Is the next wave of foreclosures coming in 2022? Dan Deppen welcomes Franco Barile, a Primary Foreclosure Attorney and the Co-Founder of Sottile & Barile. Franco talks with Dan about how COVID has brought several moratoriums on evictions and foreclosures. Plus, the moratoriums expiring in January of next year could lead to the next wave of foreclosures. Join in the conversation as Franco shares amazing insights on how difficulty in hiring employees could lead institutions to sell more of their non-performing loans because they don’t have the resources to handle them. If you want to get an update on the current state of the market, you wouldn’t want to miss this episode. Tune in!
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Watch Out For The Next Wave Of Foreclosures Coming In 2022 With Franco Barile
I’m joined by Franco Barile to talk about some legal stuff and what’s going on in the market. Franco, how are you doing?
I’m good, Dan. How have you been?
I’m pretty well. I’m glad to have you back on here. It’s been a while since we talked on here. A lot of stuff has changed since then. Maybe talk a little bit about who you are, what you do, and then we’ll get into what’s going on.
Thanks for having me, Dan. It has been a while and hopefully, we can meet again in in-person conferences once they open those up. I’m glad to be back. I’m Partner and Cofounder of Sottile and Barile. My partner, Tony, is down in our Loveland office which is a suburb of Cincinnati, Ohio. I’m in Middleburg Heights which is a suburb of Cleveland, Ohio. We represent creditors rights. We represent banks, lenders and investors as we go through the bankruptcy, foreclosure and collections process.
We are contract and mortgage enforcement attorneys. We also do title reviews and a lot on the real estate transactional side for any investors looking to buy or sell or purchase agreements. We also look into deeds, mortgages, land contracts or anything in the residential real estate world that needs a transactional document. We have prepared those documents as well.
We had that slowed down with the pandemic that occurred. Nothing was happening. Everybody was at home and doing their own thing. Things were shut down for a little bit but they have reopened. With the reopening, there have been some regulations put in place that I think some investors maybe weren’t aware of. I freelance it, go through some of the things I have. If you want to interrupt me, it’s up to you how you want to get into that.
If you could give people the lay of the land on where things are now because when I talk to folks, they have different perceptions based on what they’ve heard on the news. Some people think you absolutely can’t do anything anywhere. I’ve seen borrowers sometimes get confused and think, “I don’t have to pay anything.”
“No, you still got to pay.” There is a select group and it’s a large group that while you don’t have to pay, you should pay. Hopefully, you’re in some forbearance. There were some things that happened in 2020 that continued. I’m sure everybody has heard about the moratorium but it has changed. The first thing we saw was in March 2020, everything stopped. I believe it was April 1, 2020, that FHA, Fannie, Freddie, VA, USDA or any government-sponsored entity came out. What they did was put a halt to foreclosures. It was a halt across the board. Any mortgage that was under Fannie, Freddie, FHA were halted as of April 1, 2020. I believe the percentage of loans was in the 90% range that was in Fannie, Freddie or FHA.
That was a large swath of America. Policy-wise, it made sense to put a halt to it. Where it went off the rails is when it kept getting continued every 30 days. A lot of the states started reopening. Ohio reopened fairly quickly. By mid-May 2020, not all places were open but about 75% of places were open. Come end of June, everything was open. A lot of states endorsed that towards the summer or fall time in 2020. You see a lot of reopening. I’m not sure in your state, Dan. Did you see a quick or a slow reopening?
I don’t have any notes in Colorado where I live. In summer 2020, I did one in Nebraska in August. I did a forfeiture and an eviction. It was no problem.
You can get away with it in a lot of the states. That moratorium was on those mortgages. They were the ones that were Fannie, Freddie or FHA. That was a lot of mortgages. Maybe not in the investor world that you deal with, Dan, but the big banks. If you look at the big banks here in Ohio like Huntington Bank, Fifth Third Bank, and a lot of these banks that held a lot of those mortgages, they were on hold as of April of 2020. That got extended every 30 days. There was another extension. Some extended at 60 days or 90 days. Finally, there was a drop-dead date of July 31, 2021. You were looking at well over a year of a halt. While that was happening, the CFPB was meeting. They were trying to figure out how to extend this even further.
