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SJC again busy with foreclosures this term
We know a lot of folks on this blog have foreclosure fatigue, but the Supreme Judicial Court has a busy Fall Term with several important foreclosure cases on the docket. Here's a quick summary from Attorney Richard Vetstein:
HSBC Bank v. Jodi Matt (SJC-11101) The SJC is considering whether a mortgage servicer holding a securitized mortgage has standing to even begin a foreclosure action in the Land Court under the Service-members Civil Relief Act–one of the first steps in the Massachusetts foreclosure process. I wrote about this case in a prior post here. This ruling will affect just about every conventional mortgage foreclosure in the state. The lower court Land Court opinion can be read here. The court asked for friend-of-the-court briefs, and the Real Estate Bar Association filed a brief supporting the foreclosing lenders. Glenn Russell's brief for the appellant Jodi Matt can be read here.FULL ENTRY
Oral arguments were held in early September, but unfortunately the webcast is unavailable. One of my sources told me that the justices were very active and peppered both attorneys with lots of questions.
Following the recent Eaton v. FNMA case, which held that a mortgage servicer may foreclosure upon a showing of proper agency and authority, I predict that the Court will ultimately hold that servicers and lenders holding rights to securitized mortgages have legal standing to start the Service-members Civil Relief Act proceeding, even if they merely hold a contractual right to the actual mortgage. The most compelling rationale for such a ruling is that the only purpose of the Service-member proceeding is to ascertain whether the borrower is in active military service. It is not intended to be a forum to litigate issues relating to the propriety of securitized mortgage transfers and contractual standing.
Coakley picks fight with GSE's
Attorney Richard Vetstein has the next thing about foreclosure and the law. Today, he discusses Martha Coakley's fight with the Fed over the new Massachusetts Foreclosure Act.
Demands Fed's compliance with new loan modification lawFULL ENTRY
Attorney General Martha Coakley is picking a very public fight with federal mortgage giants, Fannie Mae and Freddie Mac, in the wake of the new Massachusetts Foreclosure Prevention Act earlier in August. The new law requires that lenders first explore loan modifications before starting foreclosure proceedings. Fannie and Freddie control approximately 60% of all U.S. residential mortgages.
In a letter broadcast to the press last week, she demands that "Fannie Mae and Freddie Mac, like all creditors, to comply with these statutory obligations as they conduct business in Massachusetts. These loan modifications are critical to assisting distressed homeowners, avoiding unnecessary foreclosures, and restoring a healthy economy in our Commonwealth," Coakley said. Stefanie Johnson, a spokeswoman for the Federal Housing Finance Agency, said, "We are reviewing the letter and will respond soon."
The fact that AG Coakley had to write the letter begs the question. Will Fannie and Freddie comply with the new Massachusetts foreclosure law? Maybe not, if past performance is any indicator of future results.
Foreclosure Prevention Act passed
I depend on Attorney Richard Vetstein for the news about foreclosure and the law. Today, he discusses House Bill 4323.
On August 3, 2012, Massachusetts Governor Deval Patrick signed into law what's been called the new Foreclosure Prevention Law. The text of the law can be found at House Bill No. 4323. The new law makes significant changes to existing foreclosure practices, and also attempts to clean up the recent turmoil surrounding defective foreclosure titles after the U.S. Bank v. Ibanez and Eaton v. FNMA rulings, an issue for which I've been advocating for years. It goes into effect on Nov. 1, 2012. A quick summary is as follows with details below:FULL ENTRY
• New requirement that mortgage assignments be recorded
• New mandatory requirement to offer loan modifications and mediation to qualified borrowers
• New Eaton foreclosure affidavit confirming ownership of note/mortgage loan
• Protection for third party buyers of foreclosed properties
Mortgage assignments must be recorded
Going forward, a foreclosure may not proceed unless the entire chain of mortgage assignments from the original mortgagee to the foreclosing entity is recorded. This is a statutory codification of the recommendation of the SJC in U.S. Bank v. Ibanez case, and should provide some well-needed clarity for titles. Under the new law, no foreclosure notice will be valid unless "(i) at the time such notice is mailed, an assignment, or chain of assignments, evidencing the assignment of the mortgage to the foreclosing mortgagee has been duly recorded in the registry of deeds . . . and (ii) the recording information for all recorded assignments is referenced in the notice of sale required in this section."
Unfortunately, the new law does not address defective foreclosure titles created before the Ibanez decision, as we were hoping. Accordingly, folks who are still waiting for legislative help to cure their defective foreclosure titles may be left without a remedy.
Score one for lenders and mortgage servicers in long-awaited Eaton v. Fannie Mae Case
Attorney Richard D. Vetstein is here on a Monday to explain the news about the SJC ruling on Easton versus FNMA.
The Massachusetts real estate community has been waiting 8 long months for a decision from the Massachusetts Supreme Judicial Court (SJC) in the much anticipated Eaton v. Federal National Mortgage Association case. Link The decision came down Friday, and now that the dust has settled, I don't think there is any question that lenders and the title community have been given a judicial Maalox.
Unity endorsed, a foreclosing lender must "hold" both note & mortgage
The first issue considered by the court was the fundamental question of "unity" urged by the Eaton side: whether a foreclosing mortgagee must hold both the promissory note (underlying indebtedness) and the mortgage in order to foreclose. After reviewing Massachusetts common law going back to the 1800′s, the Court answered yes there must be unity, reasoning that a "naked" mortgagee (a holder of a mortgage without any rights to the underlying indebtedness) cannot foreclose because they don't hold (or more accurately, cannot prove they hold) the underlying indebtedness. If the Court stopped there, lenders and MERS would have been in big trouble. But the Court significantly limited the effect of this decision.
Disaster averted: ruling given prospective effect
Swayed by the arguments from the Massachusetts Real Estate Bar Association that retroactive application of a new rule would wreak havoc with existing real estate titles in Massachusetts, the SJC took the rare step of applying its ruling prospectively only. As Professor Adam Levitin (who drafted an amicus brief) noted on his Credit Slips blog, this "means that past foreclosures cannot be reopened because of this case, so the financial services industry just dodged billions in liability for wrongful foreclosures and evictions, and the title insurance industry did as well." So going forward, lenders must establish unity of both note and mortgage, but past foreclosures are immune from challenge.
Blocking the "buy and bail"
M. wrote:
… I found something out over Easter regarding moving from a two family to a single family that I had never heard about before.
If I own a 2 family home that I plan on keeping and I am qualifying for a mortgage on a new single family home. I can only use income from one of the units unless I have 30% equity in the MFH. It's to prevent homeowners from buying a single family home and then letting the MFH go into foreclosure? I assumed that if you rented both units, the lender would consider both rents towards your new mortgage qualification.
My quick answer was:
It is an interesting question. However, I don't think the qualification rules are as foreclosure-related as you think they are. It could be pure income guideline at work. FNMA counts part of rental income – not all of it – toward qualifying for another mortgage. FNMA may not be willing to count the second rental income unless the owner has a lease in hand from a verified (real) renter who will be moving in at a certain date. Since it is hard to pin a renter down months ahead of time, it may be near impossible to prove one has a renter.
It is a similar problem that a SF house owner has when that owner is moving up or downsizing. Frequently, the owner cannot own both properties simultaneously because his/her income cannot carry that level of debt. Those owners need to sell their current house first, then buy the trade-up or trade-down property.
For a more detailed answer, I tapped Amy Tierce of Fairway Mortgage. From what she says, the lenders set these rules, at least in part, to limit the "buy and bail" tactic.FULL ENTRY
Massachusetts appeals court drops the eviction hammer on post-foreclosure squatters
If it is about foreclosure and the law, it must be Attorney Richard D. Vetstein
Common eviction defenses ruled unavailable to squatters who lived rent/mortgage free for 3 yearsFULL ENTRY
In a April 10, 2012 ruling, the Massachusetts Appeals Court just made it easier for foreclosing banks to evict squatters of foreclosed properties. This is one of the few pro-bank Massachusetts decisions coming out of the foreclosure crisis, and should help speed up the disposition and sale of foreclosure and REO properties which, in turn, should help the housing market.
The case is Deutsche Bank v. Gabriel, and can be downloaded here. The defendants were all members of a single family living at 195-197 Callender Street in Dorchester for over 28 years. In 2006, the property went into foreclosure, and Deutsche Bank acquired title by foreclosure deed. As has become common in neighborhoods throughout Boston, the foreclosed upon family refused to leave, and Deutsche Bank brought eviction proceedings against them.
Legislative help for Ibanez victims?
Attorney Richard D. Vetstein is here today with more on Ibanez.
Massachusetts lawmakers have taken action to help innocent purchasers of foreclosed properties in the aftermath of the U.S. Bank v. Ibanez and Bevilacqua v. Rodriguez decisions, which resulted in widespread title defects for previously foreclosed properties. The legislation, Senate Bill 830, An Act Clearing Titles To Foreclosed Properties, is sponsored by Shrewsbury State Senator Michael Moore and the Massachusetts Land Title Association. The bill is now before the Joint Committee on the Judiciary.FULL ENTRY
The bill, if approved, will amend the state foreclosure laws to validate a foreclosure, even if it is technically deficient under the Ibanez ruling, so long as the previously foreclosed owner does not file a legal challenge to the validity of the foreclosure within 90 days of the foreclosure auction.
The bill has support from both the community/housing sector and the real estate industry. Indeed, the left-leaning Citizens' Housing and Planning Association (CHAPA) has filed written testimony. in support of the bill. Critics, however, will argue that this is another form of "bailout" of the banks.
Properties afflicted with Ibanez title defects, in worst cases, cannot be sold or refinanced. Homeowners without title insurance are compelled to spend thousands in legal fees to clear their titles. Suing the big banks is not an attractive option for cash strapped homeowners. Moreover, allowing such foreclosed properties to sit and languish in title "purgatory" is a huge drain on individual, innocent home purchasers and the housing market itself.
Banks hiding foreclosures?
At least one major bank is barring agents from advertising homes as "foreclosed" or "bank owned."
Basically, if you are interested in buying a house, you may not find out the key fact that you are looking at a foreclosure special until you get there and look at the paperwork.
For its part, bank in question has argued it's all in the interest of stabilizing neighborhoods and home prices.
How considerate!
OK, were any foreclosures handled correctly?
The $25 billion foreclosure fraud settlement sounds like a big number, and it is.
But is it possible the banks are getting off too easy?
One reason for caution is the lack of real data – at least in the public domain – on the foreclosure fraud issue.
Still, there's a dearth of stats on widespread foreclosure fraud has been and what types of abuses were most common.
