“Creative Destruction” in Legal Jobs IV – Foreclosure Law

This continuation Law Careers  blog about legal job opportunities arising out of “Creative Destruction” looks at Foreclosure Law, formerly a quiet backwater that previously only rarely roiled enough to make it interesting as an attorney job or career option.  Not anymore.

Background

Home ownership has become a fading dream for millions of homeowners at the same time that a housing market recovery is one of the essential underpinnings to overall economic recovery.  However, given the current set of circumstances, that is not likely to happen for a very long time.

Foreclosure law frumped along far below the radar for much of its history.  Not anymore.  Today it is one of the most dynamic and rapidly evolving practice areas, due to the massive numbers involved and the shenanigans, monkeyshines and mischief fomented by all sides of the housing mess, the mortgage holders and servicers on one hand, homeowners who tried to finagle the system despite full knowledge that they had no hope of acting responsibly and paying their mortgages, predatory lenders, securitizers who knew that they were selling snake oil, and governments who belatedly tried to clean up the mess they helped to create, but have done so to date in a half-baked manner.  It’s an attorney’s dream scenario.

Foreclosure Demographics

2011 was by far the worst year for foreclosures since the housing meltdown began almost five years ago.  Foreclosures are currently happening at a rate of 10,000 a day.  That means a tremendous amount of legal business for aspiring foreclosure lawyers.

More than 12 million homes nationwide had negative equity (, i.e., were “underwater”) at the end of 2011.  Housing experts expect that home values nationally will continue to decline and that “rock bottom” may still be a ways off.  Note that every previous prediction of the bottom has been overly optimistic and dead wrong.

Percentagewise, these numbers are even more shocking when examined state-by-state.  More than 60 percent of Nevada properties are underwater, with another 5 percent approaching drowning.  The picture is not much better in Florida, Arizona, Michigan, California, Illinois and Ohio.  Just under one-third of all Americans reside in these seven states.  Homeowners in many other states are also watching their equity fritter away and are only better off than their counterparts in these desperate jurisdictions in a very relative sense.

Taking just one state―Florida―as an example, foreclosures have increased 800 percent since 2006, the year just before the housing market tanked.  Floridians have lost more than $330 billion in home equity.  There have been more than 1.2 million Florida foreclosures already, and an additional 875,000 Florida families are delinquent in their mortgage payments.

Recent Developments to Watch

Will the U.S. Government Do Anything About the Core Problem?

The last two administrations have thus far made several half-hearted attempts to solve or at least alleviate the housing crisis.  To date, calling them complete failures is probably not too extreme a statement.  From not understanding either the depth or breadth of the crisis to not wanting to admit its gravity because of the political consequences, government has not been the answer.

The sense around Washington is that the federal idea generation process for dealing with the housing crisis is bone dry and not likely to yield much that is innovative, especially now that we are in a presidential election year.  Both Presidents Bush and Obama missed golden opportunities to hold mortgage lenders and servicers feet to the fire when they held all the cards.  Pathetic poker players that they are, they did not and now it is much too late to wield the stick.  Not to mention that the political consensus for so doing is long gone.

So don’t expect much action from the federal government.  The weak-kneed programs for mortgage relief still exist on life-support, but you will not find much there to help homeowners on their way out of their houses and into severely downsized apartments or one of the more than 100 tent cities that have sprung up around the country.

But that does not mean that governments at the federal, state and local levels are not generating jobs dealing with foreclosures for attorneys.  They are, albeit a bit under the radar.  The reason is that they have gone into enforcement mode, attempting to go after some of the more egregious private sector mortgage industry institutions through stepped-up criminal and civil investigations and prosecutions as well as the establishment of specialized task forces to focus on the problems.  Here are a few examples of the latter phenomenon:

• Federal Foreclosure Task Force
• U.S. Department of Housing and Urban Development Office of Inspector General
• Arizona Foreclosure Task Force
• Collier County (FL) Foreclosure Task Force
• Michigan Foreclosure Task Force
• Dane County (WI) Foreclosure Prevention Task Force
• Texas Foreclosure Prevention Task Force
• Utah Foreclosure Task Force
• Virginia Foreclosure Task Force

Currently, hundreds of investigators and prosecutors are crawling all over banks and other mortgage market participants.  If your state or county does not have such an organization already, it likely will soon.  If you can join one of these task forces or other permanent government offices that are currently addressing the foreclosure explosion, you will very quickly gain valuable knowledge and experience that translates very well into career moves into the private sector with financial institution legal, compliance, loan and risk management offices.

