28 October 2010

Florida Foreclosure Auction Cancellations ‘Frustrating’ to Judge


The Miami judge managing a backlog of 80,000 foreclosures said it’s “frustrating” that lenders including Bank of America Corp. and JPMorgan Chase & Co. continue to cancel foreclosure auctions.

Circuit Judge Jennifer Bailey in Miami-Dade County, which has the most foreclosures in Florida, recently set up a system to clear the logjam. She also chaired a state Supreme Court task force last year set up to address the volume of foreclosures in the state’s courts.

“It’s very frustrating to have put in this effort to design, plan and implement this system and when we finally get some forward momentum, we start slowing down again because of the banks,” she said yesterday in an interview.

Bailey said banks are canceling foreclosure sales every day. They canceled at least 20 yesterday in front of one judge, saying they had to review the affidavits used to seize homes.

The cancellations came as Charlotte, North Carolina-based Bank of America and Detroit-based Ally Financial Inc.’s GMAC Mortgage unit said they were moving to complete pending foreclosures. They had suspended foreclosure sales and judgments after complaints that home seizures nationwide were based on faulty documentation.

Attorneys general in all 50 states, as well as federal agencies including the U.S. Justice Department, are investigating.

GMAC said it’s reviewing foreclosure cases with potentially defective affidavits in the 23 states that use judicial proceedings for foreclosures, including Florida. If there are problems, they will be fixed and the cases will proceed, said Gina Proia, a spokeswoman for GMAC. Any case going to foreclosure sale in non-judicial states will also be reviewed, she said in an interview.

Bank of America, the largest U.S. bank by assets, has completed a review of its foreclosure procedures and will “shortly” begin resubmitting affidavits in judicial foreclosure cases, spokesman Dan Frahm said Oct. 25 in a statement.

27 October 2010

Battle Lines Forming in Clash Over Foreclosures

NY Times

About a month after Washington Mutual Bank made a multimillion-dollar mortgage loan on a mountain home near Santa Barbara, Calif., a crucial piece of paperwork disappeared.

But bank officials were unperturbed. After conducting a “due and diligent search,” an assistant vice president simply drew up an affidavit stating that the paperwork — a promissory note committing the borrower to repay the mortgage — could not be found, according to court documents.

The handling of that lost note in 2006 was hardly unusual. Mortgage documents of all sorts were treated in an almost lackadaisical way during the dizzying mortgage lending spree from 2005 through 2007, according to court documents, analysts and interviews.

Now those missing and possibly fraudulent documents are at the center of a potentially seismic legal clash that pits big lenders against homeowners and their advocates concerned that the lenders’ rush to foreclose flouts private property rights.

That clash — expected to be played out in courtrooms across the country and scrutinized by law enforcement officials investigating possible wrongdoing by big lenders — leaped to the forefront of the mortgage crisis this week as big lenders began lifting their freezes on foreclosures and insisted the worst was behind them.

Federal officials meeting in Washington on Wednesday indicated that a government review of the problems would not be complete until the end of the year.

In short, the legal disagreement amounts to whether banks can rely on flawed documentation to repossess homes.

While even critics of the big lenders acknowledge that the vast majority of foreclosures involve homeowners who have not paid their mortgages, they argue that the borrowers are entitled to due legal process.

Banks “have essentially sidestepped 400 years of property law in the United States,” said Rebel A. Cole, a professor of finance and real estate at DePaul University. “There are so many questionable aspects to this thing it’s scary.”

Others are more sanguine about the dispute.

Joseph R. Mason, a finance professor who holds the Louisiana Bankers Association chair at Louisiana State University, said that concerns about proper foreclosure documentation were overblown. At the end of the day, he said, even if the banks botched the paperwork, homeowners who didn’t make their mortgage payments still needed to be held accountable.

“You borrowed money,” he said. “You are obligated to repay it.”

After freezing most foreclosures, Bank of America, the largest consumer bank in the country, said this week that it would soon resume foreclosures in about half of the country because it was confident that the cases had been properly documented. GMAC Mortgage said it was also proceeding with foreclosures, on a case-by-case basis.

While some other banks have also suggested they can wrap up faulty foreclosures in a matter of weeks, some judges, lawyers for homeowners and real estate experts like Mr. Cole expect the courts to be inundated with challenges to the banks’ actions.

“This is ultimately going to have to be resolved by the 50 state supreme courts who have jurisdiction for property law,” Professor Cole predicted.

Defaulting homeowners in states like Florida, among the hardest hit by foreclosures, are already showing up in bigger numbers this week to challenge repossessions. And judges in some states have halted or delayed foreclosures because of improper documentation. Court cases are likely to hinge on whether judges believe that banks properly fulfilled their legal obligations during the mortgage boom — and in the subsequent rush to expedite foreclosures.

The country’s mortgage lenders contend that any problems that might be identified are technical and will not change the fact that they have the right to foreclose en masse.

“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” Barbara J. Desoer, president of Bank of America Home Loans, said earlier this week. “We paused while we were doing that, and now we’re moving forward.”

Some analysts are not sure that banks can proceed so freely. Katherine M. Porter, a visiting law professor at Harvard University and an expert on consumer credit law, said that lenders were wrong to minimize problems with the legal documentation.

“The misbehavior is clear: they lied to the courts,” she said. “The fact that they are saying no one was harmed, they are missing the point. They did actual harm to the court system, to the rule of law. We don’t say, ‘You can perjure yourself on the stand because the jury will come to the right verdict anyway.’ That’s what they are saying.”

Robert Willens, a tax expert, said that documentation issues had created potentially severe tax problems for investors in mortgage securities and that “there is enough of a question here that the courts might well have to resolve the issue.”

As the legal system begins sorting through the competing claims, one thing is not in dispute: the pell-mell origination of mortgage loans during the real estate boom and the patchwork of financial machinery and documentation that supported it were created with speed and profits in mind, and with little attention to detail.

Once the foreclosure wheels started turning, said analysts, practices became even shoddier.

For example, the foreclosure business often got so busy at the Plantation, Fla., law offices of David J. Stern — and so many documents had to be signed so banks could evict people from their homes — that a supervisor sometimes was too tired to write her own name.

When that happened, Cheryl Samons, the supervisor at the firm, who typically signed about 1,000 documents a day, just let someone else sign for her, court papers show.

“Cheryl would give certain paralegals rights to sign her name, because most of the time she was very tired, exhausted from signing her name numerous times per day,” said Kelly Scott, a Stern employee, in a deposition that the Florida attorney general released on Monday. A lawyer representing the law firm said Ms. Samons would not comment.

Bill McCollum, Florida’s attorney general, is investigating possible abuses at the Stern firm, a major foreclosure mill in the state, involving false or fabricated loan documents, calling into question the foreclosures the firm set in motion on behalf of banks.

That problem extends far beyond Florida.

As lenders and Wall Street firms bundled thousands of mortgage loans into securities so they could be sold quickly, efficiently and lucratively to legions of investors, slipshod practices took hold among lenders and their representatives, former employees of these operations say.

Banks routinely failed to record each link in the chain of documents that demonstrate ownership of a note and a property, according to court documents, analysts and interviews. When problems arose, executives and managers at lenders and loan servicers sometimes patched such holes by issuing affidavits meant to prove control of a mortgage.

In Broward County, Fla., alone, more than 1,700 affidavits were filed in the last two years attesting to lost notes, according to Legalprise, a legal services company that tracks foreclosure data.

When many mortgage loans went bad in the last few years, lenders outsourced crucial tasks like verifying the amount a borrower owed or determining which institution had a right to foreclose.

Now investors who bought mortgage trusts — investment vehicles composed of mortgages — are wondering if the loans inside them were recorded properly. If not, tax advantages of the trusts could be wiped out, leaving mortgage securities investors with significant tax bills.

For years, lenders bringing foreclosure cases commonly did not have to demonstrate proof of ownership of the note. Consumer advocates and consumer lawyers have complained about the practice, to little avail.

But a decision in October 2007 by Judge Christopher A. Boyko of the Federal District Court in northern Ohio to toss out 14 foreclosure cases put lenders on notice. Judge Boyko ruled that the entities trying to seize properties had not proved that they actually owned the notes, and he blasted the banks for worrying “less about jurisdictional requirements and more about maximizing returns.”

He also said that lenders “seem to adopt the attitude that since they have been doing this for so long, unchallenged, this practice equates with legal compliance.” Now that their practices were “put to the test, their weak legal arguments compel the court to stop them at the gate,” the judge ruled.

Yet aside from the actions of a few random judges, little was done to force lenders to change their practices or slow things down. Since March 2009, more than 300,000 property owners a month have received foreclosure notices or lost their home in a foreclosure, according to RealtyTrac, which tracks foreclosure listings.

What finally prompted a re-examination of the foreclosure wave was the disclosure in court documents over the last several months of so-called robo-signers, employees like Ms. Samons of the Stern law firm in Florida who signed affidavits so quickly that they could not possibly have verified the information in the document under review.

Lenders and their representatives have sought to minimize the significance of robo-signing and, while acknowledging legal lapses in how they documented loans, have argued that foreclosures should proceed anyway. After all, the lenders say, the homeowners owe the money.

