Florida: Still struggling after the housing bust

January marked the 40^th consecutive month that foreclosure activity declined in the U.S. It’s safe to say the rest of the country is recovering from the housing bubble burst in 2007 – but the sunshine state is still struggling.

“They’re saying right now that I owe $32,852… for being late for the last 13 months and not paying my mortgage,” said Florida homeowner Linda Powell. She spent the last 13 months trying to renegotiate her adjustable rate mortgage, without results. Two weeks ago she was served her foreclosure papers. Foreclosure attorney Greg Nordt says it’s just beginning of a long and arduous process in Florida.

“Typically with a foreclosure you get served with a complaint, and you have 20 days to answer. Problem is, you can file a motion and it’s not set for 8 months,” he said.

It takes on average two-and-a-half years for a foreclosure to finalize in Florida. A main reason for the delay is that Florida is a “judicial state,” meaning every foreclosure case has to be heard in court. And the courts are overwhelmed and backlogged with cases.

“There might be 50 lawyers sitting there from 8:30 a.m. to noon – you’ll probably get a minute and a half before the judge,” said Nordt. “They’re bringing in retired judges to hear some of the cases now – I mean criminal judges!”

For the last few years, there has been little movement in Florida’s foreclosures. The result is more than 300,000 homes in some state of foreclosure – homes and families in limbo. It’s called a shadow inventory, and Florida has the highest amount in the country.

During the housing bust, home values in Florida dropped significantly. Shari Olefson, CEO of The Carnegie Group, says values dropped significantly more than in the rest of the nation. “If you think back four or five years ago at the height or the bottom of the real estate market, that’s where Florida is right now,” said Olefson.  “We have recovered because we were so much worse than the country before but we’re back to about where the country was way back.”

Florida state representative Kathleen Passidomo says the sheer volume of foreclosures, fraud, lost promissory notes and stalling on both sides in courts with both banks and borrowers have all contributed to Florida’s backlogged court system. She was behind a Fair Foreclosure Bill that went into effect in July that aims to streamline the process. “Basically what we’ve said to the lenders was – don’t file the foreclosure unless you have all your ducks in a row,” she said.

She says the economy is starting to come back in Florida – and as a result, foreclosures are starting to move now more than ever. Home values are appreciating, which is motivating lenders to move on foreclosures. “Personal lenders are not in the business of being property owners there was no market for them to sell the property so the longer they kept it off their books might’ve been better for them,” she said.

Passidomo says she thinks there’s a decrease in foreclosure filings and an increase in the number of cases that are coming to closure. New data from RealtyTrac  back that up. In January, more than 12,000 homes were moved to the auction block in Florida – the most homes to hit the market in 39 months.

“It’s a very good time for banks to unload these properties and get them sold,” said Daren Blomquist, Vice President of RealtyTrac. Still, it isn’t all good news. “That’s a lot of properties that will be a drag on home values and on prices as those properties hit the market and are sold,” said Blomquist.

And even though there is an uptick in foreclosed homes going to auction, it will still take years before those hundreds of thousands of homes make it through the court system. Adding to Florida’s already delicate housing market is a looming problem: almost 40% of Florida homeowners are under water, meaning they owe more on their home than it’s worth.

“That’s the number one incentive for not paying your loan,” said Olefson. “And as more and more time goes by, folks in those situations become fatigued and wonder if they will ever get out from under water.”

Blomquist agreed. “It is more of a latent risk that’s out there. If there’s any shock to the housing market going forward, those under water homes could become foreclosures in greater numbers.”