Luckily, a few intrepid local officials around the country have taken matters in their own hands.
And the results have been nothing short of startling, the Reuters finds in a roundup of some these local reviews.
Big foreclosure settlement. What will the future bring?
Yesterday, things changed for home owners who lost or are losing their properties to foreclosure. Massachusetts Attorney General's office was part of a national settlement with Ally Financial, Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo. (This agreement includes 49 states -- including all six New England states.)
Here are the main points:
It's a big settlement. $25 billion.
It affects borrowers who were foreclosed on from 2008 – 2011.
It has provisions for financial relief in the form of reductions in loan principal, a lower interest rate, or cash payments. The rules about how these benefits will be distributed will vary from lender to lender. The lenders have three years to complete the settlement terms. They need a month or two to get their systems in place. (So, if you are involved, expect to not know how it will affect you for a while.)
Who qualifies, generally?
Loan modification will apply to borrowers who are behind in their payments and at risk for foreclosure.
A cash payment of an estimated $1500-$2000 will be given to owners who were foreclosed on between 2008-2011. (The amount will depend on how many people file claims.)
Borrower's rights:
Those who are in the process of modification cannot be foreclosed on mid-stream.
Foreclosed homeowners have not waived their right to sue lenders on their own.
Should struggling homeowners get years, not months, to work out their problems?
That's exactly what a proposal now being hotly debated on Beacon Hill right now would do, turning what is now a months-long process into one that could drag on for years.
But you first have to cut through a fair amount of baloney - from both the activists and the banks - to figure that out.
A coalition of anti-foreclosure activists and union officials wants to give homeowners facing foreclosure the chance to make their case to a judge.
As it stands right now, lenders in Massachusetts simply have to file a petition to foreclose if you fall behind on your payments, and, within a few months, your home could be on the auction block.
And that's more in theory than in actual practice, with state land court already so backlogged it now takes on average just over 11 months from the time of the first foreclosure notice to auction.
"Banks and lenders, through their predatory practices, put people in positions where they can too easily rip away their homes and their property," Tim Sullivan, spokesman for the AFL-CIO of Massachusetts, argued at a State House hearing yesterday, according to this account in State House News. "How do we make it harder for them to rip away the American Dream?"
OK, there is clearly a fairness issue here. But if the experience in other states that have judges review foreclosure cases is any indication, we are looking not a minor tweak here, but a pretty sweeping overhaul of the state's current foreclosure system.
SJC concerned with toxic foreclosure fallout
Attorney Richard D. Vetstein reports on another court case about foreclosure paperwork problems.
The Supreme Judicial Court has just issued an unusual order in the very important Eaton v. Federal National Mortgage Association case, indicating its deep concern over whether an adverse ruling against foreclosing lenders will have a disastrous impact on foreclosure titles and, if so, whether its ruling should be applied prospectively rather than retroactively. The Court is seeking supplemental briefing and friend-of-the-court briefs on these decisive issues. A final decision is expected in February or March.FULL ENTRY
As outlined in my prior post on the case, the Court is considering the controversial question of whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. If the SJC rules against lenders, it could render the vast majority of securitized mortgage foreclosures defective, thereby creating mass chaos in the Massachusetts land recording and title community. If you thought U.S. Bank v. Ibanez was bad, Eaton v. FNMA could be Apocalypse Now.
"Inertia is not an option" on loan mod
Who is at fault, legally, if a loan goes into default because of delays in loan modification paperwork? Attorney Richard D. Vetstein reports on a recent court case.
The fallout from the sub-prime and mortgage crisis continues in Massachusetts courts, and some judges are reacting in favor of sympathetic borrowers. In Parker v. Bank of America, Massachusetts Superior Court (Dec. 15, 2011), Judge Thomas Billings considered what is unfortunately now a very common fact pattern in borrowers' quest to have their lenders approve loan modifications, or loan mods.FULL ENTRY
A common story of lost paperwork and ineptitude
In 2007, Valerie Parker granted first and second mortgages on her home in Lowell to Bank of America. She paid the loans on time for the first 24 months. As the economy worsened, however, she anticipated difficulty in making payments, and so she called BofA for advice. The bank told her that because the loan was not in default they could not help her, and that she would have to cease payments if she wanted their assistance. (Is this not one of the most ridiculous, yet common, responses lenders give to troubled borrowers?)
After a lengthy period of lost and repeatedly re-submitted paperwork, BofA informed Parker she qualified for HAMP (Home Affordable Modification Program) relief, underwent a lengthy financial audit over the telephone, and was promised follow-up documentation and a halt to further collection and foreclosure efforts. BofA repeatedly lost her paperwork; she had to submit and re-submit documents; and she spent hours at a time on hold, waiting to speak with a human being. She did, however, receive the bank's verbal assurance that she was "pre-qualified" for the HAMP program and that confirmatory paperwork would be forthcoming. BofA never sent the promised documentation, however, and refused to approve a loan modification. Lengthy and repeated telephone calls produced no documents, no approval, and no progress.
AG Martha Coakley files major civil action against big banks
Richard D. Vetstein writes this week about the good and the bad side of Attorney General Coakley's lawsuit against five big lenders.
FULL ENTRY"It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness…" — Charles Dickens, A Tale of Two Cities
Breaking away from the proposed 50 state attorney general settlement talks, Mass. Attorney General Martha Coakley has filed a monumental consumer protection lawsuit over wrongful foreclosures against the top 5 U.S. lenders, Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial. Coakley also names Mortgage Electronic Registration System, or MERS, the electronic mortgage registration system which proliferated during the securitization boom of the last decade. The lawsuit said it sought "to hold multiple banks accountable for their rampant violations of Massachusetts law and associated unfair and deceptive conduct amidst the foreclosure crisis that has gripped Massachusetts and the nation since 2007." Specifically, Coakley blames the banks for not complying with the U.S. Bank v. Ibanez decision in foreclosing mortgages without evidence of legal ownership of the underlying debt, improper statutory foreclosure notices and illegal "robo-signing."
With full subpoena and document production power available to her, Coakley will be one of the first state regulators with the power to pour over bank files. It'll be very interesting to see what she discovers.
Do homeowners who lost it all in flawed foreclosures deserve a second chance?
The Feds have launched a massive review of homeowners who lost everything in foreclosures that may have been seriously flawed.
Banks last week began sending out an estimated 4.5 million letters to homeowners who were in some stage of the foreclosure process in 2009 and 2010, informing them they may be eligible to have their files reviewed.
These include victims of robo-signing, in which banks churned out foreclosure documents in assembly-line fashion without checking the accuracy.FULL ENTRY
Bevilacqua v. Rodriguez: What Now For Faulty Foreclosure Titles?
Were this print media, I would call this "hot off the presses." Another foreclosure title case was decided and here's Attorney Richard D. Vetstein with the summary:
The Massachusetts Supreme Judicial Court ruled today in much anticipated Bevilacqua v. Rodriguez case. (Text of case can be read here.). The final edict is mix of bad and good news for owners of property whose titles have been rendered defective due to improper foreclosures stemming from the landmark U.S. Bank v. Ibanez ruling last January. The Court held that owners cannot bring a court action to clear their titles under the "try title" procedure in the Massachusetts Land Court. Left open, however, was whether owners could attempt to put their chains of title back together (like Humpty-Dumpty) and conduct new foreclosure sales to clear their titles. Unfortunately, the SJC did not provide the real estate community with any further guidance as to how best to resolve these complicated title defects.FULL ENTRY
Background: Developer buys defective foreclosure title
Frank Bevilacqua purchased property in Haverhill out of foreclosure from U.S. Bank. Apparently, Bevilacqua invested several hundred thousand dollars into the property, converting it into condominiums. The prior foreclosure, however, was bungled by U.S. Bank and rendered void under the Ibanez case. Mr. Bevilacqua (or presumably his title insurance attorney) brought an action to "try title" in the Land Court to clear up his title, arguing that he is the rightful owner of the property, despite the faulty foreclosure, inasmuch as the prior owner, Rodriguez, was nowhere to be found.
Land Court Judge Keith Long (ironically the same judge who originally decided the Ibanez case) closed the door hard on Mr. Bevilacqua, dismissing his case. "I have great sympathy for Mr. Bevilacqua's situation — he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title — but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied," Long wrote. The SJC took the case on direct review.
Evictions 101
Today Attorney Richard D. Vetstein discusses eviction.
In Massachusetts, evictions are called "summary process." According to the rules governing eviction cases, summary process is supposed to be "just, speedy, and inexpensive." In practice, however, summary process can be anything but that. In fact, as I always inform my landlord clients, Massachusetts is one of the most tenant friendly states in the country, and an eviction can be costly, frustrating and unfair to landlords. In some cases, it can take many months to evict a tenant.FULL ENTRY
Grounds For Eviction
A. Non-payment
There are several common grounds for evicting a tenant. The most common is for non-payment of rent. In these cases, the landlord must send the tenant a statutory 14 day "notice to quit" before starting the eviction process. The notice to quit must be drafted carefully, and the best practice is to have it served by a constable or sheriff to ensure proof of delivery.
B. No-fault
Another common ground for eviction is for termination of a tenancy at will, otherwise known as a no-fault eviction. Again, a 30 day notice to quit must be served on the tenant before commencing an eviction. Landlords often trip up on this type of notice with short months. In practice, judges will often give tenants in no-fault evictions a bit more leeway in terms of vacating the premises.
When it comes to the housing market, will the feds ever get it right?
What should have been a noble effort to help out jobless homeowners has turned into yet another shameful government fiasco.
Check out this story by Jenifer McKim on the much-touted $2 billion proposal, championed by Barney Frank, to extend up to $50,000 in no interest loans in a bid to help homeowners who have lost their jobs.
The feds have been unable to dole out even half the $61 million targeted for Massachusetts homeowners, with stories piling up of deserving applicants being turned down for a range of nonsensical reasons.
Some have been rejected because their income hadn't technically fallen far enough. And, as I've noted previously, you also don't qualify if you managed to pull down more than $110,000 before you got the ax, a healthy income but hardly enough to put you in the economic elite here in Greater Boston.
But the most galling requirement of all is that you must stop paying your mortgage in order to make yourself eligible for a helping hand from Uncle Sam.
