MFI-Miami and A Florida Client Are Featured In FCIR Article
Ralph De LaCruz, Florida Center For Investigative Journalism
There’s no doubt what the F-word has come to mean in Florida during the past three years. Foreclosures.
There are almost 40,000 properties now in foreclosure in the Sunshine State. Almost 30,000 more are in the short sale process, which means homeowners are underwater in their homes and are trying to sell them for less than they owe the bank. Another 56,000 are in preforeclosures — homeowners are behind on their mortgage payments and are at risk of foreclosure. These are the short sales and foreclosures of tomorrow.
And this is the best it’s been in four years.
Just two years ago, in 2009, the state had 516,711 foreclosure listings. That was almost 6 percent of the state’s entire housing stock.
Things became so bad — Lee County alone had a 25,000-case backlog — that the state hired back former judges to hear the backlog of cases. Funded by federal stimulus money, the courts became known as “rocket dockets.”
Using expedited procedures, the judges ripped through their dockets, sometimes at a 1,000-case-per-day clip. The only pertinent question was: Are you behind on your payments? Some cases were closed in seconds. So fast, homeowners’ lawyers complained, that shortcuts were being taken and their clients’ cases weren’t really being heard.
The American Civil Liberties Union filed a petition asking the courts to stop using the expedited measures. The ACLU also alleged that the courts were restricting access to the court proceedings, particularly for the press. The ACLU’s petition was denied, but when the funding for the so-called rocket dockets ran out in June, the cash-strapped state government did not re-fund.
But the overwhelming number of cases also created opportunity. The man defending the Bank of New York Mellon in the ACLU case was Fort Lauderdale lawyer David J. Stern. Stern’s office churned through tens of thousands of foreclosure cases. Again, speed and efficiency were the priority — at the expense of accuracy and truth, investigators found.
Investigators for the Florida Attorney General’s office would find that Stern’s office falsified, made up or didn’t file documents. He lost his big-name clients. Fannie Mae and Freddie Mac stopped working with him. And at the end of March, Stern got out of the foreclosure business. The effect was that 100,000 additional cases were dumped into an already-overwhelmed system, affecting homeowners, prospective buyers, neighborhoods and communities, regulators, courts and banks.
Using 2010 figures from the real estate data system RealtyTrac, the Florida Center for Investigative Reporting found the following three ZIP codes’ communities had the most foreclosures per square mile:
The Fort Myers exurb of Lehigh Acres, ranked third in foreclosure density;
Davenport, just west of Kissimmee, was second;
And high-rent, high-rise Brickell Key in downtown Miami, topped them all.
Three years ago, real estate agent Ned Berndt was writing on his Miami Condo Lifestyle blog about the opportunities that existed among Brickell Key’s 11 high-rise condo buildings.
“There are 11 buildings on Brickell Key, several have become great buying opportunities for the serious investor,” he wrote in September 2008. “These Miami Condo buildings are struggling, they have a very large percentage of their units for sale.”
Berndt went on to say: “If you are an investor, with cash and a long-time horizon for holding, now is the time to start buying. The banks are selling at record low prices and they will have more and more inventory as the short sales foreclose.”
These days, Berndt is considerably bullish about Brickell Key. In fact, he questions whether 33131 has a foreclosure rate worth noting. “We’re having our best year,” Berndt said. “The prices are right and foreign currencies are strong relative to the U.S. dollar.”
That last point is important because the ritzy digs on Brickell Key are prime targets for South American and European buyers as well as multinational companies.
“Most folks think of real estate as being linear,” Berndt said. “That is, if the market’s up, it’ll always be going up. If it’s down, it’ll always be down. They don’t think in terms of waves. The international investors get it.”
So things have significantly improved on Brickell Key. But it remains at the top of the density foreclosure rankings because of the number of units in a relatively small area.
In 2010 there were 6,287 residents in 33131, and 1,111 foreclosures in the half-square-mile area.
