Tuesday, October 26, 2010
Appraisal Standards are Getting Tougher - Again.
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CHICAGO (MarketWatch) — Appraisers and appraisal management companies are
facing new requirements aimed at ensuring home valuations are accurate and fair — and they could be in for tougher
penalties if they don’t follow the rules.
news for consumers, who should see an improvement in the quality of home appraisals for their mortgage loans as a result
of the new requirements, according to some in the industry.
The “interim final
rule,” announced by the Board of Governors of the Federal Reserve System last week, is a development required by the
Dodd-Frank Wall Street Reform and Consumer Protection Act passed this summer; the rule will amend the Truth in Lending Act.
Public comments on the rule are due in about two months, and by April, compliance with the new appraisal rule will be mandatory.
But it’s not the first stab at increasing accuracy and fairness in appraisals
in recent years.
In essence, the new requirements will take the place
of the Home Valuation Code of Conduct, announced by Freddie Mac and Fannie Mae in 2008, to create appraisal independence
standards for the loans the two government-sponsored enterprises purchase. The code, based on an agreement by the GSEs,
New York State Attorney General Andrew Cuomo, and the Federal Housing Finance Agency, was meant to remove pressure on appraisers
to produce desired, and perhaps inflated, values at the urging of lenders, borrowers or brokers.
A common complaint about HVCC, however, is that it resulted in more appraisal management companies being
brought in to act as intermediaries between brokers and appraisers. Some of those companies were accused of not paying enough
attention to the competency or expertise of the appraisers with whom they contracted, said Jennifer Creech, president of
InHouse Solutions, a provider of appraisal management technology and also an appraisal management company.
But the new rule specifies that appraisers contracted by appraisal management companies,
or AMCs, must be paid “reasonable and customary” compensation for the geographic area they’re working in.
Appraisers need to decline an order if they don’t believe they are qualified to complete it, Creech said.
Under the rule, any coercion or bribery that would cause an appraiser to base an appraised
value on factors other than his or her independent judgment are prohibited, and appraisers and appraisal management companies
can’t have a financial or any kind of interest in the property or the credit transaction. Creditors can’t extend
credit if they know of violations before the deal is finished, and any misconduct in the appraisal process has to be reported
to the authorities.
The new requirements apply to all mortgage loans,
not only those covered by HVCC. The new rules are also somewhat tougher than HVCC if violations are detected: “There’s
a bit more teeth in it, relative to HVCC, in terms of penalties for non-compliance. There are more strict and potentially
more expensive penalties,” said Jonathan Corr, chief strategy officer of Ellie Mae, a software and services provider
for the mortgage industry.
Violators could face up to $10,000 a day
for the first violation and $20,000 a day for subsequent violations, though the industry is awaiting more clarity on exactly
how those penalties will be slapped on those who don’t comply, said Griff Straw, president of Solidifi, an appraisal
A deeper look
Meanwhile, more analysis of appraisals is on the way. The U.S. Government Accountability Office is currently
examining appraisal issues, and their findings are due out next summer, said Mark Linne, executive vice president of AppraisalWorld,
an online community for appraisers.
For one, the GAO is considering
how federal and lender policies address conflicts of interest in the valuation process, according to a release from the
GAO. The study is mandated by the Dodd-Frank law.
The topic of fair
appraisals is an important one, as the industry struggles to set valuations on properties in a volatile housing market,
Linne said. Inaccurate home valuations can have serious effects not only on home buyers but also neighborhoods. For instance,
low appraisals may undervalue assets and end up depressing prices in an entire area.
“What will come out of this is really a renaissance of valuation, where good practices will come into
play,” he said. “Everyone will benefit.”
The new appraisal rule is only one piece of Dodd-Frank that pertains
to the mortgage industry, and the recent interim rule is one of the first pieces of direction the mortgage industry has
received on how to implement the changes. Also in the law are restrictions regarding loan officer compensation and goals
to unify mortgage disclosures and make them clearer for consumers, for example.
“When Dodd-Frank came out, there was little direction. There was a lot of ‘this is where we want to go,’
but they didn’t give us direction on how to get there,” Straw said. He expects that in the coming months, more
guidance will be on the way regarding other elements of the wide-reaching law.