Their policy behind it made a little bit of sense because these forbearances that were put in place in April of 2020 had an eighteen-month shelf life. In eighteen months, the borrower’s going to have to go back to whatever their loan was. That almost coincided with the July 31st drop-dead date of 2021. The CFPB came out and said, “A lot of these forbearances could be defaulted. We want to find a soft landing so that we don’t have thousands of foreclosures per month.” At the end of July 2020, there was no longer an FHA, Fannie, Freddie moratorium. There was a 30-day window where foreclosures were opened. You could do anything. Whatever type of loan it was, you can do it.
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The CFPB already had a rule that would be in effect in August. August 31st is the effective date for what we call the CFPB moratorium. You have 30 days where you can do whatever you wanted. We talked to a lot of mid-tier servicers, a lot of banks we dealt with. They said they’re not going to touch August. They’re going to wait and see what that final rule is, then they’re going to base it off that rule. That final rule came into effect on August 31st.
I still consider it a pretty large moratorium. What it does is it stops you from filing a foreclosure that’s within certain guidelines. Any servicer that has more than 5,000 loans, which is almost every servicer. They would have a moratorium on their foreclosures. One of the major exceptions to the rule where you can foreclose is that the borrower had a default date previous to November 1, 2019. Any date prior to that, there’s no moratorium proceed. Also, for any case that was already filed, you can continue to proceed as well. It’s only an initial filing.
If the borrower fell behind prior to all this, then all bets are off.
I’m glad they at least came to that because if that borrower is not going to apply for a forbearance, that borrower is not going to do a loan mod. They’re just sitting there and waiting then let’s do a foreclosure on those people. Policy-wise it makes sense. That would provide that soft landing to allow the investors to foreclose. For the borrowers who are still in trouble, their forbearance is going to end if they give them a few more months. It was helpful to at least have that exception. Beyond that, there were a few other exemptions that a lot of our servicers and even bank said, “Forget it. We’re not going to even bother.”
There was a 36-day and a 45-day window. You had to contact the borrower. There’s a timeline of when they’re supposed to contact you. We created a checklist within our firm. It’s about a four-page checklist. As you go through it, you might get to the end saying, “Is it worth it?” This regulation sunsets on January 1st, 2022. A lot of banks and servicers say, “Unless we’ve got a borrower that was defaulted pre-November 2019, anything else, maybe let’s just wait.” We have had some servicers that say, “No. We did the checklist too. This borrower fits under this checklist. Proceed with foreclosure.” We take those and we file foreclosures in those cases. There are a lot of other mid-tier banks that aren’t willing to do that.
There is too much on the compliance side to try to make sure their staff knows what they’re doing for the regulation and then enforces it. There’s a lot that can happen that can spiral out of control. Here we are on October 26, 2021, and we’re two months away. I do believe it’s going to sunset. They’re going to come out and extend it. They call them procedural safeguards. The rule itself says that they’re going to end on January 1, 2022. Our thinking is January 1, 2022, all bets are off, foreclosures are back, banks can refer to foreclosures. There’s no exemption. It’s back to the way it was in 2019 and it’s free for all. I don’t think January, but February, March, April 2022, I don’t know what is that going to look like.
That’ll be an interesting time to see because it seems like there’s this backlog built. I always found it humorous when you make contact with borrowers or hear back from the servicer. It’s like, “I can’t pay because of COVID.” I’m thinking like, “You didn’t pay years before that.” It may have caused the problem but there were issues before that.
There are many forbearances that were given out. Even working with you, you’ve always done it. You’re always going to work with the borrower. What we’re seeing too is some investors and some mid-tier banks that are selling some of their loans. They don’t want to deal with this anymore. They don’t want a moratorium. They’re losing everything. You’re seeing big banks gobble it up.
