Article Courtesy of The Palm Beach
By Alexandra Clough
November 24, 2020
The phones aren’t ringing, foreclosure defense
The mortgage defaults aren’t happening, analysts agree.
But don’t get complacent, they warn. In a year, the pandemic-induced
recession could lead to massive foreclosures in Palm Beach County.
“Judgment day is coming,” said Gary Nagle, a Juno Beach lawyer and
attorney for the Palm Beach Board of Realtors.
The key issue that will affect mortgage foreclosures is the job market.
Palm Beach County's economy, like much of Florida, has been hit hard by
job losses caused by the pandemic, particularly in the tourism industry,
the county’s second biggest industry after agriculture. Hotels and
restaurants are open at limited capacity after being shut for two
months. But even with some businesses now open, many people remain
reluctant to enter indoor spaces due to the airborne nature of the novel
As a result, thousands of people in Palm Beach County have lost their
jobs, and it's not clear when those jobs will return.
Palm Beach County's unemployment rate rose to 11.6% in July, up
dramatically from 3.6% during the same month in 2019. The state's
unemployment rate was 11.3% in July, also way above the 3.1% rate in
Job losses are a key economic indicator watched by the Mortgage Bankers
"The extremely ... high level of unemployment remain a concern, and are
indications of the challenges many households are facing,” said Mike
Fratantoni, the association’s senior vice president and chief economist.
Washington’s chief response to the economic fallout from coronavirus,
the CARES Act, allowed homeowners affected by the pandemic to ask
lenders for a pause in their mortgage payments on federally-backed
loans. That pause, known as forbearance, can last up to a year. During
this time, lenders cannot foreclose on a property. Many lenders holding
mortgages that are not federally backed also are working with borrowers
to pause payments.
The Palm Beach County clerk's office does not separate commercial from
residential mortgage foreclosures. Nevertheless, it's clear this year
that lenders are holding off on all types of foreclosures: From March to
July, there were 621 foreclosures filed in Palm Beach County, compared
to 1,462 during the same period in 2019.
Homeowners have seized on the forbearance program. The Mortgage Bankers
Association estimates that 3.6 million homeowners nationwide are in
In addition to the federal program, Gov. Ron DeSantis put a halt to new
foreclosure filings until the end of August. At press time, it was
unclear if that provision would be extended another month, as it has
during the past couple of months.
Regardless, housing experts and lawyers said the underlying economic
conditions are only delaying what is expected to be an onslaught of
foreclosure filings next year. That event could mean a massive transfer
of home ownership from individuals to investors, similar to what
occurred during the 2007-8 recession, when individual and institutional
investors bought up homes that had fallen into foreclosure, experts
said. Those homes, in turn, were transformed into rentals and
permanently removed from the inventory of for-sale homes in the county.
Unlike the prior recession, however, homeowners will not fall into
foreclosure due to the prevalence of risky mortgages and poor bank
underwriting standards, analysts said.
Instead, homeowners will suffer because they will be unable to find
jobs. This will occur because of reduced economic activity in industries
such as tourism, as well as the permanent removal of jobs from
industries such as retail. Since the pandemic began, a number of
national retailers have filed Chapter 11 bankruptcy and shuttered
Nagle said he is starting to counsel homeowners on what to do if they
remain jobless for some time.
"If they can't afford the house they're in, they've got to make a hard
life decision: 'Do I cash out with some equity and go rent until things
get better?'" Nagle said. "That way, you can save your credit rather
than getting a foreclosure judgment. I've told that to some people."
Brad Hunter, president of Hunter Housing Economics in West Palm Beach,
said the pandemic has affected people differently. Those with
white-collar jobs have been able to keep their jobs and work from home,
Hunter said. But those in lower-paid service jobs cannot work from home,
and those are the jobs that have been cut the most.
“My analysis suggests that while we will not see foreclosures nowhere
near what we saw in 2007. But there will be some, and they will be
disproportionately weighed at the lower end of the economic spectrum,”
Real estate lawyers said they at first expected to see a big rush of
foreclosures this year.
“When the pandemic started, we all started talking in attorney groups
and said, ‘Let’s ramp up. It’s going to be like 2008 and 2009 again,’"
said Christian Posado, a Lake Worth attorney who handles foreclosure
defense and bankruptcy cases. “But nothing came. The phones aren’t
Posado and others attribute federal stimulus money, unemployment
payments and mortgage forbearance rules for preventing a rush of
foreclosure filings by banks and mortgage servicing companies.