People who have worked at loan servicers for many years, who requested anonymity to protect their jobs, said robo-signing and other questionable foreclosure practices emanated from one goal: to increase efficiency and therefore profits. That rush, they say, allowed for the shoddy documentation that is expected to become evidence for homeowners in the coming court battles.

For example, years ago when banks made loans, they typically stored promissory notes in their vaults.

But the advent of securitization, in which loans are bundled and sold to investors, required that loan documents move quickly from one purchaser to another. Big banks servicing these loans began in 2002 to automate their systems, according to a former executive for a top servicer who requested anonymity because of a confidentiality agreement.

First to go was the use of actual people to determine who should be liable to a foreclosure action. They were replaced by computers that identified delinquent borrowers and automatically sent them letters saying they were in default. Inexperienced clerical workers often entered incorrect mortgage information into the computer programs, the former executive said, and borrowers rarely caught the errors.

Other record-keeping problems that are likely to become fodder for court battles involve endorsements, a process that occurs when notes are transferred and validated with a stamp to identify the institution that bought it. Eager to cut costs, most institutions left the notes blank, with no endorsements at all.

Problems are also likely to arise in court involving whether those who signed documents required in foreclosures actually had the authority to do so — or if the documents themselves are even authentic.

For example, Frederick B. Tygart, a circuit court judge overseeing a foreclosure case in Duval County, Fla., recently ruled that agents representing Deutsche Bank relied on documents that “must have been counterfeited.” He stopped the foreclosure. Deutsche Bank had no comment on Wednesday.

Cynthia Veintemillas, the lawyer representing the borrower in the case, Patrick Jeffs, said the paperwork surrounding her client’s foreclosure was riddled with problems.

“Everybody knows the banks screwed up and loaned out money to people who couldn’t pay it back,” she said. “Why are people surprised that they don’t know what they are doing here either?”

Meanwhile, another judge on Wednesday indicated that the courts would not simply sign off on the banks’ documentation. Jonathan Lippman, the chief judge of New York’s courts, ordered lawyers to verify the validity of all foreclosure paperwork.

“We cannot allow the courts in New York State to stand by idly and be party to what we now know is a deeply flawed process, especially when that process involves basic human needs — such as a family home — during this period of economic crisis,” Judge Lippman said in a statement.

26 October 2010

Frisco's Exide Plant ready to make Upgrades to cut Lead Emissions

Dallas Morning News

Upgrades are scheduled next week to help reduce lead emissions from a battery recycling plant in Frisco.

Plant manager Don Barar said he has already made several changes at Exide Technologies Inc.'s local facility. It's in one of up to 17 areas around the country not expected to meet new federal air-quality standards for lead, a toxic metal that causes serious health issues. The Environmental Protection Agency is scheduled to finalize the proposed areas as early as Friday.

Barar said the plant will shut down operations for a week beginning Monday to improve its bag houses to capture even more lead particles.

"I'm encouraged by the work done at the facility," Barar said. "I believe we're on the verge of compliance" with the new standards, he said.

But Frisco City Manager George Purefoy said Wednesday that's not enough. He and other city leaders issued an ultimatum in a letter to residents released last week. City leaders want Exide to be the "most environmentally advanced plant in the country." If Exide can't do that, then it doesn't belong in Frisco, Purefoy said.

New standards

Battery recycling companies are looking at improvements because of new standards for lead issued in 2008 that are 10 times as stringent. The only area in the south-central U.S. not expected to meet that new standard is in Frisco. State regulators have proposed a 2.4-square-mile area around Exide Technologies that stretches from Frisco High School north to Pizza Hut Park and includes City Hall, several neighborhoods and businesses.

The proposed boundaries are based on maximum emissions allowed under the company's permit rather than actual lead emissions. Last year, Exide emitted 1.67 tons of lead. Its permit allowed up to 6.9 tons per year.

Exide officials and Frisco city leaders have been trying to reduce the proposed boundaries of the area to more accurately show where lead levels are too high. Doing so could spare a large number of properties.

Purefoy said property values are a concern, but the bigger issue is making sure the boundaries reflect reality rather than relying on the company's outdated permit levels.

"There is no doubt that it has caused a lot of concern in a lot of people's minds," he said. "If [the permit levels are] not relevant, why would you continue to worry those people?"

To bolster their case, Exide applied for a permit reduction Oct. 5. State regulators approved it a day later. Gov. Rick Perry has since sent a letter asking the EPA to consider new boundaries based on the reduced permit.

EPA spokesman Dave Bary said he doesn't know whether the boundaries will be changed this late in the process.

Barar, Exide's plant manager in Frisco, said that a new area could be as much as 50 percent smaller than the one proposed. The size of the area won't affect upgrades that the plant needs to make to reduce lead emissions. But it could allay some people's concerns. Barar said he was unsure whether the last-minute change would be considered.

"A smaller nonattainment area ... does a better job helping people understand who is and who may not be at risk," Barar said. "The goal here is to try and develop something that accurately reflects the data that we have and what real emissions are."

Pollution controls

Meanwhile, the city hired a consultant to investigate technology installed at a battery recycling facility in Southern California that reduced emissions well beyond the new standard for lead and other compounds. Dallas-based RSR Corp. has said lead emissions from its Quemetco plant in Los Angeles County dropped from 915 pounds a year to 10 to 12 pounds.

The pollution reduction has been remarkable, said Barry Wallerstein, executive director of South Coast Air Quality Management District, the regulator in that part of the state.

He said RSR has pushed the agency to approve more stringent air-quality regulations that would essentially force Exide to spend $20 million on similar pollution controls at its California plant 15 miles away.

Ohio Coca-Cola Plant in line for City Tax Incentive

Columbus Biz Journal

The city of Columbus is offering beverage giant Coca-Cola Co. a tax incentive package as the company mulls a $120 million expansion of a south-side plant that could create up to 35 jobs.

The incentive package for Coca-Cola up for consideration at Columbus City Council’s Monday meeting includes a 75 percent, 10-year Enterprise Zone Tax Abatement and a six-year, 65 percent Job Creation Tax Credit. They’re valued at up to $10.5 million over the term.

Coca-Cola says it’s looking to expand its Watkins Road syrup plant and add 35 full-time job to the site’s 116-worker payroll to upgrade advanced manufacturing lines along with automated storage and retrieval systems. The project could begin as early as January and is set to be completed before November 2012, contingent on approval of the incentives.

According to documents from council, Coca-Cola’s annual payroll in Columbus totals about $7 million. The new jobs, mostly production positions paying about $21 an hour, would add about $1.7 million.

25 October 2010

What Does the 'Foreclosure Crisis' Mean for You?

The Wall Street Journal

For the vast majority of homeowners, new questions about the state of foreclosures appear to be irrelevant. Few people seem to have been wrongly thrown out of their homes, and those who have been are generally months or years behind on their mortgage payments.

But the fallout from the crisis is beginning to be felt in real-estate markets across the country, particularly in places dominated by vacation homes and investment properties. Some of the worst-hit areas could be Western ski towns, because fall is the busiest time of the year for sales.
Real-estate salespeople in some of those places are worried. "September and October are usually the height of the selling-season for us," says Rich Armstrong, who owns the brokerage Rare Properties in Jackson Hole, Wyo. "Now we are seeing a number of what we call 'fence sitters,' people who would have leapt in even a month ago, but now are waiting on the sidelines."

The "foreclosure crisis" is a result of the frenzied real-estate boom and bust of the past decade. Banks made foolish loans, and borrowers signed up for them—only to default later, as the economy slumped. Banks rushed to reclaim properties, launching a record number of foreclosure proceedings.

In the past several weeks flaws have emerged in that complex process. Because of the high volume of foreclosures, the documentation supporting legal actions was prepared hastily, and some homes were seized improperly.

Yet the far bigger worry is what happens next. A frenzy of lawsuits and banks' examinations of their own practices could throw more of the millions of foreclosures of the past few years into legal jeopardy. Attorneys general in all 50 states are investigating, and plaintiffs' lawyers are working hard to perfect their legal strategies for suits on behalf of people who have been foreclosed on.

The suits might well fail. But just the threat that past foreclosure rulings might be overturned could result in collateral damage. In some places, banks are rushing foreclosed properties to market. In others, buyers are stepping back, refusing to buy foreclosed properties or "short sales"—homes sold by owners for less than the mortgage balance. In markets already beset with large inventories of foreclosed properties, the result could be a slower recovery.

Coastal markets and ski areas are feeling the most anxiety. Some already are littered with foreclosures—in part because they're dominated by second-home and investment properties. Those owners are more willing to walk away from a house that isn't their primary residence.

Foreclosure tracker RealtyTrac estimates that, nationwide, 30% to 35% of properties in foreclosure are owned by investors or were second homes. In Aspen, Colo., the figure is about 60%, says Kim McKinley, owner of McKinley Sales Real Estate in Basalt and Aspen, Colo. If foreclosure proceedings slow from here, inventory could jump, leading to price weakness later.

"We're concerned that the phantom inventory buildup will cause a more rapid and drastic drop in prices in Aspen, which is just getting started in terms of foreclosures coming to the market," says Ms. McKinley.

