Tag Archives: Foreclosure

Government, Bank’s Mistake your Gain (Still)

access_timeSeptember 1, 2015personPrice Group Realtors

As the summer months wind down and the chillier winds roll in through the fall months and into early winter, many Americans look out their windows at their cold and dismal hometowns. Their neighborhoods, strewn with fallen leaves or dirty snow, strongly fortify dreams of a second—or a first—homes in paradise. But with Florida real estate inventory, and subsequently prices, as conducive as ever to a buyer’s market the dream is as achievable as ever.

We all know the story of the early-2000’s housing bubble. Inflated by banks selling to the subprime mortgage market, a brand new segment in 2002, the bubble got bigger and bigger until it finally popped in 2007. But five years was long enough to do plenty of damage to markets across the country, particularly in Sun Belt areas. And right under the bubble was southwest and the west coast of Florida.

A tool to increase buyer confidence, writing bad mortgages actually didn’t start with the banks. Rather it started with the administration taking initiative to combat the fallout from the 2001 terrorist attacks. And many consumers took the bait in the name of achieving the American dream. The issue with this is many didn’t have the income to support mortgage payments, nor did they have to prove it. This was thanks to a brand new tool called the ‘No Doc’ loan, short for ‘no documented proof required.’

Needless to say, many of these mortgages were foreclosed on, left as bank-owned properties. As a matter of fact, in 2006 right before the bubble burst, 21% of subprime mortgages went into default. This compares to the prime loan statistic of less than 1%. Of these, most were in Florida– where statewide there were nearly 325,000 subprime mortgages issued.

Fast forward to 2015, and Florida still has the highest rate of late mortgages. Statewide, over 18% mortgage holders are late or about to face foreclosure. And when banks foreclose, they are not looking forward to sitting on excessive supply; they want to turn and burn to the highest bidder. And with an inventory glut the highest bidder typically isn’t bidding too high lately.

Pace of foreclosures slowed further in April

access_timeMay 12, 2011personPrice Group Realtors

Fewer Americans had their homes repossessed by banks or were put on notice for being behind on their mortgage payments in April compared to a year ago.

That would ordinarily suggest improving fortunes for U.S. homeowners, but the decline had less to do with any turnaround in the housing market than with foreclosure processing delays that appear to be getting worse. That is threatening to drag out a housing recovery, foreclosure listing firm RealtyTrac Inc. said Thursday.

It’s taking longer for lenders to move against homeowners who have stopped paying their mortgage and to take back homes already in some stage of the foreclosure process. In states like New York, for example, it now takes an average of more than two years for a home to go from the initial stage of foreclosure to being repossessed by a bank, the firm said.

Those delays, partly due to banks working through foreclosure documentation problems that came to light last fall, means it could take many more years for lenders to deal with a backlog of seriously delinquent properties, which numbers up to 3.7 million, by some estimates.

“It’s going to take between three to four years just to get those loans into foreclosure at our current pace,” said Rick Sharga, a senior vice president at RealtyTrac. “And that doesn’t spell good news for the housing market.”

Banks repossessed 69,532 homes last month, down 5 percent from March and down 25 percent compared with April of last year, according to RealtyTrac, which tracks warnings sent to homeowners throughout the foreclosure process.

The number of properties receiving an initial notice of default fell to 63,422, down 14 percent from March and down 39 percent from April 2010.

Homes scheduled for auction for the first time also declined in April, falling to 86,304. That’s down 7 percent from March and 37 percent below April of last year.

A weak housing market, sliding home prices and pressure on lenders to give troubled homeowners more time to work out new payment arrangements or loan terms have all contributed to the longer time frame for foreclosures.

Many banks also have taken steps to revisit thousands of foreclosure cases since last fall, delaying the processing of new foreclosures. The logjam has been compounded by court delays in states like Florida, New York and New Jersey, where a judge must approve foreclosures.

In the first three months of this year, it took an average of 400 days for a U.S. home to go from receiving an initial notice of default to being foreclosed on, RealtyTrac said.

That’s up from an average of 340 days in the same period last year and more than double the 151-day average in the first quarter of 2007.

The delays are even lengthier at the state level. In New York and New Jersey, the foreclosure process took more than 900 days, on average, to run its course in the first quarter – more than three times the average length of time in the first quarter of 2007 for both states.

In Florida, one of the states hardest hit by the foreclosure crisis, the process took an average of 619 days in the first quarter, up from 470 days a year earlier. In the first quarter of 2007, it took an average of 169 days for the process to play out, RealtyTrac said.

Barring a pickup in the pace of foreclosures, it is likely fewer homes will be repossessed this year than in 2010, when lenders took back more than a million, Sharga said.

Despite the drop in foreclosure activity last month, several states continue to have outsized foreclosure rates.

