Taxes..Why are they Rising?

TRENTON — As many as a quarter million people in New Jersey — men, women, and children — live on the edge of homelessness because their homes face foreclosure. Those are circumstances that should invite compassion and sympathy from everyone, especially those involved in taking away those homes.

Instead, a report by Legal Services of New Jersey — compelling enough to provoke extraordinary action by the state Supreme Court — depicts the process as almost the legal equivalent of mass slaughterhouses, pushing life-changing decisions through to sad ends without much regard for the niceties of legal process.

Information gathered by the agency "suggests a pervasive, industry-wide pattern of false statements and certifications at various stages of foreclosure proceedings." Over and over again, the report says the system is rife with false swearings, unsupported motions, cases "never subjected to any meaningful judicial scrutiny."

The publication of the report led state Supreme Chief Justice Stuart Rabner to have New Jersey’s courts take steps to end the abuses and possibly punish the abusers — and, perhaps, freeze thousands of impending foreclosures and planned sheriffs’ sales.

Rabner’s actions are impressive. A court in Mercer County issued orders to "six lenders and service providers who have been implicated in irregularities" to show why their operations shouldn’t be suspended, their foreclosures stopped and their corporations fined. A Jan. 19 hearing is scheduled."For judges to sign an order foreclosing on a person’s home, they must first be able to rely on the accuracy of the documents submitted by lenders," Rabner said in a formal statement. "That step is critical to the integrity of the judicial process."

The banks — Ally Financial (GMAC), Bank of America, JP Morgan Chase, Wells Fargo, OneWest Bank, and CitiBank — are fighting back. In similar answers filed with the court in the last few days, the lenders say such actions are unnecessary, unconstitutional, and likely to hurt the housing market.

The court also issued an administrative order to 24 other lenders to "demonstrate affirmatively that there are no irregularities in their handling of foreclosure proceedings.’’ Retired Judge Walter Barisonek will conduct investigations.

And lawyers working on foreclosures now face ethics charges unless they can show they personally know all the paper-work is in order.

Some have called the problem "robo-signing," the preparation and execution of legal documents by people who falsely swear they know what they’re talking about when they don’t.

"Robo-signing doesn’t capture it. You’re talking about fathers and mothers and kids and pets and schools, and all the things that make up living — it’s not just a bunch of technicalities or useless paperwork," says Josh Denbeaux, a Westwood lawyer who specializes in defending foreclosure.

Few families in foreclosure have lawyers — often, they can’t afford them. They rely on courts to protect their interests. But that might not be so wise. As the chief justice himself noted, "Nearly 95 percent of those cases are uncontested, despite evidence of flaws in the foreclosure process.’’

In other words, people may be losing their homes needlessly.

The problem is volume and the complexity of the industry. The number of annual foreclosure filings has tripled in the last five years — in 2010, it reached 65,222. The process of assigning mortgages has become so complicated that who actually owns the debt and can foreclose is hard to determine.

"It’s become a massive factory operation, only it isn’t a factory that produces widgets," said Denbeaux. "It’s a factory that produces heartbreak and insanity."

Denbeaux blames everyone involved — including courts for allowing uncontested foreclosures to be completed without insisting that every technical requirement is met. Winnie Comfort, a spokeswoman for the judiciary, said judges have always relied on representations of lawyers who, it turned out, may not personally know the validity of bank papers. Now, she said, lawyers will be held more responsible and their careers would be in "dire jeopardy" if they don’t comply.

An order signed by Judge Glenn Grant, acting administrative director of New Jersey courts, says the integrity of the judicial process may have been compromised. The "questionable practices," Grant wrote, have the potential of calling into question "the integrity of the judicial system as a whole.’’

The hundreds of pages filed by the six banks in response to the court contend their own reviews came up with problems that either were already resolved, or will be soon. They argue they didn’t seek foreclosures prematurely and have helped borrowers modify their mortgages.

The documents also cite dangers for the court. The GMAC filing warned the court "should not risk stepping into a legal morass." Wells Fargo contends "suspension of sales will not serve the public interest." OneWest contends it can prove all of its foreclosures were appropriate and can prove it "without any need for additional supervision or judicial compulsion.’’

The banks meet the courts in little more than a week.

"The Supreme Court has finally said, 'Wait a second — let’s see what’s going on," says Denbeaux. "The courts have finally come around."

Your Tax money..How do we fix this?

It was a rough year in South Amboy.

Pension costs rocketed even as revenues dropped. The state took back $400,000 in energy taxes. They couldn’t work out an $800,000 land sale. So municipal taxes jumped 13 percent.

It was much the same all across New Jersey. The New Year’s resolution of 2010 may have been fiscal restraint, but according to data compiled by The Star-Ledger, it was a hard vow to keep as local taxes crept higher and higher. And that spells big trouble, many believe, for 2011 when the state clamps down on local spending increases.

The Star-Ledger’s findings show that most towns are not prepared for the state’s new 2 percent ceiling on local tax levies, said William Dressel, the executive director of the New Jersey League of Municipalities.