The timing of the foreclosure mess is especially inconvenient for ski towns, given the fall selling season.

Property owners are growing nervous. In Park City, Utah, lenders are quickly unloading foreclosed homes ahead of what could be a long, stalled foreclosure process, says Joe Trabaccone, a real-estate agent there.

On Oct. 11, for example, J.P. Morgan Chase put up for sale an 8,000-square-foot home adjacent to a private gated golf course. Mr. Trabaccone initially recommended the property be listed for $1.6 million, but Chase opted for $1.26 million. "They are offering these homes far too low just to hurry up and sell them," Mr. Trabaccone says.

Even so, it hasn't worked. A buyer made an offer and signed a contract, but then backed out.

In South Lake Tahoe, Calif., on Thursday, Freddie Mac, the big government-sponsored guarantor of mortgages, put a foreclosed home that had just been listed for sale on hold, freezing the property until paperwork could be straightened out. The foreclosure mess "seems to be filtering down and it could be an impact," says Doug Rosner, the broker who had listed the home. Three other properties in town were also frozen, another real-estate agent says.

The "sand states" of Arizona, California, Florida and Nevada are being hit as well. These areas, too, have a lot of vacation and investment properties—and a lot of foreclosures.

Robin Speronis, a real-estate broker in Cape Coral, Fla., says business had been picking up recently, with several inquiries a day—until the latest foreclosure scandal broke. Since then, she says, inquiries have shriveled to just one in the past week.

Susan Weeks, 55 years old, and her husband, Eddie, aren't optimistic. The couple had expected to retire and downsize when they bought a condo in Clermont, Fla., near Orlando, in 2007 for $192,000. Their plan was to sell their primary residence 10 minutes away and live in the condo. The trouble: They can't sell their first home.

The Weeks paid $269,000 for their three-bedroom home in 2004. The house next door, a bit larger, is listed at $185,000, Ms. Weeks says.

The couple has decided to move back to their primary home and take a renter for the condo. But while that brings in $850 a month, the Weeks take a $450-a-month hit on the condo —on top of the $2,400 a month they pay every month on their primary home.

"We're just going to wait it out," she says.

The possible foreclosure wars to come loom so largely over Florida markets that Ms. Speronis is urging condo sellers to consider any offer they get, even if it is far below asking price or what is owed on the mortgage.

Dianne Cloutier, a records supervisor in Chelmsford, Mass., had been looking for a retirement property in Cape Coral, but decided to wait because of the foreclosure mess. "It's left us on hold until we are sure the banks have legitimately foreclosed on people and that nobody can come back on us to get their property back," she says.

Foreclosures aren't the only problem. Short sales are getting more difficult to pull off, too.

In Bend, Ore., agents say buyers are avoiding short sales or even backing out of contracts because they don't want to deal with paperwork hassles or the chance of a court challenge later.

"I have some people saying 'I don't want to mess with bank-owned properties or short sales,'" says Dianne Willis, principal broker with RE/MAX Sunset Realty in Sunriver, Ore. "They're reluctant because it can be a frustrating process, especially for those who are looking to make a big move."

The short sales "can be very frustrating," adds Becky Ozrelic, of with Steve Scott Realtors in Bend. "You just have buyers waiting and waiting."

For sellers, lining up a short sale was tough even before the latest foreclosure crisis. Banks and mortgage "servicers," the outfits that process payments, already had been scrambling to handle surging workloads.

Mike and Kim Schwarz of San Jose, Calif., are coming up on the one-year mark on their short-sale saga.

The couple had acquired several investment properties over the past few years, including one in Thousand Oaks, Calif., for $751,000. After the tenants stopped paying rent, the Schwarzes couldn't cover the payments and decided to sell, Mr. Schwarz says.

They lined up a buyer in November 2009, and started working with their loan servicer on the short sale. For lenders, short sales are ugly because they guarantee a loss, but they often are preferable to a foreclosure, in which the lender is saddled with a tough-to-sell house.

The servicer, Residential Credit Solutions, took six months to process the paperwork, the Schwarzes say. Faxes and emails were sent, but nothing happened, Mr. Schwarz says.

"We typically don't hear from borrowers about long delays," says Dennis Stowe, president of Residential Credit.

The buyer walked away from the deal in June. The couple found another buyer in August, and resubmitted the short-sale paperwork. Mr. Schwarz says he has sent paperwork to Residential Credit four times since.

On Friday, Mr. Schwarz says, Residential called to tell him the short-sale paperwork looked good and the sale should close in mid-November.

Says Mr. Schwarz: "They didn't make it easy."

Other Ways the 'Foreclosure Crisis' Could Sting Homeowners

The foreclosure mess could hurt homeowners in another way: The costs of buying a home and paying off the mortgage are likely to go up, say housing experts.

The rising costs will come both during the closing and throughout the life of the loan.

At the closing, the cost of title insurance, which protects a property buyer from claims of ownership made by other people, is likely to rise, industry officials say. Title insurance is one of those annoying costs that can sneak up on a buyer during a close; premiums average around $2,000 across states, says Tim Dwyer, CEO of insurer Entitle Direct Group.

The foreclosure mess has sent insurers scrambling. One of the largest, Old Republic Title Insurance, told its agents on Oct. 1 not to issue policies on homes that have been foreclosed by GMAC Mortgage or J.P. Morgan Chase. And on Wednesday, the nation's largest title insurer, Fidelity National Financial, said lenders must vouch for the accuracy of their paperwork before it will insure properties.

Just like homeowners-insurance rates rise after a hurricane, the rates for title insurance are expected to rise, to compensate for the added risk.

The turmoil will likely lead to pricey premiums for new homeowners, says McLean, Va.-based housing economist Tom Lawler. Adds Cameron Finlay, chief economist at mortgage lender Lending-Tree.com: "Any time there is uncertainty in the market or risk implied, it follows that costs go up."

Other costs could be felt during the life of the loan. Until the current mess, servicing loans was a low-margin, high-volume business. Servicers collect mortgage payments from borrowers and send them off to mortgage holders, and if the loan gets into trouble, they manage the foreclosure. Few doubt this process will get costlier now that it is under scrutiny from regulators and the courts. That higher cost likely will show up in higher interest rates for borrowers.

Both of these higher costs also would hit homeowners who refinance their loans.

How much the costs of buying a home will rise is unknown. Mortgage industry officials say it is too soon to tell. And no one believes the costs will significantly change the price of a home. But with the housing market still weak, the uncertainty is making the prospect of buying—or selling—a home that much dicier.

Apartments good Investments for Some

USA Today

The property in Fort Lauderdale was originally valued at $285,000. Clint Gordon, a private investor in multifamily properties, offered the bank $50,000, and within 10 days, had closed the deal. A few days later, he began renting it for $15,000 a year.

"Anybody who's getting into this business now, you get a whole lot of return if you're paying cash for properties," he says. "You're just buying them so cheap."

Prices for apartment buildings are "incredible" in Indianapolis, as well, says Barb Getty, who owns 27 apartment properties in the downtown area. "You can start small like I did; 20% of 40 thousand bucks isn't a lot of money."

Just as there have been massive price drops for single-family homes in the past three years, there have been big price declines for apartment buildings. That suggests that it's a good time for investors who want to be landlords to start buying.

But as with all investments, the story isn't quite so simple. Investors who thought that a tsunami of dirt-cheap multifamily properties would wash over the U.S. market in the past two years have been largely disappointed.

The economic distress that led to lower prices was limited to certain places and property types, says Hessam Nadji, managing director at real estate investment services firm Marcus & Millichap. "The pain was concentrated where we had gross overbuilding in overall housing: Florida, Phoenix, Las Vegas, Southern California, and to some degree, smaller markets like Tucson, Charlotte and Atlanta."

Marc Solomon, whose Solomon Organization owns 10,000 garden apartments in New York, New Jersey, Connecticut and Pennsylvania, says that it's difficult to find opportunities that make good business sense in his markets, which still offer slow, steady returns. There are "a lot of dollars out there chasing these deals," he says.

While there were big price cuts for multifamily housing in North Carolina's Research Triangle area near Winston-Salem, competition is driving down yields, says Jim Scofield, senior investment adviser at multifamily real estate broker Apartment REP. The yield is called the "cap rate" and is net operating income for one year divided by the sale price. Last October, an investment firm "got a steal" on a community in Raleigh called Autumn River, he said, with a cap rate of about 7.75%. The most recent transaction in the area involved a community called Southern Oaks, which had a 5% cap rate. Average cap rates are still around 6.5%.

"This is not just a phenomenon in the Triangle, but in all the major markets, and especially all the apartment markets," Scofield says. "Manhattan, Washington, D.C., Los Angeles, Denver, Chicago, Boston."

Risk and return

There is less competition in markets where the supply is more fluid, but the risks are also higher.

"We landlords are happy," says Getty, adding that the only thing preventing her from buying more properties is the ability to manage them on her own. Still, she hasn't been able to increase rents as much as she normally would.

Gordon says his vacancies used to average three to five days. "Now, I can have a vacancy for up to 60 days," he says.

