Foreclosures: Drugs, Sex, and dead bodies?

When Jim Morrison was singing about taking it higher, his followers were toking out in woods and buses, but today's stoners have a new venue for getting high, your foreclosed home.  In a very interesting link from Progress Illinois, there are claims, by the coalition that is trying to take back chicago, although I am not exactly sure from whom they are taking, that foreclosed homes are havens for crime.  I don't think it is far fetched that a vacant home makes for a good hide out.  I remember as a kid, my buddies and I planned a night where we were all staying at each other's house, like mom would never find out.  A storm came up and an abandoned house became our refuge until the police escorted us home.

With the significant deleveraging that is occurring in the housing markets and has occurred for the last three years, there is a dearth of vacant homes.  Many cities have passed ordinances that require homeowners to mow the lawn, take out the trash, and maintain the property, mine included.  Some though, have stepped up the regulation to specify foreclosed homes that must meet this standard or else.  Banks like Bank of America, CITI, Chase, and even smaller lenders like Aurora FSB, fka Aurora Loan Services, LLC and Nationstar have properties that are blighting our communities by having over grown lawns and such.

The homes have become places for drug dealers and users to congregate.  The homes have become places where teenagers gather to drink and commit debauchery.  There have even been those that have committed crimes such as rape and murder that find these foreclosed homes to be safe havens because the banks aren't maintaining the properties.

It makes sense to this blogger that the banks should be required to do more than simply foreclose and sit on the immense shadow inventory of homes that it has.  If you are unfamiliar with shadow inventory, it is the supply of homes held by banks but not being marketed for resale, check this article out for more information.  This shadow inventory is not creating any wealth, it has no utility, no value, and in fact it is dragging down home values and promoting crime.  Cities should pass ordinances requiring maintenance, and if the maintenance does not occur, fines should be issued.  If Bank of America didn't like losing 50% of its value over the last 10 months, it would hate this even more because it won't be taken any higher. 

Foreclosure Mediation being Hijacked by Law Firm

A law firm with offices in Bellevue has seen fit to hijack the foreclosure mediation process for about 75% of clients being funneled through the Volunteers of America and other mediation centers based on the advice that it will not sign a mediation agreement. Amazing, since the mediation is predicated by a law and is the right of the homeowner and not the right of the bank. I will refrain from naming the law firm, Routh Crabtree and Olsen, at this time because of what appears to be a defenseless and cowardly move. It would be unfair to give the description of the "mill" like company that continues to pump out bilge in its documents and arguments.

Suffice it to say, that if the unmentioned law firm, RCO, is representing your banking institution, it may be a while before you get the benefit granted to you under the law known as Foreclosure Fairness.

Restraint of Sale and Foreclosure Fairness

So I am not the best blogger in the world. I will admit that, but in spite of that fact, I have an excuse. In fact I have a good excuse, I have been at war with the banks. So please forgive me while I was in the trenches, but I am back with some real world information, some that you want to hear, some that you don't, but here it goes.
First Point: The banks have been prematurely sent out their notices of default. Here is what is happening, my clients are receiving the notice of default, I will assume the Pre-Foreclosure Options letter prior to the appointment of the Trustee that is sending out the letter. This is problematic because the Trustee is not authorized to do anything until such time as it is appointed. Small problem with the statute and deed of trust that the banks and trustees seem to have with figuring out what "vesting" means.
Second Point: The banks must produce the note. The question is when. The lawyers for the banks have vehemently denied that there is any authority for the production of a note, but the judges, even the very conservative judges in Snohomish County, have been willing to require the banks to produce the notes. This is something that will not happen with a simple letter of request from the borrower to the bank or whatever entity is holding your note. However, if you are in litigation, and you have the right complaint, then the judge can require production of the actual note for inspection. I recommend that you hire a forensic auditor to look it over with you. Have him bring his microscope and split some hairs.
Third Point: You have to have more than a contracts claim to win in court. If you are upset with your HAMP modification (or lack thereof), then you will still need to find a better reason to sue the bank than that. The TPP agreements, if not made permanent, then it has no teeth and will not get you through the door. I recommend some fraud mixed with some misrepresentation, and a dash of conspiracy for good measure.
Fourth Point: The foreclosure Fairness act and its Foreclosure Mediation is here. My offices are doing the letters for $150 and a full representation, including being at the mediation for $900. This process will produce positive results for you if the home is your primary residence. Don’t hesitate, you need to put your request in within 30 days of receipt of your Pre-Foreclosure Options letter.
Last Point: Keep fighting. I had a good friend who was a third degree black belt in judo and a state wresting champ out of Spokane tell me that most of his opponents weren’t willing to push for more than 8 seconds and if he pushed a little longer he would win the fight. That is true in this arena. The opponent is big, and has resources to push for a long time, but its lackadaisical in its approach and lets up at times. That is when you have to push hard and put it on its back.

Miraculous Transfer of Wealth from Banks to Borrowers

Here is a well presented reason why the economics of foreclosure are beneficial to the overall economy.  Jim Cramer goes into some incredible comparisons between Bank of America and Capital One in regard to defaulters.  There is also interesting information on the economic buying power of defaulting homeowners.



