Jodi Watson raced to finish a short sale on her Lake Worth home before it could be sold to the highest bidder at the county’s foreclosure auction. With a buyer-signed contract and an initial blessing from her lender, the sale meant less credit damage, a release from unpaid mortgage debt and relief from years of loan modification let downs.
In the world of Florida foreclosures, her case had moved at lightning speed — 17 months from summons to judgment. As the Oct. 21 auction crept forward and with her short sale still wending through a notoriously slow process, Watson pleaded for an auction delay. Her bank agreed.
A Palm Beach County circuit court judge did not.
Five years into the Great Recession’s unrivaled real estate crash, the housing landscape in Florida is now shaped as much by the courts as homebuyers, Realtors and lenders.
Hundreds of thousands of foreclosures still crowd Florida’s dockets — 285,750 as of Sept. 30. The judiciary has been given money and marching orders to clear them.
It’s understandable judges are wary of canceling foreclosure sales — the final step in closing a case — after hearing for years that short sales and loan modifications were nearly done deals, only to have them delay the inevitable.
But attorneys, homeowners and Realtors complain the processing push is killing legitimate deals that are more likely to succeed today because of rising home prices and National Mortgage Settlement mandates. The 2012 settlement with the nation’s five largest lenders restricts foreclosures from moving forward if there is an active loan modification or short sale pending.
Watson’s home was bought at auction for $112,900, $37,000 less than what it would have sold for under terms of the short sale contract.
“I don’t understand why the system works the way it does,” said Watson, 43, who landed in foreclosure after her lender’s advice to stop making payments if she wanted a loan modification. “I don’t know real estate law and all that stuff. I just scratch my head because it doesn’t make sense.”
Last week, Palm Beach County foreclosure court, Circuit Judge Diana Lewis heard case after case of requests to cancel foreclosure auctions because short sales and loan modifications were underway. Lewis has a reputation of no-nonsense rulings and little patience for delays.
In August, Lewis sent Marlene Marrero’s West Palm Beach home to auction despite a bank plea that the sale be canceled because of short sale negotiations. Marrero stood before Lewis last week asking the auction be set aside so she could finish the short sale.
Lewis reluctantly agreed after Marrero’s Realtor promised she could get the deal done.
“The more time you give them, all they do is put it on the back burner,” Lewis said, responding to a different request for a delay because of a loan modification.
Palm Beach County Chief Judge Jeffrey Colbath said the courts have the difficult task of identifying legitimate short sale offers from those put forward just to delay a case.
It doesn’t help that recent history has shown banks aren’t nimble enough to respond quickly to deals, even when it is to their benefit, he said. But as the foreclosure phenomenon evolves and the economy improves, he said there are more workable short sales being proposed.
“We strongly prefer resolutions by agreement of the parties,” he said.
Palm Beach Gardens Realtor Raymond Strack doesn’t see it that way. In September, he got a signed short sale contract to sell a Royal Palm Beach home to Wall Street’s Blackstone Group, which buys in cash, rehabilitates and then leases the homes.
Strack’s client asked for his Oct. 15 auction to be delayed, attaching the sales contract and a bank statement showing a $35 million account balance to prove Blackstone could pay for the house. The request was denied and the home sold at auction for $142,215. The short sale contract was for $172,000.
A Jupiter home went to auction Sept. 10 as the homeowner, Janette Coffey, 60, and her lender worked on a loan modification to settle a judgment of just $36,692. Judges had granted two previous delays, but only for 30 days each. The third request, made by both the lender and Coffey, was denied.
Coffey’s home sold at auction to an investor for $81,900.
“I can see it from the judge’s viewpoint, but at the same time, there are instances where the bank wants a delay, the seller wants a delay and it just doesn’t get delayed,” said West Palm Beach real estate attorney Adam Seligman.
In Coffey’s case, and that of Strack’s client, the foreclosures were filed in 2009. But the banks took little to no action in all of 2010 and 2011. Both cases basically restarted in 2012.
Realtors and attorneys have written to state leaders about their concerns over the inability to get auction dates canceled. Watson’s attorney, Paul Krasker, and Hobe Sound foreclosure defense attorney Trent Steele, have both brought the issue up with Florida Attorney General Pam Bondi.
Debbie Smith, the owner of Home Run Real Estate west of Lake Worth, wrote an October letter to Gov. Rick Scott complaining about six recent short sale deals killed because judges refused to delay auctions.
“That’s six buyers that lost the home they planned on buying, six agents who lost income, six communities that lost at least 10 percent value, my company lost income, a title agent lost business and so many others,” Smith wrote.
In September, Bondi wrote the Chief Justice of the Florida Supreme Court and all circuit court chief judges asking them to be mindful of National Mortgage Settlement requirements. She stressed finding alternatives to foreclosure and avoiding dual-tracking — where a foreclosure continues at the same time a loan modification or short sale is being negotiated.
Krasker called the letter “unprecedented.”
“I acknowledge the courts need to be efficient, but there also needs to be balance,” he said.
Watson is still living in her Lake Worth home as her attorneys push for a case review. But she’s tired of fighting.
“At some point, you just want to put up your white flag and surrender,” Watson said. “It seems like such a game.”