The policy is almost backwards. You’ve helped the borrower by not foreclosing, but now that loan with the borrower with a good investor where that borrower can contact the investor, contact that mid-tier bank, now they have to contact the monster bank which has many different staffing, people and maybe they’re not even within the country. The policy went a little backwards. If this does stop in January, it needs to come back. If it’s going to be a lot of foreclosures, it’s going to be a lot of foreclosures.
Maybe then the borrower will come and seek that relief that maybe they didn’t seek during the pandemic. Maybe then that’ll help, but I don’t have any inside track. I don’t know what’s going to happen. I remember the numbers in 2019. I know the numbers in 2020 and 2021. Unless everybody’s paying on their loan, all of a sudden, either we are going to have a lot of foreclosures or nobody’s in default.
This is probably not the case. Do you think some of those smaller and mid-tier banks will just sell some of those loans rather than go through the legal process?
We saw some of that through a couple of documents. We saw some of that with some smaller clients. It’s not that they’re not willing to wait. It’s that they’re going to lose more money every month because they’re dealing with borrowers that did default in early 2020. They don’t fit under the CFPB exemption. Now they have a decision, “Do we send these letters out en masse and see if borrowers respond, get into a loan mod, go through the checklist, and then go through foreclosure? Is it just not worth it?” There are staff shortages everywhere. Everybody’s dealing with staff shortages. That’s not immune to our firm and to these banks. Everybody’s having those issues. If you’re adding more regulation on top of it with short staff, you’re better off saying at the bottom line, “Let’s sell it. Cut our losses. Next year let’s retool.”
I hadn’t even considered that how staffing shortages could affect banks, hedge funds, and whether they’re going to work things out themselves or sell them off.
The larger banks so far are doing pretty good on the wayside. They’re waiting it out and seeing what’s going on but it is anybody’s guess in 2022. We’re already starting to see some of the housing prices drop a bit but I think there’s a correlation between barely any REOs in 2020 to 2021 to the housing prices that we’ve seen. There’s not enough inventory. You knew that the REO market depressed the value of some of these houses. It’s almost not fair. Some people can’t get into the market, even just regular people trying to get a house can’t get a house. They are overvalued and if they do, if what I think is going to happen in 2022, those prices are going to drop heavily. You’ve got a mortgage that’s $200,000. Now your house is valued at $150,000. It’s going to take forever to get your equity.
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I know here in Colorado, housing prices are nuts. It’s not quite as bad as California yet. If you’ve got a family that was like a school teacher and someone who works on an hourly job, I don’t know how the math works on those. I bought a new house and I basically overpaid.
Sometimes if you want your forever place, it doesn’t matter what the market’s going to look like. The ones that are moving sideways or trying to move up a little bit, and then they’re maybe selling that house next time, that’s the housing market. You buy a house after five years, you look around like, “I either fix this one up or I move.” A lot of them will do move. This is a tough market for it because you might be able to sell your house at an extreme level, which is much higher and that’s good for your pocketbook, but now you have to go find that house. Unless you’re going to sell your house, move into an apartment, or move in with a friend and buy in 2022, it’s a difficult time to figure out what you’re going to bring next.
If I’m wrong, the moratorium lifts and there isn’t a lot of foreclosures, I think it’s another year of increased prices and maybe some more REOs to depress the value a little bit. What we don’t want to see is a ton of REOs and depress the markets so much as we saw in 2007, 2008 or 2009. It lasted through 2012, 2013, 2014. You don’t want that either. I do believe these are unchartered waters. We have never been through it. We’ve never had this type of moratorium. What is it going to look like is anybody’s guess. My guess is if you want to buy houses in an REO market, 2022 is going to be your time. Maybe towards the end of 2021.
My hope is it’s a soft landing. Almost like a return to normalcy in the market but hopefully, not a massive one.
