foreclosure homes

NEW YORK — The bleakest year in the foreclosure crisis has only just begun.

Lenders are poised to take back more homes this year than any other since the U.S. housing meltdown began in 2006. About 5 million borrowers are at least two months behind on their mortgages and more will miss payments as they struggle with job losses and loans worth more than their home’s value, industry analysts forecast.

“2011 is going to be the peak,” said Rick Sharga, a senior vice president at foreclosure tracker RealtyTrac Inc. The firm predicts 1.2 million homes will be repossessed this year by lenders.

The outlook comes after banks repossessed more than 1 million homes in 2010, RealtyTrac said Thursday. That marked the highest annual tally of properties lost to foreclosure on records dating back to 2005.

One in 45 U.S. households received a foreclosure filing last year, or a record high of 2.9 million homes. That’s up 1.67 percent from 2009.

For December, 257,747 U.S. homes received at least one foreclosure-related notice. That was the lowest monthly total in 30 months. The number of notices fell 1.8 percent from November and 26.3 percent from December 2009, RealtyTrac said.

The pace slowed in the final two months of 2010 as banks reviewed their foreclosure processes after allegations surfaced in September that evictions were handled improperly. Under increased scrutiny by the government, lenders temporarily halted taking actions against borrowers severely behind on their payments.

However, most banks have since resumed their eviction processes, and the first quarter will likely show a rebound in foreclosure activity, Sharga said.

Foreclosures are expected to remain elevated through the year as homeowners contend with stubbornly high unemployment, tougher credit standards for refinancing and falling home values. Sharga said he expects prices to dip another 5 percent nationally before finally bottoming out. The decline will push more borrowers underwater on their mortgages. Already, about one in five homeowners with a mortgage owe more than their home is worth.

The pain likely will be the most acute in states that have already been hit hard. That includes former housing boom states Nevada, Arizona, Florida and California, along with states that are suffering most from the economic downturn, including Michigan and Illinois.

Nevada posted the highest foreclosure rate in 2010 for the fourth straight year, despite a 5 percent decline in activity from the year before. One in every 11 households received a foreclosure filing last year in the state. In December, foreclosure activity increased 18 percent from November with a 71 percent spike in bank repossessions.

Arizona and California also showed sharp December increases in the number of homes banks took back, at 52 percent and 47 percent, respectively. Arizona, along with Florida, finished the year at No. 2 and No. 3 for the highest foreclosure rates.

One in every 17 Arizona households got a foreclosure filing last year, while one in 18 received a notice in Florida.

California, Utah, Georgia, Michigan, Idaho, Illinois and Colorado rounded out the top ten states with the highest foreclosure rates.

More than half of the country’s foreclosure activity came out of five states in 2010: California, Florida, Arizona, Illinois and Michigan. Together, these states recorded almost 1.5 million households receiving a filing, despite year-over-year decreases in California, Florida and Arizona.

RealtyTrac tracks notices for defaults, scheduled home auctions and home repossessions — warnings that can lead up to a home eventually being lost to foreclosure.

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In a major ruling Friday, a coalition of nonprofit defense lawyers and consumer protection advocates in Maryland successfully got over 10,000 foreclosure cases managed by GMAC Mortgage tossed out, because affidavits in the cases were signed by Jeffrey Stephan, the infamous GMAC “robo-signer” who attested to the authenticity of foreclosure documents without any knowledge about them, as well as signing other false statements.

The University of Maryland Consumer Protection Clinic and Civil Justice, Inc., a nonprofit, filed the class action lawsuit, arguing that any case using Jeffrey Stephan as a signer was illegitimate and must be dismissed. In court Friday, GMAC agreed to dismiss every case in Maryland relying on a Stephan affidavit. They can refile foreclosure actions on the close to 10,000 homes, but only at their own expense, and subject to new Maryland regulations which require mandatory mediation between borrower and lender before moving to foreclosure. Civil Justice and the Consumer Protection Clinic also want any cases with affidavits from Xee Moua of Wells Fargo, who has also admitted to robo-signing, thrown out, but that case has not yet been settled.

This was not the plan of GMAC and other banks caught using robo-signers last year. They hoped to undergo a pause in proceedings, run a quick “double-check” and then issue substitute documents in the same cases. That would have been a much more rapid solution for the banks and would have resulted in many more foreclosures. Now GMAC has to go back and basically file the entire case all over again, meaning they have to give notice of foreclosure to the borrower, engage the borrower in modification options, and basically run through the whole process from the beginning. They cannot use the shortcut solution, thanks to the class action suit filed. GMAC’s dismissal of every foreclosure in Maryland shows their doubts they would have won the class action.

The Consumer Protection Clinic at the U. of Maryland is a class taught by Peter Holland. Rather than just read and lecture about foreclosure fraud and consumer protection law, Holland has the class join motions, prepare cross-examinations and legitimately get involved in the cases. It reminds me of the class of Alan Dershowitz depicted in the film Reversal of Fortune, or the Medill Innocence Project investigating wrongful convictions at Northwestern. Given the national scope of foreclosure fraud, you can imagine classes like this springing up all over the country.

As I said, this doesn’t mean that GMAC cannot refile foreclosures in these cases. But they have to spend a lot of time and money to go back to the beginning and redo every case, and must adhere to Maryland law of allowing mediation. Maryland is a judicial foreclosure state which has produced some of the better rulings during this crisis. But we’re starting to see challenges even in non-judicial foreclosure states, like Massachusetts, where the Ibanez case has thrown every foreclosure in the state into turmoil. The rates of moving properties through foreclosure have dropped dramatically, in all 50 states, by an average of 50%. It just seems inevitable that lawyers in other states will follow the Maryland action and attempt to get everything which used a robo-signer thrown out.

And if the Ibanez case, which questions the right for banks to foreclose at all, can be broadly applied, those rates will drop even further. And Georgetown Law Professor Adam Levitin thinks may be the case.

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