramped up their home repossession machines to record-high levels recently. A faster-moving foreclosure court system made that possible, as retired judges came aboard to help deal with the slow pace of cases.
Florida, which is one of 23 states where foreclosures must first be approved in court, has specific rules that govern foreclosure legal proceedings, and recent reports, testimony and court records show that many of those rules have been breached regularly by banks and their affiliates.
Thousands of homeowners have been caught in the middle, as banks have admitted to regularly foreclosing on people who were in line for a mortgage modification.
It did not take long for the effects of the housing collapse to spill over to the judicial system, flooding local courts with four times the normal number of foreclosure cases.
South Floridas courthouses have amassed a backlog of more than 100,000 pending foreclosure cases, and hundreds of fresh filings are coming each week.
Jorge J. Perez, a former Miami-Dade County judge, said the crisis hit the courts without warning, overwhelming an already understaffed judiciary.
The sudden rush of foreclosures came as a total shock to court systems all over the country, he said. [Floridas] state court system prior to this crisis was already stretched thin each judge had thousands of cases on their docket. And then this tsunami of new cases hit.
As civil judges caseloads have quadrupled over the past three years, local chief judges have pitched a number of different remedies, launching a mandatory foreclosure mediation program and creating a separate division for handling foreclosure cases.
Hoping to stem the rash of defaults, lawmakers and judges have joined forces to speed along the foreclosure process, but the methods for doing this have recently come into question.
The Florida Legislature gave circuit courts a $9.6 million grant last year with a goal of cutting the backlog by 62 percent within a year but critics say it has created a rocket docket that favors lenders and neglects homeowners rights.
We have Bank of America, Wells Fargo, Citibank and Chase openly admitting to what theyre trying to say are irregularities but are actually fraud upon the courts, said Lisa Epstein, a housing activist who regularly attends foreclosure hearings in South Florida. Our court system responds by ramping this up and pushing [cases] through.
In September, banks began halting their foreclosure operations to review hundreds of thousands of legal documents for errors and inconsistencies. Most lenders restarted their foreclosures shortly after the moratorium, but banks continue to face allegations of fraud from local defense lawyers and lawmakers on Capitol Hill.
After distressed homes slog their way through foreclosure court, they usually land at the office of the county clerk, who handles the public auction process.
As foreclosures skyrocketed, that process became clogged by the sheer volume of cases coming in 7,000 per month in Miami-Dade alone in early 2010. Boxes of old case files piled up at the county clerks offices, and cases spent months waiting to go to auction at the county courthouse.
With more than 110,000 pending auctions and a closeout rate of about 400 auctions per week, the crisis outgrew the capability of the courthouse, said Miami-Dade County Clerk Harvey Ruvin.
Last January, Miami-Dade and Broward counties moved their auction system from the courthouse to the Internet, more than quadrupling the number of cases they could handle per week.
Going online with the foreclosures was an important piece in terms of helping to move things through the process so that we could help globalize the distressed market in South Florida, Ruvin said.
The backlog has been cut nearly in half, Ruvin said, but it still remains far above traditional levels.
In the meantime, the length of time it took for banks to close a foreclosure case has grown steadily to its current average of 16 months nationwide and 20 months in Florida, according to Lender Processing Services.
In South Florida, where nearly half of all homeowners owe more on their homes than they are worth, 20 months of rent-free living adds an incentive for borrowers to voluntarily stop paying their mortgages.
The impact is felt by non-distressed homeowners as well, since growing numbers of foreclosures in the neighborhood drag down home values. Sellers of non-distressed homes found that buyers preferred to buy foreclosures or homes worth less than their mortgage amounts in 2010, when about 50 percent of South Florida sales involved distressed properties. To compete, sellers have had to slash prices significantly, steepening South Floridas historic decline in home values.
The housing collapse pulled the rug from under a number of other organizations, and many of them are only now beginning to regain their footing.
Declines in home values sparked a record-setting spike in property tax appeals for county value adjustment boards. Homeowners filed more than 140,000 property assessment appeals in Miami-Dade County and another 34,000 in Broward for the 2009 tax year. Huge backlogs piled up for the value adjustment boards, and the average wait time for a homeowner to get an appeal hearing has grown to about two years in Miami-Dade. Last years appeals likely wont be heard until late this year, county officials said. Before the housing boom and crash, value adjustment boards were staffed for only a modest number of appeals petitions averaged less than 20,000 per year between 2001 and 2005.
The housing downturn has also created a boom in traffic at local housing help centers and foreclosure prevention events. As national home preservation tours put on by nonprofits and banks make stops in South Florida, homeowners in Broward and Miami-Dade have showed up by the thousands, often overwhelming the event staff.
George Meller, one of about 2,000 people at a foreclosure prevention event in Miami recently, said he had to wait in line for two hours, and left more frustrated than he when arrived.
There was utter chaos and not enough seating to accommodate the presorted crowds, Meller, of Miami, said in an e-mail. There were various speakers blaring incomprehensible commentaries in English and in Spanish and large video screens with rapidly changing information in either language.
Law enforcement officials responsible for prosecuting mortgage fraud are also struggling to keep up with the demand. During the housing crisis, theyve received thousands of mortgage-fraud related complaints, but they have only been able pursue a small portion of them.
Resources available for civil and criminal prosecution of mortgage fraud on the state level are, unfortunately, very limited, said R. Scott Palmer, chief of the attorney generals mortgage fraud task force. The task force was created in 2007 to stem the growing problem of illegal mortgage activity in Florida.
The housing collapse has produced a new breed of mortgage fraudsters, Palmer said, with dishonest companies targeting distressed homeowners with foreclosure rescue scams. Because of staff shortages, only the most serious cases can be prosecuted.
Olefson, who called the housing collapse an expensive education for lenders, governments and the courts, said the social impact is likely to last much longer than any economic outcomes.
There will always be more foreclosures now than there ever were in the past, she said. The banks need to account for that in their reserves, and the court systems need to account for that in their staffing; and the local governments need to account for that in their policies.