Despite all the qualifiers, there is opportunity in rental apartments because the timing is good, Nadji says. "I don't think you're going to get fire-sale prices," he says. "But you can get that kind of return ahead of the job growth and ahead of the economic recovery."

Rental occupancy rates shrank dramatically during the recession, as people doubled up and young adults boomeranged back home. Vacancies nationwide hit a high of 8% in the last quarter of 2009, according to real estate research company Reis. But industry insiders argue that rentals will bounce back quickly and dramatically. In the third quarter of this year, vacancies fell to 7.2%, Reis says.

"Apartment rents are short term; they adjust to market conditions very quickly," Hessam says. "We've seen a record demand for rental apartments so far this year, the strongest in over 10 years."

Wide-ranging perspective

Apartment buildings can be attractive because investing in residential real estate seems similar to owning a home. But rental properties are different, starting from the purchase decision.

Home buyers tend to look for a place they love that fits their needs and budget. But you have to see investment properties through the eyes of your tenant, Getty says. If your tenants won't have cars, is it near public transportation?

Randall Gorman, president of La Jolla Capital Group in California, says prospective investors need to take the emotion out of their purchases.

"I don't care if you're buying a condo, a duplex or a 10-unit building," Gorman says. "Just because you've always loved that cottage-style apartment building that you drove by taking your kids to school doesn't mean the cash-flow fundamentals work at a given price."

If considering a property, Gorman advises making sure you can run a cash-flow model. Figure out property rents by researching online and in the neighborhood. Calculate annual revenue, and thoroughly survey costs such as maintenance, taxes, utilities and incentives. (Property managers typically charge about 10% of a month's rent.)

Add a couple of months of vacancy, and don't disregard higher interest rates for commercial properties. According to PricewaterhouseCoopers, the national average interest rate for apartment loans in the third quarter was 5.68%. For the first week of October, Fannie Mae reported that the average 30-year fixed rate for a primary home was 4.27%. If your final annual net income is $16,000, seeking a 10% cap rate puts the purchase price at $160,000.

"Don't buy on what might happen, but on what is happening," Scofield says. "Only buy a property if it is cash flowing to meet your investment return requirement on day one."

Once you buy, it's not a smart idea to treat your investment like a home. "Investors make a huge mistake when they spend a lot of money on bells and whistles in their rental property," Getty says. "A rental needs to compare well to others in the neighborhood, but don't make it a palace — you won't get that money back."

24 October 2010

Florida Activists read between the Lines on Foreclosure Paperwork

The Washington Post

Michael Redman and Lisa Epstein, at the Palm Beach County Courthouse, joined forces with two other people in Florida in investigating potentially fraudulent foreclosure paperwork.
WEST PALM BEACH, Fla. - Nearly a year before the national furor over foreclosures began, Lisa Epstein, a nurse, ran into three other amateur sleuths who separately were investigating shoddy practices at mortgage companies.

While meeting for the first time in November at an old one-story law office in this city, the four strangers compared notes and began to piece together the scope of the problem: All over the United States, big financial firms might have been using fraudulent paperwork to evict struggling borrowers from their homes.

Now tight-knit, the group is largely responsible for setting off the growing firestorm over foreclosures.

Epstein, a Fairfax County native who became an activist after she lost her job and became unable to pay her mortgage, launched a grass-roots movement against the country's largest banks, which are facing the prospects of billions of dollars in soured loans and legal expenses.

Joining her were Michael Redman, whose foreclosure blog drew the White House into the controversy, and Thomas and Ariane Ice, who run a boutique law firm that was the first to depose "robo-signer" Jeffrey Stephan of Ally Financial's GMAC mortgage unit in December.

In addition to trying to educate the public about the issue, the group had also been quietly passing along stacks of problematic documents to state and federal regulators, lawmakers, judges and law enforcement officials.

They pointed out that document processors such as Stephan had admitted in sworn depositions that they had signed off on up to 10,000 foreclosure documents a month, even though they had not reviewed them as legally required. They also shed light on foreclosure cases in which the paperwork appeared to have been backdated, forged or improperly notarized.

Now, at least five major mortgage companies have frozen some foreclosures. Attorneys general from each state have joined forces to investigate, and a federal task force is considering criminal charges in the matter. Some bank stocks have fallen on concerns that the issue of flawed paperwork could be a coverup for something even more serious. And economists worry that the fragile housing market, where one in four houses on sale is in foreclosure, could take a devastating hit.

Although the uproar over foreclosures might seem sudden, for the activists, it was a long time coming.

Epstein, 45, a George Mason University graduate who moved from the Washington area to Florida for the sunshine 13 years ago, first began to suspect something was wrong in February 2009 after she was served foreclosure papers without any acknowledgment that she had applied for a loan modification.

Redman, 35, said he knew there was a problem as early as January 2008, when he was trying to help his fiancee fight foreclosure and noticed that one of the key documents that proved ownership of the loan had suspicious signatures.

The Ices' eureka moment came late one night in early 2009 when Ariane was looking at the 700 cases in their database and noticed that a lot of the problematic paperwork had been signed by the same people.

As the four of them continued to investigate the issue, the months became filled with self-doubt.

"Plaintiffs' attorneys were scoffing at us; judges were laughing. You get to the point where you think, 'Maybe I'm the crazy one,' " said Thomas Ice, 50.

The group members, who are on the east coast of Florida, where nearly half of the homes on the market are in foreclosure, was soon joined by like-minded lawyers, homeowners and activists on the west coast. Together, the growing movement began to organize events at bar association meetings, host happy hours for distressed homeowners, and follow prominent public officials wherever they were speaking to get their attention. They launched Web sites to get the word out to homeowners' attorneys around the country.

Larry Schwartztol, a New York-based staff lawyer with the American Civil Liberties Union, has been working with Epstein's group to investigate whether Florida courts violated due process by short-circuiting normal procedures in foreclosure cases. He said the research the group is doing is "extremely impressive" and "indispensable."

Although there was no formal organization behind their effort, each of the activists took on distinct roles.

The Ices and seven other lawyers at their firm began deposing "robo-signers" at major mortgage companies, and, in an unusual move in the competitive legal industry, they began distributing the transcripts online.

Homeowners' lawyers nationwide began using the documents to defend their clients. Thomas Cox, a lawyer in Maine, saw Ice Legal's deposition of Stephan, the Ally robo-signer, and decided to depose him again for a case in his state in June. Cox was able to get his client's foreclosure judgment vacated.

Redman, who had been working in marketing for the online department of a local car dealership, set up a Web site, 4closurefraud.org, where he aggregated and analyzed key court documents related to faulty foreclosures. It was an instant hit - the Huffington Post of foreclosures - with Redman's snarky commentary, use of large pictures and graphics to explain complex subjects and his apparent glee - signified by an animated laughing "Jerry"- when he discovered a new way to attack the banks.

It was Redman's Web site, which is now being funded by a local lawyer, Carol C. Asbury, that took the lead in drawing President Obama into the foreclosure controversy this month by making a major issue out of a little-known notary bill, several lawyers around the United States said. Redman said that a reader had e-mailed him about the bill that had sailed through the Senate and was sitting on Obama's desk. The bill would make it easier to foreclose because notary signatures would be valid across state lines.

Epstein, a single mom who once worked as a cancer nurse, became the group's liaison to homeowners, setting up an online discussion site for them to vent their frustrations and debate strategies.

For months, she fired off up to five letters a night to officials, judges or anyone she could think of after her daughter went to sleep. Her letters were prone to hyperbole, but her explanations of the potential for fraud in various steps of the foreclosure process were laid out. In one, she wrote to the Florida Supreme Court: "I am outraged by the perfidious harvest poisoning the financial and emotional well being of individuals worldwide due to the appalling opportunism of Wall Street's historic, unrequited love affair with mortgage backed securities."

The first major lender to take corrective action on foreclosures - Ally Financial, which is majority-owned by the U.S. Treasury - has declined to comment about what prompted it to freeze foreclosures Sept. 20, but Epstein, Redman and the Ices say they and others who are defending homeowners applied so much pressure on the company that it would have been difficult for it not to act.

On April 28, one week after the four activists had staged a rally at the courthouse in the state capital, they had their first major breakthrough: The Florida attorney general's office announced an investigation into a "foreclosure mill" law firm called the Florida Default Law Group for allegedly presenting misleading or false documents to courts.

Knowing that the law firm had been hired by some of the nation's largest lenders, Epstein and Redman went to the local courthouse and began delving into its filings.

It wasn't until last month that their work began to draw national attention. The Florida Default Law Group confirmed in court filings Sept. 7 that the foreclosure documents that had been signed by Stephan, the robo-signer, "may not have been properly verified."

Redman posted the news on his Web site on Sept. 14. "ALL OF THESE AFFIDAVITS FROM THESE CHARACTERS ARE INVALID IF CHALLENGED!!!," he wrote, predicting it would affect "HUNDREDS OF THOUSANDS OF CASES!!!"

One week later, Ally Financial announced that it would halt foreclosure sales in nearly two dozen states. At least four other major mortgage companies followed suit.

22 October 2010

Area Builder wins Construction Award for Nordic Naturals' new Watsonville Headquarters

Mercury News

WATSONVILLE, California - Nordic Naturals' new 89,384-square-foot headquarters and national distribution center in Watsonville has won a national award for innovative construction.

