Articles Posted in Real Estate

In Florida, about half of all homeowners with mortgages owe more than the value of their home. This is called “having negative equity, ” being “upside down,” or “underwater.”  Most of those families owe a LOT more, up to 50% or more than their homes are actually worth!  If a family owes tens of thousands or worse, hundreds of thousands, more than the value of their home, there is little hope of ever refinancing into a better interest rate.  Selling the home, moving for a job, or relocating for family needs is also very difficult but possible as discussed below.  It’s very likely that many families who owe so much more than their homes are worth will never catch up and will never truly own their homes.  Many of these families have hundreds of thousands of dollars owed in a balloon payment that is due after ten to twenty years of paying their monthly mortgages.  Modifications that only reduce interest rates or extend the number of years to pay off the underwater mortgage may effectively lower the monthly payment but are only delaying the inevitable day of reckoning on the disproportionate mortgage balance compared to the value of the home.

Now that the top five banks (Citi, Wells, Chase, BoA, and GMAC/Ally) get short sale “credit” towards the $25 billion foreclosure fraud settlement , there is an increased approval rate for short sales.  A short sale is when a new buyer pays less than the outstanding mortgage owed on the home and the bank allows the sale to go through without demanding the current homeowner come to the closing table with the left-over amount owed.  In many short sales though, the bank reserves the right to collect, at some point in the future, the left over (deficiency) amount that was not paid off at the short sale.   When banks claim credit towards the settlement penalty, they are required to waive the deficiency.  This waiver qualifies as mortgage debt forgiveness, which is normally taxable.  Until the end of 2012, the waived mortgage debt is exempt from taxation due to a 2007 Mortgage Debt Forgiveness Act that was passed by Congress.  This act will expire next month unless Congress votes to extend it.  Our firm helps homeowners review short sale documents to make certain that the deficiency waiver legal language adequately protects our clients.

With each passing year, there is growing awareness that millions of 2003-2007 vintage mortgages were based on a massive Wall Street demand for fraudulent loans.  A demand fueled by investment banking firms which bundled up thousands of loans into scam investment bonds and then foisted the scam bonds off on to our pensions and retirement funds but not before insuring the fraudulent bonds and often the mortgage loans themselves.  To further enrich themselves, these investment banks bet heavily on the fact that the loans would fail.

The nation’s top banks are tired of paying the price for crashing the economy, defrauding billions from retirement savings, and dispossessing tens of millions of people from their homes in fraudulent foreclosures across the nation.  The banks are ready to move on already.   Their officers and representatives are whining about the continued investigations, lawsuits, and damage to their reputation.  If the banks are tired of fending off lawsuits, how must millions of Americans facing debt collection, foreclosure, or student loan collection lawsuits feel?

In February 2012, a foreclosure fraud settlement was reached between five of the top banks; Citi, Wells, BoA, Chase, and Ally/GMAC.  The settlement, between these top five banks and forty-nine state attorneys general and federal housing and banking regulators, was the result of sixteen months of negotiations after the story about foreclosure fraud and robosigning (aka forgery and real estate fraud) broke in the mainstream media.   What specific acts of wrongdoing were settled, thereby removing the threat of future demands, settlements, or government lawsuits? According to a FAQ document on the settlement published by HUD on March 12, 2012:

Q: What set of violations are servicers being released from?

The 2008 bailout of the American financial industry was based on a law enacted by Congress, Emergency Economic Stabilization Act of 2008 (TARP).   Under rushed and pressured emergency conditions, Congress passed the legislation with very little understanding of why the economy was crashing.  There was a sense that the housing boom had something to do with the urgent need for a bailout, so provisions were added that required the bailout trickle down to millions of American homeowners who were given suspect mortgages.  The spectacularly failed mortgage modification program now known as HAMP is part of this law.  HAMP was authorized by sections 101 and 109 of the Emergency Economic Stabilization Act of 2008, which was later amended by 7002 of the American Recovery and Reinvestment Act of 2009.

Because no help was actually extended, most do not realize that the bailout law demanded real relief to the American people not just the financial industry.  To this day, the funds earmarked to help hardest hit families have largely gone unspent.  Programs, presented as a last hope and help, like HAMP, are now being exposed as a way for banks to deplete savings, 401k, and other assets from millions of families.  HAMP leaves families worse off more often than not, owing more, trapped in a home with higher mortgage debt and worse loan terms in the long run.  Sheila Bair, before she stepped down as the chairman of the FDIC, was an outspoken critic of chain of title problems caused by mortgage banking fraud and other foreclosure fraud tactics.  She even called for a Superfund to help American families who have saddled with unsustainable, fraudulent, toxic mortgages.