Produce the note defense. Another SJC case
Could Eaton v Fannie Mae be the next US Bank v Ibanez? Attorney Richard D. Vetstein explains the next important foreclosure case coming down the Pike:
In a rare direct appellate review, the Massachusetts Supreme Judicial Court has agreed to hear an appeal considering the controversial "produce the note" defense in foreclosure cases. Perhaps more importantly, the court may also consider whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. This is especially important for MERS mortgages.FULL ENTRY
The case is Eaton v. Federal National Mortgage Association (Fannie Mae), The court will hear arguments in October, with a decision coming several months later. The court is also seeking amicus, or friend of the court, briefs from interested parties.
This could be a very important decision — potentially as important as the landmark U.S. Bank v. Ibanez case issued in the spring.
With house next door for sale, Carol's peace and quiet is out the window
When the house next door gets foreclosed on, it can be an absolute nightmare for the neighbors.
Just ask "Carol." She lives in a neighborhood here in Greater Boston, a short walk from the ocean in a location that would not seem like a hot spot for distressed properties.
Yet Carol's life has been turned upside down since the bank seized the house next door.
For starters, Carol and her husband, having bought their house seven years ago, would like to move on to bigger and better things.
Yet the problem property next door - not to mention a tough market - have helped drag down the value of their home by a hefty $100,000. Among other things, the house next door is in need of repairs, while the yard outside is trashed.
So much for that idea.
But if Carol can't move, staying put is becoming increasingly uncomfortable.
There's a now a steady stream of occasionally rude bargain hunters gawking at the foreclosure special next door, including one couple who swung by at 10:30 p.m. one night for a quick peak.
Worse, despite exchanging words with Carol's irate husband, the couple was back the next day with their real estate agent.
If there is any etiquette related to how and when a house is shown, Carol would sure like to hear about it.
When shopping for a home online, buyer beware
What you see online is often not anywhere near what you are going to get.
In fact, I have the perfect example of this right in my Natick neighborhood.
The light blue home around the corner from me at 17 Marion St., a ramshackle 1930s home of no particular style, was foreclosed on a couple years ago.
In fact, it enjoyed a pretty nice run during the bubble years, fetching $249,000 in 2002 and then getting flipped a couple years later for more than $284,000.
Then the economy came crashing down, with the home taken back by the bank for $175,000 in 2009.
After sitting empty but inconspicuous for a couple years, 17 Marion has morphed into the classic foreclosure special, with the recent addition of plywood over all the windows in advance of Irene the icing on the cake.
Now it's being marketed, intermittently, for the unbelievably low price of $205,000. (Yes, I am being sarcastic here.)
That's the reality - but you wouldn't have a clue just looking at the online listing for the home.
Did your house escape Irene's wrath?
OK, wrath may be a strong word given the weakened version of Irene that finally lumbered into Massachusetts yesterday morning.
Still, the storm did do damage, from downed power lines to flooded basements.
My Natick fixer-upper escaped without any major injury - I had to turn on the sump pump in the basement, but that was about it. Luckily, we had some older, dying trees near our house taken out over the past two years.
Woman who paid mortgage early may hang onto her home after all
It looks like there's hope after all for that 70-year-old Florida woman who found herself facing foreclosure after paying her mortgage early.
To recap, Florida retiree Sharon Bullington won a mortgage modification from Bank of America after getting slammed with medical expenses.
But problems started after she made her first payment early - Dec. 23rd instead of January. She put a wrong routing number on the second payment, and, suddenly, she was faced with foreclosure, the St. Petersburg Times has reported.
The initial response from BofA was hardly inspiring - as I noted in my recent post.
Apparently, though, the saga is not over.
Faced with foreclosure – for paying her mortgage early
Can the nation's big banks get any more incompetent in how they handle individual foreclosures?
A popular mistake seems to be foreclosing on the wrong home and then only offering a grudging apology later - of course not until after having thrown some innocent homeowner's possessions onto the sidewalk and locking everything up tighter than Fort Knox.
It's a hard act to top, but Bank of America appears to have succeeded in the case of a 70-year-old woman in Florida.
Underwater on her $133,000 New Port Richey home and nursing a bedridden husband, Sharon Bullington found herself in a financial jam as medical bills began to pile up.
But she thought she had staved off foreclosure after working out a loan modification deal with BofA, the St. Petersburg Times reports.
That was until she paid her mortgage a week early. That's right, Mrs. Bullington made her January payment on Dec. 23, the Times reports.
And that turns out to have been a big mistake.FULL ENTRY
Battle over invalid foreclosures may shift to evictions
A big "welcome back!" to Richard D. Vetstein. If there is an important case regarding real estate, Attorney Vetstein is our guy!
In the closely watched case of Bank of New York v. Bailey the Massachusetts Supreme Judicial Court ruled on August 4, 2011 that the Housing Court may hear a homeowner's challenge that a foreclosing lender failed to conduct a foreclosure sale in accordance with state law and under the now seminal U.S. Bank v. Ibanez decision. Previous to this decision, foreclosing lenders and their attorneys were quite successful in evicting homeowners even where there were defects in the foreclosures.FULL ENTRY
A subprime eviction
KC Bailey obtained a mortgage in 2005, which appears to have been of the sub-prime vintage (America's Wholesale Lender), on his home in Mattapan. Merely two years later, he defaulted, and the lender commenced foreclosure proceedings. Bailey claimed that the lender never provided him with any notice of the foreclosure, and he first learned about it when an eviction notice was duct taped to his fence. The lender started an eviction in the Boston Housing Court. Bailey defended on the basis of the alleged defective notice. The Housing Court judge ruled in favor of the lender, and the case went up to the SJC.
What happens if a landlord is in default?
We are in peak rental season. Throughout August, expect bumper-to-bumper U-Hauls throughout rental areas around Boston. Renters, I hope you get good place with a good landlord. Here's my advice on how to avoid big problems:
Think of a landlord-tenant interview like you should think of a job interview. You may think you want that job, but you should also be interviewing the boss to make sure you really want it. Some jobs are worse than no job. The same is true of apartments.
Problems run rampant for tenants who rent from landlords who are failing financially. When they are foreclosed upon, your deposits are put in line with all the other creditors. Right, you are not at the top of the list. Community Action Agencies (Federal anti-poverty programs) like Community Action Agency of Somerville are flooded with tenants who have lost their apartments and their deposits due to their landlord's foreclosure. Your lease does not protect you from eviction if the owner of your rental undergoes foreclosure.
So how do you protect yourself? My guess is it won't fly to ask your prospective landlord for a credit score. Even worse would be to ask for the landlord's social security number and permission to run your own credit check. So what info is legally available and helpful?
Are foreclosures distorting our view of the housing market?
If you subtract out foreclosure sales, the downward trend in home prices starts to look somewhat less dire.
Yet does it really make sense to do this?
The issue recently came up in Philadelphia, where a recent analysis of that city's housing market shows that two-thirds of the latest drop in housing prices was due to foreclosures and short sales selling for dirt-cheap prices.FULL ENTRY
Unemployed and hanging on?
Three or so years into the recession, there is an increasing number of people in mortgage default who used to be part of the middle class. House owners who have savings can hold out longer through their periods of unemployment or underemployment. By cutting back on expenses and draining their savings, they pay their mortgages. Eventually, those who did not get reemployed at their previous level fell into default, as their savings drained down too far to hold on.
Early in the foreclosure wave, people who bought farther beyond their ability to repay and developers who were over-extended fell hard and fell early. Those no-longer-allowed mortgages -- that were destined to fail as soon as real estate appreciation stopped -- lead to the first wave of mortgage defaults. Massachusetts saw these early defaults.
The foreclosures and distressed sales now in Massachusetts are part of the second wave. The middle-class wave. The unemployment wave. According to Jeffrey Chubb, in Massachusetts and Boston metro area it is a wave, not a tsunami. Massachusetts, and especially metro Boston, remains below the national average.
But, for unemployed or underemployed house owners, it doesn't matter how many there are. It matters that they are just hanging on. If you know someone who is hanging on, July 22 is an important deadline for them.FULL ENTRY
Don't ask, we'll tell
At the Fourth of July party, my family was abuzz with the New York Times article about big lenders modifying loans for borrowers who didn't ask for help.
Banks are proactively overhauling loans for borrowers… who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.
We are never going to solve the question about fairness. I'd rather not try.
Let's talk about whether this is good business on their part. Is it just good business to get some of the underwater borrowers out of option adjustable rate mortgages and into conventional loans? Doesn't it make sense to do this for borrowers who are paying on time? Those borrowers are more likely to keep paying on time, since their payments are being held steady. The modification gives them a chance to start paying down principal. Or should modifications only go to those that are headed for foreclosure? Is it better business to stop defaults by giving a leg up to the most vulnerable borrowers?
The two big lenders, Chase and BOA, are using different tactics to convert these toxic loans into something more stable. Chase, in the example in the story, reduced the principal by $150,000. The borrower had started with a large down payment, but her option ARM had swelled her debt to $300,000, well above the 2006 purchase price of
$259,000. $359,000 (corrected)
BOA, on the other hand, is modifying loans without reducing principal. They are waiving prepayment penalties, refinancing, lowering the interest rate, postponing some of the balance and extending the term.FULL ENTRY
New revelations how the Federal Reserve shrugged off housing crash warnings
A little known real estate industry trade group makes for an unlikely whistle blower.
Yet check out this story from Fox Business.
The Mortgage Insurance Companies of America were warning the Federal Reserve and other bank regulators in 2005 and 2006 that disaster loomed.
The warnings, in a stream of letters from the trade group to the Federal Reserve and the FDIC, turned out to be right on the mark. Concerned about a rising tide of subprime lending, MICA highlighted 15 states that were likely to lead the way down with a flood of foreclosures, including Nevada, California and Florida.
Of course, as the Fox story pointedly notes, Ben Bernanke, now chairman of the Federal Reserve, was countering such concerns with happy talk. In a now infamous 2005 TV appearance, Bernanke called a housing crash a "pretty unlikely possibility." (Bernanke wasn't Fed chairman yet - at that point he was chairman of White House's Council of Economic Advisors.)
Thanks for the heads up, Ben.
Ramp up housing credit or foreclosures will double, mortgage pioneer warns
It's a timely warning from a rather interesting source, to say the least.
Lewis Ranieri, the pioneer or godfather, if you like, of the private mortgage-backed securities market, contends the already record number of foreclosures could double if housing credit gets tighter than it already is. (He's credited with helping invent mortgage backed securities back in the 70s while working for Salomon Brothers.)
Ranieri's comments were directed at the Obama Administration's recently unveiled proposal to start raising fees charged by federal mortgage giants Fannie Mae and Freddie Mac. Since the global financial crisis in the fall of 2008, the twin behemoths have controlled the vast majority of the secondary market after an exodus by private investors.