The builder, Ausonio Incorporated of Castroville, used concrete tilt-up construction to achieve the look of a Norwegian fishing village for Nordic Naturals, which makes fish oil supplements.

The award was one of nine office projects in six states recognized by the Tilt-Up Concrete Association. It was the only one in California to be honored.

"We were in pretty amazing company," said Ausonio project manager Jim Staniec, of Santa Cruz, who accepted the award at an Oct. 1 ceremony in Irvine.

Other winners included an entertainment center in Fredericksburg, Va., a high school in Round Rock, Texas and the Lauderhill, Fla., municipal complex.

The Watsonville building contains 41,402 square feet of office space at 111 Jennings Drive. It's 340 feet long with walls that are 45 feet high.

"I've been a California concrete contractor here for 30 years and this is one of the biggest ones I've seen built," said Staniec, comparing it to the 121,000-square foot Costco warehouse store in Santa Cruz. "The challenge was how to get as much light into the building as possible."

Staniec said he sketched a preliminary design using skills he learned in high school, with the final design executed by Carl Pelke, Ausonio's in-house architect. Capitola interior designer Vivian Gunnerengen selected the interior finishes and acted as the owner's representative during design and construction.

The colors for the building exterior - rust red, mustard yellow and sage green, were chosen by Gunnerengen and Joar Opheim, founder and chief executive officer of Nordic Naturals, to match those in Norway.

"They approached us because we do design-build," Staniec said. "This makes it so much simpler."

To create a wood siding look, Ausonio used liners with a wood grain pattern in the concrete panel forms, and then added cementitious boards, about eight inches wide, to the face of the panels.

"It looks like wood," said Staniec, noting 20,000 screws were needed to hold those boards in place. "It was tedious but it looks good."

The building project took 11 months. Though construction is complete, only the warehouse portion is in use.

Last winter was so rainy that moisture got into the floor slab, requiring a special drying out process, according to Staniec, who expects office workers to move in by the end of the year.

Tiffany Diehl, Nordic Naturals' strategic project manager, said she is not sure of the relocation timetable.

Ausonio is aiming for Gold Leadership in Energy and Environmental Design certification from the U.S. Green Building Council for the project.

Last month, the builder earned LEED Platinum for the Monterey College of Law, its second LEED project at the former Fort Ord in Seaside. The first was Chartwell School.

Ausonio has 11 other projects registered for LEED certification in various stages from design to concrete construction, none in Santa Cruz County.

The economy is "a bit of a struggle," Staniec said. "People want to build stuff but the financing is so difficult."

U.S. Foreclosure Mess chills Investors, Clouds Market


Investors who have been snapping up foreclosed homes are backing off in the wake of the U.S. foreclosure fiasco, driven by sagging inventory and fears over legal title, and some economists say the trend could hurt the overall housing market.

With foreclosed properties accounting for a large portion of housing sales, and investors accounting for a large portion of buyers -- particularly in some key markets with very high foreclosure rates -- the implications for the broader economy could be serious.

Investors who would buy, rehabilitate and then sell or rent foreclosures were playing a "huge role," in helping to clear the market, said housing economist Tom Lawler.

But many of those investors are now staying on the sidelines.

"We're like a plane flying around in a holding pattern, waiting to land," said Tony Alvarez, an investor in southern California who is currently renting out 40 former foreclosed homes. "Nothing is going on, and why? Fear has taken hold in the marketplace."

Allegations that banks failed to review foreclosure documents properly or submitted false statements when they foreclosed on properties spurred a joint investigation by the attorneys general of all 50 states and triggered foreclosure moratoriums by some of the biggest U.S. lenders.

Bank of America and GMAC Mortgage have retreated from their foreclosure suspensions.

The investors are so essential to the housing recovery, Amherst Securities managing director Laurie Goodman wrote in a paper in Financial Analysts Journal, that an extension of federal loans for them is "the single most important demand-side action that could be taken."

The pall cast over foreclosure sales by the growing questions over the use of shoddy documents in processing foreclosures has adverse implications for the housing market and the broader economy, said IHS Global Insights economist Patrick Newport.

Fewer sales to investors means fewer sales altogether, which will further elevate supply. That, in turn, will keep a lid on home prices, making consumers feel poorer.

"Falling home prices make consumers less likely to spend," Newport said. "In general, uncertainty is not a good thing for the economy."

Consumer spending accounts for two-thirds of the U.S. economy.


The role of investors in helping to clear the huge supply of inventory has been substantial. In August, investors generated 21 percent of existing home sales, according to the National Association of Realtors.

In markets like Orlando, Florida, and Phoenix, where rampant risky lending and speculation during the housing boom left the most foreclosures behind, those numbers can hit 40 percent and higher, Lawler said.

Nearly one-third of all homes sold in September were in the foreclosure process, according to real estate data company RealtyTrac.

The number of homes taken over by banks topped 100,000 in a month for the first time in September, though foreclosures are likely to slow as lenders review their paperwork, RealtyTrac said.

Distressed real estate investor Bruce Norris said the volume of his business in southern California has dropped 75 percent in the past two weeks as the sudden decline in inventory has led to a spike in prices.

"We're being much more cautious," Norris said. "Everything is getting bid up to a ridiculous number. There isn't any profit."

Current higher prices are not the only disincentive. Investors see lenders cutting foreclosure prices sharply at some point next year when they try to reduce the logjam that is now building up by pushing more inventory out onto the market.

"Investors are pulling back," said John Burns, whose national real estate consulting firm is based in Irvine, California. "They think it'll be cheaper next year."

Alvarez also said the uncertainties hanging over the industry will keep smaller foreclosure investors like himself on the sidelines at least through the end of the year.

"We're still going through the motions of doing our typical business," he said. "But it's like a doctor, you want to monitor a patient's stats. Well, try operating without any of that information, you'd be losing patients left and right."

Timing is the investor's most pressing concern, said John Anderson, a real estate agent who specializes in foreclosures in the Minneapolis and St. Paul, Minnesota, area.

"They want to buy these properties and have them back on the market in a short time," Anderson said. "If there are major delays, they could be stuck."


The picture is not as bleak for larger players, said Jamie Rand, whose Prime Asset Fund LLC, based in the suburbs of Tampa, Florida, bought and sold over a thousand foreclosures in the past year.

When the uproar subsides, lenders and government investigators will find only a very small percentage of truly wrongful foreclosures, Rand said.

And should one of those crop up in his business, he can absorb the cost, he said.

"For me, it's an opportunity," he said. "Because of the limited amount of inventory, it'll help me as I take my assets on the market."

Still, smaller investors say they have more reasons to sit back than to act.

They worry that their title insurance will not cover them if past owners sue to reclaim their property, said Anderson, the Minneapolis-area real estate agent.

In southern California, Norris said he sees the foreclosure mess gaining momentum.

"The cat's out of the bag," he said. "And the lawyers are going to have a new cottage industry stopping foreclosures and going after people who have already purchased them."

Norris has received calls from foreclosure buyers who had upgraded the homes and were ready to sell them when a former owner sued for their return.

"There still might be concern about past foreclosures," Lawler, the economist, said. "We don't know if refiled papers will be accepted or approved by the courts. And it could be different depending on the state."

20 October 2010

Grand Estates Auction Co. Offers Waterfront Ford Plantation Estate

Kansas City Star

Home in Exclusive Sporting Community near Savannah to Be Sold at Oct. 26 ‘Absolute’ Auction

Grand Estates Auction Co., the leading luxury real estate auction firm, is offering an elegant Low Country estate close to historic Savannah, Ga., with private water frontage on the famed Ford Plantation Yacht Basin. The auction on Tuesday, Oct. 26, will be “absolute,” where the lack of a minimum bid or reserve assures a prompt sale that benefits both buyer and seller.

Located in a plantation that was the former winter home of industrial magnate Henry Ford, the five-bedroom, five-bathroom home with a separate guest cottage is an ideal retreat in an exclusive, gated coastal resort community. The 1,800-acre, sporting-oriented community features world-class equestrian facilities, a Pete Dye-designed championship golf course, a full-service marina accommodating yachts up to 65 feet long, sport fishing and sporting clays, a full-time naturalist, a day spa, fine dining and swim, tennis and fitness facilities with an on-site personal trainer.

The custom home offers panoramic views of the yacht basin, marsh and Ogeechee River from most of its 6,000 square feet, including a top-floor cupola with 360-degree views of the Ford Plantation grounds. The homeowner can relax in a master suite with a separate sitting area and fireplace or conduct business in a main-level office with built-in cabinetry. Family and friends can gather in a great room with heart-pine paneling, a more formal dining room and a screened porch with gas grill, fine cabinetry with sink and sweeping views that’s perfect for year-round entertaining.

Grand Estates has an 11-year track record of representing one-of-a-kind properties and attracting a well-qualified group of bidders. “By using an absolute auction, the seller knows the home will be sold on a predetermined day, avoiding the hassles of inconvenient and disappointing showings and open houses. The buyer knows the seller is committed to selling the home at a price that reflects the true market value,” said Stacy Kirk, president of Grand Estates, with offices in Atlanta, Charlotte, Dallas, La Jolla, Calif., Naples, Fla., and Vail, Colo.

