Brenda Clarke, a single mother of three on Long Island, New York, said looters at the foreclosed home next door stoked her deepest fears about getting evicted.
Scavengers grabbed clothing, toys and furniture that were tossed to the curb by the sheriff’s department last month while the neighbors living in the home were at work. Clarke, who’s been fighting to keep her Islip home for the past five years, begged them to stop.
“I felt like I was defending my own house,” she said. “They’re coming here too. It’s just a matter of time.”
Long Island, the 118-mile-long (190-kilometer) stretch east of New York City that’s home to middle-class commuters, blue-collar workers and Hamptons socialites, is facing a foreclosure crisis as delinquent homeowners such as Clarke wait in limbo while courts work through a record backlog of cases. Abandoned properties dot neighborhoods in towns such as Brookhaven, Islip and Hempstead, holding back a housing rebound as prices surge across the rest of the country.
Foreclosure lawsuits and auctions, the first and last steps of the process, each jumped by more than 25 percent in the first 10 months of 2013 from a year earlier in Long Island, according to RealtyTrac. In the U.S., foreclosure filings plunged by almost a third, while they fell 57 percent in Arizona and 49 percent in Georgia, areas hard-hit by the housing crash, the Irvine, California-based data firm said.
Long Island’s rate of seriously delinquent mortgages, those 90 days or more past due, was 10 percent in October, according to CoreLogic Inc. That was behind only Tampa and Orlando, Florida, and Newark, New Jersey, among the 25 largest U.S. metropolitan areas. While Tampa had the highest share of loans in foreclosure, at 8 percent, the rate tumbled from 11.1 percent a year earlier. In the Long Island counties of Nassau and Suffolk, it fell 0.4 percentage points to 6.5 percent.
“Just rewind two or three years ago and we are where Arizona was,” said Kristopher Pilles, a Riverhead, New York-based real estate broker who represents banks, mortgage servicers and hedge funds that own distressed property debt. “It’s all coming to a head. Long Island is only now just entering the thick of the foreclosure crisis.”
Home prices on Long Island rose just 1.6 percent in the third quarter from a year earlier and are 16 percent below their 2006 peak, according to the Federal Housing Finance Agency. For the entire U.S., prices surged 8.4 percent and are off 11 percent from their top.
Nassau and Suffolk counties are home to 2.85 million people, more than the population of Nevada. Beginning with the opening of Levittown, America’s first planned community, in the late 1940s, Long Island developers have made way for New York City residents moving east for suburban greenery, said Karl Grossman, a professor of journalism at the State University of New York/College at Old Westbury.
Long Island’s housing crash was among the region’s worst because so many borrowers took out risky mortgages to afford the inflated prices during the boom, and were then saddled with high tax rates, Grossman said. Residents in hardest-hit areas had fewer employment options because many of the towns are far from Manhattan, he said.
Nassau County had the second-highest annual U.S. median property tax bill at $9,289, behind Westchester in New York, according to 2010 data from the Tax Foundation, a nonprofit research group in Washington. Suffolk County ranked No. 12 on the list of 806 counties.
“The true victim is the lower-middle class and middle-class person who ended up buying a house on Long Island at extraordinary high prices and is stuck now trying to pay that mortgage and pay the taxes,” Grossman said.
Pending foreclosures now make up almost a third of New York’s civil caseload and new filings are flooding in, according to Michael Hanley, senior housing attorney for Empire Justice Center, a non-profit law firm. This includes many old cases that lenders refiled to correct documentation flaws that were holding them up, he said.
Unlike many other states, New York requires lenders and homeowners to come to the bargaining table to work out modifications or other foreclosure alternatives before a case can move to litigation. The number of conference cases, which have an average age of nine months, will jump 25 percent this year to about 100,000, “stretching resources to their limits in the courts,” according to a November report from the state’s chief administrative judge.
“What we’re doing is the right thing to do by giving people the option to see if their loans can be modified,” Judge Judy Harris Kluger, chief of policy and planning for the New York State courts, said of the conferences. “That’s why our courts have thousands and thousands of these cases.”
New York is a judicial state, requiring a court review of home repossessions, and lengthening the time it takes to seize a property.
New filings are likely to move more quickly because lenders are getting paperwork in order, she said.
“This logjam has broken and cases that were backed up are going to sale,” Hanley said. “The hurt is still coming. We are nowhere near the end, no matter what you hear about national trends and the stabilization of the housing market.”
Clarke, whose 15-year-old son began sleeping with a baseball bat after watching the eviction next door, said she feels that she’s living on “borrowed time” as foreclosure looms.
The sheriff’s office has 72 hours to remove a tenant and deposit their property on the nearest public street after the court has issued a warrant for eviction and the tenant has been notified, said Michael P. Sharkey, chief of staff for the Suffolk County Sheriff’s Office in Riverhead, New York. While officers guard the belongings while executing the warrant, they are no longer responsible once it is completed.
