The backlog that keeps the average property in the state New York in foreclosure proceedings for more than four years isn’t going away anytime soon. In fact, the foreclosure logjam isn’t expected to dissipate until at least 2016, according to a new report from Moody’s Investors Service on foreclosures for loans in private-label residential mortgage-backed securitizations.
Due to New York’s judicial foreclosure process, a private-label RMBS loan in New York currently spends an average of 1,498 days in foreclosure proceedings before exiting. That’s up from 1,339 days as of 2013’s fourth quarter.
The number has continually grown since the fourth quarter of 2006, when properties were in foreclosure proceedings for an average of 271 days.
And while the number of loans in foreclosure fell from 40,693 to 38,213 in the second quarter of 2014, the figure is still above the foreclosure total at the end of 2009, when 36,844 properties were in foreclosure.
“In New York, the recent private-label RMBS foreclosure backlog of 38,213 loans could be cleared in approximately 5.7 years using the last 12 months’ average exit rate of 1,684 loans and in approximately 2.4 years using the 2008-10 average rate of 4,059 loans,” Moody’s said in its report.
New York’s foreclosure backlog is currently the second highest in the U.S., behind only Florida. Moody’s said that the backlog is due to three factors that lengthen the foreclosure process. Those factors are:
1. New York law requires mandatory settlement conferences (mediation) for all foreclosures. This process can often take more than a year. Foreclosure cannot move forward until the completion of the conferences, and courts will frequently grant long adjournments
2. Two judgments are necessary to complete the foreclosure, one on the order of reference or motion for summary judgment and one on the final judgment of foreclosure. Other states, including New Jersey, require only one judgment
3. Use of referees is necessary for several steps of the foreclosure process, which often causes long delays.
Just behind New York in ranking of states with the highest exposure to 60-plus days delinquent loans is New Jersey.
“New York and New Jersey together account for more than 20% of all loans in private-label RMBS that are more than 60 days delinquent, and the foreclosure timelines in the two states (which currently are five times as long as they were before the financial crisis) are the longest in the U.S. after Florida,” Moody’s said.
“The prognosis for New Jersey is better than for New York, however, because New Jersey’s lengthy foreclosure timelines are mainly the result of legacy issues.”
A private-label RMBS loan in New Jersey currently spends an average of 1,322 days in foreclosure proceedings before exiting, up from 1,080 days in 4Q13.
Like New York, the number has continually grown since the fourth quarter of 2006, when properties were in foreclosure proceedings for an average of 265 days.
The number of loans in foreclosure also fell in 2Q14, from 26,526 to 25,792. The current total is just below the foreclosure total at the end of 2009, when 26,901 properties were in foreclosure.
Moody’s suggests that the prognosis is better for New Jersey than New York, due to New York’s complicated legal process.
“Once the backlogs clear, we expect that New Jersey’s average foreclosure timelines will be shorter than New York’s because New Jersey’s normal foreclosure process is more streamlined,” Moody’s said.
“In addition, whereas uncontested New Jersey foreclosures are concentrated in a single office, New York foreclosures are spread throughout the court system and backlog resolution depends on the particular county and the particular judge.”
Moody’s posits that the REO liquidation timeline will reduce during the next several years because of improvements in the economy, which should help to ease the foreclosure crunch.
In New Jersey, the liquidation timeline for an REO property has dropped to 69 days from a peak of 175 days in September 2011. In New York, even though liquidation timelines extended in the second quarter of 2014, they have still narrowed to 114 days from 173 days at their peak.
But Moody’s cautions that “the improvements will not be enough to offset the lengthy foreclosure timelines and resulting high foreclosure costs that will reduce the recovery values on the loans when the properties are eventually sold.”