Though Dodd-Frank became law over the summer, implementing all of the elements is going to take awhile, he said.
“We are on a journey to help improve the consumer and investor experience with the
mortgage business. God knows that we need to build confidence in the mortgage process,” Straw said. “Dodd-Frank
is starting our journey toward revamping and rebuilding the process to build confidence for home buyers and investors.”
But according to one study by professors at the Kellogg School of
Management at Northwestern University and the University of Chicago’s Booth School of Business, the new regulations
aren’t making much headway in building confidence just yet.
Only 12% of more than 1,000 respondents in mid-September said they were satisfied with the Dodd-Frank Act and 54% were dissatisfied,
according to the Financial Trust Index, a look at Americans’ trust in the financial system, conducted quarterly.
Thirty-four percent said the newly-created Consumer Financial Protection
Bureau is useful to protect consumers, while 27% percent called it “useless bureaucracy” and 25% said it was
“overreaching of government power.”
Friday, October 22, 2010
Something New to the Firm....
With the help of a good attorney-friend of mine, I have been working on expanding my practice to deal
with more landlord/tenant issues including evictions/forcible detainers. Since my practice is so heavily invested in the real
estate area, this move makes sense, and I'm very excited to be able to offer this service to my clients. More information
10:14 am cdt
Thursday, October 21, 2010
Foreclosures Hitting Hot Chicago Neighborhoods
The Chicago Tribune is reporting today that Chicago's once-hot neighborhoods are getting hammered by
1:39 pm cdt
In Chicago's Loop, for instance,
73 foreclosure filings were made during the three months ended Sept. 30. Combine that with filings made earlier in the year
and foreclosures are up almost 77 percent from the first nine months of 2009, to 205 properties. The Near North, Near South
and Near West sides, as well as Lincoln Park, also saw double-digit increases, according to a third-quarter foreclosure
report scheduled to be released Thursday by the Woodstock Institute.
In fact, the 515 foreclosure filings recorded
in Chicago's Near North Side during the first nine months
of the year are the fourth-highest number for any neighborhood, behind Austin, Belmont-Cragin
and West Ridge.
"This is an emerging issue in the city and it's something
to keep track of," said Geoff Smith, senior vice president of Woodstock, a Chicago-based research and advocacy group.
Foreclosures "are hitting more affluent people and some investors."
Many of the filings are in recently developed condominium buildings in which units were
purchased by owner-occupants, as well as investors who bought units with small down payments and planned to flip them. Several
years later, amid a change in the market, owners face higher carrying costs and are unable to refinance their mortgages
because they owe more on the loans than the units are worth. As a result, units in many high-profile high-rises are being
marketed as short sales.
"They were the hot thing to do, buy (a few), flip one, keep one and keep one in
your portfolio," said Mario Greco, a Prudential Rubloff agent.
Of the 73
new foreclosure filings in the Loop, 16 were at River City, 800 S. Wells St.; nine at Century Tower, 182 W. Lake St.; and
six were at Park Millennium, 222 N. Columbus Drive, the report found.
buildings responsible for two-thirds of the filings on the Near
South Side during the quarter included 1620 South Michigan Ave. with 12; Vision
on State, 1255 S. State St., with 11; and 1720 South Michigan Ave., with eight filings.
"The reason (the
South Loop) is getting crushed is it's only the South Loop in a good market," Greco said. "In a bad market, it's
no man's land. In a good market, people assume neighborhoods will be expanding. When the market crashes, it's like the Sycamore
or Moline of Chicago."
Kelly Cirignani, a sales agent at Patrick Jeffrey Realty,
is working with a first-time homebuyer who until recently was looking specifically at newer construction in the South Loop.
The client settled on a unit and was ready to make a 50 percent down payment, until his
lender said it would not approve a mortgage in the chosen building. Cirignani now is scouting properties in Old Town and
Lincoln Park. "He doesn't want anything to do with South Loop," she said. "I warned him before it (happened).
I guess we didn't realize how bad it was."
Overall, Woodstock's report showed
a 12.5 percent year-over-year increase in foreclosure filings during the third quarter for the six-county Chicago area.
