Good News and Bad News for Foreclosing Lenders

This week brought good news and bad news for bank clients of Real Estate Asset Disposition Corp, Florida’s largest broker of Bank Owned Properties. Actually, the news is mixed for any lender foreclosing on a defaulted mortgage in Florida.

SB 1196 passed in the State Senate and is on its way to the Florida House for a final vote. The Bill has, among other provisions, a requirement that institutions taking title via foreclosure pay delinquent condo fees for 12 months prior to the date of foreclosure. Currently, condo associations can collect just 6 months or 1% of the mortgage balance while Homeowner Associations can collect 12 months. This is part of a growing public and political sentiment that banks are bad and “we” should stick it to them at every chance. What many fail to realize is that as lien holders, condo associations have the option to foreclose on unit owners not paying monthly or quarterly assessments but often rely on the lender to do the dirty work.

As a former bank employee and current service provider to more than 45 financial institutions, I know firsthand that the idea that all banks are bad and should be punished via new laws and regulation (like SB 1196) is flawed and short sighted. In the simplest of terms, higher costs put upon the lenders, result in greater losses on the bad loans and this will lead to lower availability and higher costs loans for future borrowers.

Okay, I promised good news as well. Part of Florida’s 2010-2011 budget that was passed on April 30th provides for $6 million to hire additional judges and $3.6 for County Clerk’s offices to address the estimated backlog of 500,000 to 550,000 pending foreclosure cases. This is a good thing for those who seek more efficient foreclosure case processing. Florida foreclosure cases can now take more than 14 months to complete up from an average of just 6 months in 2006.

One of the most common delays in my REO business pertains to Certificates of Title not being recorded in a timely manner by the Clerk of the Court in most Florida Counties combined with a lack of follow up from the foreclosing law firms to ensure that the court has everything it needs to complete the process.

Traditionally, the foreclosure deed AKA Certificate of Title (CT) would be recorded within 10 days after the foreclosure sale was held. Delays in the recording now run in months, not days or weeks. As a result, lenders are unable to resell bank owned property until title properly vests in their name. And again, the more costs that are put upon the lenders (in the form of timeline delays in this case), the greater the losses on the bad loans will be and this will result in lower availability of loans and higher costs for future borrowers. Yes, there is a recurring theme.

Jim Banford