(Bloomberg News) Wendell and Margret Brady haven't paid their mortgage in more than three years, withholding the money amid a foreclosure dispute on the couple's 11-bedroom house in Morristown, New Jersey.
The Victorian home, built in 1887 and owned by the retired couple for 38 years, is part of the growing backlog of properties facing repossession in the state, which now has the second-highest serious delinquency rate in the U.S. While shrinking nationwide, the pipeline of distressed real estate, or shadow inventory, is also growing in New York, Connecticut, Maine and Pennsylvania because of state laws that slow the foreclosure process. The Bradys heard nothing from their lender from May 2011, until a letter arrived in the mail last week.
"This was like going back to day one," said Margret Brady, 77, after she and her husband received on Sept. 15 the certified letter saying they must pay $223,730 by the end of the month or face losing the house. "It was like we hadn't gone through any of the stuff of the last three years."
New Jersey's judicial review of all foreclosures, which delays seizures to help borrowers, threatens to hold down prices for years as properties remain subject to repossession and then may be sold at a discount. That's buffeting a housing market already hurt by unemployment that's risen to a 35-year high.
Passing Nevada
The state passed Nevada in the second quarter in the rate of homeowners with seriously delinquent loans -- those 90 days late or in foreclosure -- according to the Mortgage Bankers Association. Only Florida had a higher rate of serious delinquencies, and that fell 1.2 percentage points from a year earlier to 17.5 percent of mortgages. In comparison, New Jersey's rose 1.3 percentage points to 12.7 percent.
While home values increased in July from a year earlier in 42 states, New Jersey prices fell 0.8 percent, according to CoreLogic, a real estate services company based in Santa Ana, California.
"Housing is an albatross around New Jersey's economy, which is one of the weakest in the country," Mark Zandi, chief economist at Moody's Analytics Inc. in West Chester, Pennsylvania, said in an e-mail.
Serious delinquencies as of June 30 were up 6 percent from a year earlier in New York, Connecticut and Maryland, and up 5 percent in Pennsylvania and the District of Columbia, the Washington-based Mortgage Bankers said on Aug. 9. The rate fell by 27 percent in Arizona, 24 percent in California and 14 percent in Nevada, among states worst hit by the housing crisis.
Shadow Inventory
"Shadow inventory is falling in much of the country -- except for the Northeast," said Zandi. "The implication is that house prices will be much weaker in the Northeast in coming years as these distressed properties eventually get sold."