While the administration hopes to ease the government out of the secondary mortgage market and bring in private capital, the tightening up of credit by the feds during the transition could tear the already troubled housing market "apart at the seams," Ranieri warns.
It is part of a larger, mortgage market overhaul that could see 20 percent down payments become the norm again as well.
Late to the foreclosure party?
Here's Attorney Richard D. Vetstein with the next, inevitable, step regarding foreclosures in Massachusetts.
You knew this was coming. Massachusetts politicians smell a big political opportunity with the foreclosure mess here in the Bay State, post-Ibanez, and are filing legislation left and right.FULL ENTRY
The latest is legislation filed by State Senator Karen Spilka and Attorney General Martha Coakley mandating loan modifications in certain circumstances. Specifically, the loan modification legislation requires creditors to take "commercially reasonable efforts" to avoid foreclosure upon certain sub-prime loans. The legislation also provides a safe harbor for creditors to comply with this requirement of commercial reasonableness.
The legislation also addresses problems with foreclosures highlighted in the recent decision by the Massachusetts SJC, U.S. Bank v. Ibanez by prohibiting foreclosures where creditors lack the documents supporting their purported right to foreclose, and prohibits passing on certain fees and costs to homeowners. Specifically, this legislation:
Deadbeats or just struggling homeowners?
Check out this story by the Globe's Jenifer McKim - it has some astounding stats on the number of homeowners who've stopped paying their mortgages.
It's currently up to 36,000 here in the Bay State, with some having gone for years without a payment. (The 36,000 are all behind at least three months on their payments, with a third behind a year or more.)
I hardly envy anyone in that position. And I challenge anyone who casually throws around the term "deadbeat" to really think again.
For better or worse, property flippers gain acceptance in tough market
I've not always has the highest regard for property flippers. Especially in urban neighborhoods, they can wreak havoc during a rising market, rapidly reselling rundown homes at inflated prices.
But the federal government has decided that, at least for now, it can't live without one of the world's oldest entrepreneurial activities.
The Federal Housing Administration is suspending its anti-flipping rule for a second year, extending the waiver until the end of 2011. (Thanks to BostonCharles for the tip on this one.)
For flippers, this means they can sell homes they bought and renovated to buyers with FHA financing without having to wait the standard 90 days, or three months.
This clearly makes the flipping model more profitable, while opening up more foreclosures to the average buyer.
The FHA is spinning this as a big win for buyers.
Chapter M for mortgage bankruptcy?
Attorney Richard D. Vetstein recently came across a very provocative and interesting idea to address the foreclosure and bankruptcy crisis.
It's Chapter M bankruptcy, as described on FireDogLake:FULL ENTRY"Prof. Adam Levitin has proposed this with his Chapter M for Mortgage bankruptcy. It would remove foreclosure actions from state court to federal bankruptcy court. Successful petitions can be offered a standardized pre-packaged bankruptcy plan. The plan would be based on HAMP modification guidelines (interest rate reduction to achieve 31% DTI goal, but without federal funding) plus cramdown to address negative equity. We can make this fair on the backend. If the homeowner redefaults we can speed up the foreclosure process. It wouldn't affect non-mortgage lenders. It is fast-tracked relative to traditional Chapter 13. It can have clawback mechanisms to address potential future appreciation.
And going through the process can give the lender clean title. Because there's this whole issue of who owns what in the securitization chain which is a few court cases away from putting our financial system over a cliff. And the best feature is that it has no cost to the federal government. Like other smart policy, it builds off already existing infrastructure, so it can be started immediately using existing courts and Chapter 7 panel trustees for sales."
Time to pull the plug on mortgage modifications?
Neil Barofsky is on the warpath again. This time he's taking on the Home Affordable Mortgage Program, better known as HAMP.
That's the Obama Administration's bid to stem the flood of foreclosures by enticing lenders and mortgage servicers to modify loans.
Well it has been a big flop, Barofsky, the blunt spoken special inspector general appointed to ride herd over the government's $341 billion bank bailout program, told Congress Wednesday. After two years, only a fraction of the millions of homeowners facing foreclosure stand a chance of receiving any help under HAMP.
But as interesting as Barofsky's icy blast was the response of a trio of House Republicans, who immediately filed a bill to scrap the program and save the last $30 billion in bailout money.
Here in still very blue state Massachusetts, the group, led Rep. Jim Jordan, R-Ohio, will surely be dismissed as a bunch of red state rock heads.
But it seems to me offering up false hope to desperate homeowners is far worse.
Dealing with the mess Ibanez left behind
Attorney Richard D. Vetstein is The Man when it comes to keeping an eye on the Ibanez case.
The Massachusetts Supreme Judicial Court has taken up an appeal about whether a home buyer can rightfully own a property if the bank that sold it to him didn't have the right to foreclose on the original owner, after the U.S. Bank v. Ibanez landmark ruling a few weeks ago. This case may determine the rights of potentially thousands of innocent purchasers who bought property at foreclosure sales that have been rendered invalid after the Ibanez ruling.FULL ENTRY
The case is Bevilacqua v. Rodriguez, and can be read here. In Bevilacqua, Land Court Judge Keith Long (ironically the same judge who originally decided the Ibanez case) ruled that the buyer of property out of an invalid foreclosure has no right to bring a "quiet title" action to establish his ownership rights because he never had good title in the first place. "I have great sympathy for Mr. Bevilacqua's situation — he was not the one who conducted the invalid foreclosure, and presumably purchased from the foreclosing entity in reliance on receiving good title — but if that was the case his proper grievance and proper remedy is against that wrongfully foreclosing entity on which he relied," Long wrote. The net effect of the ruling is that the innocent buyer's only remedy is to sue the foreclosing lender for damages–not a great option–or force the lender to fix the deficiencies with the original foreclosure–if that's possible at all.
Estimating how many purchasers have been affected by Ibanez defects is difficult. There have been over 40,000 foreclosures in Massachusetts in the last 5 years, and over 12,000 last year alone, up 32% from the year before.
Agonizing new question for buyers of foreclosures: Do I really own my home now?
Sorry for the hype, but I think it's justified here.
The next shoe is poised to drop in the ever expanding foreclosure mess.
And this time, the shock waves could hit average buyers and small time investors alike who took a chance and bought bank-owned homes or condos. Or at least they thought they were owned by the bank.
The Massachusetts Supreme Judicial ruled last month that banks can't foreclose if they don't own the mortgage.
Now the SJC is back again. This time state's highest court is getting ready to hear a potentially landmark case which deals with whether the buyer of foreclosed condos in Haverhill ever really held a valid title to the property, Bloomberg reports.
Apocalypse now? SJC has final word on Ibanez
Since September, 2009, and as recently as last October, we've depended on Attorney Richard D. Vetstein to provide us a clear and concise report on US Bank vs Ibanez.
I knew something major had occurred when I received calls from CNN Money, Bloomberg News, and a Wall Street equity analyst last Friday morning, all wanting to speak with me about "Ibanez." I quickly pulled over on Route 9 in Framingham, and read the U.S. Bank v. Ibanez opinion on my iPad. While I was not surprised at the outcome—that the SJC had ruled that two sub-prime lenders could not foreclose mortgages in which they could not establish their legal ownership—I was surprised at how quickly the decision became and remains a national story of significant implication.
CNN-Money called it a "beat down" of the big banks. Reuters exclaimed it's a "catastrophe risk" for banks. The ruling spooked investors, as bank stocks were down. A coalition of seven major public pension systems called on the boards of directors of major lenders to immediately undertake independent examinations of the banks' mortgage and foreclosure practices.
But is the Ibanez case the next Financial Apocalypse? Well, it could be. Something akin to a fast spreading malignant tumor if followed by other courts.
Lawyers emerging as foreclosure heroes as the Obama Administration wimps out?
Wow, now here's a contrast.
Banks are halting foreclosures around the country, with a record, 14 percent year-over-year drop in November, RealtyTrac reports today.
And it all stems from the fallout from the robo-signing scandal, which first came to light thanks to Thomas Cox, a retired lawyer in Maine doing pro bono work for a nonprofit.
Meanwhile, the Massachusetts Supreme Judicial Court is poised to rule on the landmark Ibanez case, which could have sweeping national implications, with the potential to all but permanently derail millions of foreclosures.
That case, involving a pair of local homeowners, was argued before the SJC by a lawyer from Fall River.
And what do we have from the Obama Administration, which has spent two years talking about saving struggling homeowners even as foreclosures have skyrocketed?
"Ways Home." Get it? That's Fannie Mae's attempt at a catchy name for a new website that doles out advice to homeowners staring at foreclosure notices.
Banks behaving badly: Mistaken foreclosures roll on
Imagine returning from a visit to grandma over the holiday weekend to find your house padlocked and your furniture and possessions cleaned out.
Then imagine your shock at finding out, after you called 911, the perpetrator was not some low-life burglar but your mortgage lender.
How could this be, you might ask, having never skipped a mortgage payment?
Well it's a question homeowners across the country continue to ask as the problem of "mistaken foreclosures" continues, despite months of negative publicity for some of the nation's top banks.
In one of the more recent cases, a Florida couple worked out a loan modification agreement and was making all their payments when they received a devastating letter from J.P. Morgan Chase. Their condo, Magaly Cervantes and Julio Bermudez, was told, had been foreclosed on and sold online.
A trip to the local courthouse led nowhere - the bank only began reviewing the case after some embarrassing attention from The Wall Street Journal.
Other cases are even more heart rending. A Pittsburgh woman who was not in default on her mortgage returned home from work one day last year to find her house padlocked, the utilities cut off and her parrot, Luke, gone.FULL ENTRY
A roof overhead this winter
Although I have a bit of a "sunshine and lollipops" reputation about my area, I know that foreclosures are happening everywhere. Boingboing just printed these nifty directions about how to get to the foreclosure interface on Google Maps.
1. Punch any US address into Google Maps.
2. Your options are Earth, Satellite, Map, Traffic and . . . More. (Select "More")
3. The drop down menu gives you a check box option for "Real Estate."
4. The left column will give you several options (You may have to select "Show Options"
5. Check the box marked "Foreclosure."
At Thanksgiving, I wrote about homelessness. Today, on the doorstep of Christmas, think about foreclosure. Some of you have a "they deserve it" attitude. I don't want to fight that fight today.FULL ENTRY
Brace yourself for the 2011 foreclosure tidal wave
No, I haven't lost it - I've read the news this morning about the huge drop in foreclosures.
Sorry if I'm not celebrating as I sip my morning coffee.
Sure, for some struggling homeowners, the temporary halt - foreclosure activity is off by a third since September as banks have taken a step back amid the robo-signing mess - is a badly needed reprieve.
