Archive for June, 2011

Delinquencies Outnumber Foreclosures 50:1

Think the foreclosure crisis is winding down?  Take a look at this article, below. 

There were 4,084,557 mortgages in the United States 90 or more days delinquent or in foreclosure as of the end of May, according to Lender Processing Services (LPS).

With foreclosure sales at 78,676 at month end, the volume of seriously past due loans over-shadowed the number of completed foreclosures by 50 to 1, according to LPS’ May Mortgage Monitor report released Wednesday.

In fact, the company says there are still significantly fewer foreclosure sales than there were before foreclosure moratoria were put into place last fall, and they’re declining.

LPS’ May data shows that the biggest drops in foreclosure sales have been seen along the East Coast. Since September 2010, foreclosure sales have declined 96 percent in Washington D.C., 80 percent in Maryland, 79 percent in New York, and 75 percent in New Jersey.

Additionally, LPS’ analysis found that inventories of foreclosures in judicial states have increased twice as much as inventories in non-judicial states over the last year as courts have become clogged with high volumes of cases and lenders have slowed their processing of foreclosures, particularly in judicial areas muddled by affidavit issues.

Nationwide, the average time spent in foreclosure continues to extend, with more than 33 percent of borrowers in foreclosure not having made a payment in over two years, according to LPS latest study.

LPS says overall delinquencies are almost double and foreclosures are eight times higher than historical norms.

New problem loans though, defined as loans that were current six months ago and were 60 or more days delinquent at the end of May, are now less than half the peak levels seen in 2009, and are currently at 1.27 percent.

LPS says negative equity, however, remains a concern, with nearly 30 percent of current loans underwater.

The equity impact on new seriously delinquent loans is especially pronounced, with mortgages significantly underwater defaulting up to 10 times as much as loans with equity, according to LPS.

The company’s Mortgage Monitor Report is based on performance information from its loan-level database of nearly 40 million first liens across the spectrum of credit products.

Mark Stopa

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The Result of Expediting Foreclosures

In response to repeated arguments from Wall Street that an accelerated foreclosure process is necessary to improve the economy, many consumer advocates and foreclosure defense attorneys have been asking:

If all of the properties are foreclosed, who is going to buy them?

The answer, of course, is nobody.  Quicker foreclosures just means more homes are vacant sooner, with many of these vacant homes falling into serious disrepair. 

Unfortunately, not everyone agrees, and many banks, lawyers, and judges have worked to push through foreclosures at a breakneck speed.  Want to see the results? 

Read this article, and check out the photograph of the Tampa home littered with trash.

Mark Stopa

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Where is the Outrage?

I was so pissed when I read this story, about an elderly Tampa man whose possessions were thrown away by a bank while he was on vacation, I had to take a day and simmer down.  

What is wrong with this country?  Where is the outrage here?  This man owned his home outright – he wasn’t even in foreclosure – only to return from vacation and find his home completely gutted and all of his possessions thrown away.  Gone.  Poof.  Imagine it – you come home from vacation and everything you own is gone. 

The fact that this man wasn’t in foreclosure certainly makes this story worse.  But seriously, would this story somehow be less bad if he had been in foreclosure?  

Suppose he was in foreclosure.  Are you telling me it’s OK for a bank to enter a person’s home and throw away all of the possessions contained therein?  Collectibles?  Antiques?  Photographs of his deceased wife?  No court order, no sheriff on the premises – just a bank throwing everything away.  I dare anyone to explain to me any circumstance – foreclosure or not – where this is OK. 

I don’t know this man or the lawyer representing him.  But I hope he wins a huge, seven-figure verdict against this bank and all persons responsible.  Perhaps if there were a disproportionate punishment for egregious misconduct then the banks would start to give a damn about something besides their bottom line.  That’s the point of punitive damages, for instance – to punish.  Obviously, that’s what’s needed here.

Mark Stopa

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Tampa Judges Eschewing Hearings in Foreclosure Cases

We all know that the senior judges are on their way out in Florida.  In counties like Hillsborough, where a handful of senior judges have been handling all residential foreclosure hearings for more than a year, this is a big transformation.  Suddenly, thousands of foreclosure cases are being transferred back to the regular, circuit court judges.  Suffice it to say I’ve been curious to see how foreclosure cases would progress with “normal” judges. 

So far, I’m not pleased.  In recent days, two of the “normal” circuit court judges have ruled on motions in foreclosure cases without a hearing.  One judge filed an Order warning the parties to file written memos, upon which he may rule without a hearing, while another judge took it a step further by ruling without a hearing without the opportunity for further briefing.  There was no notice, no warning – just a signed Order in the mail. 

