New Yorkers Paul and Angelica Kashman, declared in default on their mortgage in July 2010 and foreclosed on by Wells Fargo & Co. in February 2011, say they aren't deadbeats.
"We always knew that when we get into a court of law and show that we have all the information and backup, the truth will come out," said Paul Kashman, 37, a manager in the hospitality industry. The couple, stuck in limbo by legal bureaucracy, says they were mistakenly pushed into foreclosure, and are eager now to save their home, using court mediation.
Their case is among 72,000 pending in the New York system, accounting for a quarter of the civil caseload, and highlighting the strength and weakness of the state foreclosure process. While borrowers have protections unavailable in many other states, it takes more than 1,000 days for banks to repossess a home, stalling a housing recovery by keeping pressure on values for years to come as a constant drip of distressed properties enter the sales market.
The New York area was one of only two in the country to post year-over-year home price declines in the latest Case- Shiller 20-city index. Homebuyers also could lose, with the Federal Housing Finance Agency considering a fee increase to compensate Fannie Mae and Freddie Mac for doing business in New York and four other states with slow, costly foreclosures.
"New York suffers from what appears to be altruism, in that it postpones foreclosures as long as possible — the problem is that altruism can be expensive," said Anthony B. Sanders, an economics professor at George Mason University in Fairfax, Virginia. "It slows down the housing market and it results in lenders being almost unwilling to lend. New buyers will pay the price for this."
New York's pending foreclosures are more than a quarter of its civil caseload, according to a 2012 report from the state's chief administrator of the courts. New York requires lenders and borrowers to come to the bargaining table to work out modified payments or other foreclosure alternatives before a case can move to litigation. The average age of a case in the settlement program was 15 months old and the courts oversaw an estimated 77,000 settlement conferences in 2012.
It's one of five judicial foreclosure states, including New Jersey, Connecticut, Florida and Illinois, in which home repossessions require court review that the FHFA is targeting. The agency has said it's seeking to compensate Fannie Mae and Freddie Mac by bringing their pricing of risk more in line with how private lenders operate. The FHFA last year had the two government-controlled companies almost double the annual fees they charge for guaranteeing mortgage bonds, with increases averaging 0.2 percentage point.
It's considering imposing one-time upfront fees in the five states of between 0.15 percent and 0.3 percent of the loan amount. The average cost per day to carry foreclosures in New York is 112 percent of the national average, according to an analysis by the agency.
"If those states were to adjust their laws and requirements sufficiently to move their foreclosure timelines and costs more in line with the national average, the state- level, risk-based fees imposed under the planned approach would be lowered or eliminated," Edward J. DeMarco, the agency's acting director, wrote in a September notice on the proposal. "Unusual costs associated with practices outside of the norm in the rest of the country should be borne by the citizens of that particular state," he wrote.
The agency, which will announce its decision as soon as April, is pressuring states to speed up the process by removing safeguards for homeowners, New York's state bank regulator said in a Nov. 26 letter to DeMarco opposing the plan.