Caught between an epic economic collapse, a handful of disjointed and ham-fisted federal interventions and a series of legal scandals, the housing market to date has been subjected to the whims of an unpredictable, toxic and wholly abnormal environment.
It is only in the past six to eight months or so that things have begun to smooth out and the market has been left mostly to function on its own. Coincidentally, during that period, prices have largely bottomed out and sales have shot up.
And so have foreclosures.
Banker & Tradesman has mostly soft-pedaled this recent jump in foreclosure activity, contextualizing the startling increases by pointing out that this year’s numbers are being compared to a 2011 foreclosure picture clouded by the effects of scandals from 2010.
We’ve even gone as far as saying the increase could end up being good for the housing market, that a little strong medicine now will pay dividends later on as distressed properties work their way through the system and get back into productive re-use.
To us, these explanations seem logical and well-reasoned.
They could also end up being dead wrong.
The good folks at CATIC, New England’s largest title insurer, have been studying the various faces of the foreclosure crisis over the past decade. And they’ve concluded that, far from a statistical correction to market-driven norms, the recent uptick in foreclosures may in fact be the opening act in still another foreclosure wave poised to flood the market.
Previous foreclosure surges were largely driven by poor underwriting, ill-informed buyers, recession-related job losses or some combination thereof. But according to CATIC, the next five years of foreclosure activity will not reflect a tough economy or dubious lending practices. Instead, foreclosure activity through 2017 will be the direct result of the policies put in place that may have helped stem prior problems, but also created huge problems of their own.
When the foreclosure crisis began in earnest in 2008, there was an understandable emphasis on behalf of policymakers and industry players to try and get distressed properties back into stable hands. Short sales multiplied, REO auctions went from rare to commonplace and deals abounded for those with the right combination of resources and luck.
But in the market’s haste to shift gears, we were left with half-baked policies and weak, stopgap regulations ill-equipped to deal with the complexities of the modern distressed real estate process.
As a result, too many critical steps in the legal foreclosure process were either overlooked or circumvented, with predictable results – in bits and pieces, the foreclosure process itself eventually ended up before a judge. And those judges haven’t liked what they’ve seen.
A series of decisions – first Ibanez, then Bevilacqua and soon (gulp) Eaton v. Fannie Mae – have made it clear that good intentions are no substitute for clear and unassailable title. And without that clear title, there is no such thing as a clean foreclosure. And if there’s no clean foreclosure, there are no clean foreclosure sales and we’re left with a very messy next wave of foreclosures.
Thus far, the courts have done a remarkably efficient job in telling us all of the things we were doing wrong with foreclosures. But by their very nature, the courts can’t tell us the one thing we really want and need to know: How to do it right.
And as a result, we keep ending up in litigation for continuing to do it wrong. And the foreclosure crisis drags on because of it.
We operate under a real estate system that has gone relatively unchanged for centuries. It’s the job of the policymakers to ensure that system endures and prospers for centuries to come.
Or else we face what may seem like centuries more of crippling uncertainty and debilitating litigation. And nobody wants that.