For the first nine months of 2010, almost 59,000 initial foreclosure actions were filed, 28 percent ahead of last year's
"I would have expected more of a plateau, given how long the crisis has
been going on," Smith said. "We're still seeing a 28 percent increase year-over-year and that's not small. People
are underwater and people are unemployed. Those two factors haven't changed."
Woodstock also found a rapidly increasing flow of properties exiting the foreclosure process and becoming bank-owned.
For the region as a whole, the number of completed foreclosure actions rose to 9,539 properties in the six-county area,
a 44.9 percent increase over 2009's third quarter. More than 96 percent of those homes were repossessed by lenders.
The number of court-ordered foreclosure auctions and bank repossessions may dip in the
fourth quarter as a result of a freeze on auctions and evictions by large lenders while they investigate foreclosure procedures.
Smith noted, however, that any dip in fourth-quarter numbers would be artificial and temporary.
Tuesday, October 19, 2010
Bank of American and GMAC Resume Foreclosures
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The Wall Street Journal is reporting today that two major lenders at the center of the foreclosure
crisis took steps Monday to put the mess behind them by restarting home seizures that were frozen by documentation concerns. Bank of America Corp. reopened more than 100,000 foreclosure actions, declaring
that it had found no significant problems in its procedures for seizing homes. GMAC Mortgage, a lender and loan servicer,
said that it also is pushing ahead with an unspecified number of foreclosures that came under intense pressure.
Monday's moves are part of a growing counterattack by lenders scrambling to stem a financial and political
threat over allegations that certain employees signed hundreds of documents a day without carefully reviewing their contents
when foreclosing on homes.
Bank of America, the nation's largest bank in assets, which
imposed on Oct. 8 a nationwide moratorium on the sale of foreclosed homes, said it has begun preparing new affidavits for
pending foreclosures in 23 states where a judge's approval is required. The paperwork will be submitted to courts by next
Monday, and foreclosure sales will resume in those states starting in November, according to the bank.
"This is an important first step in debunking speculation that the mortgage market is severely flawed,"
said Bank of America spokesman James Mahoney. More details will be disclosed when the company reports quarterly results
Citigroup Inc. Chief Financial Officer John Gerspach said the
bank has found no reason to halt foreclosures, calling its internal procedures "sound." "We have not identified
any system issues," he said Monday.
Restarting the nation's foreclosure
machine puts the lenders on a collision course with state attorneys general, who announced last week a nationwide investigation
of foreclosure practices. Some state officials have been pushing for a wider halt to foreclosure sales, but Bank of America's
moves show determination by at least some lenders to get back to business while the investigation proceeds.
A Bank of America spokesman said the bank has found "no cases" thus far of foreclosures that should
not have "gone through." Last week, James Dimon, J.P.
Morgan Chase & Co. chairman and chief executive, said that no one has been "evicted out of a home who shouldn't
Some attorneys general said they have little confidence that problems
with foreclosures have been fixed. "We've been in discussions with some of the major servicers, and as part of that
they've assured us that they are fixing this problem, but we're not just going to take their word for it," said Patrick
Madigan, a spokesman for Iowa Attorney General Tom Miller.
It will be hard for lenders
to declare the foreclosure crisis over and get back to business as usual. Bondholders are escalating efforts to recover
losses on soured mortgage-bond deals containing loans with flawed paperwork. Meanwhile, federal banking regulators are assigning
additional employees to an ongoing review of large mortgage-servicing operations, according to people familiar with the
situation. Officials want to make sure that documentation procedures are being followed and companies are meeting all legal
Bank stocks surged Monday as investors reassessed last week's
outlook for the cost of the foreclosure mess. Citigroup shares jumped 23 cents, or 5.8%, to $4.18 a share in New York Stock
Exchange composite trading at 4 p.m., on better-than-expected earnings. Bank of America rose 36 cents, or 3%, to $12.34,
while J.P. Morgan was up $1.05, or 2.8%, to $38.20.
Bank of America is the only major
U.S. bank that announced a halt to all foreclosure sales while it reviewed documents for errors. Bank officials say they're
readying new affidavits for 102,000 pending foreclosure actions.
A company spokesman
said the largest investors in mortgages serviced by Bank of America have signed off on the new timetable. The bank will
continue delaying foreclosure sales in the 27 states where court approval isn't required until a review is completed "on
a state by state basis." The bank expects delays on fewer than 30,000 foreclosure sales nationwide.
