Ipod Reviews: foreclosure homes

Lots of talk online as to whether other states like California, which like Massachusetts, also operates under a non-judicial foreclosure system, are going to follow the lead of Friday's Massachusetts Supreme Court ruling. The court has a stellar reputation, and that's going to hold weight on a lot of other judicial circuits:

NEW YORK, Jan 7 (Reuters) - In a decision that may slow foreclosures nationwide, Massachusetts' highest court voided the seizure of two homes by Wells Fargo & Co (WFC.N) and US Bancorp (USB.N) after the banks failed to show they held the mortgages at the time they foreclosed.

Bank shares fell, weighing on broader stock indexes, on fears the decision could threaten lenders' ability to work through hundreds of thousands of pending foreclosures.

The Supreme Judicial Court of Massachusetts' unanimous decision on Friday upheld a lower court ruling. It is among the earliest cases to address the validity of foreclosures done without proper documentation.

That issue, including the use of "robo-signers" who approved foreclosure documents without reviewing them, last year prompted an uproar that led lenders such as Bank of America Corp (BAC.N), JPMorgan Chase & Co (JPM.N) and Ally Financial Inc to temporarily stop seizing homes.

"A ruling like this will slow down the foreclosure process" for lenders, said Marty Mosby, an analyst at Guggenheim Securities in Memphis, Tennessee. "They're going to have to be really precise and get everything in order. It doesn't leave a lot of wiggle room."

Wells Fargo and U.S. Bancorp lacked authority to foreclose after having "failed to make the required showing that they were the holders of the mortgages at the time of foreclosure," Justice Ralph Gants wrote for the Massachusetts court.

In a concurring opinion, Justice Robert Cordy lambasted "the utter carelessness" that the banks demonstrated in documenting their right to own the properties.

Courts in other U.S. states are considering similar cases, and all 50 state attorneys general are examining whether lenders are forcing people out of their homes improperly.

Friday's decision applies in Massachusetts, and need not be followed by federal judges or by courts in other states.

This is going to mean a HUGE legal mess for a lot of people in the Bay State -- except homeowners facing foreclosure, who will get to hit the reset button.

Mortgage companies who lent money to buyers purchasing foreclosed homes with this type of title defect, and the title insurers on those deals? Not so good. (By the way, the decision was applied retroactively.)

If you bought a foreclosed home that has this kind of title issue, you no longer own your home. The previous owner still does. If you don't have title insurance, you're doubly screwed. You probably can't sell or get an equity loan for a long, long time. You can sue the banks, or the attorneys, or try to get the owner to sign over the deed. If you do have title insurance, you can file a claim. Go find a good lawyer.

A tiny bit of wiggle room in the ruling means some mortgages with proper documents may survive.

We're going to see a lot of class action suits against the banks the lawyers who were supposed to draft the documents, and the foreclosure attorneys. Most interesting of all, the investors of mortgage backed securities will be looking to sue the mortgage trusts -- and the companies that were servicing the pools.

This means public pension funds have at least a ghost of a chance of getting their money back.

At a press event in North Portland in front of the home of a family struggling to avoid foreclosure, Senator Jeff Merkley unveiled a six-part plan to fix the housing market and rebalance the relationship between borrower and lender. The plan includes what Merkley calls “lifeline bankruptcy,” which is basically the cramdown proposal to allow bankruptcy judges to modify the terms of primary residence loans.

The “colossal disappointment” of the HAMP loan modification program, according to Merkley, necessitates a restart to the national conversation of how to heal the decaying housing market. The confusion in the market, as well as the continued flood of foreclosures, creates uncertainty for working families and the economy. “We’re not going to see a true economic recovery until we do something about the broken housing market,” said Senator Merkley at the event. “I met with Portland homeowners today who dealt with months of confusing instructions to get a mortgage modification, only to be told 10 months later they didn’t qualify and their home was facing foreclosure. My plan will put homeowners first and foreclosures last.”