As far as Fannie, Freddie, FHA, that ended on July 31, 2021, the CFPB kicked in August 31st. From August 31 through December 31, 2021, I can’t even call it a soft moratorium. It’s still a hard moratorium. You can fit into some exemptions to get yourself into foreclosure land as an investor. Just know that a majority of those properties are still under a moratorium. In January, everything is out open and banks are going to start unloading on some of these loans. Maybe the foreclosure helps people come to the table and allows them for mediation to fix their loan but almost two years worth. It’s time.
A lot of those forbearance agreements that the banks are doing, I heard at the beginning of COVID that they were doing the six-month forbearances, but they basically had a balloon payment at the end of it. I’m like, “how does that work? If somebody can’t pay for six months, where are they going to cough up?
They kept pushing it out. They allowed those to go to the back of the loan. From what I’ve heard, the majority of those forbearances were 12 to 18 months. There was a lot being forbear. You do know the forbearance when you get into a loan model. A lot of those dollars are going to the back of that loan. It’s going to inflate those mortgages even more. That’s the ugly underbelly of forbearance. You’re forbearing your loans. That can be troubling down the road.
It’ll be interesting when all ends to see if people get back on track. I would think at least a lot of the loans that I own, they’re $100,000 properties. It’s like when McDonald’s is paying $18 an hour to start. With the labor shortage and the way wages are inflating, unless you have some serious medical issue or something unusual going on, you should be able to get that figured out.
We don’t know. With the labor shortage, as soon as Ohio removed those extra federal benefits, the market would open up again. There will be a lot of people that are looking for jobs. It didn’t happen. I was already wrong on that end. It’s like, “What is it then? What is going on?” There are many things that we don’t know, “Why is there a labor shortage?” In the State of Ohio, are they giving things out? I don’t know where people’s income would come from. I guess there must be some COVID relief out there that I’m unaware of.
I’ve been puzzled myself. I’ve been thinking about that as well. I was talking to somebody about it with a friend. I’m like, “Am I doing something wrong? I don’t understand. Am I missing out on something?” It doesn’t add up. I wouldn’t think that people could say, “I’m not going to work for an extended period.” Even if you’re not paying rent or paying the mortgage, at some point, the push has to come to shove. I don’t get it.
I’m wondering if there is assistance coming either from the Federal Government or from the states. I don’t know. How long can you stay out? If that’s what it is, then maybe they stay out longer. As for 2022, at least the housing market maybe will change a bit with added foreclosures. It’s here. It’s coming. We’ve prepared for or preparing for 2022 with staffing. While we don’t have a lot of foreclosures, we still have quite a bit of collection of bankruptcy. We are still seeing a steady amount of foreclosures come to our office, but we are anticipating in 2022 a growth in the foreclosure department just to see what happens in January, February, March. That first quarter is going to be telling. If we don’t see that pickup, then maybe it’s going to level off nicely.
If it’s going to pick up, we needed to be ready. We’re cleaning things up, making ourselves a little more efficient in preparation for what we think is coming. Besides those moratoriums, the CFPB during the pandemic had a final rule that they were going to place on debt collection. There’s so much baked into that rule. It adjusted the FDCPA a bit. It didn’t do a tremendous amount on the FDCPA but what it did for my firm is it created a new notice that we have to send to borrowers.
Typically, with our collection department, our foreclosure department, any type of notice that we give to the borrower, we call it our FDCPA notice. It gives the borrower notification of, “Here’s the amount of the debt. Here’s who owns the debt. If you want to dispute the debt, you can do that. If you’re going to do it, you have to do it in writing. If you want to know who the original creditor is, you can do that in writing.” We have so many different things in our letters. If you filed for bankruptcy and received a discharge, you’re not personally obligated on loan, but we can go after you for foreclosure. That was all baked into the notice.
Is that like a pre-demand letter that goes out?