At a time when multi-million-dollar homes can languish on the market for years, Grand Estates’ extensive marketing program has attracted an average of 266 buyer inquires for each home sold so far in 2010, including $10.7 million worth of premier properties sold during five absolute auctions in June.

19 October 2010

Largest Bank Will Resume Foreclosure Push in 23 States

NY Times

Bank of America announced on Monday that it would resume home foreclosures in nearly two dozen states, despite the running controversy over how banks handled tens of thousands of cases of homeowners facing eviction.

Bank of America, the nation’s largest bank and the servicer of roughly one in five American mortgages, insisted that it had not found a single example where a foreclosure proceeding was brought in error.

The move is also likely to encourage other giant lenders, like JPMorgan Chase, to resume the foreclosure process that threatens two million homeowners.

Meanwhile, GMAC Mortgage, whose procedures helped prompt the controversy when one its executives testified that he had signed 10,000 documents in a month, is also proceeding with foreclosures.

“We announced a temporary suspension of evictions and foreclosure sales in the 23 judicial states several weeks ago so we could commence the appropriate review,” said Gina Proia, a spokeswoman for GMAC. “As cases are being reviewed and, when needed, remediated, the foreclosure process moves forward as appropriate.”

Guy Cecala of Inside Mortgage Finance, an industry publication, said: “This draws a line in the sand that the banks expect this problem will be over in relatively short order and it will be back to business as usual. If Bank of America can do it, certainly the smaller ones will follow suit.”

Bank of America plans to begin filing new paperwork for 102,000 foreclosures by Monday.

Consumer advocates and lawyers for homeowners expressed skepticism that Bank of America could complete a review of the paperwork so quickly. But the banking industry has come under increasing pressure from investors to resolve the problem.

Investors have fled bank stocks in recent days, worrying that the foreclosure halt would cost banks billions of dollars and inflict further harm on the nation’s struggling housing market. Bank of America is scheduled to report its latest quarterly results on Tuesday. Its shares have suffered more than those of other big banks, so any sign that the crisis is easing is likely to be greeted favorably by shareholders.

Reports of improper procedures at mortgage servicers, like having officials sign thousands of documents a month — so-called robo-signers — also have set off a political furor. On Wednesday, all 50 state attorneys general announced an investigation of mortgage servicing.

Bank of America said it would resume foreclosures in the 23 states where judicial approval was required after an internal review turned up no evidence that cases were filed in error.

However, Bank of America’s suspension will remain in effect in the 27 other states that do not require a judge’s approval to foreclose, as the bank’s paperwork review proceeds state by state. It was the only bank to initiate a nationwide freeze.

“We did a thorough review of the process, and we found the facts underlying the decision to foreclose have been accurate,” said Barbara J. Desoer, president of Bank of America Home Loans. “We paused while we were doing that, and now we’re moving forward.”

In the other 27 states, Ms. Desoer said, she expects foreclosures to resume within weeks.

Bank of America was careful to note that the major holders of mortgages — Fannie Mae and Freddie Mac — as well as private investors had signed off on its decision and had been consulted during the review. Of the 14 million mortgages it services — about $2.1 trillion worth — about half are owned by Fannie Mae and Freddie Mac, the giant mortgage holding companies now controlled by the Treasury.

About 30 percent are owned by institutional investors, like hedge funds, pension funds and insurance companies, while Bank of America holds 20 percent.

“We voluntarily paused our process in the 23 judicial states, not because there was evidence of problems — there was not — but because we wanted to ensure our customers they are being treated fairly,” said Dan Frahm, a bank spokesman.

Even as Bank of America and GMAC signaled their resumption of foreclosures, a Citigroup executive said the company was confident in its procedures. “The integrity of Citi’s foreclosures process is sound,” John C. Gerspach, Citigroup’s chief financial officer, said on a conference call.

In Bank of America’s case, the foreclosures are resuming in the 23 states where judicial procedure is required because the halt was initiated there first, on Oct. 1. It was extended to the other 27 states on Oct. 8.

From the beginning, Bank of America signaled that it did not expect the review to go on for an extended period. On Oct. 8, its chief executive, Brian Moynihan, promised a quick conclusion.

“We haven’t found any problems with the foreclosure process, and what we’re saying is that we’ll go back and check our work one more time,” he said at the time. “We expect to be done in a few weeks’ time.”

Still, it is far from certain that banks will be able to calm the public controversy easily or quickly. Besides the robo-signers, lawyers for homeowners have found evidence that documents were lost or even thrown out. Armed with this information, lawyers are gearing up for protracted court battles.

Peter Ticktin, a lawyer in Deerfield Beach, Fla., questioned how Bank of America could validate the paperwork in its foreclosure cases so quickly, particularly for those loans that were repackaged as mortgage-backed securities.

“This wasn’t just a simple little mistake of forgetting to dot the ‘i,’ ” Mr. Ticktin said. “There was a whole system put in place to make false affidavits. How are they going to erect a new system to do 102,000 affidavits unless they are going to use the same old law firms to make a second generation of bad affidavits?”

Ira Rheingold, executive director of the National Association of Consumer Advocates, also expressed skepticism that Bank of America could clean up its problems with foreclosures so quickly.

“These are lawyers. These are banks going to court and committing fraud,” he said. “For them to say this is a minor technical problem is mind-boggling.”

It was good news for real estate agents, who had watched sales grind to a halt since major banks halted foreclosures late last month and in early October.

Kevin Corasio, a Realtor in Fort Myers, Fla., who specializes in foreclosed properties, said his business had fallen 60 percent in recent weeks. “I hope what you are telling me is true,” he said. “It’s going to mean a lot of property on the market.”

Nicholas Bogos, a tax lawyer, said he was dealing with a foreclosure suit on his dead brother’s home in Tampa, filed by Bank of America. He said he had not heard that the bank had lifted its foreclosure suspension but nonetheless did not think it could sort out the problems so quickly.

“I don’t see how they could have cleaned up, straightened up the back-office messes,” he said. “I have utmost confidence that it’s a snafu.”

18 October 2010

Housing Secretary Donovan: Forclosure Mess 'Shameful'

The Washington Post

U.S. President Barack Obama's housing secretary Sunday said it was shameful that financial institutions may have made the housing crisis worse with mistakes in processing foreclosures.

Shaun Donovan, secretary of the U.S. Department of Housing and Urban Development, said in a column on the Huffington Post website that "a comprehensive review" of the foreclosure crisis was under way and that the administration would respond with "the full force of law where problems are found."

17 October 2010

Speed equaled Money in Foreclosure 'Machine'

The Washington Post

Millions of homes have been seized by banks during the economic crisis through a mass production system of foreclosures that was set up to prioritize one thing over everything else: speed.

With 2 million homes in foreclosure and another 2.3 million seriously delinquent on their mortgages - the biggest logjam of distressed properties the market has ever seen - companies involved in the foreclosure process were paid to move cases quickly through the pipeline.

Law firms competed with one another to file the largest number of foreclosures on behalf of lenders - and were rewarded for their work with bonuses. These and other companies that handled the preparation of documents were paid for volume, so they processed as many as they could en masse, leaving little time to read the paperwork and catch errors.

And the big mortgage companies overseeing it all - including government-owned Fannie Mae - were so eager to get bad loans off their books that they imposed a penalty on contractors if they moved too slowly.

The system was so automated and so inflexible that once a foreclosure process began, homeowners and consumer advocates say, there was often no way to stop it.

"The problem is when you try to fight back against this machine, well, it's a machine," said Michael Alex Wasylik, an attorney for homeowners in Dade City, Fla. "You have to be able to get your case off the mass production line and to someone who will take the time to read what they file, but in many mortgage firms that person doesn't exist."

"Their whole bureaucratic procedure," Stark said, "is working against helping homeowners." 
The financial incentives show that the problems plaguing the foreclosure process extend well beyond a few, low-ranking document processors who forged documents or failed to review foreclosure files even as they signed off on them. In fact, virtually everyone involved - loan servicers, law firms, document processing companies and others - made more money as they evicted more borrowers from their homes, creating a system that was vulnerable to error and difficult for homeowners to challenge.

"This was a systemic problem. It's not like a few renegade employees made mistakes," said lawyer Peter Ticktin, who defends Florida homeowners facing foreclosure. "It was industry-wide and pervasive, and everyone knew about it."

$1,300 per case

The law firm of David J. Stern in Plantation, Fla., for instance, assigned a team of 12 to handle 12,000 foreclosure files at once for big financial companies such as Fannie Mae, Freddie Mac and Citigroup, according to court documents. Each time a case was processed without a challenge from the homeowner, the firm was paid $1,300. It was an unusual arrangement in a legal profession that normally charges by the hour.

The office was so overwhelmed with work that managers kept notary stamps lying around for anyone to use. Bosses would often scream at each other in daily meetings for "files not moving fast enough," Tammie Lou Kapusta, the senior paralegal in charge of the operation, said in a deposition Sept. 22 for state law enforcement officials who are conducting a fraud investigation into the firm. In 2009 alone, Stern's law firm handled over 70,000 foreclosures.