Respectfully, this process is offensive, and the appearance of impropriety is just overwhelming.  I mean, I’ve had a sitting circuit judge actually tell me that he doubts the judges who apply this ‘procedure’ are reading the motions before adjudicating them.  When a judge tells me that, I know I’m not crazy for questioning it myself. 

What makes this even more inappropriate in my eyes is that these judges haven’t been hearing residential foreclosure cases for a year.  Respectfully, how do they know the law well enough to be making rulings without a hearing? 

Maybe these judges think that motions to dismiss in foreclosure cases are just a delay tactic.  Maybe with others, but not me.  The motions to dismiss that my firm drafts are often granted.  Telligly, the bank’s lawyers often consent to an order granting these motions (realizing they would lose the hearing if it went forward).  What kind of perverse dynamic do we have where the bank’s lawyers realize our arguments are well-taken but the judges refuse to even give us a hearing? 

Is it really too much to ask for a chance to present my arguments to these judges in open court, just as I would for any other defendant in any other case.  Unless and until these judges are willing to do that, I’m going to remain bitterly disappointed in the manner in which these cases are being adjudicated.

Mark Stopa

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Norway, France … does anyone care?

Less than 48 hours after finishing an interview with a Norwegian TV reporter, I had a similar interview with a French reporter today.  Many of the questions I received were remarkably similar ….

Why does misconduct by banks go unpunished? 

What is the U.S. government doing to help homeowners?

The world is catching on to the incestuous relationship between Wall Street and our government.  It all makes me wonder … Does anyone care? 

Meanwhile, what am I supposed to tell these reporters?  The American in me wants to defend our country, but if we’re being honest, there’s no defending this.  Hence, twice, now, I’ve found myself saying:

I’m sure you’ve heard of ‘too big to fail.’  Well, I fear our government thinks these banks are ‘too big for fraud.’  What results is widespread corruption and fraud that has gone unpunished.   

This is the legacy we’re leaving on the world.  Does anyone care?

Mark Stopa

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Tough Questions from Norway

I interviewed with a reporter from a Norwegian TV station at my seminar today, and it was an enjoyable interview.  However, a few of the questions were tough to answer and gave a clear insight on how America is being viewed abroad: 

Why has there been no punishment for the banks for foreclosure fraud? 

Are Wall Street and the U.S. Government in bed together? 

What is the U.S. Government doing to help homeowners?

My answers?  Well, let’s just say that if President Obama had been watching the interview, I don’t think it’s how he’d want the U.S.A. to be portrayed in Norway.

But that’s sort of the point.  The world is watching us.  What message are we sending?  What is it supposed to think?  How would you have answered:

Why has there been no punishment for the banks for foreclosure fraud? 

Are Wall Street and the U.S. Government in bed together? 

What is the U.S. Government doing to help homeowners?

Mark Stopa

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Three Reasons for Strategic Default

I enjoyed this article from today’s Huffington Post, entitled Three Sound Legal and Moral Reasons for Strategic Default.  I particularly like number 2, especially the part that asks:

how do you try the Federal government, mortgage industry, and media going back 100 years?

Here’s the article. …

The standard justification is that “It’s in the contract that the bank gets the house if you default.” Actually, that clause is legally a remedy to a worst-case scenario — not an expected part of the deal. There are three much stronger justifications.

The first is legal and moral: fraud. A huge percentage of the homes sold after 2000 were sold to unsophisticated buyers through a mixture of assurances that their homes would appreciate, could be used as ATMs in the meantime, and that there was no conceivable problem that the mortgage broker could not wiggle around to refinance the home again, usually at even better terms.

Yes, many of the buyers were naive and reckless, and suffering both gullibility and cupidity. But the lenders were dishonest, and preyed on those exact weaknesses. Under these circumstances, the culpability falls on the professional.

No, there is no solid legal case against the mortgage brokers, because there were probably no secret summit meetings planning a conspiracy, and probably not many incriminating emails either. There was simply the word on the grapevine, “Fannie Mae will finance anything! Commission times are here!” Nevertheless, whether or not a winning case can be made in court: lying to customers to make a profit, to the customers’ financial harm, is fraud. And substantial fraud in the course of a sale undercuts the standing of any contract.

(As an added note, every mortgage broker who encouraged a borrower to lie on any loan application involving Federal funding — meaning almost all mortgages — was accessory before the fact to violation of Federal law USC 18, Section 1014. In other words, equally guilty.)