My Law offices have been discussing the benefits of this strategy for a while and you can look back here on Why Strategic Default is Good for the Economy!

Cramer made the comment that strategic default creates a "miraculous transfer of wealth from banks to borrowers."  Credit card companies like Capital One and retailers like Costco are seeing the benefit of homeowners eliminating the largest single payment in their monthly budget and re-purposing that money to service other debts and make smart purchases.

The use of this freed up cash allows the homeowners to make economic choices that have more utility than being simply forced to feed the big banks.  This is why the banking sector as a whole is down 5% in trading but you see certain lenders like Capital One, which facilitates purchases with credit cards rather than mortgages has done well.  Homeowners want to be economic players, they like choice, the down turn seemed to take that choice away.  But now, the miraculous transfer is putting choice back in the homeowner's favor.

At the end of the piece, Cramer went on to put it simply, "You got to be nuts to pay your mortgage if its underwater, you got the government on your side."  I don't know that I agree the government is on your side, but we do see more politicians working on the homeowner's side as evidenced by the Foreclosure Fairness Act. The choice seems and if you clear away the emotional baggage, really is simple.  The transfer of that monthly mortgage payment, for whatever period of time you stay in your home is hard to overlook.

Homeowners will get "Experienced" Mediators

Foreclosure Fairness is about to come to Washington and yesterday, an email from the Washington State Bar Association outlined some of the minimum requirements to be considered a mediator.  A mediator is simply a neutral third party that helps negotiate conflicts between two parties.  In the instant case, it will be the frustrated homeowner who has sought HAMP and conventional modifications from an unmotivated banking institution.  The mediators must have had a minmum of 200 hours of mediation experience, or 60 hours of mediation experience and 40 hours of mediation training with a minimum of 10 completed mediations. 

All in all, the qualifications are not really problematic.  It is good to have mediators that have experience dealing with two individuals working out thier problems.  Where I find issue with the qualifications is that there is no requirement that the individual have any experience in finance and real estate law.

Foreclosure mediation is going to be its own beast.  This is not a divorce or custody dispute, it is not an employee who feels wronged by a manager, nor is it two homeowners fighting over boundaries.  This is an intense struggle between a homeowner and a highly sophisticated, financial entity which has access to economists, finance experts, and lawyers.  Who do you think has leverage going into this mediation?

Additional issues come into play that stem from the new Foreclosure Fairness Act itself.  The act has handcuffed the mediators because there is no requirement that the banks disclose all of the factors going into the net present value (NPV) tests of a loan modification.  An NPV analysis can be quite simple, it is a function of the number of payments, interest rate, starting and ending values.  However, this simple function that can be run on a HP 10bII calculator can become incredibly complex though, when the interest rate and end values are gerrymandered with payoffs from third party insurance products and volatile derivative markets.

Since those inputs into the NPV analysis do not have to be disclosed, it makes it difficult for the average homeowner to understand why a modification is being offered when the modification has a NPV that is clearly higher than the NPV of a foreclosure in the simple set.  This fact alone is one of the reasons why a homeowner should choose legal representation over a simple housing counselor when approaching the mediation process.  You must meet sophistication with sophistication, even if the argument, boiled down to its essential elements, is quite simple.

The representative of the homeowner must have the ability to understand and dissect the bank's complex jumble of information, essentially cutting through the crap, and deliver the actual terms.  Since the mediators are not required to be able to do this on their own, nor will they have the resources at $400 per mediation, it falls to the homeowner to deliver a break down of the bank's proposal and a solid counter proposal which is more reasonable.  Good luck getting that done with a free housing counselor being funded by the banking institutions.

I have harped on the way the new legislation force feeds housing counselors on the public and this is why.  When it comes to complex negotiations, it is unlikely that the homeowner will get adequate representation in the foreclosure mediation because there are too many cases, limited resources, and a suspect source of funding to legitimately expect excellence.  Homeowners that can afford nothing else will likely be better off than with no help, but remember the adage that "you get what you pay for."

The Housing Double Dip Fudge

In December, I posted a note about how I like chocolate ice cream.  I like it in a cone, double dip and I eat it with spoon.  Well, really, the post was about the economy and housing in particular.  I had friends that were bullish on the stock market, jobs, the economy, housing, you name it, they said buy it.  A lot of that braggadocio in regard to economy came from individual's fear of things going sideways.  It certainly didn't help that trusted sources like the Wall Street Journal were salivating over futures makets and Ben Bernanke was imputed with indicating that he didn't expect a double dip recession. 

Information from the Federal Reserve and the futures markets seemed to indicate that the recovery was going to happen in 2011, 2012 at the latest (see the video on the WSJ link.)  This morning, CNBC, not my most common source of news because it tends to push a rosy view of the economy, came out and said this morning that a "Double-Dip" in housing prices is even worse than expected. It would seem, that Mr. Bernanke likes a little fudge on his double-dip. In all fairness, I couldn't find a single quote from Bernanke saying there was not going to be a double dip, but he did make indications that there wouldn't be, with caveats. He should have been a lawyer.