Here are the six points to the Merkley proposal:

1) A national short refinance program. When a bank sends a home into foreclosure, it becomes an REO property, to be sold at auction at a large loss for the investors. Instead of going through the long process of resale, with the attendant upkeep that has to be spent by the bank on the home, and the disruption to the property values from having a vacant home in their neighborhood, this short refi program would allow qualified families facing eviction to refinance to an FHA-guaranteed mortgage based on current property values and interest rates. In the interim the family could stay in the home during the appraisal, new underwriting and final resolution. Many families would be able to pay a reduced payment if the home was written down to real value. The investor would get a bigger payoff than selling a vacant home in foreclosure. Neighbors would see their communities stabilized without a vacant property in their midst. And the family would get to stay in their home.

2) Ending dual track. The family highlighted at today’s event, Connie and Michael Umphress, were current on their mortgage when they sought a modification with Wells Fargo. The servicer encouraged them to miss a payment to qualify for the private modification, and then reduced the loan in the trial period. But at the same time, they pursued foreclosure actions. So Connie and Michael got foreclosure notices while they negotiated the modification process. Merkley’s plan would end this highly stressful dual track process, and suspend foreclosure actions while families sought a modification. This would reduce incentives for servicers to string along borrowers with a reduced payment for months (in the case of the Umphresses, 10 months), only to reject the modification and demand payment of the balance owed to avoid foreclosure. “This leads to families walking away from their homes or avoiding the modification process altogether,” Merkley said. “There must be a better way.

3) Single point of contact. Borrowers aiming for a modification usually talk to a different person at their servicer every single time they establish contact. This means they have to explain their situation all over again, and increases the possibility for mistakes. Merkley would establish a single point of contact between the borrower and the lender.

4) Third party review. Similar in spirit to Sen. Al Franken’s proposed Office of Homeowner Advocate, this would create an independent third-party review process for families facing foreclosure. It would check to see if the borrower explored every option to avoid foreclosure, and possibly initiate a mediation process with a sit-down between the borrower and the servicer. Mandatory mediation has proven successful in Maine, Connecticut and other states in getting modifications done and avoiding foreclosure. The third-party review would also “ensure that homeowners’ legal rights are protected” by ensuring that existing state laws have been fully enforced. This is the polar opposite of Third Way’s plan to deny due process to foreclosure victims. Merkley would actually have this independent reviewer identify state law where relevant to ensure a firebreak against things like foreclosure fraud.

5) Lifeline bankruptcy reform. This is basically cram-down, the ability for bankruptcy judges to treat primary residence mortgages the same way they treat vacation homes, second homes, boats or virtually any other asset. The result would be that homeowners would have a level playing field and the banks would finally have an incentive to pursue modifications rather than risk how the bankruptcy judge would modify the terms.

6) Homebuyer’s tax credit. I’m not such a fan of this proposal, but as Merkley describes it, he would generally target it toward first-time homebuyers purchasing “modest” homes. Merkley’s plan would give a $5,000 tax credit in the year of purchase (as opposed to the $8,000 tax credit implemented in 2009-10) to first-time homebuyers, “spending money upfront” to help working families become homeowners. I’m not sure that’s such a desirable goal, actually, but if this is capped, so that we’re not giving $5,000 away needlessly to buyers who would have purchased a million-dollar home anyway, it’s at least a bit better than the 2009-10 plan.

Merkley hopes his proposal would spark a conversation in Washington about how to fix the housing market. HAMP has completely failed; as Merkley noted today, less than $1 billion has been spent to mitigate foreclosures, out of a promised $50-75 billion. “We are not through the foreclosure crisis, so we must have a second national conversation,” Merkley said. He invited other proposals from members of Congress.

I asked Merkley if he was putting this together because he thought Congress would be forced to step in to clear up a chaotic situation if more legal rulings call into question the standing of servicers to foreclose. “Possibly,” he answered. “The role is to ensure fairness (in the housing market). The complexities in the system right now can create a challenge to the health of the market. So we have to deal with this.”

Merkley wasn’t familiar with the Third Way proposal to limit due process for foreclosure victims, but I think his plan serves as a nice counterpoint. If the housing market goes haywire, there will be a major need for off-the-shelf solutions to create an equitable situation that doesn’t simply bigfoot on the side of the banks. His proposal mostly does that. “Let’s empower homeowners,” he concluded.

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Monday, January 24, 2011

foreclosure homes

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