But we are looking at some serious trouble for the real estate market as a whole just a few months down the line.
In fact, RealtyTrac is already predicting another fall in foreclosure activity when the December numbers come out, followed by a spike during the first quarter. Just in time for the start of the spring market.
In fact, foreclosures will surge to new highs in 2011, beating even the 1.2 million home seizures expected for 2010 and the 900,000 recorded in 2009, RealtyTrac's Rick Sharga has been telling reporters.FULL ENTRY
From Wall Street, some truly radical solutions to the housing mess
Like some giant Rt. 128 pileup at rush hour, the backlog of foreclosed homes just keeps growing.
So how about pre-approving soon-to-be-foreclosed homeowners for new mortgages? Or even granting amnesty to illegals who snap up foreclosure specials?
No, these are not ideas being bandied about by our supposedly socialist president. Rather they are some of the outside-the-box solutions thrown out by one of Wall Street's top housing experts.
Amherst Securities' Laurie Goodman is the queen of foreclosure numbers, as I noted in yesterday's post. Her warning that one in five mortgages is facing potential foreclosure has attracted attention from the likes of Dr. Doom himself, Nouriel Roubini.
But Goodman, in her housing market reports and in a recent panel I moderated for the Boston Security Analysts Society, is throwing out some truly interesting ideas that, if nothing else, deserve to shake up the current debate.
Foreclosure mess: Much bigger than you thought
For anyone thinking the worst of the foreclosure crisis is behind us, wake up and smell the coffee. Or better yet, take a look at some of the numbers Amherst Securities' Laurie Goodman is crunching.
Goodman, who took part in a panel discussion on the real estate market I moderated last week at the InterContinental Hotel in Boston, contends one in five homes is either in foreclosure or facing potential foreclosure trouble down the line.
That's a whopping 11.6 million homes, or about 20 percent of the market, she told members of the Boston Security Analysts Society, which hosted the discussion.
It's a number that arguably provides a more comprehensive picture than the conventional default rate - 13.5 percent according to the Mortgage Bankers Association.
And it clashes with conventional thinking in a banking industry bracing for another 4 million foreclosures, not double or triple that number. Here's a link to a recent report by Goodman and Amherst that lays out the numbers.
New foreclosure trouble brewing as late payments rise?
Several states across the Northeast are seeing a sharp jump in homeowners falling behind on their mortgages.
That's the word out from TransUnion, which released its third quarter mortgage delinquency numbers over the weekend. Here's a link to TransUnion's press release on its report - I don't yet have the full copy.
The biggest increases in late payments were seen in New Jersey, New York and Connecticut at the region's core, as well as in outliers like Maine and Delaware.
Pennsylvania and Maryland, as well as another swath of New England states - Vermont, New Hampshire and Rhode Island - saw less dramatic increases.
The regional rise bucks a national trend that is seeing a slow but steady decline in mortgage delinquencies from a record-shattering peak in 2009. (That is with the exception of the Great Depression, which saw half of all homeowners either fall behind on their payments or face foreclosure.)
Sellers, here's your chance
Home sales have plunged since the home buyer tax credit breathed its last in April.
But now, thanks to the robo-signing scandal, along comes another artificial stimulus to prop up the housing market.
Hammered with questions over the validity of foreclosure paperwork, banks are pulling back big time, putting on hold both initial foreclosure petitions and foreclosure deeds, the last step in the process.
Foreclosure petitions fell 51 percent in October, while foreclosure deeds, representing completed home seizures, fell 39 percent, according to The Warren Group, publisher of Banker & Tradesman.
Now don't get fooled here into thinking this is some great boost for the battered housing market. In fact, there are already some suggestions to that effect, unbelievably really. While this could prove a short-term boon for sellers - stick with me, I will get to that - it is likely to prove another unfortunate roller coaster ride for the housing market as a whole.
Coming next: Foreclosure-free zones
How long before local government officials really start upping the ante and try to stop foreclosures by fiat?
Maybe not long, as this Washington Post article shows.
Chicago and its environs have been declared a foreclosure-free zone by Cook County's sheriff, Thomas Dart, who is refusing to evict families after they have had the boom lowered by banks accused of potentially fraudulent foreclosure practices.
Disturbed by the robo-signing crisis, Dart is sitting on a pile of 1,000 eviction requests, with the number growing by the day.
"I can't possibly be expected to evict people from their homes when the banks themselves can't say for sure everything was done properly," Dart said in a press statement posted by his office. "I need some kind of assurance that we aren't evicting families based on fraudulent behavior by the banks. Until that happens, I can't in good conscience keep carrying out evictions involving these banks."
In latest foreclosure mess, a $ilver lining for lawyers?
In the fallout over the robo-signing scandal, the stakes are suddenly getting bigger for financial institutions across the country.
Banks who lose foreclosure cases will now have to fork over legal fees to homeowners in the Empire State.
Nor are New York state lawmakers alone in taking aim at the banks, with similar proposals having passed or pending in state legislatures across the country.
In fact, as New York goes, Massachusetts can't be far behind.
"It's sweeping the country," Edward Mermelstein, a top Big Apple real estate lawyer, told me when I reached him the other day.
Still, it is also reasonable to be skeptical about just who these new laws really benefit.
Focus on the Foreclosure Mess
Attorney Richard D. Vetstein. answers two good questions from readers about the recent foreclosure mess.
FULL ENTRYAre title insurance companies still insuring foreclosure properties? – James In Cambridge
Yes, they are. Initially, the press reported that some major title insurers had temporarily stopped insuring foreclosure titles from JP Morgan Chase, Ally Financial, and Bank of America. However, my understanding is that all title insurers have resumed insuring all foreclosure properties in the wake of several major agreements between national title insurance companies and lenders. These warranty and indemnification agreements would essentially shift the risk of loss from irregular/defective foreclosures back onto the foreclosing lenders.
From the conveyancing side, I can definitely tell you that title insurers have advised their attorney agents to go through foreclosure titles with a fine tooth comb and to be especially diligent in examining and certifying foreclosure titles. Buyers of foreclosure properties should be prepared for delays in getting their transactions closed.
How is robo-signing different from the Ibanez case situation?–Scott
Answer: "Robo-signing" and the Massachusetts Ibanez foreclosure case are two different situations, but the root of the problem — the complexity of the securitized mortgage industry and the sheer volume of foreclosure paperwork to be processed — remains a contributing cause of both problems.
Lawyer and jobless Maine homeowner at center of robo-signing scandal given heroic treatment by media, but is it deserved?
I guess whether you consider Nicolle Bradbury and her pro-bono lawyer heroes for successfully sticking it to one of the nation's largest mortgage lenders depends these days on where you fall on the ideological spectrum.
Check out this New York Times piece, which claims that this out-of-work Maine woman and Tom Cox, a retired lawyer volunteering for a nonprofit, triggered the national furor over robo-signing.
On the verge of losing her tiny, weather-beaten $75,000 home after having stopped paying her GMAC mortgage two years ago, Bradbury, an one-time employment counselor in Denmark, Maine, turned to help to Pine Tree Legal Assistance.
From there, she lucked out. Cox, the retired lawyer who took her case, had just happened to handle foreclosures for a local bank back during his working days.
Pouring over her paperwork, Cox's suspicions were triggered by the phrase "limited signing officer." He started digging, won permission from the state court hearing the foreclosure case to depose the GMAC executive, and the rest is history.
Would you buy a foreclosure now?
The fallout from the robo-signing scandal grows by the day.
The Feds have launched a criminal investigation into charges that bank employees blindly signed off on mountains of foreclosure paperwork, never bothering to check the accuracy of the documents. The investigation centers on whether the nation's biggest financial institutions misled federal housing agencies that now insure a huge swath of the mortgage market.
The numbers are staggering, as I and many others have noted, with a few mid-level employees at major banks signing off on thousands of new foreclosures a month.
There will be more out on that front tomorrow, with Secretary of Housing and Urban Development Shaun Donovan, the HUD secretary, slated to hold a press conference on the issue.
The bigger question is what all this turmoil does to the foreclosure "brand," such as it is.FULL ENTRY
With cloud over foreclosures, time for sellers to strike?
Thinking about selling your home and kicking yourself because you missed out on the fun last spring, when buyers scrambled to cash in on the home buyer tax credit?
Well thanks to some clueless big banks and their harried "robo-signers," you just may get a second chance to find a buyer.
Until the latest chapter in the never ending foreclosure crisis hit, the last helicopter leaving the embassy roof departed on midnight, April 30th - when the home buyer tax credit expired.
But suddenly,with the massive foreclosure machine poised to grind to a halt amid the fast expanding "robo-signing" scandal, home owners looking to sell, here in Greater Boston and across the country, may suddenly find an unexpected opportunity.
This fall could see a temporary drop in the number of homes for sale as banks put foreclosures on hold. And fewer homes on the market could be a boon for traditional sellers struggling to keep free of the pricing undertow generated by dirt cheap foreclosures.FULL ENTRY
Sticking it to jobless homeowners?
OK, maybe a bit pungent, but there is no sense in sugar coating this one.
As I blogged earlier this week, there is a catch to the Obama Administration's supposed $1 billion lifeline for jobless homeowners.
If you and your spouse pulled down than $110,150 before a layoff or a big hit in income, you won't get a dime from the newly launched Emergency Homeowner Loan Program.
That excludes a lot of people - from a school teacher married to a cop who pulled in a little overtime to a sales guy who made $120,000 a year before he lost half his commissions.
Hardly extravagant incomes in Greater Boston, where the middle of the housing market ranges from $267,184 to $404,029, according to Case Shiller.
That's bound to leave a lot of solidly middle class homeowners in need of a break on the outside looking in.
Just take isitfriday, who was the first to weigh in when I first blogged on this a couple days ago.
Ibanez case recap
The justices had many questions about the Wells Fargo/Option One mortgage pooling and servicing agreement, private placement memo, and other mortgage securitization documents. If you've read the great book, The Big Short by Michael Lewis,you know how complex these agreements are. Some of the justices clearly weren't following the complex securitization process and agreements. Justice Ganz characterized the securitization documents as "extraordinarily sloppy." • Chief Justice Marshall asked the attorney for the foreclosed homeowner whether "the sky will fall if the Land Court's ruling is upheld"? (Answer was no). Likewise, Justice Ganz asked what are we to do about the seemingly innocent folks who bought these foreclosed homes unaware that the titles were defective. Justice Ganz and Marshall agreed that these purchasers could be "bona fide good faith purchasers" which under the law means they could be immune from claims challenging their title. That's an encouraging line of reasoning for many people who bought foreclosed homes and are waiting on the outcome of this case.