"Now it may be legal, but I am not sure it's ethical," said Robert Quigley, a 68-year-old retired
commercial fisherman, who received a legal notice last week that Bank of America is proceeding with foreclosure on his home
in Lake City, Fla. A bank spokesman said the bank never said it would stop all foreclosure proceedings, just final sales.
GMAC, a unit of Ally Financial Inc., declined to comment on the number of foreclosures it has reviewed
so far, but said they included loans with affidavits signed by employee Jeffrey Stephan. His testimony in a deposition that
he signed 10,000 foreclosure affidavits a month without reviewing the underlying documentation led GMAC to halt evictions
in 23 states last month while it scrutinized its procedures.
Several lawyers representing
borrowers facing foreclosure by GMAC said affidavits signed by Mr. Stephan were replaced by similar filings with the signature
of a different employee.
Michael Holmes, an antiques dealer in Belfast, Maine, thought
he would get a chance to save his home because the affidavit used by GMAC to substantiate his loan amount was signed by
Mr. Stephan. Instead, GMAC replaced Mr. Stephan's document in the courthouse file for the foreclosure proceeding with an
affidavit signed by employee Davida Harriott. Her name also appears on substitute paperwork in pending foreclosure cases
in Florida, according to court documents and lawyers representing the borrowers.
Proia, a spokeswoman for Ally, said on Monday: "As each case is reviewed and remediated, it moves on." None of
the revised foreclosure documents being filed by the company will bear the signature of Mr. Stephan, though he still works
for GMAC, she said. Mr. Stephan and Ms. Harriott couldn't be reached for comment.
Attorney General Richard Cordray, who last week filed a lawsuit against GMAC alleging hundreds of counts of fraud related
to foreclosure documents, said he is suspicious of efforts to replace paperwork. "Substituting new evidence in [cases]
where there's been fraud won't help prevent the court from sanctioning them for the fraud that has already been committed,"
he said. "It doesn't unring the bell."
Tuesday, October 12, 2010
Title Insurance and Foreclosures
3:06 pm cdt
I am often asked just what title insurance is. Today's Wall Street Journal has a great article about
title insurance and how it pertains to foreclosed homes. I'm reprinting it here:
home buyers and people refinancing their first see the itemized estimate for
all the closing costs and fees, the largest number is often for title .
This moment is often profoundly irritating, mysterious and rushed — just like so much of
the home-buying process. Lenders require buyers to have title insurance, but buyers are often not sure who picked the insurance
company. And the buyers are so exhausted by the gauntlet they’ve already run that they’re not interested in spending
any time learning more about the policies and shopping around for a better one.
Besides, does anyone actually know people who have had to collect on title insurance? It ultimately feels like a tax —
an extortionate one at that — and not a protective measure.
But all of the
sudden, the importance of title insurance is becoming crystal-clear. In recent weeks, big lenders like
Mortgage, and have halted many
or all of their foreclosure proceedings in the wake of allegations of sloppiness, shortcuts or worse. And a potential nightmare
situation has emerged that has spooked not only homeowners but lawyers, title insurance companies and their investors.
What would happen if scores of people who had lost their homes to foreclosure somehow persuaded
a judge to overturn the proceedings? Could they somehow win back the rights to their homes, free and clear of any mortgage?
But they may not be able to simply move back into their home at that point. Banks, after all, have turned around and sold
some of those foreclosed homes to nice young families reaching out for a bit of the American dream. Would they simply be
put out on the street? And then what?
The answer to that last question may depend
on whether those new homeowners have title insurance, because people who buy a home without a mortgage can choose to go
without a policy.
Title insurance covers you in case people turn up months or years
after you buy your home saying that they, in fact, are the rightful owners of the house or the land, or at least had a stake
in the transaction. (The insurance may cover you in other instances as well, relating to easements and other matters, but
we’ll leave those aside for now.)
The insurance companies or their agents begin
any transaction by running a title search, sifting through government filings related to the property. They do this before
you buy a home or refinance your mortgage to help sort out any problems ahead of time and to reduce the risk of your filing
a claim later.
But sometimes they miss things, and new issues can arise later.