Clarke’s default stems from her 2008 divorce, the 48-year-old said, with RoundPoint Mortgage Servicing Corp. refusing to discuss the case with her because her ex-husband’s name is on the mortgage. While the case was withdrawn in 2011, Barry Lites, her attorney, said he expects it will be refiled.
Clarke, who cleans houses during the day and does construction work at night, said she could afford to pay the mortgage if the bank would accept her money. Once a borrower is delinquent, mortgage companies typically won’t accept payments and will require that the loan be paid in full.
After unpaid interest, taxes, penalties, and attorney fees, her lawyer estimates she would owe almost $500,000 on a four-bedroom house she bought in 1998 for $150,000. The home is valued at about $324,000, according to Zillow Inc.
“How do you begin to pay that?” Clarke said.
Roundpoint Financial Group Chief Executive Officer Kevin Brungardt declined to comment through a spokeswoman.
In the resort communities of the Hamptons, such as East Hampton and Southampton, where Lites also has clients, foreclosures are less common because homeowners often have equity and can quickly and quietly sell the properties because they’re in demand. Homeowners in poorer neighborhoods can’t easily escape, he said.
“The longer they’re in the pipeline, the worse it’s going to be,” Lites said. “A lot of people may think it’s great not paying, but time is not on your side. Your credit rating is going through the floor and the mortgage is becoming more unaffordable every day.”
The Long Island housing market will be better able to absorb distressed sales because foreclosure delays have given the economy time to recover, said Sam Khater, senior economist for CoreLogic. The unemployment rate in Nassau and Suffolk counties has dropped to 5.9 percent in October from 7 percent a year earlier, according to the Bureau of Labor Statistics.
“Most of the rest of the country ripped off the Band-Aid pretty quickly,” Khater said. “Nassau and Suffolk is peeling it off slowly, so the pain for it isn’t as severe, but obviously the trade-off is that the pain is around longer.”
Richard Theisen, Clarke’s 58-year-old uncle, exhausted his savings to keep from turning his two-bedroom East Islip house over to the bank, which he said repeatedly declined to modify his mortgage since the foreclosure began in 2008. The disabled diesel mechanic, who lives with his wife and 22-year-old daughter, said he almost paid off the house he bought for $77,000 in 1982 before he refinanced the loan three times through Countrywide Financial Corp., pulling out money for renovations.
Theisen said he ended up with a loan with a 13 percent mortgage rate, a monthly payment that swelled to $3,600 from about $1,500, and $556,000 in debt, including unpaid interest and penalties.
While he’s ready to move if the sheriff’s department arrives, Theisen said he’ll have trouble finding a place to rent because his credit is so damaged and he has no savings. Key possessions are stacked in cardboard boxes in a corner of his bedroom, and he pulls clothes from a nylon suitcase.
With his disability insurance and income from his wife and daughter, he could afford a monthly mortgage payment of $1,500. Instead, he’s paying $30,000 in legal bills to fight the bank over documentation flaws so he can keep his house as long as possible.
“Instead of paying a mortgage, I pay a lawyer so he can give me an opportunity to pay my mortgage,” said Theisen, who said the financial stress is destroying his marriage. “Something doesn’t seem right about that.”
Jumana Bauwens, spokeswoman for Bank of America Corp., which acquired Countrywide in 2008, said that it offered to consider Theisen for a modification “several times,” including a request last year that was rejected because he didn’t turn in all necessary documentation. Theisen said he initiated the workout requests, sent in the paperwork and the bank never talked to him.
Long Island courts are speeding up settlement conferences, moving cases to litigation if borrowers appear to be deliberately stalling or don’t qualify for a modification, said Jenny Morra, an attorney who represents lenders in the conferences. Morra said she’s sympathetic because many homeowners stopped paying so the lender would consider them for a modification. Still, the bank can only help so much, she said.
“From the bank’s perspective, we made a loan and we expect the borrower to abide by the terms of the loan,” Morra said. “It is a business to us. We’re not charity.”
Last year’s Hurricane Sandy added to the delinquencies in working-class waterfront communities such as Mastic Beach, where many owners abandoned properties because they couldn’t afford the repairs. Home values in the village, a half-hour drive west of the mansions of Southampton on the island’s southern coast, dropped 40 percent to $155,500 in October from the peak in 2007, according to Zillow.
Amy Schuler, a real estate broker in the town, said half of her listings are now short sales, where the borrower sells the property for less than the amount owed. The empty ones require her vigilance because they attract rats, cockroaches and the occasional squatter.
“Homeowners are suffering because the market went so high at some point and they pulled out their equity,” Schuler said. “And now they can’t afford their own homes and can’t sell them with a traditional sale because the market has gone down so much.”
Brookhaven, which includes Mastic Beach and hard-hit Shirley and North Bellport, enacted legislation this month to fine banks if they don’t register and maintain the roughly 2,000 properties that are now vacant, said Ed Romaine, the town supervisor.
“This will be with us for a while,” Romaine said. “A lot of people bought houses they couldn’t afford and we were hit hard. But that blow came later, because banks have moved slowly to foreclose.”