The second is moral and legal: no living American has escaped a continual and confident advertising campaign stating flatly that buying a house is a sound financial investment, and a necessary or even assured part of planning a financially sound retirement.

Pushing home ownership upon Americans as a good investment was not merely real estate agent hype: it was conceived and orchestrated by the Federal government in the early 1900s, pushed by realtors’ organizations, and trumpeted by media for nearly a century until the bubble burst. (Readably described online in Walk Away: The Rise and Fall of the Home-Ownership Myth by Douglas French.)

Americans were assured that a) a home was a winning investment, in fact the winning investment in modern America, and b) that they couldn’t lose. Americans relied on those assurances when they bought the homes. Now that the promise has proved false, they have every moral right to default, because the promised investment didn’t pan out.

Again, no solid legal case, because there is no single defendant to put on trial — how do you try the Federal government, mortgage industry, and media going back 100 years? Nevertheless, in legal terms, equitable remedies come to mind, notably the doctrine of reliance. Reading the history of equitable remedy can give you a headache, but basically it means “fair dealing.” Fair dealing, the buyers did not get.

(Lying to make a profit is not “just show biz,” unless perhaps you are selling tickets to a movie. When I bought my first house in the 1980s, I asked the mortgage broker what he thought of the neighborhood’s chances of appreciation. He answered, “I write mortgages. Ask your real estate agent.” In other words, “I don’t do hype.” Times had changed by 2000, it appears.)

The third is morally repugnant: In 50 years of a more-or-less steadily rising real estate market, banks foreclosed on millions of homes, most of which were worth significantly more than the mortgage. The “defaulters” then were the laid-off, the divorced, and the ill edging towards medical bankruptcy.

Though most states’ laws mandate that when a foreclosed home is auctioned off, the surplus should be paid to the homeowner, there is usually no surplus. This is because there are not many potential buyers with enough cash and nerve to appear at the courthouse steps and smack down a certified check for a house they haven’t even had a chance to inspect.

So the houses usually went back to the bank for the amount of the mortgage, and the banks then flipped them for a profit, quite legally — after the auction was complete and the title had been transferred to them.

This makes contract-thumping moralists more than absurd when they shriek “that the bank didn’t stand to gain on the appreciation, so they shouldn’t bear the burden of risking depreciation.” On the contrary, the banks did gain on the appreciation for 50 years; they lent out money on the assurance of their bean-counters that a certain percentage of tasty homes could be snapped up for nothing, and then perched on their spider webs waiting for the victims of misfortune.

Today the banksters cry in their champagne about the collapse of American morals that they themselves never subscribed to. But the banks have long since gotten their pound of flesh. Now it is time to walk away from false promises, free the money locked up in homes, and let it escape from the mortgage bubble so it can flow back into the Main Street economy.

Mark Stopa

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The Solution for Investors in Mortgage-Backed Securities

At this point, most people reading this know that the securitization process of mortgages was and is irretrievably flawed, typically because the mortgage was not conveyed into the trust in a manner consistent with the pooling and servicing agreement for that trust, meaning the trust doesn’t own/hold the mortgage.  If that sounds complicated, then think of it this way – when the plaintiff is a trustee of a trust (e.g. U.S. Bank, N.A. as Trustee of the ABCD Mortgage-Backed Securities, Series 2009-112), the plaintiff often lacks standing to sue because it doesn’t lawfully own/hold the mortgage. 

At this point, we all know this.  In fact, I’d argue it’s not reasonably in dispute.  The problem, in my experience, is that the natural consequence of this situation, that the trust cannot foreclose and the homeowner may get a free home, is difficult for many people to swallow.  A typical argument against this result centers around the poor souls who invested in the mortgage-backed securities.  What about them?  Why should they suffer when they, arguably, did nothing wrong (except make a bad investment)? 

Well, here’s the thing.  As this article shows, these investors have a remedy – suing the banks.  Hence, as harsh as it may sound, it’s time that everyone stop disregarding the law out of sympathy for investors.  Yes, it’s not ideal that they have to file suit against banks.  But that’s the proper recourse here, not to give them a foreclosure to which they’re not entitled.

Mark Stopa

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Who needs an Attorney or Co-Counsel for Trial?

I’ve been doing this foreclosure defense thing pretty hot and heavy for a few years now.  As a result, I think I know the industry pretty well.  Generally speaking, nothing really surprises me any more.  I know what the banks are doing, I know what their lawyers are doing, and I know what other defense lawyers are doing.  Perhaps most importantly, I know what other defense lawyers are not doing. 