For instance, the person doing the title search may not notice that a is still outstanding or that a contracting firm filed a lien against the owner years ago. That could
create problems for you later, when you try to sell the home.
Then there are the psychodramas
that can ensue. The previous owner’s long-lost heirs or a previously unknown love child could show up, saying that
they never agreed to the sale of the property. Or perhaps there was fraud against a seller who was elderly or had a mental
disability, or forgery of an estranged spouse’s signature. It’s rare, but it happens, and when it does, your
title insurance company is supposed to provide legal counsel or settle with whomever is making a claim.
Title insurance companies would like you believe that they are the good guys standing behind you. After
all, you are the customer who owns the policy.
In fact, many of the title insurance
companies are more concerned about the real estate agents, lawyers and lenders who can steer business their way. The title
insurance companies are well aware that most people do not shop around for title insurance, even though it’s possible
to do so — say through a Web site like entitledirect.com.
While the title insurers
are not supposed to kick back money directly to companies or brokers that send business their way, various government investigations
over the years have turned up all sorts of cozy dealings that make you shake your head in disgust.
But since you have to buy the insurance if you need a mortgage, there is not much you can do except hold
That’s what John Kovalick did in January when he bought a foreclosed
house in Deltona, Fla., for $102,000 from halting foreclosures and wondered whether something
might have gone wrong with the foreclosure on his new house. A spokesman for Deutsche Bank declined comment. . But in recent weeks, he’s seen
the headlines about other
Mr. Kovalick is not the only one pondering what could go wrong. While the banks were pressing the pause
button on many foreclosures, some title insurers were growing concerned as well.
Oct. 1, Old Republic National Title Insurance Company released a notice forbidding any agents or employees to issue new policies
on homes that had been recently foreclosed by GMAC Mortgage or Chase.
title insurer was also worried about a situation in which untold numbers of former homeowners have their foreclosures overturned.
At that point, those individuals might claim the right to take back their old homes, but they’d also be responsible
for, say, a $400,000 on a home that is worth half that.
So what would happen next? The banks that foreclosed might start the process over again. At that point, lawyers for the people
who had been foreclosed upon might take the next logical step and try to show that the banks never had the documents to
prove ownership of the mortgage in the first place. The banks might settle at that point, writing checks to everyone who
had gone through a disputed foreclosure in exchange for each of them giving up the title.
But if banks did not settle, or the evicted homeowners refused to settle and fought on and won, they might end up owning
their homes once again and not owing the bank either.
Or banks might agree to slice
a big chunk off the remaining balance in exchange for a release from any liability for the errors it made.
At that point — and again, this is what Old Republic and investors in other title insurers fear —
those homeowners might actually want to move back in. But some foreclosed homes were sold by the banks to others who now
live there. And those new residents would have big, fat title insurance claims if their predecessors ever turned up at their
doorsteps, proclaimed them trespassers and told them to leave.
“All of these
Joe Schmos who did everything legally would then be in the middle of it, too,” said Mr. Kovalick, who manages an auto
repair shop and is now hoping not to be one of those Schmos.
have two total disasters,” he said. “How would you like to be the judge to get that first case?”
While homeowners like Mr. Kovalick may have title insurance, it generally covers them only for
the purchase price of the home. When you buy a home out of foreclosure, however, it often needs a lot of work. “If
I bought it at $200,000 and it’s a steal but I had to gut it and sink $100,000 more in, my recovery is limited if there
is a problem,” said Matthew Weidner, a lawyer in St. Petersburg, Fla.
this possibility has occurred to Mr. Kovalick, who has plans to put an addition on his home and is asking how he could
extract that if someone ever turned up on his doorstep and asked him to leave.
“What do I do, take the paint off the walls and the custom blinds off the windows?”
Chances are, it will not come to that. After all, title insurers could settle with the previous residents, allowing them
to walk away with a big check to restart their lives elsewhere.
Still, for anyone
considering buying a bargain home out of foreclosure anytime soon, consider asking your title insurer if any special riders
are available that can cover appreciation on your home in the event of a total loss.
That said, if you can possibly help it, stay away from foreclosed homes until the scene shakes out a little bit.
Some people will undoubtedly make a fortune investing in these properties in the next few months.
But if your down payment represents most of what you have in the world, it’s hard to justify betting it all on a situation
like this one.