If we send a demand letter, that FDCPA notice is baked into the demand letter. You send a demand letter as the investor, we get it. We also have to send the FDCPA notice. Even though you send your own demand letter, we also have to send an FDCPA notice. It doesn’t stall the foreclosure for doing that because what’s baked into the letter is we don’t have to stop filing lawsuits in that 30-day window for disputing the debt. If the borrower disputes the debt within 30 days, we have to stop.
Let’s say we file a foreclosure. We have to stop the foreclosure and validate the debt. Once we validate, we can restart the foreclosure. The validation process is very quick. It’s a letter going back to the borrower that says, “Here’s the original creditor attached to the payment history. Here’s the note mortgage. Here’s everything.” We send those out within 24 to 48 hours of receiving a dispute, and then we’re back in the foreclosure land. You get the dispute at one time. Once you dispute it, you’ve got everything and now you can fight legally as a borrower if there are other issues going on.
Our letter was about two pages. This new notice is one page. It reads like a statement from a bank. It has what you owe up top. At the bottom, it has a tear-off portion where you can check a box for dispute, pop it on the mail, send it back to the law firm. You have an option of emailing the dispute. In our letter, it tells you where to email it. It’s a one-page document. I believe we’re probably going to get more disputes on these types of letters because I got to be honest, it’s more understandable. Our letters, you can understand it, but they came from a law firm. Some people get scared of that and say, “I’m not going to even touch this letter,” and then throw it out.
Now it looks like a bank statement. People are going to open it, then they’re going to say, “I remember having this car. I’ve got a house. I know what’s owed. Let me just dispute it. I’m just going to cut it, put it in an envelope, send it back.” It’s a lot easier to dispute. I think we’ll get a lot more disputes but it’s not going to change our validation process. In 24 to 48 hours, it’s going to get validated and we move forward. The only issue is we’re probably going to see a higher volume of these disputes.
I’ve got one going right now with your firm with the guy’s disputing it. I don’t think I’ve ever had that before.
As a borrower, as a debtor, it’s easy to dispute. “I dispute that. I don’t agree with it.” “Dan, your company owns the debt loan.” “I don’t know who they are. I signed this with US Bank. I don’t know who you are. I dispute that.” You can do that but just remember, it’s going to get validated very quickly. I don’t know what other firms do but most firms are pretty quick at validating that debt. I don’t want to say there’s very little to dispute. They can dispute anything they want on the debt but the bottom line is it’s usually the amount that’s owed and “I don’t owe it to you. I don’t remember signing it that day or somebody else signed it for me.”
Whatever we do to validate, we validate. The borrower always has a right to get an attorney and dispute it legally as well. This notice is one step of the process for the borrower, but they have that right. Within 30 days of this notice, they have the right to dispute that debt. It makes it a lot easier for them to do but on our end, we can flip those around and get it back into the legal process pretty quickly.
I’m curious to see what the borrower’s behavior is going to be when things open up potentially. During COVID, I was surprised because when COVID hit, I thought, “Everything in my portfolio was going red. This is going to turn ugly,” but borrowers hung in there way better than I would’ve expected. I had some other cases, but my portfolio is sketchy, to begin with. A lot of those people don’t pay when things are good. I thought payments were going to fall off a cliff and they didn’t. They at least stayed the same, if not almost got better. I don’t know if some of that was because of some of the stimulus money and other things that were coming.
There’s a lot of stuff that was going around, but it all goes back to you as an investor. If you’re a reasonable investor and you’re looking at your bottom line, you know what you bought your asset for, you know what you can deal with the borrower, and you give back to the borrower. You’re like, “I’ll deal with you,” but you got to make consistent payments. You’ll see a borrower is more likely to deal with you as they would maybe with a larger bank saying, “I don’t want to go through these hoops. I’m just going to stay in here and wait my time.”