There are a lot of lawyers dabbling in foreclosure defense who are unwilling or unable to go to trial in a foreclosure case.  That’s not meant as an insult.  In fact, I think many would admit their unwillingness/inability to go to trial.  For a variety of reasons (the perception they can’t win, lack of trial experience, whatever), many lawyers handling foreclosure cases just don’t feel comfortable going to trial.  In recent days, I’ve talked to a few different court personnel (judges, judicial assistants, and case managers) who have echoed this sentiment. 

Candidly, I’m disappointed with this.  In my view, trial is an essential part of a foreclosure case.  In fact, a lot of my strategy hinges on forcing the bank to go to trial.  In its simplest form, that’s what foreclosure defense is – work to defeat the bank’s motion for summary judgment and force them to win the case at trial.  Many times, as we’ve seen, banks don’t want to have to go to trial, so this creates leverage for a prospective resolution.  Hence, fearing a trial means giving up leverage for a prospective resolution or, worse yet, creating an easier path for the bank to foreclose. 

So what’s my point here?  Simple.  I don’t want to pound on my own chest, but I am perfectly comfortable going to trial in a foreclosure case.  I understand the evidentiary issues, I’m comfortable with the arguments, and I’m more than willing to do it.  Yes, I realize I’m going to lose some foreclosure trials, perhaps (if the banks’ lawyers wisen up and learn how to try their cases) the majority of them.  But the foreclosure system needs lawyers who are willing to try cases, particularly since, if you know what you’re doing, it’s entirely possible for homeowners to win at trial.  So if you’re a lawyer who is unwilling/unable to take a case to trial, then feel free to talk to me about acting as co-counsel.  Or if you’re a homeowner without an attorney staring at a trial date, don’t give up!  I’ll be happy to go to trial on your behalf.  And it’s probably less expensive than you think – since the arguments are similar from case to case, I won’t have to re-invent the wheel each time. 

So give me a call – you have nothing to lose, except your foreclosure case.  

(Hat tip to Matt Weidner, who discussed this concept with me recently and correctly noted the need for lawyers such as he and I to try cases.)

Mark Stopa

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Backlog of Cases Gives a Reprieve on Foreclosures

This article appears on the front page of today’s New York Times.  It explains how, in my words, ”banks aren’t even trying to win” foreclosure cases. 

That may sound difficult to believe, but that’s been my experience, certainly since October or so.  For a while, I convinced myself that banks’ lawyers were just afraid to go to court against me, :) , but as this story shows, there’s more to it than that.  This phenomenon is happening on a national level – banks just aren’t taking back properties at the rate they could. 

If you disagree, find a way to sit in a mass-motion calendar hearing on motions to dismiss for lack of prosecution or a Case Management Conference of old Stern or Ben-Ezra cases.  I’ve attended a handful of these recently, and I’ve watched dozens of cases (hundreds if not thousands if you consider the hearings I didn’t attend), get dismissed because nobody showed up for the bank. 

If that doesn’t convince you, look at foreclosure sales on-line and see how many of them are cancelled by the bank for no apparent reason.  

What we have in our country is a terribly sad dynamic where banks don’t want to take title to properties (and pay the associated maintenance, insurance, etc.) even as the owners of those homes desperately want to stay. 

I like today’s article in the sense that it should make homeowners realize how the foreclosure process works and they have an opportunity to get some breathing room if they fight their case. 

Here’s the article. 

Millions of homeowners in distress are getting some unexpected breathing room — lots of it in some places.

In New York State, it would take lenders 62 years at their current pace, the longest time frame in the nation, to repossess the 213,000 houses now in severe default or foreclosure, according to calculations by LPS Applied Analytics, a prominent real estate data firm.

Clearing the pipeline in New Jersey, which like New York handles foreclosures through the courts, would take 49 years. In Florida, Massachusetts and Illinois, it would take a decade.

In the 27 states where the courts play no role in foreclosures, the pace is much more brisk — three years in California, two years in Nevada and Colorado — but the dynamic is the same: the foreclosure system is bogged down by the volume of cases, borrowers are fighting to keep their houses and many lenders seem to be in no hurry to add repossessed houses to their books.

“If you were in foreclosure four years ago, you were biting your nails, asking yourself, ‘When is the sheriff going to show up and put me on the street?’ ” said Herb Blecher, an LPS senior vice president. “Now you’re probably not losing any sleep.”