Bair’s new book, “Bull by the Horns: Fighting to Save Main Street from Wall Street and Wall Street from Itself,” explains that HAMP was intended to cheat borrowers, to string them along and drain their savings and eventually foreclose on their homes.  This truth is even more strongly echoed in Neil Barofsky’s recent book, “Bailout: An Inside Account of How Washington Abandoned Main Street While Rescuing Wall Street.”  In Barofsky’s book, he explains how it dawned on him that the post-bailout goal of the U.S. Treasury was to allow banks to take dwindling wealth of American families while offering false promises of loan modifications all in a continued effort to increase the banks’ health and value.  Barofsky’s realization came to him during a contentious conversation he had with Tim Geithner, the Secretary of the Treasury, when Geithner expressed satisfaction that HAMP was allowing banks to coast gently down after the financial crisis instead of crashing since the American families “foamed the runway” for the banks.  Later, Geithner blocked attempts to use TARP funds to help families cover legal costs to defend against fraudulent foreclosures.

It’s election season.  Every single Florida lawmaker is up for reelection this year because this is a redistricting year.  The Florida House, Florida Senate, and US Congressional district lines were redrawn after the release of the population and demographic data from the 2010 census.   Redistricting happens every ten years after the census is done.  Then each lawmaker has to run for office to represent the newly drawn district.

This presents a unique opportunity for Floridians. For three years in a row now, the Florida legislature has attempted to pass laws that will erode the rights of homeowners and tenants by legalizing a fast, sneaky way for banks to declare homes “vacant” or “abandoned”, change locks, remove possessions, and evict the residents.

Bank friendly elected officials in the Florida House and Florida Senate introduce these bills with names that hide the true intent of the legislation.  In the 2010 legislative session, the bill, introduced by Tom Grady (R-Naples) was called the “Homeowner Relief and Housing Recovery Act.”  Representative Kathleen Passidomo (R-Naples), who replaced Grady as Naples’ Florida House representative, carried on Grady’s legislative legacy by introducing similar non-judicial foreclosure legislation in 2011 and 2012. Those bills also failed, but only after statewide citizen engagement, demonstrations, and protests.  Look out Florida.  Passidomo is running in hopes of being re-elected against a challenger, Peter Richter.  Another Florida House lawmaker who supports legalization of foreclosure fraud is George Moraitis, JR., (R-Ft. Lauderdale).

The dearth of meaningful solutions to the housing crisis has local officials considering a complex, controversial loan modification proposal that has piqued the interest of several municipal governments across the nation.  The proposal has a component that taps into local government’s constitutional authority and power to take private property for a public purpose upon paying fair compensation.  Mortgage Resolution Partners (MRP), a San Francisco investment firm, is busy networking with local government officials in several cities to inform them of this unique and creative approach to principal reduction modifications for underwater mortgage loans. MRP already met with controversy prior to introducing their profit-making eminent domain idea.  Phil Angelides, the former California state treasurer and former chairman of the Financial Crisis Inquiry Commission, a federal commission set up to look into the causes of the financial crisis, was one of MRP’s founding members.  Starting in late 2011, MRP was seeking six million in start-up capital for their group’s plan to turn a profit by investing in distressed mortgages and had touted its political connections as part of its “secret formula” for negotiating deals to buy distressed mortgages.  By February 2012, Angelides stepped down when his obvious conflicts of interest were questioned by journalists and officials.

One of the most hotly contested issues in the current proposal is its restriction to performing, current but underwater mortgage loans.  The proposal seems silent on delinquent loans, loans in foreclosure, and homes with a second mortgage.  The proposal may specifically exclude mortgage held by the government sponsored entities (GSEs), Freddie Mac and Fannie Mae.

This afternoon a U.S. House panel will convene to discuss the threatening ultimatums issued by financial industry groups to the local officials who are exploring the option of eminent domain to address the housing crisis in their cities.  The panel will not be live-streamed or videoed but U.S. Rep. Maxine Waters’ staffers may tweet from the conference room from twitter handle @MaxineWaters.  The financial industry has a long established pattern of bullying elected officials and judges when they fear regulation or interference.  A notable example is how, a decade ago, banks did an end run around states that tried to enact laws aimed at protecting their residents from predatory lending practices.  The strong anti-bullying programs established in American schools should serve as good models for removing any aggressive and harmful financial industry presence that puts American families at risk.