Friday, October 8, 2010
Flawed Foreclosure Documents Thwart Home Sales
3:46 pm cdt
From today's New York Times:
OCALA, Fla. — Amanda Ducksworth
was supposed to move in to her new home this week, a three-bedroom steal here in central Florida with a horse farm across
the road. Instead, she is camped out with her 7-year-old son at her boss’s house.
Like many buyers across the country, Ms. Ducksworth was about to complete the purchase of a foreclosed house when it suddenly
went off the market. Fannie Mae, the giant mortgage holding company that buys loans from commercial lenders, is pulling
back sales of homes that might have been foreclosed in bad faith.
“I gave up
my rental thinking I would have a house,” said Ms. Ducksworth, a 28-year-old catering assistant. “Now I’m
sharing a room with my son. What the hell is up with that?”
With home sales this
past summer at the lowest level in more than a decade, real estate is ill-prepared to suffer another blow. But as a scandal
unfolds over mortgage lenders’ shoddy preparation of foreclosure documents, the fallout is beginning to hammer the
housing market, especially in states like Florida where distressed properties are abundant.
“This crisis takes a situation that’s already bad and kind of cements it into place,” said Joshua Shapiro,
chief United States economist for MFR Inc., an economic consulting firm.
mortgage lenders — Bank of America, GMAC Mortgage and JPMorgan Chase — have said they are suspending foreclosures
in the 23 states where they first need a judge’s approval. They are also waving off Fannie Mae from selling any of
the foreclosed homes whose loans they sold to Fannie.
The companies say they are reviewing
their operations after disclosures that employees signed documents without determining the accuracy of the material, as
is required by law.
Those reviews are throwing into limbo hundreds of thousands of
foreclosures and pending home sales, analysts estimate, though the lenders and Fannie Mae have been mostly silent about
precise numbers and other specifics.
More broadly, the revelations about the sloppy
paperwork are emboldening homeowners and law enforcement officials in many states to question whether lenders rightfully
hold the notes underlying foreclosed properties — further chilling the housing market.
Distressed properties, many of which are in foreclosure, make up about a third of all home sales. “Foreclosures are
going to slow to a crawl,” said Guy D. Cecala, publisher of the trade magazine Inside Mortgage Finance.
Of the 23 states where foreclosures need court approval, Florida has by far the most trouble — about
a half-million cases clog its courts — and the moratoriums are having a noticeable effect.
Because most lenders sold their mortgages to Fannie Mae, it is largely that company that has been sending e-mails to real
estate agents about putting off deals and removing houses from the market. In most cases, the agents are being told the
freeze will last 30 to 90 days, but agents say there is no way to know for sure.
snapshot of the problems can be seen at the real estate agency that sold Ms. Ducksworth her home, Marc Joseph Realty, based
in Fort Myers.
The agency had 35 deals that were supposed to close this month. As of
Thursday, Fannie had postponed 11 of them. Another handful of homes that did not have offers or were being prepared for
market had also been withdrawn.
“If this wipes out half my inventory, that’s
a scary thing,” said Bill Mitchell, the agency’s closing coordinator.
he spoke, his computer pinged and another message from Fannie came through about withdrawing a house. It had the subject
line, “Unable to Market Notice.”
Another client of the agency, Richard
Clark, is caught in the foreclosure vise on both ends.
A delivery truck driver, Mr.
Clark has gone through several rough years: his wife lost her banking job and they eventually separated; a vending business
did not succeed; he fell behind on his home payments; and CitiMortgage rebuffed his efforts to restructure the mortgage.
With the prospect of being tossed out of his house in a foreclosure of his own, Mr. Clark, 62, cobbled together
$58,000 — most of it from his parents — and successfully bid on a house in North Fort Myers that was in foreclosure.
His offer on the house, with three bedrooms and two baths, a Jacuzzi tub in the master bedroom and a Key lime tree in the
backyard, was finally approved on Oct. 1.
“It’s been a rocky two years,”
Mr. Clark, a stocky man with a short pony tail, wire-rim glasses and a gold hoop earring, said while touring the rambling
one-story home. “It’s a dream house for me.”
At least, it was.
