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Manatee foreclosure crisis could worsen

MANATEE --A Manatee County Circuit judge who issued a foreclosure judgment after he had disqualified himself from the case.

A bank that marketed and signed a contact to sell a foreclosed house near Palmetto even though it did not have the title.

More than 50 Bradenton condominium units put up for sale at a foreclosure auction when they shouldn’t have been.

Bank lawyers who did not file mandatory paperwork required to initiate mediation with Manatee homeowners.

Those and countless other incidents throughout 2010 reveal a local legal system that remains overwhelmed by a flood of foreclosures, four years after the crisis began, observers say.

“They’re still struggling,” said Michael Belle, a Sarasota attorney who reviews local foreclosure documents as part of a court-sponsored program.

And the situation is about to get worse, he and others say.

They’re predicting another surge in foreclosure lawsuits, this time driven by banks re-filing cases to replace those that have been dropped or dismissed because of questionable or sloppy paperwork. They also expect a similar spike in lawsuits seeking to determine true ownership of homes that already have been foreclosed.

And a recent ruling in a New Jersey case could prompt more homeowners to fight foreclosure attempts, thus prolonging those cases.

Despite the dire predictions, there has been no sweeping effort to address the foreclosure crisis, observers say.

“There’s nothing in the pipeline, no discussion going on that provides a real way to solve or slow down the crisis,” said Matthew Weidner, a St. Petersburg foreclosure attorney and blogger. “Rather than do a proper post-mortem of the problem, we just throw money at it.”

Manatee cases build since ’06

Manatee’s foreclosures crisis began in December 2006, when 114 foreclosure suits were filed -- a 16 percent increase over the previous month. Filings continued to surge, peaking at 608 in March 2009 before gradually tapering off but remaining at elevated levels, court records show.

The surge contributed to a statewide backlog that reached in excess of 500,000 cases, according to the Florida State Courts Administrator’s office.

The flood has abated somewhat in recent months. In November, 116 foreclosure cases were filed in Manatee -- the lowest monthly figure since the crisis began.

But that was fallout from “robo-signers” and other controversies over the foreclosure practices and paperwork of banks and their lawyers, observers warn.

Belle has found numerous errors in his review of court filings in the 12th Judicial Circuit. Among them: blank and incomplete affidavits, documents missing required signatures and notarized papers dated before the notary public received his or her commission.

A Bradenton Herald review of Manatee foreclosure cases also found another document issue: Lawyers from one high-volume foreclosure law firm did not immediately comply with provisions of Florida’s new mandatory mediation program.

While most lawyers immediately complied with the requirement in Manatee, those with one firm did not: The Law Offices of David J. Stern, based in Plantation.

The program requires all new foreclosure cases against homesteaded properties to be referred to managed mediation unless both sides agree not to do it. As part of the program, bank lawyers are required to file a form certifying whether or not the case is subject to the mediation requirement.

The form is crucial because it is sent to the mediation program manager, which uses it to notify the homeowner about the mediation option.

“Without it, we wouldn’t know about the case at all,” said Chris Bailey of the Collins Center for Public Policy, which administers the 12th circuit’s mediation program.

Stern attorneys did not include the form with the first dozen foreclosure suits they filed in Manatee after the program took effect on June 21. It wasn’t until July 7 -- more than two weeks later -- that a Stern attorney filed the form in conjunction with the lawsuit, according to court records.

In three of those first cases, judges ordered Stern in October to either produce the form or risk having the suit dismissed. The firm produced the forms.

In two other cases, homeowners asked the court to send the case to mediation. Dockets in the other cases make no reference to the missing form.

A spokesman for the law firm did not return telephone calls seeking comment last week.

12th Judicial Circuit Chief Judge Lee Haworth said court officials “gave out ample notice in big, bold letters. We’re still mystified why it didn’t filter down to the people doing the work.”

Problems in Manatee courts

The Herald also has uncovered other court paperwork problems in other Manatee cases.

Among them:

n On July 8, a circuit judge issued a foreclosure judgment against a Fountain Lake condominium unit in Bradenton. The signature is illegible, but Circuit Judge Ed Nicholas’ name is printed beneath the signature line.

Four days later, Circuit Judge Paul Logan issued an order vacating the judgment.

“Prior to this time, an order of disqualification was entered by Judge Paul Logan wherein he would be unable to hear any further motions in this case,” the order said. “The final judgment should not have been entered by Judge Logan and therefore it is ordered that the final judgment of foreclosure entered July 8, 2010 is vacated.”

The signature on the order is nearly identical to the one on the judgment, but Logan’s name is printed on the order.

