Thursday, February 10, 2011

Foreclosures up 93% Over Last Year...Would You Like to Ride the Wave?

The wave is a comin', are you going to ride it, or get crushed by it?  I posed that question at the end of my previous post in regard to strategic defaults.  Since January of 2010, the number of foreclosures in King County were up 93% according to Realty Trac as reported by the Seattle Times.  Nevada, Arizona, California, and Idaho are some of the markets that run the highest rates of foreclosure and have been so for the last couple of years.  However, as we look at those states, they share common characteristics of large numbers of retirement and vacation homes, as well as speculation properties.  Washington was 12th, and though it has a fair number of vacation homes as well, the driving forces of the foreclosures is changing from the removal of investment and speculation properties to properties subject to subprime and even prime lending.

The wave that enveloped those markets is rising through many of the surrounding markets, and Washington isn't being spared.  Losses in manufacturing, tech, and governmental positions in the state are finally taking their toll. 

At the beginning of this housing crash, we as consumers felt trapped by our moral imperative to fulfill our obligation to our lenders.  However, that feeling of obligation has been lessened as we have watched the ultra-rich and even those that have preyed on our moral inclinations return their underwater assets to their lenders.  A popular video from the Daily Show reveal the hypocrisy of the moral imperative.

As the wave rises, and as the moral imperative recedes, the conversation of strategic default will move from hushed tones to water cooler talk.  But an issue that we as Washingtonians must face is that while our legislature inadvertently protected the consumer from the banks taking our homes and charging us with the deficiencies, the legislature did not protect us from banks that would crush our legal rights of due process under the boot of efficiency.

The Deed of Trust Act does give those that are subject to nonjudicial foreclosure the right not to be subject to a deficiency, however, it does not provide us with an automatic forum to fight the problems that inundated judicial foreclosure states like Florida.  James Saccacio, CEO of Realty Trac, was quoted as saying in regard to the national decline in foreclosures that "Unfortunately, this is less a sign of a robust housing recovery and more a sign that lenders have become bogged down in reviewing procedures, resubmitting paperwork and formulating legal arguments related to accusations of improper foreclosure processing."

Nonjudicial foreclosure, which is the product of a successful Strategic Default, should not mean that we do not have right to fight lenders who don't respect our rights.  Part of the reason that foreclosures are up is due to stress on the average homeowner's financial situation, but in addition, banks are moving to shorten the process of getting homeowners out of non-performing assets and not necessarily following the rules because there is no judge to keep them in check.

Under the Deed of Trust Act, the homeowner can create a forum to challenge the nonjudicial foreclosure (I bet you didn't know that)  However, there is the cost of hiring an attorney, placing a month's mortgage payment with the court, and then filing the complaint.  Many that are going through foreclosure in Washington will never take this route because of the cost or simply by not knowing about it. In judicial foreclosure states, even without the homeowner keeping a vigilant eye, a judge was reviewing the cases.

Both houses of the Washington legislature have proposed new laws (HB 1362 and SB 5275) which would provide an almost automatic forum, see this post.  However, even without the proposed new laws going into effect.  There are ways to combat abusive lender behavior.  One important aspect of the Deed of Trust Act which seems to have been overlooked by some practitioners is the role of the Trustee in the nonjudicial foreclosure process.

Trustees do not have a fiduciary duty to the homeowner in the process.  However, they do have a duty to provide accurate information and to follow the statute.  The trustees thus are the weak link in a chain of players trying to foreclose on the property because they can't just ignore the rules.  My office has had enormous success in stopping the foreclosure process by forcing the trustee to comply with the statute.

 So, as the wave is peaking here in Washington, those that are not prepared for the wave are going to be crushed, while those that take a strategic approach will ride right through the barrel...standing up out the other side.

1 comment:

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