"The girls would come out on the floor not knowing what they were doing," Kapusta said. "Mortgages would get placed in different files. They would get thrown out. There was just no real organization when it came to the original documents."

Fannie Mae, Freddie Mac and Citigroup said they no longer do new business with Stern's firm.

Law firms were rewarded with additional bonuses from document processing companies if they met deadlines for preparing and filing foreclosures in courts. One of the nation's major processors, Lending Processing Services in Jacksonville, Fla., confirmed that it had paid such bonuses but said it no longer offers them. The company is under investigation by federal and state law enforcement.

Meanwhile, Fannie Mae imposes a $100 fee on contractors for each day they fail to notify the firm that the foreclosure process was a success and that it has the right to move ahead with the resale of a home. On top of that, Fannie charges a penalty - which escalates for larger mortgages - on contractors who delay selling off such properties.

Fannie declined to comment on these fees. But in a memo to loan servicers dated Aug. 31, Gwen Muse-Evans, Fannie Mae's chief risk officer, warned mortgage servicers that fees may be imposed based on "the length of the delay and any costs that are directly attributable to the delay."

Speed is also rewarded by the nation's credit-rating agencies, which give higher grades to mortgage service firms that accelerate the foreclosure process and generally hand out lower grades to those who hold onto delinquent loans. A Fitch Ratings manual calls the speed of foreclosures "the key driver in the servicer rating," according to a report by the National Consumer Law Center.

Untrained hires

To keep up with the crush of foreclosures, document processors and mortgage service firms rushed to hire anyone they could - hair stylists, Wal-Mart clerks, assembly-line workers who made blinds - and gave them key roles in their foreclosure departments without formal training, according to court papers.

A number of these employees have testified that they did not really know what a mortgage was, couldn't define "affidavit," and knew they were lying when they signed documents related to foreclosures, according to depositions of 150 employees for mortgage companies taken by the law firm run by Ticktin, the Florida lawyer.

These problems were compounded as banks began to rely more heavily on computer systems to quickly move people through the foreclosure process. That automation came at a price for the homeowners who had difficulty fighting incorrect decisions by inexperienced, anonymous employees who took what was in the computer as fact even when homeowners said there were data-entry errors.

"These guys were caught off-guard with the onslaught of foreclosures," said Clifford Rossi, a former chief risk officer for consumer lending for Citigroup who now teaches at the business school at the University of Maryland. "So there were a lot of errors."

In one case in Fort Lauderdale in July, for instance, Bank of America foreclosed on a man after a computer glitch and resold his home even though he had paid his mortgage in full.

Homeowners and their attorneys say the automated system especially hurts borrowers who may qualify for loan modifications through federal rescue programs.

Chandra Anand, 59, a telecommunications consultant from Germantown, called his lender in the fall of 2008, before he missed any payments, to warn the company that his wife's open-heart surgery might cause the family financial difficulty. He was told that in order to qualify for a loan modification he needed to miss payments. So he did and applied for a modification. He never heard back from his lender until he got a foreclosure notice in January 2009.

Every time he calls his lender to resolve his situation, an official tells him "to be patient, that it could take 60 more days to review things," Anand said. "It's now been a year and a half."

Andrea Bopp Stark, a lawyer with the Molleur Law Office in Biddeford, Maine, said that a number of her clients should be eligible for loan modifications through a Treasury Department program but that servicers "are in such a state of disarray that they often can't give homeowners basic answers about the state of their loan modification request."

Then a few weeks or months later, the same servicers evict homeowners as if those applications were never filed.

"Their whole bureaucratic procedure," Stark said, "is working against helping homeowners."

Local Ripples appear as Big Banks halt Foreclosures

St. Louis Post-Dispatch

Metro East real estate agent Kathy Shemwell thought it was a done deal. She had a signed contract to sell a foreclosed home in Caseyville.

GMAC, the mortgage company that owns the property, had approved the contract for the home listed at $105,000. The buyer's mortgage was approved. He'd lined up contractors to do repairs.

They were a few days from closing this month. Shemwell's commission check was practically in hand.

Then came the phone call; GMAC was putting the deal on hold.

"We're in limbo," said Shemwell. "We're afraid many other buyers will be disappointed, too."

What's the problem? "It's the moratorium," says Roger Roddy, the agent representing GMAC in the deal. GMAC is among several big players halting foreclosures, or foreclosure sales, in states such as Illinois, where court approval is needed to repossess a house. (Missouri doesn't require a court proceeding.)

Bank of America, the nation's biggest mortgage servicer, made its moratorium nationwide.

Lawyers defending homeowners had discovered a nasty secret: GMAC, Bank of America, Wells Fargo, JP Morgan Chase and perhaps other banks had been using "robo-signers" to sign thousands of court documents filed in foreclosure cases. Bank employees - some with little training - were swearing to the accuracy of records they'd never read in order to keep the foreclosure train rolling. One frazzled worker approved 10,000 foreclosures a month.

Mortgage servicing departments have long been a glamourless backwater of banking. They were overwhelmed when homeowners began defaulting by the millions in 2007, and they're still stumbling and bumbling today.

For three years, homeowners behind on their payments have been complaining about mass confusion at mortgage servicers, including those at the nation's biggest banks. Paperwork is lost, faxed in and lost again; agreements are made and mysteriously canceled; callers can never get the same person on the phone twice, letters from the bank contradict what their representatives say on the phone.

Until now, that's mainly affected people trying to keep their homes by working out mortgage modifications. This month, the organizational chaos began spilling out the other end of pipeline, calling into question the legality of foreclosures in 23 states that require court approvals.

It's not clear how long the foreclosure moratoriums will last, or whether they'll spread to other mortgage companies. In the meantime, some think the moratoriums will delay the recovery in home prices.

Banks often sell foreclosed properties cheap in order to get them off the books. That lowers the value of homes nearby. The quicker the foreclosure mess is over with, the faster prices can recover.

The banks say they're halting foreclosures so they can check their procedures, indicating that they will resume later. "All this does is delay the inevitable," says attorney Dan Engle, who co-chairs the real estate practice at Thompson Coburn in St. Louis. "All we're doing is prolonging the residential housing slump."

On the other hand, problems with foreclosures could encourage banks to modify more mortgages - accepting lower monthly payments rather than seizing homes.

While halting new foreclosures, banks seem to be taking different approaches to properties they already own. GMAC was halting pending sales, but Bank of America and other operators were still putting foreclosed properties on the market last week, real estate agents said.

That's a good thing, says real estate agent Roddy of Remax Preferred in Swansea. Better to sell houses then to let them sit untended. "No one is mowing the lawn, or keeping the sump pump running," he says.

Meanwhile, the confusion may frighten buyers away from foreclosed houses. In theory, a homeowner whose property was taken based on falsified papers could demand it back - even if it's now owned by someone else.

"That's highly unlikely," says attorney Engle. After all, people who can't make their mortgage payments can't afford lawyers.

In most cases, the homeowner really was far behind on mortgage payments, he notes. The issue is whether the bank could produce the paperwork to prove its right to foreclose.

That can be tricky, given that mortgages are packaged into securities by the thousands, sliced into pieces and sold multiple times, leaving the ownership trail a jumble.

Title insurance is the buyer's protection, says Engle. Title insurers must cover your loss if your ownership is challenged, and that applies to properties bought in foreclosure. As of last week, title insurers were still issuing policies for foreclosure purchases.

It's rare that a bank takes a property that it's not entitled to, but it does happen, says lawyer Greg White, who defends homeowners in foreclosure cases. If the home's been sold, judges will usually protect the innocent buyer.

14 October 2010

Foreclosure Crisis Should not come as a Surprise

NY Times

At JPMorgan Chase & Company, they were derided as “Burger King kids” — walk-in hires who were so inexperienced they barely knew what a mortgage was.

At Citigroup and GMAC, dotting the i’s and crossing the t’s on home foreclosures was outsourced to frazzled workers who sometimes tossed the paperwork into the garbage.

And at Litton Loan Servicing, an arm of Goldman Sachs, employees processed foreclosure documents so quickly that they barely had time to see what they were signing.

“I don’t know the ins and outs of the loan,” a Litton employee said in a deposition last year. “I’m not a loan officer.”

As the furor grows over lenders’ efforts to sidestep legal rules in their zeal to reclaim homes from delinquent borrowers, these and other banks insist that they have been overwhelmed by the housing collapse.

But interviews with bank employees, executives and federal regulators suggest that this mess was years in the making and came as little surprise to industry insiders and government officials. The issue gained new urgency on Wednesday, when all 50 state attorneys general announced that they would investigate foreclosure practices. That news came on the same day that JPMorgan Chase acknowledged that it had not used the nation’s largest electronic mortgage tracking system, MERS, since 2008.

That system has been faulted for losing documents and other sloppy practices.

The root of today’s problems goes back to the boom years, when home prices were soaring and banks pursued profit while paying less attention to the business of mortgage servicing, or collecting and processing monthly payments from homeowners.

Banks spent billions of dollars in the good times to build vast mortgage machines that made new loans, bundled them into securities and sold those investments worldwide. Lowly servicing became an afterthought. Even after the housing bubble began to burst, many of these operations languished with inadequate staffing and outmoded technology, despite warnings from regulators.