But everything in the economy is tied together.
So now that the stimulus payments have ended, people are cutting back on
spending so they can pay the basics, such as the mortgage and the
electric bill, Posado said. That trend, in turn, harms companies such as
restaurants and other retailers that employ people who have mortgages,
“It’s a dormant situation right now, and everyone is white knuckling it,
worried not only about their health but what the outlook is going to be,
and are we going to have a job tomorrow,” said Sean Koplow, a Lake Worth
attorney who handles foreclosure defense cases.
Nagle, the Juno Beach lawyer, said banks and mortgage servicers have
been good about working with homeowners seeking forbearance on their
mortgages. Not only is forbearance a provision of the CARES Act, banks
also are reluctant to redo the “fiasco” of the last recession, when
banks were overwhelmed by foreclosure cases that dragged on for years,
But Koplow said homeowners need to proceed with caution when working
with their mortgage servicers on forbearance plans.
In some cases, banks are tacking on unpaid mortgage payments to the end
of the mortgage term. In other cases, banks want homeowners to pay the
unpaid payments all at once when forbearance ends. “It’s somewhat
unclear and varies lender by lender,” Koplow said. “Some (lenders) do
tell you, and some of them don’t.”
Of course, for home sellers, and those working in the real estate
industry, there’s never been a better time to sell a house. Record sales
are taking place, and the island of Palm Beach alone has seen a surge in
sales this summer.
The migration to Florida from dense, urban states in the Northeast,
Midwest and even California is the reason for the vibrant market,
People already were moving to Florida prior to the pandemic due to the
state's favorable tax environment. But the pandemic has prompted some
people to flee to the Sunshine State, and Palm Beach County in
particular, because Florida cities are not dense as some cities in the
Northeast, and people here do not have to rely on crowded public
transportation, where the coronavirus can spread.
“Florida is greatly benefiting from the exodus from the Northeast, and
it will continue over time,” said Jack McCabe, of McCabe Research &
Consulting in Deerfield Beach. Consequently, home values are unlikely to
tumble as they did during the 2008 recession, McCabe and other housing
In fact, if home values stay strong but jobs do not return, people will
be unable to stay in Palm Beach County and will be forced to leave the
county because they no longer will be able to afford to live here,
Because of business consolidation in a number of industries, Koplow said
even some people in white collar jobs who have a job today may not have
one tomorrow. As a result, “I do think there will be a rise in
foreclosures and lawsuits in a year’s time,” Koplow said.
"I don’t think people understand the severity of what’s going on,”
McCabe said. “You're going to be looking at a lot of people who never
thought they would be homeless in their life come face to face with some
Homeowners struggling to hold on to their houses also should not expect
to be able to linger in their residences for years, as was the case
during the recession, when courts were choked with foreclosure lawsuits
that dragged on, Nagle said. The system has become faster, and the
courts are not likely to get the same volume of cases next year as they
did during the prior recession.
Peter Zalewski, director of acquisitions for Miami-based Brickell
Ventures and a housing analyst, said he frequently talks to bankers
about their plans for handling foreclosures next year.
Right now, banks are mostly worried about commercial mortgages on
properties such as shopping centers and office buildings, where tenants
have been badly hurt by the pandemic and in many cases, have stopped
paying rent to landlords who have mortgage loans on properties, Zalewski
Most banks expect a banking crisis to hit in the fourth quarter of 2020,
when it "hits the fan on the commercial side," Zalewski said. "They're
calling it the Big Short 2.0."
As far as houses are concerned, banks are readying to move
"aggressively" on the foreclosure process, an action that likely will
prompt alarm among bank regulators, Zalewski said. With both commercial
and residential mortgages in trouble, Zalewski said bankers could be
hoping for another bank bailout, as was the case after the prior
"The lesson learned for the overall economy is once the residential goes
bad, it snowballs," Zalewski said.
But as was the case during the last recession, Palm Beach County might
see a big influx of homebuyers: Wealthy private investors with cash to
spend, and big institutional homebuyers, such as Invitation Homes,
created by Blackstone Group, the giant private equity firm, Zalewski
Another potential player could be the home-listing site Zillow, which
now buys houses fast with no real estate agent involved, Zalewski said.
As a result, working people who want to buy a house in the next few
years may be unable to compete with large and cash-rich homebuying
companies that can pay top dollar for properties.
Therefore people will be forced to rent, “continuing the long-term
shrinking homeownership rates and the increase in rental rates,” McCabe