In 2013, the Florida Legislature passed House Bill 877, more commonly known as, The Speedy Foreclosure Law. Now, one year later we analyze whether the law is working. While many believe the real estate market has fully recovered, and the foreclosure epidemic is behind us, that may not be the case. Florida still ranks the highest in number of pre-foreclosure short sales, and foreclosure, according to several reports.
It is true that overall the number of foreclosures and short sales continues to decrease. The decrease in those numbers can be attributed to the increase in the real estate market. Basic economics tells us that as demand increases supply decreases and prices go up. The same is true in Tampa Bay’s housing market. Late 2012 and early 2013 saw a surge of cash investor purchases that led to diminished supply of housing in the area. In turn, the average price for single family homes increased. As prices increased, more homeowners began to see equity in their homes leading to fewer foreclosures and fewer short sales.
Secondary factors have also led to a decrease in short sales and foreclosures including the expiration of the Mortgage Debt Relief Act (MDRA). The MDRA was legislation passed in 2007 that exempted forgiven debt from taxation. Accordingly, homeowners who went through foreclosures or short sales were relieved from any tax liability associated with the waiver of debt. However, now that MDRA has sunsetted, any waiver of debt from short sale or foreclosure is now taxed as income to the Borrower. The result is a chilling effect on the number of short sales nationwide.
While advocates of the speedy foreclosure bill will use the decreased foreclosure figures to tout the effectiveness of the legislation, proponents do not address the staggering numbers of homes that remain in some form of pre-foreclosure or are stagnant within the court system. House Bill 87 requires that banks submit certain paperwork to the court in conjunction with filing the foreclosure complaint. However, because lenders have historically struggled to maintain all paperwork associated with the notes and mortgages they seek to foreclose, many times the lender cannot effectively file a foreclosure without the requisite paperwork. The end result is that many homes, where the borrower is in default, fail to register on foreclosure tracking software, even though the mortgage is not current and the home is in a pre-foreclosure state.
A secondary issue in the foreclosure crisis is the large number of cases that have stagnated at some stage of foreclosure within the court system. Many times, the lender will quickly obtain a judgment of foreclosure, but then cancel the sale date prior to title transferring. In most instances, the foreclosed borrower believes they are finished with the foreclosure process and no longer associated with the property. However, their belief is incorrect. The borrower remains responsible for all issues pertaining to the home until title transfers. This loophole invites all sorts of potential liability headaches for the borrower and generally means that the property will continue to fall into further disrepair having a direct impact on the neighborhoods in which the home sits. This phenomenon has come to be known as either zombie foreclosures, or zombie title.
All of this begs the question as to whether The Speedy Foreclosure Bill is a total failure. The only real aspect of House Bill 87 that appears to be working is judicial action. Without doubt, it seems that foreclosure judges took the Legislatures action as a directive to move foreclosures through the system. In turn, many stagnant cases are now being pushed toward trial by the court itself, rather than the parties to the suit. While this may appear to clear some of the backlog, it does have the potential to push the lenders to trial before obtaining all required paperwork. The end result is that while a foreclosure judgment may be entered, the sale will likely be cancelled and title never ends up transferring. Accordingly, we are pushed right back into the issue of zombie foreclosures and zombie title.
The decrease in foreclosures appears to have more to do with the rebounding economy and housing market than with any one piece of legislation. Moreover, it seems that the negative impacts of the speedy foreclosure bill may outweigh any positives. If the law is creating more zombie issues, then the law is certainly negatively impacting both already distressed borrowers and neighborhoods.
If you are a borrower affected by foreclosure or zombie title issues, call the DeWitt Law Firm today to discuss your options. The consultation is free, and with our assistance you may find that you can put your foreclosure behind you, once and for all.