Abusive Bank Practices Just Keep on Coming

Despite the fulminations against such practices and the government’s tepid attempts to rein them in beyond Members of Congress’ infrequent bloviations, abusive lending and foreclosure practices are not going away.  These, too, are yet another Foreclosure Law legal job generator to emerge, Phoenix-like, from the devastation of home values and consequently, of American lives and livelihoods.

As you can see from the disjointed and overlapping efforts implied above, both the feds and the states have done a few things to go after the abusers, but hardly in any coordinated way or with a “business plan” in place.  Another example of when bad news for society means good news for attorneys.  While life should not ever play out this way, it does in circumstances like this and savvy lawyers have to know when such news advantages them.  Take some solace, at least, in the fact that if you go to bat for homeowners, you are doing something positive for society.

Bank “Walkaways”

A bank walkaway occurs when a bank abandons the foreclosure process, declining to take possession of a property after initiating foreclosure.  The principal reason for a bank to walk away is because the costs of foreclosing―legal fees, maintenance, etc.―exceed the value of the real estate.  Many of these properties are already vacant.

This is an escalating problem, one that is particularly vexing because it leaves the housing crisis unresolved and in limbo, complicating government efforts to stabilize and bring it back.  Often, these properties wind up vandalized and no longer fit for human habitation.  Neighborhoods decline and housing prices on nearby properties plummet even further.

In December 2011, the Office of the Comptroller of the Currency (OCC), one of the primary federal financial regulators, released guidance that actually allows banks to continue to walk away from homes after beginning the foreclosure process.  This is a prime example of the left hand (OCC is the gentlest of the federal financial regulators, the one that most financial institutions are eager to have regulate them) of government either not knowing what the right hand (foreclosure task forces, HUD) is doing, or knowing but not caring.

A bill currently before the Senate Committee on Banking, Housing and Urban Affairs―S.824, the Foreclosure Fraud and Homeowner Abuse Prevention Act of 2011, seeks to rectify the walkaway problem.  So far, however, it is going nowhere.

Filling the Federal Vacuum

This blog is about “creative destruction,” so what looks like a cascade of negative events from the standpoint of the homeowner threatened with foreclosure, the banks that have to deal with getting these declining assets off their books, and the U.S. economy as a whole, is all good news for attorneys seeking to work in the foreclosure field.

Opportunities for foreclosure work have never been greater, and the federal and state legislative, executive and judicial assertions and actions regarding foreclosures have rendered the field wide open for business.  Sorting through homeowner and bank options is so hopelessly complex and confusing that it has opened the doors wide to interested and enterprising attorneys willing to take the time to learn and earn.

Law-Related Opportunities

Traditional legal employers for whom you would work as an attorney are not the only places where you can parlay a JD degree into a foreclosure position.  There are also positions available as Foreclosure Mediators, Foreclosure Specialists and Bankruptcy Analysts in a variety of milieus including court-annexed alternative dispute resolution programs (over 1,300 around the country), financial institutions of all stripes and United States Trustee offices nationwide.

An Important Caveat

While a real housing recovery to anything approaching pre-Great Recession levels is likely a long way off, Foreclosure Law may not continue to be a thriving practice area for the entire duration of your legal career.  My current estimate is that you can make a lot of foreclosure hay because the aftereffects of the bursting of the housing bubble have at least a 5-year lifespan looking forward.  If you still retain a vestige of good, old American optimism and believe that “morning in America” may actually come around some time in the medium term, you are well-advised to consider what you need to do to protect yourself should Foreclosure Law revert to its historical status as a fairly dormant discipline.

Next:  Bankruptcy Law