Nevada had the highest foreclosure rate in the nation, with one in every 97 households receiving a foreclosure notice in April. It also bucked the overall national trend, as bank repossessions jumped 23 percent from March and climbed 12 percent from April of last year, RealtyTrac said.

Lenders may have elected to pick up the pace of foreclosures in Nevada to take advantage of brisk foreclosure sales in Las Vegas. In March, sales of previously occupied homes in Las Vegas hit a five-year high, with distressed properties accounting for 69 percent of sales, according to DataQuick.

Foreclosure mess creates more havoc for Pinellas-Pasco courts

access_timeOctober 25, 2010personPrice Group Realtors

CLEARWATER The temporary freeze on foreclosures by big lenders such as Bank of America is rippling through the Pinellas-Pasco court system.

In the past few weeks about 50 percent of foreclosure hearings have been canceled. It’s a significant setback because the courts are already dealing with a backlog of 33,000 foreclosure cases, said J. Thomas McGrady, chief judge of the 6th Judicial Circuit. “Our goal was to reduce that number by 62 percent within a year,” McGrady said. “Particularly with the cancellation of hearings and the numbers, we’re not going to reach that goal.”Bank of America, GMAC, JPMorgan Chase and other big banks put a moratorium on foreclosures after questions were raised about fraudulent paperwork. Several have resumed foreclosure proceedings this week, but must re-schedule canceled hearings. Also, once the cases are back on the docket, McGrady said judges will have to scrutinize documents. “In all these cases with affidavits, the lenders themselves have questioned … are they going to submit new affidavits? Are they just going to rely on the old affidavits? As a court we’re going to have a look at each one on a case-by-case basis,” he said

As more homeowners walk away, experts fear for nation’s morals

access_timeOctober 12, 2010personPrice Group Realtors

Americans have taken a sharp slap in the face from the housing crisis, financial crisis and jobs crisis. Now, some wonder if the residue of those harsh realities is an ethical crisis.

For the first time in the nation’s history, bankers say, people are walking away from mortgages they can otherwise afford to pay. The phenomenon known as strategic default was once unthinkable. It represents a calculated decision to hand over the keys to a home without making good on a loan, reasoning that it makes no sense to keep paying the monthly mortgage when the home is worth thousands of dollars less than the obligation.

Jeff Horton, a 33-year-old Orlando, Fla., technology manager, is among those who recently decided to take the step. He told his lender that he’s done making payments on the condo he bought in 2005 and the home he bought in 2007, because he wants to move from Florida and can’t sell or rent the properties at a price nearly high enough to cover his payments.

“Life is too short,” said Horton, who has mortgages totaling about $400,000 with Bank of America – about twice as much as he thinks he would get if he could sell the property. He says he has little choice because the bank has refused to refinance the mortgages or adjust original terms.

Strategic default is a symptom of a housing market that suddenly turned from “American Dream” to financial trap. With the Norman Rockwell-like images of homeownership decimated by a 30 percent plunge in prices, some fear America is also losing its grip on another idyllic notion: that people will live by the slogan, “My word is my bond.”

Morgan Stanley recently estimated that about 18 percent of defaults will be strategic. In a recent Pew Research Center survey, 36 percent of Americans said that walking away without paying a mortgage is acceptable, at least under certain circumstances. Fifty-nine percent said the practice is unacceptable.

The saying “My word is my bond” was first posted in the London Stock Exchange in the late 1920s to convey living up to promises. Now, after the worst financial disaster since that period, people such as Horton say they have no such image of Wall Street or large banks as trustworthy institutions, and that has allayed guilt about walking away from mortgages.

“I felt guilty at first,” said Horton. “It all stopped when I saw them take $90 million in executive bonuses. They take bailout money and do nothing for the little guy. They wouldn’t do anything for me.”

Most people walking away from homes see little choice, says John Maddux, chief executive of UWalkAway, a Web site that provides advice on the strategic-default process. “They bought the house thinking of it as an investment in their future,” he said. “For some, it was to be their retirement; for others, it was seen as forced savings, and now it’s bleeding them dry.”

Overburdened with mortgages, people conclude they won’t be able to send their children to college, save anything for retirement or move to a place where they can find a job. But as they go through the soul-searching and guilt connected with walking away, Maddux noted they often point to a sense of betrayal.

He said he frequently hears: “I don’t feel bad for the banks. They let this happen. Banks made the mistake of giving a loan to anyone if they had a pulse. Their loose lending standard led to a bubble, and the regulators should have controlled this.”

Banking expert E. Philip Davis sympathizes with that point of view, but he also points out the implication of homeowners walking away from a commitment.