So what is the driver in this "unexpected" double dip in the housing market.  Well, first of all, it isn't or shouldn't have been unexpected.  The amount of foreclosed/ bank owned properties on the market or yet to be available in the market is enormous.  The US housing market on average will sell about 4 million units.  The banks are holding nearly 8 million units and foreclosures are ramping up.  Though the data is not yet in for April/May 2011 in Washington, I expect Realty Trac to make an announcement of nearly a quarter to half increase over the previous quarter in new foreclosures for the state.

This has partly to do with the new Foreclosure Fairness Law, okay, scratch that.  It has almost everything to do with the new Foreclosure Fairness act.  So, if your house was worth X in February, the number of new foreclosures happening will likely place downward pressure on your price, no later than August meaning your house will be worth X-Y.  Additionally, Washington is already on pace to see more nonjudicial foreclosures this year than last year according to the congressional fact finding for the Foreclosure Fairness Act.

The article in CNBC said that the US average drop this year has been 3.5% which is more than what I had reported as being 1% per month and there are a lot of foreclosures to come.  State specific data on Washington showed a loss of 4.15% since December, well ahead of the US average.  Surprisingly, Seattle remained even from February to March, one of only two cities on the S&P/Case Shiller index to do so.

This double dip leaves this question to be asked:  What do I do about it?  If you purchased/refinanced your home between 2003 and now so you locked into the height of the housing market, how long will it take you to recover your house value?

This is a serious discussion that you have to have with your self and your financial advisers.  The average family has lost over $125,000 of value since 2008 and the greatest asset of most families is the home.  Can you afford to loose more over the course of the next two years? 

It is time that you sat down with a lawyer trained in foreclosure law and find out what your rights are in regard to your home.  I am not saying that your house is a stock and that it should be dumped, but when analogized, it can help make better economic decisions.  Let's head down to the local ice cream shop, get a real double dip, and see what you can do about avoiding the economic double-dip finally being reported by the media.  I like mine with some cinnamon bears on it and your paying.

Pre-Foreclosure Options Letter - Foreclosure Fairness Act

So this morning, I got this wonderful call on my new HTC Evo.  I love my new phone.  Anyway, the meeting was with Rick Torrance and Valerie Grigg Devis from the Public Safety Unit of the Department of Commerce.  I know, your saying, "who?!? why?!?, what the..."  Well, the new law signed by Governor Gregoire that implements HB 1362 on July 22, 2011 is being administered, at least in part by the Department of Commerce.  The Department of Commerce, or COM as they like to call it has the unenviable duty of manufacturing a number of notices which will be used by attorneys and housing counselors to access the new provisions which will be codified in RCW 61.24.

The first notice, and this is the one the banks have been asking for specifically, is the newly minted Pre-Foreclosure Options Letter.  We have to thank Mr. Bruce Neas for the snazzy title and really, he should be thanked for much of the product that is the Foreclosure Fairness Act.  This is the first notice included under section 16 of the new act and it specifically requires that notice be given in English and Spanish from the lender notifying the homeowner of its options, including mediation.

This letter is being developed with model language and should be approved by the AG's office next week when it will be sent out for translation into Spanish.  You must note, that the banks were unwilling to foot the cost in translating this item.  They would rather that the tax payers eat the cost of translation.  I guess they will still need make sure they have a Spanish speaking attorney available to verify that COM got it right.  So, here is to job creation!

This notice will be sent to homeowners and will contain most of what we find in section 5(c) of the law which will amend RCW 61.24.031.  The Notice will say you have 30 days to contact the beneficiary (bank) and request mediation, I mean options.  You will note, in Section 8, the bill allows you to request mediation on or after July 22 as long as you have received a notice of default.  So you won't be left out.


Though this Pre-Foreclosure Notice is the top priority for COM, it is not the one of the most interest to me.  COM has until June 22nd to post and provide the Notice for Referral which will detail what must happen prior to an attorney making a referral to mediation.  This notice is also detailed in section 16 and refers to new section 7 which states in part, "[An] attorney referring a borrower to mediation shal send a notice to the borrower and the department, statement that mediation is appropriate."  The only thing that I did not get out my conversation this morning is what the heck does "appropriate" mean?

This form is also in production and I was told it will be posted early next month but as of this time, the forms are still unavailable for public perusal.  There are four additional notices which are produced either by COM or the mediator which the homeowner has little or no control over.  Those will also be available but of much less interest.

There does seem to be a rush by the banks to get NODs out before July 22nd.  However, that rush really is to avoid the recording costs, not to avoid the law, well maybe it is to avoid the law, but section 8 puts them squarely in it.  The issue is going to be this, if you have a sale date set for July 22nd (which ironically is a Friday and the day the law goes into effect) and my office faxes a referral to mediation to COM before the sale, does the Trustee have to push off the sale and the bank set up the mediation?  I believe the answer to this question is YES, YES, and YES!!! if you didn't hear me.

So, I am going to be holding a Midnight party at my offices on July 21st to send off mediation referrals for anyone that would like one.  Once 12:01am hits, the fax will be a humming.  I am kidding...or am I.  I guess maybe you should give me a call on my new EVO before Thursday, July21st. 425-314-6737.