Homesowners face a backlog of foreclosure cases in the courts.

Shortly after Orlando Eslava’s bank started to push him through the foreclosure process last year, he got some good news: He was eligible for a government mortgage relief program that would lower his loan payments. But the lender plowed ahead with the foreclosure sale anyway, taking back the condo in Aventura, Fla., even as Eslava made payments under the federal plan.


When a Florida judge learned of the foreclosure, she threw out the case and nullified Eslava’s existing mortgage balance.

Eslava’s case reflects the state of confusion among lenders and courts as they struggle to keep up with a backlog of millions of delinquent homeowners making their way through the foreclosure process. Bank repossessions jumped more than 40 percent in May, to more than 90,000, compared with the same period last year, according to data released Thursday by RealtyTrac, an online service that tracks the foreclosure market.

That uptick is likely to continue this year, and it could take at least three years to work through the backlog of delinquent borrowers, economists say. In many cases, lenders are pushing their cases through overwhelmed courts and facing emboldened homeowners challenging the repossession of their homes on technical grounds.

By the time HSBC began the foreclosure process last year, Eslava, 53, had been trying to get a loan modification for more than a year. In November, a judge approved HSBC’s request to proceed with the repossession and set an April 9 sale date. But after discovering that HSBC could not produce proof that it held Eslava’s mortgage note, the judge ordered the bank to post a $414,000 bond.

The next day, Eslava learned that he was eligible for the federal foreclosure prevention program, which would lower his mortgage payments to $620 a month from about $1,000.

“It was a big relief. Like it was finally going to be over,” Eslava said.

The loan modification should have prevented the foreclosure. But HSBC continued to oppose efforts by Eslava’s attorney, Sheleen Khan, to cancel the foreclosure sale. “All he was looking to do was modify the loan,” Kahn said. “It was very trying for him and nerve-racking for me because we didn’t know what would happen.”

Eslava made several payments under the government relief program, but HSBC foreclosed on the home in April. Kahn filed a motion to overturn the sale, pointing out that in addition to ignoring the loan modification, the bank had not posted the bond required by the judge.

Miami-Dade Circuit Court Judge Jennifer Bailey agreed and brought both sides back to court in early May. Noting that 60,000 foreclosure filings were made in Miami-Dade County last year and that every hearing takes precious minutes, Bailey lambasted the bank’s attorneys for wasting time.

“It doesn’t sound like much, but [every case] represents a situation where the bank’s position is constantly shifting and changing because they don’t know what the Sam Hill is going on in their files,” Bailey said, according to a transcript of the hearing.

“Why did you lose the note? Because you’re operating at the same level of chaos and disorganization that caused you to oppose the motion to cancel the sale when” Eslava had been given a loan modification, Bailey said. A few minutes later, Bailey sanctioned the bank by wiping out Eslava’s mortgage debt. The mortgage note “is null and void. Mr. Eslava is relieved of the debt,” Bailey said.

Eslava, who was not at the hearing, was shocked by the news. He had hoped that the foreclosure would be reversed and that he would remain in the government program. “It’s naturally a good feeling,” he said. “I did everything I was supposed to do.”

HSBC, which as the trustee owns the legal title to Eslava’s loan on behalf of a group of investors, said it does not comment on the specifics of legal matters.

Wells Fargo, which acted as the servicer on the loan, said in a statement: “We work hard to comply with all applicable legal requirements and we expect the firms we work with — in this case, Florida Default Law Group — to do the same. Although this was a technical error on their part, if we make a mistake, we fix it and we hold others we work with to the same high standards.”

Florida Default Law Group, which represented both banks in court, declined to comment.

There have been similar cases in New York and Illinois in which frustrated judges have wiped out a homeowner’s mortgage, but it is still far from a trend, said Diane E. Thompson, attorney on foreclosure issues at the National Consumer Law Center. “I don’t think that homeowners or their advocates should step into court and expect judges to do this for them, even if the lender can’t come up with the note,” Thompson said.

Many states are dealing with the backlog of homeowners winding their way through the process with mediation programs, requiring lenders in some cases to consider a loan modification before moving forward with a foreclosure. Maryland lawmakers approved a similar program this year. “That is a more hopeful trend, and it has the potential to resolve these disputes for everybody,” Thompson said.

Via Washington Post