“It makes them as bad as the bankers,” said Davis, a Baptist minister in the United Kingdom who teaches courses on fostering stability in the financial system.

The erosion of the ethic of keeping promises “will be a cancer for society,” said Davis, who was with the Bank of England and is now a fellow at the U.K.’s National Institute of Economic and Social Research.

On the surface, one consequence is evident: If bankers don’t trust that people will pay off their loans, banks will demand higher interest and other assurances before lending in the future.

In fact, there’s research behind the concern, says Tom Donaldson, a University of Pennsylvania Wharton business ethics professor. And it shows that both bankers and borrowers are at risk if trust erodes.

“We’ve known for decades that trust is critical to successful business,” said Donaldson. “Studies have shown that if one party cheats on one end, the other party feels more entitled to cheat. It’s not the most noble way, but it is human nature, and it becomes a race to the bottom.”

Research into strategic default by University of Chicago Booth School of Business professor Luigi Zingales shows what he calls “the contagion effect.” “The stigma goes down once you see someone else do it,” he said.

Foreclosure vs. short sale: pros and cons

access_timeJuly 30, 2010personPrice Group Realtors

PALM BEACH, Fla. – July 28, 2010 – With today’s reduced property values and increased unemployment, it’s tempting for some homeowners to just throw their hands up in defeat, allow the bank to take their home in foreclosure and rid themselves of the monthly mortgage burden.

Even suffering through the paperwork and stress of a short sale may seem too much for an overwhelmed borrower to handle.

But Florida homeowners should be aware of unique rules in the state that make the benefits of a short sale typically outweigh the ease of walking away in a foreclosure.

“I want to be very clear on this, short sales are a better solution than a foreclosure, even when all the options in a situation where you lose your house are not great,” said Mark Greene, owner and president of Short Sale Operations LLC in North Palm Beach.

The biggest difference between Florida and many other states when it comes to losing a home is the deficiency judgment.

While some states ban lenders from collecting the remainder owed on a loan after a foreclosure or short sale is completed, Florida law allows banks to go after borrowers for up to 20 years. That can lead to a garnishment of wages long after the home is gone.

In a short sale, where the bank agrees to take a lesser amount for the home than what is owed on a loan, lenders sometimes are willing to write off the deficiency on the front end.

Greene said in 90 percent of the cases he handles, the bank has waived its right to seek a deficiency.

That was the case with Jupiter resident Kathryn Lorello, who in 2008 found herself in a home she couldn’t afford.

Following a divorce, and with three children, Lorello bought a $408,000 home that she lived in comfortably for a year. But then she lost her job as a manager of a real estate company.

She remembers the day the bank served the notice of foreclosure.

“I cried my eyes out,” Lorello said. “That’s when I panicked because I really didn’t want it to happen.”

Lorello got advice from Greene on doing a short sale.

Her bank, Wells Fargo, waived its right to seek a deficiency even though it ended up taking $200,000 less than what was owed on the loan.

Also, if a bank refuses to waive the deficiency in a short sale, it still would have to go back to court to seek a judgment.

In a foreclosure, at the end of the proceeding, a deficiency judgment is automatically awarded by the courts and the bank is free to seek a claim.

“In the past, people just wanted to move from the property and get on with their lives and didn’t understand what the lenders’ rights were in terms of pursuing a deficiency claim,” said Paul Baltrun, director of loss mitigation at the LaBovick & La-Bovick law firm.

“I think people are more aware now about what can happen after the fact and that their nightmare can continue.”

Another consideration is the effect of a foreclosure or short sale on credit.

According to the Fair Isaac Corp., which developed the widely used measurement of credit risk called a FICO score, the negative effect of a foreclosure is only marginally worse than a short sale.

But in Florida, a deficiency judgment from a foreclosure is likely to have a much larger impact that will prohibit your ability to buy another home for many years.

Daniel Poulos, a mortgage broker with Elite Lending in North Palm Beach who has studied the effect of foreclosures and short sales on credit, said unless a borrower pays off the deficiency, it may be 20 years before someone is eligible for another mortgage.

“That’s the kind of information that’s not getting out in Florida,” Poulos said.

There are a few situations where some experts believe it is better for someone to go to foreclosure rather than do a short sale.

To do a short sale, a borrower must give all of his or her financial information to the bank before it will decide whether to allow the short sale. The idea is that if a person can afford to pay the mortgage, the short sale may be denied.

“Now the lender knows everything about your finances and they can better decide whether they will go after you or not,” said Jon Maddux, CEO of YouWalkAway.com, a company that advises people on strategic defaults.

If a lender doesn’t know your finances, Maddux argues, it reduces the chances it will go after you following a foreclosure.

“You might fly under the radar,” he said. “With the millions of people going through this, they are probably going to go after the low-hanging fruit.”