I watched the oral argument webcast in the U.S. Bank v. Ibanez controversial foreclosure case before the Massachusetts Supreme Judicial Court. Here's a recap of what caught my eye:
• There was also a discussion about changing the current common law which does not require recording of mortgage assignments, to require it. Justice Marshall asked how many states required recording of mortgage assignments, giving a hint of where's she thinking on this.
• Lastly, Justice Cordy, the former big firm attorney, was clearly on the side of the lenders, even going so far as to ask whether Mr. Ibanez waived his challenge to the foreclosure by not challenging it in lower court.
The justices had many questions about the Wells Fargo/Option One mortgage pooling and servicing agreement, private placement memo, and other mortgage securitization documents. If you've read the great book, The Big Short by Michael Lewis,you know how complex these agreements are. Some of the justices clearly weren't following the complex securitization process and agreements. Justice Ganz characterized the securitization documents as "extraordinarily sloppy."
• Chief Justice Marshall asked the attorney for the foreclosed homeowner whether "the sky will fall if the Land Court's ruling is upheld"? (Answer was no). Likewise, Justice Ganz asked what are we to do about the seemingly innocent folks who bought these foreclosed homes unaware that the titles were defective. Justice Ganz and Marshall agreed that these purchasers could be "bona fide good faith purchasers" which under the law means they could be immune from claims challenging their title. That's an encouraging line of reasoning for many people who bought foreclosed homes and are waiting on the outcome of this case.
Big week with foreclosures
Attorney Richard D. Vetstein. continues to report about the legal angles of foreclosure.
This week, he explains the Bank of America decision to halt foreclosures and watches as Ibanez gets his day at the Supreme Judicial Court. (He's kept an eye on the Ibanez case since September last year, with round 2
in October, and as it headed for the Supreme Judicial Court last winter.)
Last week, Bank of America, the nation's largest bank, became the latest lender to halt foreclosures in 23 states because of concerns that lenders submitted faulty foreclosure court documents.FULL ENTRY
Massachusetts Attorney General Martha Coakley has asked Bank of America to halt foreclosures in Massachusetts, but has not filed a formal action to do so yet.
With the BofA/JP Morgan Chase announcement to halt foreclosures, the practice of "robo-signing" has come under fire. Robo-signing is where mid-level bank executives sign thousands of affidavits a month attesting that they had personal knowledge that the facts of the foreclosure were as presented, when in fact they had no such knowledge. A major bank executive admitted to signing over 8,000 such affidavits per month.
Proposed refinancing options for underwater homeowners
Here's Attorney Richard D. Vetstein. Today, he writes about a refinancing solution that could prevent foreclosure.
The recent historic drop of mortgage rates has created a refinancing boom for qualified homeowners. Unfortunately, the refinancing wave washing over the country has paradoxically left dry homeowners who would most benefit: those who are "underwater." Underwater mortgages, or "negative equity" (i.e., they owe more on the mortgage than the property is worth) cause foreclosures and serves to bottle up the housing market. Thus, assisting homeowners who are underwater on their mortgage is good public policy.FULL ENTRY
According to a CoreLogic study, there are currently 11 million mortgages underwater and another 2 million nearly at negative equity in the US housing market – a figure that comprises 28 percent of all residential properties with a mortgage. In Massachusetts, there are 225,000 properties with negative equity and another 52,000 with near negative equity.
Another stab at loan mods:
The government has made attempts to address this crisis. Last year the Obama Administration created a loan modification program, the Home Affordable Refinance Program, to help refinance borrowers whose loans were worth up to 125 percent of their homes value. The program did not take hold, and only a relatively minor number of modifications/refinances occurred.
Potential foreclosure now looms for W Boston
There's a new twist to the travails of the W Boston.
Touted as setting a new standard for ritzy living, the posh luxury condo and hotel tower in the Theater District wound up in federal bankruptcy court earlier this summer.
But the so-called lifestyle hotel on Stuart Street now faces the potential stigma of a foreclosure, with Prudential, the main lender for the troubled project, wanting to pull the plug on the slow moving bankruptcy process, the Boston Courant reported Friday in a story I wrote.
Not buying claims that more time is needed to sell off the W Boston's multimillion-dollar condos, the Pru wants to foreclose on the property and get rid of the condos.
One possible scenario has Pru selling off the condos to another developer or real estate firm, which would then resell them at fire sale prices.
You are likely talking about another mass condo auction here.
Hello foreclosure and goodbye neighborhood?
It's not exactly new news that foreclosures can be bad stuff, especially if it's your house the bank is taking.
But if it's your neighbor's home, you may pay as well, regardless of whether you have never missed a mortgage payment in decades.
In a new study, an MIT economist and two Harvard researchers have trolled through 1.8 million Massachusetts home sales over the past two decades to put a price tag on the impact foreclosures can have on the real estate market.
Bay State near tops in Northeast in foreclosures
OK, we will never catch up to Nevada, the foreclosure capital of the world.
But Massachusetts has one of the highest levels of foreclosure activity of any state in the Northeast, with numbers close to those of considerably larger states like New York and Pennsylvania.
I took another look at the latest foreclosure numbers RealtyTrac sent over the other day.
Based on the percentage of households facing a trip to the auction block, Massachusetts is battling it out for second place with Connecticut, with New Jersey the regional leader.
Banks on track to repossess more than a million homes in 2010
That number really jumped out at me from the latest RealtyTrac report.
The national foreclosure numbers continue to bounce around a bit, rising here, falling there, but at a very high level.
However, the days of letting troubled homeowners sit in limbo for months or years are long gone.
Banks are moving to seize homes and then unload them on the real estate market. Of course, the timing could not be better, coming just as prices falter and sales plunge with the end of the home buyer tax credit, but that's a story/rant for another day.
Overall, the pace with which banks are seizing homes is escalating dramatically as we hurtle towards that dubious, 1-million-homes-repossessed milestone.
Bank repossessions jumped 5 percent from the first quarter and are a whopping 38 percent over the second quarter of 2009. The grand tally of 269,062 homes seized set a new quarterly high, RealtyTrac finds.
OK, so how is Massachusetts doing in all this frenzy of foreclosure activity?
Well, not so hot.
Life about to get tougher for strategic defaulters?
Hundreds of thousands of strategic defaulters have dumped their underwater homes over the past few years, sometimes turning around and buying new and cheaper homes with federally-insured mortgages.
Of course, the rest of us are left to sweep up after these jerks. Maybe I sound harsh, but after all these are homeowners who could pay but decided it was no longer convenient, leaving a trail of foreclosed homes behind them.
Now, at least three years too late, Fannie Mae is launching a public relations/legal campaign to try and rein in this trend.
We'll see how effective it is, but after looking at the proposed penalties, which certainly seem flabby, I am not holding out too much hope for a quick turnaround.
Foreclosure hotspots in Greater Boston
Foreclosures are spreading like wildfire in the suburbs. And while sad as this wave of distress is, it may provide some buying opportunities in our perpetually overpriced Greater Boston market.
I spent time last night studying a foreclosure spreadsheet covering most of the towns and cities across our metro area put together by RealtyTrac.
The typical suspects - poor urban neighborhoods and small industrial cities - continue to struggle, with foreclosure activity, everything from initial notices to auctions, measuring well into the hundreds.
But the volume of activity is surging in the suburbs, especially in some of the towns along the Boston-to-Providence corridor and along the South Shore as well, especially in the Plymouth area.
There's a lot of data here, so for today, I am going to focus on those southerly suburbs on the Providence corridor, stretching from Medfield and Walpole to Wrentham, possibly one of the more intriguing buying opportunities out there.FULL ENTRY
Behind rising Bay State foreclosure numbers, an aggressive push by banks
The foreclosure crisis has mainly been a sideshow here in Massachusetts compared to hard-hit Sunbelt states like Florida, Nevada and Nevada.
But the combo of continued fallout from subprime mortgages gone bad and jobless homeowners falling behind on their payments is helping push foreclosure rates up locally at a time when some may have believed the worst was over for the battered housing market.
Just check out the latest Warren Group numbers - initial foreclosure petitions were up 20 percent in April, while foreclosure deeds, the final step, surged a whopping 80 percent.
Even more to the point, the Warren Group's Banker & Tradesman newspaper finds the days of banks letting troubled homeowners linger in limbo without pulling the trigger and selling the home at a foreclosure auction is long gone. The link will take you to a good summary of the story on the B&T website. (Not that it's any secret, but in the interest of disclosure, I write a column for B&T.)FULL ENTRY
Foreclosure crisis shifting, not going away
That's the obvious take away from the latest RealtyTrac foreclosure report.
Initial foreclosure notices starting the process fell markedly in April across the country, by 9 percent year-over-year. That could provide some light at the end of the tunnel, but we are talking a year or two down the line.
However, bank repossessions are soaring, having spiked 45 percent over April 2009 and edged up 1 percent over March's already very high levels.
Lenders lower the boom, from the W Boston to local homeowners
The era of "lend and pretend" is over, or so says Boston hotel industry consultant Thomas Engel.
When I caught up with him yesterday, Engel had lots to say about the bankruptcy filing by the W Boston, that super posh downtown hotel whose developer just filed Chapter 11. Oh one that also just happens to have lots of unsold multimillion-dollar condos as well.
After letting troubled loans sit on their books, banks are starting to move aggressively to foreclose on struggling luxury hotel projects. In fact, there has been a surge of bankruptcies and foreclosures of such ultra ritzy hotel projects around the country.
Especially vulnerable are new hotels, like the $200-million-plus W Boston, which opened up with big debt loads with the assumption they would also be able to charge boom-time rates.
Now they are finding they can't, and their lenders are starting to come calling, according to Engel.
The W Boston is hardly alone - the W Hotel at Union Square just filed for bankruptcy last month.
But this new leaner and meaner attitude on part of lenders means trouble not just for "lifestyle" hotel and condo projects that once thought they could charge $800 a night.
Check out the latest RealtyTrac report on foreclosures, which are not only rising in volume, but starting to spike in markets beyond hard hit Sunbelt cities, including Greater Boston. (My apologies for the link - I was unable to go directly to the report so here's a Reuters report.)
Here in Massachusetts, mortgage fraud is not a crime
Pretty bizarre given all that has happened in the global economy over the past few years, but sadly it's true.
I set out to find examples of scammers doing jail time here in Massachusetts for mortgage fraud given the explosion in foreclosures, especially in poor neighborhoods across the state.