With you, it’s a phone call. They’re talking to you or whoever you bring on as staff and it’s close-knit. It’s almost like a community. I would love to do an episode in March 2022 because then we can say what’s the borrower’s behavior. If the CFPB extended their moratorium, there’s nothing to talk about. If it does at the end of January 2022, I’d love to do this again. I’m sure we both will have some experiences in that first quarter that we can at least say, “Do you remember that episode in 2021? Now we at least have some answers.”
I always like making predictions to see what happens. Most of my predictions for the last couple of years have been bad. When COVID hit, I thought all the borrowers are going to stop paying and real estate prices are going to tank. The borrowers hung in there and real estate prices climbed. I did not see that coming at all. I was ready to hold onto my hat, but then things were okay. If I had it to do over when everybody was panicked, I would have loved to have gone out and bought a bunch of stuff. There were a couple of opportunities, but then all of my investors were sitting on their hands too. Even if I had known it, it would be tricky to take it on.
Maybe at that time, you’re sitting back and waiting. That’s a hard part on an investor, to sit back and you’re probably still seeing deals. I’m sure they’re higher priced and saying, “I haven’t bought in a while. I want to buy. I want to do something.” Patience is very hard now but if you have it just look at 2022. It’s either going to be the same or lower. Can housing prices get higher in 2022? Yeah. The moratoriums continue to persist but if they don’t, I don’t know. I don’t have good advice on housing prices getting higher. I don’t see it in the tea leaves.
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There’s a limit on what people can afford to pay every month for their house, even if they’re willing to pay more. You run into some natural limitations where people can’t go any higher. It’s already more of an extreme than I would have ever anticipated several years ago.
Our firm was still able to move forward with foreclosures. On our collection side of things, Illinois was a little rough. They had a moratorium for a while, but the other states as of 2020 were pretty open. Courts did shut down for a little bit too, but they turned around and reopened. Fall time in 2020, all of our states were open except for Illinois. There were no collection efforts for a period of time. I know it hurts some of the firms in Illinois who do collections.
What the previous administration did for companies with the PPP loan and keeping that going, without that, we’d see more companies go under. I think you see different things happen. At the end of the day, did we need it? Probably not, but at the time, we needed it. We don’t know what’s going to happen. We might be one of those states that do not call attorneys essential. We were shocked to see attorneys were essential in Ohio.
Probably some attorneys lobbied and got that. That’s what happened.
In Michigan, they were not considered essential at first. As things opened up, they were allowed to do more, so it made it a little easier. We’re in 2021. Most states are opened up. We’re waiting now for the CFPB to back away. Once that happens, in January 2022, I think we’re in good shape. We’re back to where we were in 2019. Let’s hope it’s not a complete downfall and it will ease itself through the whole year.
Franco, thanks for coming on. Let’s definitely sync up in early 2022 and see how things are going. In the meantime, how can people get ahold of you if they need help and in your states, especially for doc reviews and things like that? I know you’ve done both of those.
We did do less of those in 2020 but we’re back on the transactional side, title review, collateral review, and any type of transaction. We talk about land contracts to those as well. You can call me by phone, (440) 572-1511. Catch me on my email at Franco.Barile@SottileAndBarile.com. You can also go to our www.SottileAndBarile.com. There’s a Contact Us page. We’re here to help. Once conferences are back up and running in-person, we’re ready to go. Some of the Zoom stuff we want to do less of. We want to meet more people in person once they’re all ready. In 2022, if the conferences are in-person, we’re there.
Thanks. We’ll see you next time.
Thanks, Dan. I appreciate it.
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About Franco Barile
Franco was licensed as an attorney in 2006 after graduating from Thomas M. Cooley Law School with a Juris Doctorate and from John Carroll University with a Bachelor of Arts in Political Science. Upon graduating and passing the Ohio Bar, Franco began working for a large firm in the Northeast Ohio area. Franco honed his skills as an attorney handling a variety of real estate foreclosure issues, collection matters, title issues and transactional work during the years since he was first licensed and eventually opened Sottile & Barile, Attorneys at Law in 2015.Love the show? Subscribe, rate, review, and share!
