Some foreclosures were postponed due the pandemic, but for some homeowners, COVID-19 forced them into foreclosure. In either case, a courthouse backlog is likely starting Aug. 1, though most at-risk homes will be listed for sale before any foreclosure can be finalized.
MIAMI – Time is running out for thousands of South Florida families who are facing foreclosure on their homes as a result of the COVID-19 pandemic.
For some, the nightmare started more than a year ago but was stalled by the willingness of government officials to prevent banks from forcing people out during an unprecedented public health crisis. The Trump administration and most states stopped foreclosure and eviction proceedings on federally backed loans back in April 2020, setting expiration dates for their protection that have repeatedly been extended as the COVID crisis continued.
For others, the pandemic kept the foreclosure process from legally beginning – the moratorium on foreclosures kept banks from initiating the lawsuits in the first place, giving homeowners time to catch up or work things out with their lenders.
Now the moratorium, which applies to federally backed, single-family homes, is set to expire at the end of this month. It was scheduled to expire June 30 before the Biden administration stepped in and extended it one last time.
Three federal agencies back mortgages: the Departments of Housing and Urban Development, Veterans Affairs and Agriculture. In addition, the Federal Housing Finance Agency oversees the Fannie Mae and Freddie Mac lending programs. All have implemented the final moratorium that expires July 31.
Some experts are warning about a deluge of pent-up foreclosure cases they believe will flood the courts and possibly depress the local real estate market.
“Courts are going to be swamped,” said Margery Golant, a Broward-based mortgage lawyer who’s been studying the trends. “I believe we’re looking at the probability of overwhelmed courthouses.”
Laura Wagner, executive director of Floridians For Honest Lending, agreed.
“Property values have gone up, and that gives banks a big incentive to file foreclosures,” said Wagner, whose Miami-based nonprofit pushes for laws to protect homeowners from shady lending practices like those exposed during the last foreclosure crisis 13 years ago. “What happens in an environment like that, the courts get inundated, which leads to pressure to clear those cases.”
In that environment, troubled homeowners can get lost in the process.
In the 2008 crisis that crippled the economy, the number of cases led to what became known as “rocket-dockets,” a tendency in courts to focus on clearing cases. Homeowners did not benefit, Wagner said, as it was easier to give banks what they wanted than to give homeowners what they needed.
Since then, reforms were passed to make sure predatory lending practices were barred and homeowner rights were protected. If a post-COVID crisis does materialize, the efficacy of those reforms will be put to the test.
In Broward County, 2,110 foreclosure cases are listed as pending. Those are cases where the banks have filed suit to take possession of the property. They are usually resolved by auction, short sale or, in cases where the owner can work out an arrangement with the lender, a loan modification. Rocket-dockets discourage arrangements that benefit the borrower, especially when home prices are up and banks can get more from new customers than old ones.
The pandemic moratorium stalled many pending cases as well: Palm Beach County saw 1,829 foreclosure homes sold at auction in 2020. This year, that figure dropped to 1,589. The decline was more pronounced in Broward, from 2,184 last year to just 1,458 this year.
But the number of pending cases foretells only part of what Wagner called a looming crisis.
Hiding behind the statistics are thousands of cases that have not been filed because of the pandemic and the moratorium. So far in 2021, just 468 new foreclosures have been filed in Broward. At this point last year, there were 1,365 filings. In 2019, with no pandemic to stop the banks, there were 3,692. The figures were similar in Miami-Dade County – 650 cases were filed by the end of May 2021, compared to more than 2,500 in 2019. The figures were not available for Palm Beach County.
The implications are stark, Golant said. Thousands of delinquent homeowners could see cases filed starting Aug. 1, the day after the moratorium expires.
Thousands of additional homes on the market could drive down prices and property values, which could be seen as good news for homebuyers.
Even beyond that, the outlook is not entirely gloomy.
The federal agencies and programs are continuing to allow homeowners who have not taken advantage of “forbearance” measures (temporary assistance, such as extensions, to get back on track) to enter into COVID-related forbearance through September 30, 2021. Troubled homeowners need to contact their lenders to apply.
Through the Consumer Financial Protection Bureau, the federal government is requiring mortgage service companies to work with borrowers to help them stay in their homes. That could partly offset the banks’ incentive to foreclose or push for options that result in displacing homeowners, Golant said.
“If you have a government-backed loan and are facing foreclosure, this could be a very good time to get a modification,” she said. “Federal programs make it almost mandatory.”