Instead, I came back pretty much empty handed and for a reason that floored me. Mortgage fraud is not a criminal offense here in the Bay State, Attorney General Martha Coakley told me.
Given that mortgage fraud is considered a civil but not a criminal offense in Massachusetts, Coakley has had her hands tied behind her back when it comes to going after some of the scammers. While mortgage fraud is a crime under federal law, there are many cases in this very local kind of abuse that should not or can't be pursued by the feds.
I take a look at this issue - which has pretty much gone largely unreported until now - in my weekly column for Banker & Tradesman.
There's no doubt we saw an orgy of mortgage fraud, both during the bubble years and even after the market began to collapse.
Small time speculators wreaked a trail of foreclosures in poor neighborhoods from Boston to Springfield. The schemes were brazen and simple: Flip three barely rehabbed condos in a Dorchester triple-decker to straw buyers for $350,000 or so each, get no doc loans from some brainless subprime mortgage factory, and walk away with a million bucks.
Nine months later, all three units would be foreclosed on and sold at auction back to their lenders, ready to be bought by another group of fraudsters.
It really does not seem much different than walking into a bank with a gun and demanding money, but maybe I am missing something here.
Just in time for spring, next wave of foreclosure crisis gets rolling
Check out the latest RealtyTrac report on foreclosures - after a lull we are back at another record high.
It's both a nationwide trend and a local one as well - the Massachusetts numbers are actually worse in some respects.
If nothing else, it means more homes will be hitting the market just as the home buyer tax credit expires on April 30.
The first three months of the year saw more than 7,000 homes and condos across the state either get scheduled for a foreclosure auction or bought back by the bank at auction. Given there are 30,000 or so homes on the market in the state, this could be significant.
Bay State foreclosure activity - everything from initial notices to final auctions - jumped 12 percent in the first quarter over the fourth quarter of last year.
And compared to the first three months of 2009, foreclosure activity is up by a stunning 60 percent!
That's compared to still record breaking increases nationally of 7 percent in the first quarter over the fourth and 16 percent year-over-year.
A couple factors are driving this trend, including, ironically, increasingly healthy bank bottom lines at banks.FULL ENTRY
Shadow inventory lurks, but not here in the Bay State
The Massachusetts real estate market certainly has its share of challenges.
But apparently a potential deluge of bank-owned homes and condos just poised to hit the market is not one of them, Banker & Tradesman reports.
The newspaper, published by real estate data firm The Warren Group, offers some convincing data that should ease concerns locally about so-called "shadow inventory."
Basically, banks across the country are sitting on millions of homes they have seized. And this, in turn, has raised concerns that a flood of foreclosure specials will drag down prices once again.
We may very well see a double dip in home prices here in Massachusetts, but we at least have dodged the shadow inventory bullet, B&T's Colleen M. Sullivan reports.
Ibanez foreclosure case possibly heading to Massachusetts high court
Attorney Richard D. Vetstein. takes a legal look at the foreclosure case that affects about a large number of foreclosure titles in Massachusetts.
For those of you following the controversial U.S. Bank v. Ibanez case, which invalidated potentially thousands of foreclosures across the state, both sides last week asked the Massachusetts Supreme Judicial Court to take the case — as I originally predicted. The SJC's acceptance of the case would cut months to years off the normal appellate process. This would be great news for everyone eagerly awaiting a final decision. Click here for my post on the first ruling and here for my post on the second ruling in the Ibanez case.FULL ENTRY
Tide finally turning in foreclosure battle?
The foreclosure mess is far from over.
But there is a flurry of signs, some national, and one local, that we just might be finally reaching a turning point.
On the macro level, the number of homeowners falling behind on their mortgages actually fell in the fourth quarter, the Mortgage Bankers Association reported Friday.
Mortgages either 30 or 60 days past due fell in the fourth quarter compared to both the third quarter of 2009 and the last three months of 2008 as well.
Meanwhile, a few government officials appear to be finally getting the idea the time is past for fancy sounding initiatives with big numbers that, when push comes to shove, just don't work.
The Obama Administration is sending $1.5 billion to five states hardest hit by the foreclosure crisis, namely Nevada, California, Florida, Arizona and Michigan. The money will be used to do everything from bail out underwater homeowners to help the jobless pay their mortgages.
That has got to be more effective than all those silly loan modifications.
And locally, the number of foreclosed homes sitting empty in neighborhoods across Boston is also starting to fall markedly.
Nantucket meltdown sign of the times
For a time it looked like tony resort areas like Nantucket just might escape the real estate downturn relatively unscathed.
Well into 2008, prices just kept on rising in the Bay State's most expensive communities, even as they sunk elsewhere, especially in foreclosure ravaged inner city neighborhoods.
But now it's clearly the turn of our high-net-worth neighbors to feel the real estate pain as well.
Foreclosure activity doubled on Nantucket last year, catapulting the phenomenon from an oddity to a still small but growing problem on the resort island, the Inquirer And Mirror reports.
The hysteria driving strategic default
Enough already with the strategic default whiners.
Yes, there are some real hard luck cases out there - check out this Times piece on the trend.
Apparently, new research is showing that when the value of a house falls to 75 percent of the mortgage, our new breed of fearless, strategic-defaulting home owners gets ready to walk.
But I have a couple bones to pick with the strategic defaulters, starting with the fancy name.
The term connotes a shrewd bunch of 21st century homeowners, unbound by tradition and ready to make a corporate-like, rational decision to cut their losses and walk away from their underwater mortgages. These are folks who are still pulling down the bucks and can pay, but clearly feel they are smarter than the rest of us who are dutifully making our montly mortgage payments.
Yet too often we are talking about people who overpaid, sometimes massively at the height of the market, even amid all sorts of warning signs. That was hardly shrewd or sensible - not much business sense there.
Now, at the depth of the market, with the future of the real estate market and prices pretty hazy, these financial geniuses are making another rash decision based on the fears and emotion of the moment.FULL ENTRY
Homeowners dwindling as foreclosures take toll
I guess we can safely close the book on that vapid public policy fantasy of the 2000s - the ownership society.
The home-ownership rate has fallen to a decade long low, to 67.3 percent, the lowest since 2000.
Gone are all the gains in home ownership politicians from George W. Bush to Barney Frank just loved to extol back when the housing bubble was inflating fast.
Of course, as all we know now and as some knew then, it was a concept built on a throroughly rotten foundation of subprime lending, with its outrageous rates and sleazy hidden costs and charges.
The Journal article I linked to above notes that home-ownership rates have now fallen to levels common in the 1990s. Sounds vaguely reassuring - hey I liked the decade, Bill Clinton and all - but it shouldn't be.
Given the forces that are driving down the home-ownership rate are continuing to accelerate, we haven't reached the bottom yet. Even with the uptick in January in pending home sales, both here in Massachusetts and nationally, the trend seems headed for even fewer homeowners, not more.
The flipping rules
Sam Schneiderman, Broker-owner of Greater Boston Home Team tells the story of a developer who doesn't like the flipping rules.
FHA won't finance properties that have been bought and resold within 90 days. The majority of higher volume lenders and wholesalers have also applied that rule to all of their loans. Some allow exceptions if they see satisfactory evidence that supports the increase in value from the original price. Many lenders also require similar evidence for properties being resold at a higher price within a year. Some PMI (Private Mortgage Insurance) companies are also on the bandwagon.FULL ENTRY
Let's say that an investor/rehabber named Martha buys a property at foreclosure. She has her own workers and some outside contractors upgrade every interior surface of the house. They install new kitchen cabinets, bathroom tile, new fixtures and her own workers put a new layer of shingles on the roof.
Because Martha employs her own workers, who also work on Martha's other projects, she's able to get some work (like the roof) at wholesale so that she can add to her profit. (She also pays the employer's share of taxes, workers comp, unemployment contributions and vacation/sick days.) Because she uses many of the same contractors about ten times a year, she gets a substantial discount from them. Because she accepted the risks of buying the home at a foreclosure auction with a 30 day closing and no home inspection, Martha had to go to a "hard money lender" that charges fifteen percent interest plus three to five points (percent of the loan amount) up front, so every day costs her big money.
Tenants evicted because of their landlord
Rachel Bedick at Community Action Agency of Somerville (CAAS) is back to explain tenant's rights in a foreclosure.
After foreclosure, tenants have more rights than former owners. If the tenants had a lease with the former owner, then due to a relatively new Federal law called the "Protecting Tenants at Foreclosure Act," that lease must be honored by the new owner. For instance, if the tenants signed a 1 year (proper/legal) lease with the former owner and the foreclosure takes place 6 months into their lease, then the new owner can't begin eviction proceedings for another 6 months. According to this new law, in most cases after the lease ends the new owner would have to serve the tenants with a 90-day notice-to-quit. (Certain situations may require less than 90 days.) After those 90 days the new owner could then begin the summary process. For tenants who never had a lease, they are also entitled, generally speaking, to receive a 90-day notice-to-quit. FULL ENTRY
Foreclosure and eviction are two different processes
I asked Rachel Bedick at Community Action Agency of Somerville (CAAS) to help me answer questions that came up in a post about a ruined and foreclosed house that I saw for sale.
She used this to get the details right.
Sean asked:
Out of curiosity, what are the eviction rules when a landlord defaults on a mortgage and goes into foreclosure?
I know that an auction is usually scheduled outside the building on the day of foreclosure. So, say someone buys it right then and there. Assuming it's a two family, and the foreclosed owner occupies one unit, and tenants occupy the other. How long do either of them have before they are evicted (assuming that the landlord and tenant don't reach an agreement with the new owner about continuing occupancy?)
Sean's question has two parts. One: what happens to the owner. Two: what happens to the tenant. The rules are different for owners and renters. Today, I am publishing what Rachel told me about what happens to the owners. Tomorrow, I'll post what happens to the tenants.
Rachel answers:
The following information on foreclosure is very general and may not apply to every situation. In addition, state laws on foreclosure may vary, and federal law is changing quickly, so consult an attorney before acting.
Foreclosure is a process with several steps:FULL ENTRY
Petition to foreclose
Order of Notice
Tilting at windmills
When I published comments from readers who thought their Offers were not being presented to lenders in short sales and foreclosure situations. I suggest that agents and consumers could do something about it. James wrote:
Where's the incentive for an honest agent in all of this? It seems like it's a lot of work for the agent, and he still won't get a commission. If the lender thinks the borrower is crooked, there will be a Fraud Alert flag on that file forever, making reasonable Offers nearly impossible to approve. Sure, it's the right thing to do, but it takes a lot of time, effort, and money (lawyers ain't cheap), and it doesn't get your client any closer to buying the house. Good community service (if you can get the bank to listen to you), but it won't pay the bills.