When borrowers began to default in droves, banks found themselves in a never-ending game of catch-up, unable to devote enough manpower to modify, or ease the terms of, loans to millions of customers on the verge of losing their homes. Now banks are ill-equipped to deal the foreclosure process.

“We waited and waited and waited for wide-scale loan modifications,” said Sheila C. Bair, the chairwoman of the Federal Deposit Insurance Corporation, one of the first government officials to call on the industry to take action. “They never owned up to all the problems leading to the mortgage crisis. They have always downplayed it.”

In recent weeks, revelations that mortgage servicers failed to accurately document the seizure and sale of tens of thousands of homes have caused a public uproar and prompted lenders like Bank of America, JPMorgan Chase and Ally Bank, which is owned by GMAC, to halt foreclosures in many states.

Even before the political outcry, many of the banks shifted employees into their mortgage servicing units and beefed up hiring. Wells Fargo, for instance, has nearly doubled the number of workers in its mortgage modification unit over the last year, to about 17,000, while Citigroup added some 2,000 employees since 2007, bringing the total to 5,000.

“We believe we responded appropriately to staff up to meet the increased volume,” said Mark Rodgers, a spokesman for Citigroup.

Some industry executives add that they’re committed to helping homeowners but concede they were slow to ramp up. “In hindsight, we were all slow to jump on the issue,” said Michael J. Heid, co-president of at Wells Fargo Home Mortgage. “When you think about what it costs to add 10,000 people, that is a substantial investment in time and money along with the computers, training and system changes involved.”

Other officials say as foreclosures were beginning to spike as early as 2007, no one could have imagined how rapidly they would reach their current level. About 11.5 percent of borrowers are in default today, up from 5.7 percent from two years earlier.

“The systems were not ever that great to begin with, but you didn’t have that much strain on them,” said Jim Miller, who previously oversaw the mortgage servicing units for troubled borrowers at Citigroup, Chase and Capitol One. “I don’t think anybody anticipated this thing getting as bad as it did.”

Almost overnight, what had been a factorylike business that relied on workers with high school educations to process monthly payments needed to come up with a custom-made operation that could solve the problems of individual homeowners. Gregory Hebner, the president of the MOS Group, a California loan modification company that works closely with service companies, likened it to transforming McDonald’s into a gourmet eatery. “You are already in chase mode, and you never catch up,” he said.

To make matters worse, the banks had few financial incentives to invest in their servicing operations, several former executives said. A mortgage generates an annual fee equal to only about 0.25 percent of the loan’s total value, or about $500 a year on a typical $200,000 mortgage. That revenue evaporates once a loan becomes delinquent, while the cost of a foreclosure can easily reach $2,500 and devour the meager profits generated from handling healthy loans.

“Investment in people, training, and technology — all that costs them a lot of money, and they have no incentive to staff up,” said Taj Bindra, who oversaw Washington Mutual’s large mortgage servicing unit from 2004 to 2006.

And even when banks did begin hiring to deal with the avalanche of defaults, they often turned to workers with minimal qualifications or work experience, employees a former JPMorgan executive characterized as the “Burger King kids.” In many cases, the banks outsourced their foreclosure operations to law firms like that of David J. Stern, of Florida, which served clients like Citigroup, GMAC and others. Mr. Stern hired outsourcing firms in Guam and the Philippines to help.

The result was chaos, said Tammie Lou Kapusta, a former employee of Mr. Stern’s who was deposed by the Florida attorney general’s office last month. “The girls would come out on the floor not knowing what they were doing,” she said. “Mortgages would get placed in different files. They would get thrown out. There was just no real organization when it came to the original documents.”

Citigroup and GMAC say they are no longer giving any new work to Mr. Stern’s firm.

In some cases, even steps that were supposed to ease the situation, like the federal program aimed at helping homeowners modify their mortgages to reduce what they owed, had actually contributed to the mess. Loan servicing companies complain that bureaucratic requirements are constantly changed by Washington, forcing them to overhaul an already byzantine process that involves nearly 250 steps.

13 October 2010

Foreclosure Freeze May Sideline U.S. Homebuyers on Legal Concern


A halt in home foreclosures at the largest U.S. mortgage firms may sideline buyers worried about legal issues, further depressing sales at a time when distressed properties account for almost a quarter of all transactions.

Revelations of mistakes in foreclosure proceedings are causing buyers to have misgivings about property titles, the right of home possession, said Richard DeKaser, chief economist at Woodley Park Research in Washington. Confidence in the legality of repossessions will cut foreclosure sales more than a reduction of available properties because the market already is flooded with repossessed homes, he said.

“The legal problems we’re seeing will hit sales as people worry about the legitimacy of the process,” DeKaser said. “The implications are that there’s been shoddy work.”

Bank of America Corp., the largest U.S. lender, extended a freeze on foreclosures to all 50 states Oct. 8 as concern spread among federal and state officials that homes are being seized based on faulty data. JPMorgan Chase & Co. and Ally Financial Inc.’s GMAC Mortgage unit stopped repossession cases in 23 states where courts supervise home seizures, amid allegations that employees submitted documents with unverified or false information to speed the process.

Nevada, Arizona

Foreclosure sales accounted for 24 percent of all home transactions during the second quarter, according to a Sept. 30 report by RealtyTrac Inc., an Irvine, California-based data seller. They made up a greater share in the states hardest-hit by the housing crisis, accounting for 56 percent of purchases in Nevada, 47 percent in Arizona and 43 percent in California.

In Florida, Massachusetts, Michigan and Rhode Island, the share was about a third.

Some indicators show the U.S. real estate market had turned a corner in August. The number of contracts to purchase previously owned homes increased 4.3 percent, the second monthly gain, according to an Oct. 4 report from the National Association of Realtors. Sales of previously owned homes rose to an annual pace 4.13 million, up 7.6 percent from July’s record low, the Chicago-based group said last month. September sales likely won’t be affected by the foreclosure legal problems.

“Our preliminary review of September foreclosure activity doesn’t show any obvious or notable impact,” said Rick Sharga, senior vice president of RealtyTrac. The effects may show up in the October data, he said.

PNC Halt

In addition to the freezes by Bank of America, JPMorgan and GMAC, PNC Financial Services Group Inc. halted sales of foreclosed homes for a month to review documents in its mortgage servicing procedures, according to an Oct. 4 memo the bank sent to lawyers handling the lender’s foreclosures.

Litton Loan Servicing LP, a mortgage-servicing business owned by Goldman Sachs Group Inc., said last week it’s stopping some foreclosures to review how they’re handled. Vickee Adams, a spokeswoman for San Francisco-based Wells Fargo & Co., and Mark Rodgers, a spokesman for Citigroup Inc. in New York, said the companies are still processing foreclosures.

A reduction in foreclosure sales may result in a short-term boost to the nation’s median home price as buyers shy away from distressed properties, said Thomas Lawler, founder and president of Lawler Housing and Economic Consulting in Leesburg, Virginia.

In the second quarter, distressed homes -- those that had received a default or auction notice or were seized banks -- sold at an average 26 percent discount to properties not in the foreclosure process, according to RealtyTrac.

Temporary Boost

Any short-term boost to prices may be offset when a flood of properties are offered for sale after document problems are sorted out, Lawler said.

“Some people are breathing a short-term sigh of relief because the likelihood of distressed sales putting downward pressure on home prices has been put off,” Lawler said. “But no one is breathing a long-term sigh of relief because when these properties eventually come on the market, we’ll have both the confidence problem and the price problem.”

U.S. home seizures climbed to records in three of the last five months, RealtyTrac said Sept. 16. Banks seized 95,364 homes in August and issued foreclosure filings to 338,836 owners, or one of every 381 U.S. households, according to the company.

It isn’t known how many loans are included in the national review by Bank of America, said Sharga. Before the Oct. 8 announcement, as many as 200,000 properties were included in the 23-state freeze by the Charlotte, North Carolina-based bank, New York-based JPMorgan and GMAC of Detroit, he said.

‘No Excuse’

“The broader concern is that if banks took shortcuts here, what else did they do?” Sharga said. “Five years into this crisis, there’s no excuse for not having a process in place.”

A study of foreclosure court documents by Richard Kessler, an attorney in Sarasota, Florida, found errors such as missing or improperly handled documents in about three-fourths of the cases. The mistakes may allow former owners and other claimants to contest the legality of pending and previously completed foreclosures, he said.

Ownership questions may not arise until a home is under contract and the potential purchaser applies for title insurance, or even decades later as one deed researcher catches errors overlooked by another. A so-called defective title means the person who paid for and moved into a house may not be the legal owner.

In cases of lost or mishandled paperwork, attorneys in many cases are allowed to refile documents to correct omissions and establish a claim, said Kathleen Engel, a financial-services law professor at Suffolk University in Boston.

Most of the homes affected by the foreclosure freeze will eventually come on to the market because the dispute is about court documents, not about whether borrowers defaulted, said Lawler, the housing economist.

“Most of the delays will just be delays,” Lawler said. “All this is doing is creating severe uncertainty for people who were thinking of buying a distressed property.”