On Tuesday, Fannie suspended the deal. Mr. Clark said he did not know what to do. “I’m kind of hoping I have
a place to live,” he said. “Now, who knows?”
It is possible the foreclosure
on his current house in nearby Cape Coral — he has a court hearing on Dec. 7 — will also become caught up in
the current problems, but Mr. Clark said he was not pleased by the prospect of staying there any longer.
“I’d rather just get on with it, get on with my life,” he said.
In the states far from Florida where foreclosures are an equally large problem but there is no judicial review — Nevada,
Arizona and California — there were early signs this week that the document crisis was spreading. The only time a
foreclosure in those states enters a courtroom is when the borrower sues the lender, something few of those in default have
the money or the will to do.
In a telephone interview on Wednesday, Gary Kent, a foreclosure
specialist in San Diego who has 80 listings, said he had not heard from Fannie or any lender about withdrawing a property.
All his deals were on track, Mr. Kent said.
But a few hours later, Mr. Kent said he
had received an e-mail about removing a home that was under contract.
The message was
from his title insurer, who said that Pittsburgh-based PNC Bank was imposing a 30-day moratorium on all foreclosure sales.
(PNC declined to comment to a reporter.)
Mr. Kent’s confidence was shaken. “My
buyer’s upset, my agent’s upset and I’m a little nervous,” he said.
Several factors are likely to delay many more foreclosed houses from reaching the market and finding new owners.
Law enforcement officials in several states, including Texas, Maryland and Connecticut, are demanding a
suspension of foreclosures until lenders can prove they are using legal methods.
is unclear how many lenders will go along.
In a move that sets up a potential showdown
in Texas, one major lender, CitiMortgage, is arguing that it is being considered guilty until proven innocent by the state
“We have no reason to believe our employees are not following
our process, and therefore have no reason to stop foreclosures,” a Citi spokesman said.
Another factor is the reaction of the title insurers, who defend homeowners in disputes over a home’s ownership. Lenders
require title insurance before approving a mortgage.
The crisis took many title insurers
by surprise, said Kurt Pfotenhauer, the chief executive of the industry’s trade group, the American Land Title Association.
One possibility the title insurers are discussing is obtaining warranties from lenders against errors in
their foreclosures. Every title insurer, Mr. Pfotenhauer said, “understands there is a brand new risk that has to
be evaluated. It’s not at all clear that courts across the country are going to be reversing their earlier decisions
on foreclosures. But we don’t know.”
In the meantime, buyers like Ms. Ducksworth
here in Ocala are at a loss for answers.
“She’s in a mess, actually,”
said Jim Haston, Ms. Ducksworth’s agent.
“I really don’t know what
to tell her,” he said.
Wednesday, October 6, 2010
Leaving Money or Property to Minors Can Be Tricky
4:51 pm cdt
The Chicago Tribune Sunday Real Estate edition had a great article on bequests to children. Now is
the time of year when clients approach me about doing their estate planning. More often than not, my clients have young, minor
children for which they wish to provide.
Using a will alone is not enough, especially when
dealing with minor children. I recommend a living trust to most of my clients, not only to avoid probate, but also to provide
specific direction as to how your assets should be distributed. You designate a trustee in the living trust who basically
follows your direction as to how your assets are to be managed upon your death. The trustee follows the terms that you dictate
in your trust, including how much money is to be spent on the child while he or she is a minor, and at what age the child
can take over the inheritance and have access to the money or property.
You can choose
a relative or friend, or a bank or corporate trustee to manage your living trust. If you have a lot of money or property,
it is recommended that you hire a professional. If you can't afford a professional, at least designate a relative or family
friend who has money management experience.
In order for the trustee to designate how the
money should be spent, a provision in the trust that requires the trustee and the guardian of the minor to communicate about
how the money should be spent.
I also recommend that a client designate an older age than
the legal age of 18 to control all of their inheritance. Some clients (myself included) also separate out their inheritances
into parts (i.e. 1/3 at 18, 1/3 at 21, 1/3 at 25 or 30). That way a child can have help at presumably important stages of
their lives (high school graduation, college graduation, and marriage, for example). You can also add something to the trust
which provides that if the trustee feels at the time that the age arrives that the child is not ready for the funds (major
things, like alcohol or drug abuse, cult membership, etc.) that the trustee could withhold disbursement.