First a disclosure: on the bottom of the email address that I use with my clients is this statement:
Always do right. This will gratify some people and astonish the rest. --Mark Twain
So, I am someone who tilts at windmills; that's who I aspire to be. Marcus thinks doing right to do right is a sign of hopeless naivety. But so be it. Attorney Michailidis thinks I owe someone an apology for saying there is something wrong with hand-picking low Offers to send to a lender in a short sale.
Back to James' comment: why blow the whistle on sellers and their agents? James is right that the self-interest angle is weak, in the short run. The long-run upside is that action to stop those messing with the process will clear the path for buyers to buy properties; if the lenders are waiting forever to see market-rate Offers, would-be buyers are waiting along with them.
The Long And Short Of It: A Short Sale Legal Primer
Welcome back to Attorney Richard D. Vetstein. Today, he looks at the wild world of short sales to tell buyers what they can expect...
A short sale is special type of real estate transaction between a homeowner, his mortgage holder, and a third party buyer. In a short sale, the homeowner's mortgage company agrees to take less than what is owed on the outstanding mortgage, thereby being left "short." In some but not all cases, the lender will agree to wipe out the entire debt. Many people believe that short sales offer bargain basement prices, but lenders will do their best to get as close to fair market value as possible so as to minimize their loss.
Short sales are a unique type of transaction and far different from the typical transaction between parties of equal bargaining power. Likewise, the legal aspects of a short sale are unique.
Sam on short sales
Sam Schneiderman, Broker-owner of Greater Boston Home Team continues his Monday series. Short sales are going to be with us for a long time. What should a buyer know if he/she wants to buy one?
A "short sale" is typically the sale of a property by a seller that cannot continue to pay his monthly mortgage(s) and cannot sell the property for enough money to pay off his mortgage balance(s) in full. In a "short sale" the seller must ask his/her lender(s) to take a loss on the mortgage(s) in order to allow the seller to sell the house and move on. The seller's lender(s) will accept a discounted mortgage payoff and usually forgive the seller's debt. Buyers, sellers and their agents need to know that lenders have the last word in accepting an offer and final purchase price even after the seller "accepts" an offer.
Lenders might agree to short sales when it's obvious that they will probably never be able to get paid the full amount of the mortgage balance and it is cheaper and faster to agree to a short sale. (Maybe the seller lost his job or had serious illness that prevents continuing mortgage payments. Maybe the value has declined substantially.) If the seller can't pay off the mortgage from sale proceeds, the choices are: foreclosure or short sale of the property.
Most people think that short sales are automatically granted but that is not true. In order to grant short sale permission, lenders typically consider two things: the seller's financial situation and the property's market value.FULL ENTRY
Ibanez decision, round two
Welcome back to Attorney Richard D. Vetstein. Today, a look at yesterday's decision in U.S. National Bank v. Ibanez. If you bought a foreclosed property, or you are thinking of buying one, you need to know about this.
Yesterday, Massachusetts Land Court Judge Keith Long reaffirmed his controversial ruling made back in March 2009 that invalidated foreclosure proceedings involving two Springfield homes because the lenders did not hold clear titles to the properties at the time of sale. A copy of the decision can be found here. As I outlined in my prior post on this case, the problem the Land Court dealt with in this case is what happens when modern securitized mortgage lending practices meets outdated foreclosure laws. When mortgages are packaged to Wall Street investors, the ownership of a mortgage loan may be divided and freely transferred numerous times on the lenders' books. But the documentation (i.e., the assignments) actually on file at the Registry of Deeds often lags far behind.
The Ruling:FULL ENTRY
Judge Long ruled that foreclosures were invalid when the lender failed to bring the ownership documentation (known as an assignment) up-to-date until after the foreclosure sale had already taken place. An assignment is a legal document confirming that a mortgage loan has been transferred from one lender to another. Assignments must be recorded with a registry of deeds so anyone researching a property's title can track the loan's origin and ownership. Oftentimes, as in the Ibanez case, lenders will sell bundles of loan and record backdated assignments with an effective date before the first foreclosure notice. Judge Long effectively prohibited this practice.
Foreclosures that don't close
John responded to my entry about making low offers with a good link showing the continuing foreclosure crisis. The seller I was facing-off with over an $80,000 difference of opinion about price was not a lender-owned or short sale property. But John's point remains. He wrote:
Hi Rona, Have a look at the graph in the middle of this page:
There's the reality of your post at the macro level. I drive past several unkept properties, likely abandoned, on my current 12 mile back road commute. When banks get serious about selling these, I think we're looking at the next leg down...
I get John's point. Those foreclosed and unsold properties are sitting around. They are hard to buy. Frequently, they are not worth buying. At least not yet. John sees them every day on the way to work. I see them every week at work.
Last week, I also wrote on appraisal hassles. Foreclosed properties that are used as comparables are also driving down the price that lenders will cover for mortgages.
Will it get easier to buy short sale homes?
Foreclosure, in this recession, has been a lose-lose scenario. Lien-holders make the re-purchase of short sales and foreclosed homes just not worth it to potential buyers. Buying a property as a foreclosure or a short sale* has been an exercise in patience, at best. It is most often an exercise in futility. You would think that lenders would streamline the process in order to get the properties off their hands…
In the step-in-the-right direction department, the Making Home Affordable Loan Modification Program has been modified to favor short sales for defaulting homeowners who can't keep their places. If this actually works, then the lenders will take a hit (your tax money at work, finally), the defaulting homeowners will lose their homes, and someone can actually buy the properties and get them reoccupied.
Foreclosures are expensive; short sales are faster and yield higher return of equity to the lien-holder and possibly the defaulting homeowner.
Before starting foreclosure, servicers must determine if a short sale is appropriate.
There are incentives to avoid foreclosure option in favor of the short sale:
(1) $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure;
(2) $1,500 for borrowers/homeowners to help with relocation expenses;
(3) Up to $1,000 toward the cost of paying junior lien holders to release their liens (one dollar from the government for every $2 paid by the investors to the second lien holders).
(4) No commission haggling between brokers and lien-holders.
(5) No fees to borrowers/homeowners for participating.
Primer on foreclosure
Shaun wrote me last week with a few questions. Two had quick answers, but the middle one, about foreclosures, is more complicated:
Good afternoon Rona, hope this finds you doing well…[I] was hoping to ask a few quick questions about the foreclosure process as I am a first time homebuyer.
1) Do you have any recommendations for a good attorney?
2) Do you have any primers on the foreclosure process?
3) Besides an inspector that comes with me to visit the property, whom else should I bring with me?
I have recommendations about attorneys. I also think any first-time home buyer should have their own agent.
I wrote on the basics of foreclosure purchasing in October. Here is "the primer" on foreclosure:
First a few definitions:
Mortgage holder or lender is the entity that is owned the amount of the mortgage.
Seller is the owner of the house.
A short sale means that the seller does not have enough money to pay off the existing loan on the property at the point of sale. (Example, the seller owes $350,000, but the sale will yield $320,000) This is sometimes called "upside down." Most people are saying "under water." The seller is short because the mortgage holder will get less than the mortgage amount when the property is sold. The seller is "short of cash" to cover the debt. In this case, the mortgage holder has a say in how much of a loss they are willing to take. If a seller can pay the entire mortgage amount, plus whatever closing costs are attached to the sale, then the seller is not short. The seller may have lost equity, but the lender does not have a say in the sale.
Foreclosure happens when the seller stops paying the mortgage holder. By right, lenders can take the house and sell it to get their money back.FULL ENTRY
Explaining short sales and foreclosure again
A lot of readers don't understand what short sales and foreclosures are. I am getting comments and emails. This is foreclosure and short sale 101. Skip it if you know this stuff and have no advice for those who don't.
Tim responded to Monday's post. He is in a situation that has become more common since the sub-prime meltdown in the summer of 2007:
One of the problems we are facing is, when we tried to sell it, we asked if we could just pay off the difference to our mortgage holder, that was unsuccessful as they tried to push us into a short sale, which I didn't understand because we're current on our mortgage. We tried to take out a personal loan, however the amount was too much and exceeded personal loan limits. We've tried to refinance to make the mortgage lower - so we would actually want to keep it and maybe break even or make money off of the house (with the rental), but we cant refinance since the value has dropped so much we'd have to finance more than 100%, and banks just dont do that now-a-days. What does a person do!?
For those who want a foreclosure deal, wait!
The foreclosure entry that I wrote on September 9th is still drawing comments. Today this one came in from Polly:
I was a buyer in a short sale and today I got news the deal is off and the house is going into foreclosure. I paid for a home inspection and an attorney to review the P&S. (Wells Fargo was the Seller's lender.) Any advice for me? I really love the house and still want it.
My advice to Polly is the same as my advice so far for buyers who are trying to capitalize on foreclosed homes:
The time is not yet right for buying foreclosed properties. The lenders do not have their systems in order. They can't manage the sales efficiently. The wait time is long; deals fall through for no reason. Prospective buyers end up wasting time and money. Sometimes they succeed, but the discounts that I have seen have been modest.
If you are going to deal with short sales and foreclosures, hire a lawyer who knows the ropes. Expect delays. Be prepared for the sale to fall through. Choose something that is worth the risk and bother -- or don't buy that property. If you are expecting a normal deal in a normal time, you are dreaming.
I started in real estate during the last recession, in 1991. By that time, foreclosure sales were working for buyers. There was an agent who handled foreclosed properties who had good communication with her investor's office. The investor was offering good financing options for the buyers. The management of foreclosure sales worked like a well-oiled machine.FULL ENTRY
Booby traps in short sale contracts
I got an email from a reader who signed a Purchase and Sales Agreement on a short sale. He was unhappy when his agent called to say there would be a two-week delay in closing. He was paying cash. He had no lawyer. What should he do?
First thing, if you don't hire a lawyer you should read your Purchase and Sales Agreement. Most people don't. They almost all have an automatic thirty day extension to perfect title (get liens and encumbrances off the title.)FULL ENTRY
Foreclosure and short sale sellers are desperate, right?
I get asked regularly about how deep the discount for short sale and foreclosure homes are in my area. My answer is "barely deep enough to be worth it." When I work with buyers of this kind of property, I prepare them for a long wait, more aggravation, more risk...and some financial reward.
Only undertake a short sale if you have time, flexibility, and risk tolerance. Some things that I regularly see:
1. Slow communication with the investor's office, which must approve all contracts.
2. Generally poorer condition of the property.