Logan did not return a telephone message left at his office Friday. Haworth said it is not uncommon for judges to sign papers on another judge’s behalf, but it’s usually limited to setting hearing dates or other time-sensitive but non-judgment items.

n On July 6, more than 50 units in the River Dance condominium building at 808 Third Ave. W. were put up for auction to satisfy a $9.6 million foreclosure judgment. The bank won the auction by default after no one else bid on the units.

Problem was, a judge had previously canceled the sale at the bank’s request.

That information didn’t reach the company that conducts the county’s online foreclosure auctions. Court officials, who blamed the mix-up on a time limit in their auction-scheduling software, quickly set aside the results.

The miscommunications extend beyond the courtroom, as well.

On Sept. 15, HSBC Bank listed a foreclosed three-bedroom, two-bath house on Sim Barco Road near Ellenton as being for sale. A client of local real estate agent Cindy Quinn saw the listing and made an offer the next day, which the bank accepted on Sept. 27.

But what Quinn and her client, who did not want her name used, did not know at the time was that the bank didn’t own the property.

Court records show that HSBC won a foreclosure judgment against the property, but asked that an Aug. 4 auction be canceled so the bank could determine whether the homeowner qualified for a mortgage modification. The auction was held anyway, but the results were set aside.

As a result, the pending sale to Quinn’s client fell through, angering both.

“It’s unfair to me because I spent so much time and energy on this,” Quinn said. “It’s like, ‘Sorry, you can’t buy it.’ It’s like a roll of the dice.”

No auction has been held since, and the bank has not taken title to the property. Despite that, a check of the Mid-Florida Multiple Listing Service last week showed the house listed as a bank-owned property.

Quinn said the new asking price is $5,000 less than what her client had agreed to pay.

New spate of foreclosures

Haworth says bank lawyers have begun asking courts to suspend cases so they can get paperwork in order, but that local judges remain unmoved.

“We’re not granting these stays because we can’t wait until they get their act together to move cases,” he said. “It’s their job to keep cases clean. Their problem is not our problem. We’re not going to capitulate to them and let them run our docket.”

But Belle says the paperwork problems likely will cause a new spate of foreclosure filings. Those will be re-filed cases as banks increasingly opt to start over rather than try to proceed with defective cases.

“I expect a new batch of foreclosures as soon as the banks get new representation,” said Douglas Egger, Realtor/broker of Manatee Real Estate Services. “After the first of the year, I think there’s going to be a big spike in new foreclosures.”

Haworth said another reason for that is attorneys who inherit potentially flawed cases likely will insist on re-filing to remove liability for previous lawyers’ mistakes.

“If I was the attorney coming in, I’d want to start fresh,” he said. “It’s easier to start anew then to clean up the mess.”

Another emerging issue -- whether investors who bought mortgages have the legal standing to foreclose -- also threatens to prolong the crisis.

Belle cited a recent New Jersey bankruptcy case. The court rejected a claim against a man’s house because the homeowner’s mortgage company did not include the promissory note when it sold the mortgage to the investor, according to National Mortgage Professional Magazine.

“That’s a major case,” Belle said. “That’s really the nuclear bomb on the defense side.”

He said the impact could be widespread, because 95 percent of mortgages issued during the 2004-08 housing boom were bundled and sold as securities.

The paperwork problems also could have long-term effects, resulting in properties with “blighted” or unclear titles, observers said.

“You’re going to have a lot of properties with title defects because of all of these bad foreclosures,” Belle said. “I predict a huge increase in quiet title actions.”

‘Can’t fathom a solution’

Numerous efforts, including mandatory mediation and federal mortgage-modification programs, have been launched in hopes of staunching foreclosures.

But, Weidner said, there’s been no concerted, effective effort to solve the crisis because it defies easy solutions and is merely a symptom of broader economic issues.

“The magnitude of the problem is so severe that no one can wrap their minds, their heads, their jurisdictions, their enforcement powers around it,” he said. “This is a problem of such profound magnitude that our best minds ... simply can’t fathom a solution.”

Shari Olefson, a Fort Lauderdale real estate attorney who wrote a book on foreclosures, said the changing causes and nature of the foreclosure crisis also make it difficult to resolve.

Experts at first thought it was limited to sub-prime loans issued to borrowers with marginal or no credit. Then came borrowers who could not afford resets of their adjustable-rate mortgages.

Those foreclosures hammered housing prices, which began falling and dragged housing values downward as well. That led to the Great Recession, higher unemployment and wage declines, spreading foreclosures to even those with good credit.

Olefson said “it’s still too soon” to attempt a comprehensive solution.

“As simple as it sounds to fix, it’s really complicated,” she said. There’s still too many things still in play.”

Duane Marsteller, Herald staff writer, can be reached at 745-7080, ext. 2630.

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