Foreclosure volumes are near pre-crisis levels in many parts of the country seven years after the housing crisis, and the landscape is still constantly evolving. New and revised regulations coming from Capitol Hill are keeping mortgage lenders, servicers, and attorneys on their toes as far as compliance. How easy or difficult has it been to adjust?
Participants in the Foreclosure Lab at the 2015 Five Star Conference and Expo in Dallas on Thursday weighed in on this question and other topics such as the foreclosure statute of limitations and how to maintain a pipeline while the housing market is largely recovered and foreclosure inventory is way down from its levels of five and six years ago.
"In our industry, there is only so much that we can control," said Daniel Chilton, managing attorney with Citi. "I believe that it's cyclical, and I believe that as defaults go back up, a key indicator will be as interest rates rise, people will no longer be able to afford refinances or loan modifications. Therefore, the alternative is foreclosure. Originations are still being made, maybe not at the level at which they were five or six years ago, but they're still out there. This is a cyclical time for the foreclosure industry and it will increase as it lags a couple of years behind interest rates rising."
Merging with another law firm was presented as an option for business growth or stabilization; however, Chilton said, merging or acquiring another law firm is a difficult choice that requires significant up-front costs and due diligence, and both firms could fail if the process is not executed correctly. A more attractive alternative would be organic growth, he said.
"But we're talking about organic growth in an industry where we're not seeing growth," Chilton said. "It's stagnant. Default rates are at a historic low and they continue to be at a low. Any law firm that is considering growing their business, it can be done, but it has to have the right processes in place and the right leadership in place. Ultimately, it comes down to the right leadership."
One of the significant issues that has arisen in the foreclosure space in the last year or two is the statute of limitations, which is five years in some states and six years in others. In one case in particular in New Jersey (Washington v. Specialized Loan Servicing), a judge awarded a borrower a "free house" in February 2015 because the bank had failed to complete the foreclosure process within the six-year statute of limitations.
"Anything that happens in the courts, we're ready for what that start date would be for that five years."
While five or six years might seem like a long time to complete a foreclosure—many estimates put the average completion time for a foreclosure to be completed in a judicial state at longer than a year—that law did not take into account several factors such as a foreclosure crisis, loss mitigation, law firms closing, or a backlog in the court system, according to Andrea Tromberg, Managing Partner, Gladstone Law Group, P.A.
"There were issues in one county where all these orders went out to the wrong addresses at one point and a lot of cases were dismissed," said Tromberg, who practices in Florida. "We all had to file motions to vacate those dismissals and some were denied. There are all kinds of things that we didn't anticipate, and the clock is ticking."
In order to ensure that foreclosure cases are completed before the statute of limitations expires, Tromberg said her firm has improved its tracking system within its case management system to include the default date (when the clock begins ticking for the statute of limitations) and tracking the company file date.
"Anything that happens in the courts, we're ready for what that start date would be for that five years," she said. "We've also done a lot more education and a lot more conversation with our clients, not just looking at it and saying, 'Has it been five years?' but looking at what happened in that time. Was there a modification? Were there payments made? Were there any bankruptcies? What happened during that time that we could use as an argument to toll the statute of limitations? We are successful in a lot of cases when we dig in and find things."