There is no right or wrong in a living trust. You can write basically anything you want and make your own
provisions (within reason of course). Many people stipulate in their trusts that they only want the money while the child
is a minor to be used to health, welfare and support of the child. Some say that the inheritance should only be used if the
insurance payments run out or if the guardian is having financial troubles.
If you are
leaving real estate to a child, and you want something specific to happen to it (i.e. Grandma's cabin that has been in the
family for 100 years), you should designate whether/when you want it to be sold.
terms, especially in wealthy families, stipulate that the child can receive a dollar from his/her inheritance for every dollar
he/she earns on his/her own. Some say that the child can only access it after receiving a college degree. That part of it
is up to you.
Special needs kids also need special planning. Consider setting up a special
needs trust so that the assets you are leaving your child don't disqualify him from receiving Social Security disability income.
Anything the government checks don't cover can be covered by your Special Needs Trust, like travel, dentistry and entertainment.
Monday, October 4, 2010
Walking Away from Mortgage May Have Grave Consequences
11:26 am cdt
I have received a lot of calls from potential clients asking about "strategic default",
in which a client deliberately walks away from an underwater mortgage. Today's Sun-Times had a great article about this which
I am reprinting below.
If you're like nearly 20 million American homeowners, you owe more
on your mortgage loan than your home is worth. You probably have serious doubts that it will ever be worth what you paid
for it. In a word, you're "underwater" on your home.
Why not simply walk
away from this terrible investment?
That's what many people are doing. It's called
a "strategic default" when a homeowner who could keep paying the mortgage simply decides it's not worth it.
A recent report revealed 31 percent of U.S. foreclosures in March were strategic, compared with
22 percent in March 2009. And that number is likely to grow as home prices remain stagnant, jobs remain scarce, and people
become angrier at their financial situation.
It's one thing to face foreclosure when
you simply can't make the monthly payments, no matter what the value of your home. When the court orders a foreclosure,
you have little choice.
But a "strategic default" is something quite different.
The idea of simply walking away from a property that is underwater and making a "fresh start" -- even though you
could continue to make the mortgage payments -- is an idea that seems to be catching on.
Here's some advice. Think twice before you walk away from your mortgage. This decision may catch up to you
in ways you never considered.
Of course, walking away from a mortgage and letting
your home go into foreclosure will ruin your credit. That doesn't seem to be much of a deterrent even to those who could
afford to keep paying. The prevailing sentiment is that "everyone's credit is in the tank" so it's not such a
But before walking away, you might want to take a look at whether
your state allows "deficiency judgments." About half do, including Illinois -- and the result is the lender can
go after you in the future, garnishing your wages and invading your bank accounts for amounts lost to the lender when the
foreclosed home is ultimately sold. Some states have time limits on enforcing these judgments -- in Illinois, it's seven
years -- but those can easily be extended in the legal system.
As Gerri Detweiler,
consumer credit advocate at Credit.com, says:
"Just because they don't come after
you right away doesn't mean they aren't coming after you eventually. This is not a risk-free decision. Your 'fresh start'
interrupted by a debt collector just as you've started to rebuild your savings."
suggests that if you are going to walk away from your home in a state that grants "recourse" to lenders, you should
consult an attorney about your future vulnerability. Bankruptcy may be the only option to prevent future judgments.
The one big hazard that few people seem to consider is the potential difficulty of getting
back into the housing market in the future.
Yes, you can rent a comparable place now
for less than you're paying currently on your underwater mortgage. It's a good temporary housing solution -- if the landlord
is willing to rent to someone whose home is in the foreclosure process.
If you walk
away, you're probably also figuring that you'll be able to buy someone else's foreclosed property at a much better price
than your old home.
Don't count on it.
days, even buyers with very good credit have to jump through hoops to get a mortgage. So getting back into the housing market
may not be so easy with a "walkaway" strategic default on your record.
if the gold market, which is presaging future inflation, is reflected ultimately in the real estate market, you may not get
back on this real estate train before it leaves the station.
It's easy to doubt that
home prices will ever reach their 2005 highs again. But don't bet the roof over your head on that. If inflation comes roaring
back, all hard assets will rise in price -- including the home you're thinking of leaving behind.