When major banks acknowledged last fall that they had been illegally processing foreclosures by filing false court documents, they said that any pause in repossessions and evictions would be brief. All of the major servicers agreed to institute reforms in their foreclosure procedures. In April, the Office of the Comptroller of the Currency and other regulators gave the banks 60 days to draw up a plan to do so.

But nothing is happening quickly. When the comptroller’s deadline was reached last week, it was extended another month.

New foreclosure cases and repossessions are down nationally by about a third since last fall, LPS said. In New York, foreclosure filings are down 85 percent since September, according to the New York State Unified Court System.

Mark Stopa, a St. Petersburg, Fla., specialist in foreclosure defense, has 1,275 clients, up from 350 a year ago. About 75 clients have won modifications, dismissals or sold their properties for less than they owed. All the other cases are pending.

Banks aren’t even trying to win,” said Mr. Stopa, who charges his clients an annual fee of $1,500.

J. Thomas McGrady, the chief judge of Florida’s Sixth Circuit, which includes St. Petersburg, agreed. “We’re here to do what we’re asked to do. But you’ve got to ask. And the banks aren’t asking,” he said.

A spokesman for Bank of America said, “Any suggestion that we have a strategy to delay foreclosures is baseless.” A Wells Fargo spokeswoman blamed changes in state laws governing foreclosure for any slowdown. A GMAC spokeswoman said it was following “regulatory and investor expectations.” JPMorgan Chase declined to comment. Servicers said some of the decline in foreclosures could be traced to an improved economy.

There are many reasons that foreclosure, which has been slowing ever since the housing bubble burst, has been further delayed in many states.

The large number of cases nationally — about two million, plus another two million waiting in the wings — have overwhelmed many lenders and the courts.

Lenders, who service loans they own as well as those owned by investors, tried to circumvent the time-intensive process by using “robo-signers” who mass-produced documents, many of which made inaccurate claims. When the bad practices were discovered last fall, the lenders were forced to revisit hundreds of thousands of cases.

Over the last two years, most defaulting homeowners were people who had lost their jobs. Housing analysts say these homeowners are more likely to hire a lawyer and fight repossession than borrowers who had subprime loans that swelled beyond their ability to pay.

Judges these days are also more inclined to scrutinize requests for eviction rather than automatically approve them. The so-called foreclosure mills — law firms that handled many of the suits for the banks — are in retreat under law enforcement pressure. And some analysts suggest that banks are reluctant to take too many houses onto their books at any one moment for fear of flooding a shaky market.

In New York, lenders seeking to repossess face additional hurdles. The legislature has mandated that borrower and bank meet to discuss terms under the auspices of the court, but these conferences have turned out to be anything but brief or simple. Instead of one conference, 10 are often needed, court officials say.

And many foreclosure lawyers seem unable to meet a requirement, made last October by the New York Chief Judge Jonathan Lippman, to affirm the accuracy of their documentation.

“The affirmation has had a pretty chilling effect,” said Ann Pfau, New York’s chief administrative judge. “The attorneys for the banks tell us they can’t get through to the right people at their clients who can verify the information.”

Last September, before the documentation crisis, nearly 1,500 New Yorkers lost their houses as a result of foreclosure, according to LPS. The average over the last six months: 286. That is far lower than at any point since the recession began.

Similar foreclosure cases can have different fates. To increase their odds of staying put, the foreclosed who can afford it are hiring lawyers, a move that can drastically slow down a case.

Mr. Stopa, the Florida lawyer, said he divided his clients into three groups. Some are unemployed or disabled and just getting by. Others are able to save money and improve their financial situation as their case drags on. The third group are those who have strategically defaulted. They can afford to pay but are taking advantage of the banks’ plodding pace. Often the members of this group rent out the foreclosed home and keep the proceeds.

Though delays in foreclosure might seem like a gift to those behind on their mortgage, the foreclosed themselves do not necessarily feel that way.

Margaret Bellevue waited nervously in a Miami courtroom early this month. She and her husband, Roland, an architect, are among 97,000 households facing foreclosure in Dade County, where the average time to foreclose is 738 days and climbing, according to LPS data.

Ms. Bellevue was on her third lawyer in a case that has stretched on as many years. “A friend of mine got her mortgage lowered through a modification,” Ms. Bellevue said. “I’d like to do that too.”

When her case came up, the judge told the lawyers they should try to work out a deal. They huddled outside the courtroom and agreed to meet again.

Mark Stopa

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