A Category 5 Hurricane named “Foreclosure Crisis” and its ill-effects on the Sunshine State

While the U.S. was spared the wrath of the 2010 Atlantic hurricane season, many states have encountered the wrath of a man-made hurricane named “foreclosure crisis,” which in many states including Florida has reached a category 5 status in terms of its destructive power.

This gargantuan hurricane continues to wreak havoc on the mortgage industry and destroy thousands of homes in its path since the time it made landfall several months ago.

Besides Nevada and Arizona, Florida is the third hardest hit state in the nation, thanks to the deadly blend of the national financial abyss, bank failures and the foreclosure crisis. Just this year alone Florida was socked with 27 bank closures, which is a whopping 19% of the nation’s share. The ripple effect of this financial swamp has caused huge volatility in the rental and owner-occupied residency rates. Jacksonville led the nation with a 14.4% rental vacancy rate, which is almost twice the national average.

Back in September, Ally GMAC’s mortgage division stopped foreclosures in Florida and 22 other states to investigate a fraudulent practice called “robo-signing,” in which their employees were allegedly signing off and improperly filing paperwork with questionable or cursory review processes. Other banks followed suit by halting foreclosures in these 23 states.

In mid-October, this domino effect prompted the attorneys general of all 50 states and mortgage regulators in 30 states to announce a joint investigation of the foreclosure practices of mortgage servicers. Preliminary reports from the investigators indicate that the robo-singing allegations may just be the tip of the iceberg and there may be numerous other shoddy practices which could have started over 3 years ago.

The investigation committee which has 12 top legal bigwigs from various states continues to uncover deceitful practices. For example, in a deposition filed at a West Palm Beach court in December of 2009, a GMAC employee, who was a member of a 13 people team responsible for reviewing and signing 10,000+ affidavits, was many times not bothering to verify the accuracy of the documents and information given to him.

A news feature about Michael Carlson’s case which was published on November 9th in the St. Petersburg Times has the potential to push the foreclosure crisis into unchartered waters. Carlson’s home in Dunedin, FL was foreclosed in 2008 by Bank of America. Carlson is contesting the foreclosure, stating the bank’s failure to notify him about the legal proceedings until after the foreclosure was completed. The problem is Bank of America sold that home to another owner more than a year ago. The current owners had assumed they were buying a bank-owned foreclosed property. They could lose their home and be evicted if Carlson wins his case. If that happens, those owners would almost certainly file a case against Bank of America. Legal pundits believe if Carlson wins the case, this could set a national precedent and if one or more such cases are filed, the snowballing effect could create a legal tsunami which could potentially rattle the housing market even further and the put the nation’s shaky economy into a tailspin.