As recently reported in www.DSNews.com, the ongoing controversy surrounding deficiencies in foreclosure documentation is taking its toll on the housing market as a significant share of home shoppers refused to even look at distressed properties in October, according to an industry study conducted by Campbell Surveys.  Fears of litigation from former owners who lost their homes to robo-signer foreclosures are making REO properties unattractive since legal battles could tie-up the properties for months or even years to come. With foreclosures on the rise, this presents a major problem for lenders who otherwise would get stuck with holding and maintaining unsellable properties.  News reports that major servicers were pulling REO properties off the market, including some already under contract, clearly spooked would-be homebuyers, Campbell Surveys found.  The company’s closely-watched monthly survey found that 14 percent of owner-occupant homebuyers and 6 percent of investors refused to view foreclosed properties in October. This buyer fear was even worse for short sale properties, where 30 percent of owner-occupant shoppers and 20 percent of investors refused to consider short-sale homes.

Not surprisingly, the drop in overall distressed property sales activity helped produce a decline in average prices for short sales, move-in ready REO, and damaged REO in October. This certainly has helped sellers of non-distressed properties which suddenly became more attractive to ready buyers.  This increased demand has pushed their prices higher.

Is there an end in sight? Not soon.  Citigroup, which has adamantly contended that they were not involved in the robo-signer problem, has uncovered some 14,000 defective foreclosure actions.  Core Logic, the company which provided analytical date for the investment industry (www.corelogic.com), indicates that there currently are 4.2 million homes on the market for sale, a 15 month supply. However, beyond this “visible market”, there is a “shadow market” of properties more than 90 days in default, in foreclosure, or REO’s that are not on the market. Core Logic reports that there are 2.1 million more properties. When added together, we actually have a 23 month supply of houses on the market.  Typically a reading of six to seven months is considered normal, so the current total months’ supply is roughly three times the normal rate.  And it may be even more than that. Lender Procesing Services which handles foreclosure processing estimates that there are more than 7 million loans in default! (DS News 11/17/10).  In the aggregate, alanysts are projecting a possible 7% drop in home prices over the next year before the housing market starts to stabilize.

So what should this mean to you?  If you’re in default, keep negotiating with your lenders. They may be more accepting of a loan modification or a short sale without recourse or contribution.  If you’re an REO or short sale buyer, check the documents carefully and make sure the title insurance will protect you from any claims of defective foreclosure actions.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options. 

If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

We awake this November 3rd to a changed political climate nationwide as well as here in California.  Will this bring meaninful change to ease the housing crisis? That is not likely.  What is likely is that this election signals a return to the housing expectations we held before the real estate bubble arose. Hopefully this time either common sense or regualtory control will stop the Wall Street excesses that fueled that bubble. First a little history lesson.

The roots of the housing crisis actually started back in the 1970’s with the evolution of real estate investment gurus such as Robert Allen who’s book Nothing Down started a frenzy for buying real estate that continued to grow. The only constraint was qualifying for loans.  By the 1990’s, a push was on to open the “American Dream” of home ownership to everyone. But, if they couldn’t qualify for a loan, how were they going to buy a home? That was answered in the late 1990’s by Federal deregulation of the financial markets, opening up Fannie Mae and Freddie Mac to buy the loans, and the creation of supposed insurance programs called “credit default swaps”.  Banks now were happy to lend because they could get the high-risk, “subprime loans” off their books and they had a ready supply of money through Wall Street investment firms which packaged these loans as securities and passed them off as safe investments. The problem was hat they were never safe. But, as long as there was a buyer, no-one cared.  So we ended up with the perversity of lenders offering nothing down, no payment required loans, to unemployed people who were destined to fail.  But the loans drove the demand higher and the prices higher and the sales and loan commissions higher, inflating the bubble.  Then came the crash.

By late 2006, loan defaults were increasing as original “teaser” interest rates reset to full payments that buyers could not afford. The bubble was cracking. By 2007, as defaults and foreclosures started skyrocketing, the housing bubble began cracking but this was still lost on Wall Street which did not realize (or had ignored) that these sub-prime loans now made up the majority of their investments. By 2008 however, Wall Street was in a panic as they realized that hundreds of billions of dollars of investments they had sold the American public was backed by worthless loans.  They had no money to operate and no more money to loan to banks to make more loans. The market collapsed and the entire economy was threatened.  In came the U.S. Treasury in 2008 with a series of bailouts and buy-ups to stop the damage. When the dust cleared, many Wall Street investment firms were gone, banks went under, and the American taxpayers were on the hook for 80% of the sub-prime loans which by now were held by Fannie Mae and Freddie Mac.  The only thing left was to clear out the bad loans and that led to the housing and foreclosure mess that we’re still going through today.

So what should we expect going forward?  Here’s my thoughts on this:

1.   Don’t expect help from the Government - preserving bad loans is not on anyone’s agenda and with the increased Republican control nationwide, the push will be to strengthen the economy and provide incentives to create more jobs.

2.  Expect the pace of loan resolutions to increase - While loan modification success has been dismal, Government financial incentives for principal reduction kicked in October 1st and may improve these numbers. But again, preserving bad loans is not on the agenda.  I do expect short sale success to improve as lenders finally seem to be getting it that a sale yeilds a better return for their investors than a foreclosure.  But all those HELOC second loans may get in the way as they demand full recourse or substantial payoffs.  The most likely scenario is that foreclosures will increase as lenders seek to get what they can and move on.  We’re already seeing a faster recording of Default Notices, even by BofA.  Expect this to continue.

