New Jersey Homeowners Underwater and Abandoning Ship

By Adele Sammarco for NewJerseyNewsroom

Garden State residents who can no longer pay their mortgage are becoming part of a growing backlog of properties facing repossession in New Jersey, which hosts the second-highest serious delinquency rate in the United States.

According to the Mortgage Bankers Association, New Jersey has now surpassed Nevada in the rate of homeowners with seriously delinquent loans, those 90 days late on their mortgage payments are already in the process of foreclosure.

Only Florida has a higher rate of serious delinquencies, which fell 1.2 percentage points from the previous year to 17.5 percent of mortgages. In comparison, New Jersey’s rose 1.3 percentage points to 12.7 percent reports Businessweek.

New Jersey’s judicial review of foreclosures, which delays seizures to help borrowers who are under water, threatens to hold down prices for years as properties remain subject to repossession and then sold at a discount or at Sheriff’s auction.

Since the start of the recession, the housing market has been ravaged by unemployment that has risen to a 35-year high. New Jersey’s unemployment rate jumped to 9.8 percent in July, reports the state’s Labor Department, with declines in manufacturing, construction and professional and business service jobs.

According to California-based CoreLogic, a financial, property and consumer information company that enables customers to solve their business challenges, home values increased in July from a year earlier in 42 states, but New Jersey prices fell 0.8 percent.

It’s called shadow inventory, a term that refers to real estate properties that are either in foreclosure or have yet to be sold, or homes owners delay putting properties on the market until prices improve. Shadow inventory can create uncertainty about the best time to sell and when a local market can expect any recovery. It typically causes reported data on housing inventory to understate the actual number of inventory in the market. And it is falling in much of the country as well, where housing prices will become much weaker in the Northeast in the coming years as distressed properties sit on the market waiting to be sold.

Two years ago, foreclosure filings dropped after Attorney Generals in all 50 states began investigating allegations of fraudulent paperwork used to repossess homes.

In February, the nation’s largest banks, which hold hundreds of thousands of New Jersey homeowner’s mortgages such as JPMorgan Chase & Co. and Bank of America Corp., agreed to a $25 billion settlement.

In New Jersey, where an estimated 60,000 foreclosures began since the beginning of 2008 are awaiting some type of resolution, borrowers in full foreclosure process have stopped making payments for an average of 934 days, according to Lender Processing Services, Inc.

New York is at 953 days, and Florida is at 938 days, the only states with longer time frames. The national average is 742 days.

In 2010, New Jersey’s foreclosure process was slowed after the courts threatened to suspend seizures by six of the largest banks unless they showed they had specific guidelines in place to ensure that information in uncontested foreclosures is based on a personal review of the records.

Judicial states such as New Jersey provide automatic court review of home seizures, giving borrowers a legal forum to demand proof that lenders have the right to foreclose or to argue for mortgage modifications.

The National Association of Realtors says the nation’s supply of properties listed for sale, a seasonally adjusted measure of how long it would take to sell off the inventory at the current sales pace, fell to 6.4 months in July from 9.3 months a year earlier, which helped push the median sale price of an existing home by 9.4 percent from a year earlier to $187,300.

The backlog in New Jersey may be breaking following a February ruling in a case involving the state’s Fair Foreclosure Act, which required lenders to furnish the name and address of the note holder on foreclosure notices, rather than just the contact information for a loan servicer. According to state court data, lenders filed 2,387 foreclosure complaints this past July, more than twice as many as the previous year and the most since December 2010.

In the meantime, some sellers have backed out of short sales while others took the loss and moved on with their lives. Economists say as home prices throughout the country continue to decline, delinquent homeowners keep potential homebuyers from opening up their wallets.