Stroll through Brickell Key these days and you’re likely to come across a lot of people like Ansgar Meier.
“I may not be the best person to speak with,” Meier said while on a morning jog on Brickell Key. “I’m not from here. I’m from Germany. And I rent.”
Actually, he’s a prototypical Brickell Key resident: renter and foreigner. And as with Davenport, that wide base of prospective renters and buyers — particularly from overseas — has given Brickell Key a measure of resiliency in a tough market. Brickell Key not only has those 11 condo buildings on the stunning, impeccably kept island in downtown Miami, but a huge, five-star hotel and two large office buildings.
To a large extent, Brickell Key’s rebound is also a reflection of Miami-Dade’s real estate fortunes in general.
According to records from the Miami-Dade clerk of the courts, there were 7,800 foreclosures in 2005. By 2008, that figure had skyrocketed to 57,000 for the year.
In 2009, there were 64,000 foreclosures. They averaged 6,000 per month for the first four months, including 7,000 in March alone. The rest of the year averaged 4,000-5,000 per month.
And then, things started to stabilize.
At the start of last year, the average was 4,000 per month. But in October, that rate halved and then dropped to 1,000 per month by the end of the year.
And it’s stayed about the same this year.
Of course, such figures can oversimplify things.
They don’t take into account how many properties are in preforeclosure. Or reveal the impact of the “rocket dockets” shutting down because of the state government’s fiscal condition. And they don’t yet reflect the David Stern effect.
“Everything in Florida has come to a complete standstill because of the David Stern mess,” said Steve Dibert. Part of a growing foreclosure industry, Dibert is a forensic auditor: He investigates and reviews all the paperwork associated with a loan to make sure it’s proper. He works for homeowners who are being foreclosed on by lenders.
“(Stern) dumped 100,000 cases into the system and basically shut it down,” Dibert continued.
Dibert has been busy lately, what with Stern’s shortcuts, banks’ “robo-signing,” and a computer program used by the financial industry called MERS. MERS is an acronym for Mortgage Electronic Registration System. On its website, MERS Inc. explains: “MERS is an innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked. Created by the real estate finance industry, MERS eliminates the need to prepare and record assignments when trading residential and commercial mortgage loans.”
The problem, folks such as Dibert are finding, is that MERS sometimes has glitches. Loans were misrouted or wrongly assigned, information was incorrectly inputted.
John Hughes is one of Dibert’s customers. A 22-year resident of Destin, Hughes became a real estate broker eight years ago. He bought a home for $140,000 and then took out a second mortgage to buy other properties to “flip” — fix up and quickly resell for a profit.
And then the bubble burst and flipping became a game of musical chairs. Hughes was the player left standing without a chair.
Two years ago, Hughes was foreclosed on by Bank of America. But rather than simply give in, he decided to represent himself and hired Dibert as a mortgage auditor to check out whether his loan had been properly executed.
What Hughes and Dibert found was stunning. It turned out that Countrywide Mortgage, the first lender, didn’t have the original note.
“Mortgage assignments weren’t done right,” Hughes said. “There were competing claims of ownership (of the loan).”
Bank of America, which bought the failing Countrywide in 2008, claimed ownership of his loan. So did Fannie Mae.
And, said Hughes, “I found out that David Stern had been involved in my case.”
Variations on Hughes’ case, and his strategy, are becoming more commonplace as besieged owners put the pressure on banks to demonstrate they’ve completed their paperwork correctly.
And it worked for Hughes.
Last month, a judge dismissed the foreclosure case against him. Which doesn’t mean it will go away. But the lenders have to re-file the case and start all over.
In the first quarter of this year, one in every 152 housing units in the state was in foreclosure. And when the federal government’s Making Home Affordable Program held a loan modification event in Hollywood recently, 612 people showed up in the first two hours.
It’s still scary out there.
And we’re told by economists and foreclosure specialists to brace for the next wave of foreclosures.
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