3.  Prices are not likely to rise soon - According to the US Census Bureau, in 1900 les than half of people owned their homes. By the start of the housing bubble in 1999, that number had increased to 66.9% and, at it’s bubble peak, the rate reached 69.2% nationwide and much higher in some States.  Today, that ownership number has returned to pre-bubble levels.  Over 18 million homes stand vacant or are in default.  This supply, plus harder-to-get loans, will keep a lid on any upward price pressure for many years. 

4.  Being a Tenant will no longer be a negative - For many of us, our adult lives have been directly influenced by housing promoters and cheap money that made us feel somehow inferior if we rented rather than owned. That is now changing.  As reported by Carrie Bay of DSNews.com,  The housing market is over-subsidized. Homeownership isn’t for everyone…. For decades, America has been “over-housed” and “over-consumed.” Not only is renting gaining ground as the most practical means of housing for a larger number of consumers, but some say it could also be the answer to keeping millions of struggling borrowers in their homes and stabilizing foreclosure-ridden communities.  Stephane Fitch of Forbes claims that the fading American Dream of home ownership is cause to rejoice: “Fact is, when you look at how much it costs to rent versus how much it costs to own housing in big cities across the U.S., you discover that the cost of renting is likely to be lower. Throw in the fact that rental leases only last a year and that in most places they can be broken if the the tenants move to another city in search for a job, and I see a very good case that America is stronger if more of us decline to own homes.”  So as we look forward, perhaps a re-defining of what the American Dream really means will be in order.

We still will have problems to deal with over the next several years as this housing crisis continues. So, if you or your clients are upside down on a loan and facing foreclosure, this is a time to act to seek that modification or complete that short sale.  If you are facing a lender lawsuit, get representation and put up a challenge.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options. 

If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

On October 3rd, I wrote about the stoppage of foreclosures across the country as a result of the discovery lender’s use of “robo-signers” in preparing fraudulent foreclosure documents.  As expected, the lenders’ pro-active stoppage removed any pressure on the Federal government to impose a foreclosure moratorium and soon, as the lenders realized that there would not be any consequences, the foreclosures resumed in full.  But as they may soon come to learn, there are consequences in life when we do something wrong.

Although the Fed has not acted, the Attorneys General of many States have stepped up and are threatening criminal prosecutions of lenders. As reported in today’s Wall Street Journal, Ohio’s Attorney General has criticized a number of banks and loan-servicing companies, including Wells Fargo & Co.; Ally Financial Inc.’s GMAC Mortgage; Bank of America Corp.; and J.P. Morgan Chase & Co. Mr. Cordray said the banks are trying to paper over fraud committed in foreclosures with temporary fixes that don’t address underlying problems in the banks’ practices: “It is not acceptable for a party who believes they submitted false court documents to merely replace those documents. Wells Fargo and any other banks are not simply allowed a ‘do-over”…..”The banks are committing fraud on the court, essentially perjury, and then saying ‘Whoops! You caught me! Here’s some different evidence and use that instead.”   In an interview Friday, Mr. Cordray said the banks would “be well-served to work out a settlement with the borrowers to modify the loans and work out payments.”

Here in California, Attorney General Jerry Brown called on lenders to stop foreclosures while the robo-signer issue is investigated. But no stoppage has been ordered. Further, he has announced that California has joined a coalition of 50 attorneys general and dozens of state banking regulators in a multi-state effort to demand that lenders find solutions to serious and potentially widespread problems in the foreclosure process across the country.  This might signal a concerted effort to push lenders to modify loans as a way of possibly avoiding legal action against them for fraud.

The big question for everyone is whether this is a sign of real action at the State level to assist upside-down property owners or whether this is just election year rhetoric.  With the election tomorrow, perhaps we’ll learn more after the push for votes goes away.

Of course the problem for most people seeking modification will be finding help with the modification process. Due to the extent of loan modification scams nationwide, most States (including California) have essentially outlawed loan modifiers. Jerry Brown has called consumer fraud prevention a top priority but by this he specifically means “Loan Modification Fraud” not fraud by lenders.  For example, in October he filed a $60 million lawsuit to shut down companies offering “forensic audits” of loans which might reveal defective or fraudulent loan docs.  Without private sector assistance, those seeking loan modifications will be at the mercy of whatever the lender’s representatives tell them. That may not necessarily be truthful or in the borrower’s best interest.

Meanwhile don’t expect anything from Washington. Presidential advisor Elizabeth Warren has been charged with setting up a new Consumer Financial Protection Bureau. Although the title is encouraging, she has already suggested the agency may not become deeply entangled with the issue. She said, State attorney generals likely will take the lead in dealing with the latest U.S. foreclosure mess.  So to continue, don’t look for help from Washington.

So, if you or your clients are upside down on a loan and facing foreclosure, this is a time to act to seek that modification or complete that short sale.  If you are facing a lender lawsuit, get representation and put up a challenge. The lenders’ hope with these fraudulent lawsuits was that they would win without challenge. I’s up to you to stop them and the Courts and State Attorneys General may be willing to help.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options. 

If you have specific questions about your liability in California or about short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.