"On Jan. 1, most town officials, rather than popping the champagne, will be popping the Advil," Dressel said last week. "They’re looking at a very bleak 2011 given all these realities."

That means municipalities will likely continue to cut back on essential services such as public safety and other programs to squeeze under the cap, he believes.

In July, Gov. Chris Christie signed the 2 percent cap on local property tax hikes into law with overwhelming support from state Senate and Assembly Democrats. The measure — which allows exceptions for debt payments, health and pension costs for municipal employees and spending for emergencies — aims to suppress the state’s rapidly growing property tax increases.

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Last year, 70 percent of municipalities saw increases of their property tax levies of 3 percent or more, the analysis shows. More than half raised their levies by 5 percent or more. More than 100 towns saw double-digit increases in local taxes. Only about 60 towns saw their municipal taxes — which account for roughly 29 percent of property tax bills — stay level or drop. Overall, municipal tax levies in the state rose 7 percent.

The paper used statistics from county boards of taxation to analyze 2010 property taxes across New Jersey, using the same methodology the state uses. The state Department of Community Affairs is expected to release its official report in the coming weeks.

There was no set pattern to the tax hikes. They were felt in communities urban and rural, affluent and poverty-stricken.

Woodbridge saw its municipal levy jump by 11 percent. Montclair homeowners dealt with a 9 percent spike. In Somerville, the levy grew by 10 percent.

Irvington residents were smacked with huge tax increases when the local levy rose 42 percent in 2010, one of the highest increases in the state. This, along with county and school taxes, contributed to the average homeowner’s annual tax bill increasing by more than $1,900.

"It’s a stressful time. It’s a new paradigm for all of us," said Irvington Mayor Wayne Smith. "We can’t go back to the taxpayers anymore. We’ve maxed them out."

Smith said the decision to raise municipal taxes by 17 percent in the city’s fiscal year budget last May was "extraordinarily difficult" but necessary — particularly because of ever-growing payments to the state pension system.

"The issue for me is (Irvington’s) pension payment doubled last year, from $3 million to $6 million. Then it went to almost $8 (million) this year. And meanwhile, the state hasn’t paid their share," he said.

What is a levy? What is the cap?

As of 2011, municipalities cannot raise their local tax levy by more than 2 percent, though there are exceptions for debt payments, health and pension costs for municipal employees and funding for emergencies. The cap can be exceeded if voters approve a referendum allowing for it. The tax levy is the amount of money needed to be raised by a municipality, county or state to pay for services outlined in a budget.

Kathleen Witcher, an organizer with Irvington Voice, a taxpayers’ advocacy group with nearly 200 members that sprouted up last year in response to the tax hikes, said residents were incredulous when they received their bills last May.

"They initially felt there was some mistake in their tax bill," said Witcher, who wants the township to do a revaluation of property values and have the state audit the local budget. She added that several friends, faced with unaffordable taxes in Irvington, are moving to states such as North Carolina and Georgia where living costs are cheaper.

At a bill signing before Christmas in Wayne, Christie said he thinks the cap will bring down taxes over the long run, but that changes won’t happen overnight or even within the next year.

It could take a year before tax increases are within the 2 percent cap and even longer to start to be lowered, he said.

"It’s going to take some time to get implemented and righted," Christie said at the bill signing. "This isn’t going to fix it in one year. It’s a 30-year problem."

In South Amboy, a resident living in a home assessed at the city’s average of $280,099 has been forced to absorb more than $800 in municipal tax increases in the past two years. In 2010, the average homeowner’s tax bill went up about $310, most of which came from a 13 percent hike in the municipal tax levy.

Fred Henry, who was to be sworn in as mayor shortly after the new year, said last week that municipalities will keep looking for ways to become more efficient, but added the Christie administration must back up its pledge for reform.

"New Jersey has kind of been out of control. I think everybody recognizes that," Henry said. "The state definitely has to take the lead (on reform). They can’t just say they’re going to do this or that and just throw the rest of the burden on the cities."

Not all municipalities were forced to jack up taxes, however. In Bridgewater, the township’s roughly 270 employees agreed to wage freezes last year, the township reassessed home values and a referendum two years ago eliminated the municipal open space tax, said council president Matthew Moench. Despite losing nearly $2 million in state aid last year, Bridgewater was able to lower its tax levy by about 13 percent.

And yet, together with school and county taxes, owners of a house assessed at the township’s average of $424,238 still saw a nearly $19 increase in their property tax bill.

The dismal financial situation will likely mean a contentious budget season, with substantial cuts and contract re-negotiations all but certain to take the spotlight.

Irvington Council President John Sowell said he is optimistic that the city will negotiate concessions from law enforcement agencies, because they don’t have any other choice.

"It’s either everyone makes a little less or some will make nothing at all," Sowell said. "We’re not threatening anyone, but the numbers are real. We have no other options."

By Stephen Stirling and Karl de Vries/The Star-Ledger

Staff writer Ginger Gibson contributed to this report.