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Thread: House Is Gone but Debt Lives On

  1. #1
    Join Date
    Aug 2010

    House Is Gone but Debt Lives On

    Looks like you can't "walk away" from a mortgage any more...

    Joseph Reilly lost his vacation home here last year when he was out of work and stopped paying his mortgage. The bank took the house and sold it. Mr. Reilly thought that was the end of it.

    In June, he learned otherwise. A phone call informed him of a court judgment against him for $192,576.71.

    It turned out that at a foreclosure sale, his former house fetched less than a quarter of what Mr. Reilly owed on it. His bank sued him for the rest.

    The result was a foreclosure hangover that homeowners rarely anticipate but increasingly face: a "deficiency judgment."

    Forty-one states and the District of Columbia permit lenders to sue borrowers for mortgage debt still left after a foreclosure sale. The economics of today's battered housing market mean that lenders are doing so more and more.

    Foreclosed homes seldom fetch enough to cover the outstanding loan amount, both because buyers financed so much of the purchase price—up to 100% of it during the housing boom—and because today's foreclosures take place following a four-year decline in values.

    [More from Investors Sing a New Tune—'Won't Get Fooled Again']

    "Now there are foreclosures that leave banks holding the bag on more than $100,000 in debt," says Michael Cramer, president and chief executive of Dyck O'Neal Inc., an Arlington, Texas, firm that invests in debt. "Before, it didn't make sense [for banks] to expend the resources to go after borrowers; now it doesn't make sense not to."

    Indeed, $100,000 was roughly the average amount by which foreclosure sales fell short of loan balances in hundreds of foreclosures in seven states reviewed by The Wall Street Journal. And 64% of the 4.5 million foreclosures since the start of 2007 have taken place in states that allow deficiency judgments.

    Lenders still sue for loan shortfalls in only a small minority of cases where they legally could. Public relations is a limiting factor, some debt-buyers believe. Banks are reluctant to discuss their strategies, but some lenders say they are more likely to seek a deficiency judgment if they perceive the borrower to be a "strategic defaulter" who chose to stop paying because the property lost so much value.

    In Lee County, Fla., where Mr. Reilly's vacation home was, court records show that 172 deficiency judgments were entered in the first seven months of 2011. That was up 34% from a year earlier. The increase was especially striking because total foreclosures were down sharply in the county, as banks continued to wrestle with paperwork problems that slowed the process.

    One Florida lawyer who defends troubled homeowners, Matt Englett of Orlando, says his clients have faced 20 deficiency-judgment suits this year, up from seven during all of last year.

  2. #2
    All League
    Join Date
    Apr 2003

    Fannie Mae ignored foreclosure abuses

    By Les Christie October 4, 2011: 2:33 PM ET

    NEW YORK (CNNMoney) -- Fannie Mae (FNMA, Fortune 500), the government-controlled mortgage giant, ignored indications that attorneys it hired to handle defaults were abusing the foreclosure process, according to a report from the inspector general for the Federal Housing Finance Agency (FHFA), the agency that oversees Fannie.

    The inspector general concluded that as early as 2003, legal firms retained by Fannie engaged in misdeeds. These included filing false documents and "robo-signing," in which law firm employees signed filings and affidavits attesting to knowledge that they did not possess.

    Even after mortgage borrower complaints were raised in the press, the inspector general said FHFA and the agency it replaced, the Office of Federal Housing Enterprise Oversight, failed to take adequate corrective action and Fannie continued to use the law firms blamed for the problems.

    "If a law firm self-reported no issues as it processed cases," the inspector general said, "then Fannie Mae presumed the firm was doing a good job."

    In a letter to FHFA, Elijah Cummings, ranking member of the House Committee on Oversight and Government Reform who requested the report, called the failures "an abuse of the public trust and an assault on the integrity of our justice system."
    Foreclosures rise in August

    The abuses likely affected many borrowers, given Fannie's huge footprint in the mortgage market. By 2008, when it entered conservatorship after suffering large losses in the mortgage meltdown, the value of loans it backed exceeded $3 trillion -- 26% of the total mortgage market.

    As the foreclosure crisis deepened, many of those loans defaulted. In 2010, Fannie foreclosed on more than 260,000 borrowers.

    "It appears that an untold number of borrowers with loans owned or guaranteed by Fannie Mae may have suffered abuses that violated their legal rights," said Cummings.

    Fannie should have known the problem existed. A Fannie shareholder alerted the company back in December 2003 that its attorneys may have engaged in abusive practices in Florida, and the agency hired an outside firm to investigate.

    In 2006, an internal report from that probe concluded that "[F]oreclosure attorneys ... are routinely filing false pleadings and affidavits."

    A Fannie Mae spokeswoman declined to comment on the full report, but confirmed that the 2006 investigation identified a specific issue with the practice of filing lost note affidavits, which she said was immediately addressed.
    Mortgage help for unemployed disappears

    But a June 2010 field visit to Florida by Fannie staff found that its attorney network there was so overwhelmed by foreclosure volume -- and the flat fees paid to them by Fannie were so inadequate -- that the firms could not devote the time needed to process the documents properly and often took shortcuts.

    The problem was not confined to Florida. In 2006, a New Jersey judge found that attorneys acting for Fannie filed 250 motions for permission to seize homes that were signed by an employee who had not worked for the firm for more than a year.

    FHFA itself, which took over the supervision of Fannie in July 2008, also failed to make sure that Fannie was properly supervising its attorney network, according to the new inspector general's report.

    In 2010, FHFA recommended several steps that Fannie could take to curb abuses. These included introducing foreclosure checklists for its attorneys to follow; revising the compensation it paid attorneys to give them incentives to improve speed and effectiveness and to penalize poor performances; and engaging with lawyers and mortgage servicers to reduce lost paperwork and other problems.

    The inspector general found little evidence that most of the directives were acted upon.
    0:00 / 4:39 Florida's foreclosure robo-judges

    Even after foreclosure processing abuses started to draw heavier media attention last August and FHFA began its own review of the effectiveness of Fannie's oversight of its attorney network, not much improvement was made.

    FHFA's internal review was finished in January 2011, and FHFA briefed Fannie on its findings that the enterprise did not meet safety and soundness standards in its dealings with its attorneys. Yet the report has not been formally released to Fannie or published.

    The inspector general's report concluded that Fannie had to be much more proactive in overseeing its attorney network and that FHFA had to be more alert in policing Fannie.

    It recommended that FHFA develop and implement new guidelines, procedures and plans covering default-related services. FHFA expressed willingness to do this.

    Said an FHFA spokeswoman: "We are concluding our supervisory work in this area and we will direct the Enterprises to take whatever action is warranted once we are done."
    Romney-Cain 2012


  3. #3
    All League
    Join Date
    Feb 2005
    Well it looks like all the money Obama has put into the economy has done nothing.

  4. #4 Legend
    Join Date
    Apr 2003
    Quote Originally Posted by MnJetFan View Post
    Well it looks like all the money Obama has put into the economy has done nothing.
    I dont understand this statement. The scope of this housing collapse was huge. DO we really expect any President to be able to clean it up in a year? The President's office does many things, miracles are not covered. That's what church is for...

  5. #5
    Join Date
    Sep 2007
    That's why you file for Chapter 7 protection, rather than just "walking away".

  6. #6
    Join Date
    Aug 2010
    In other news, people are also being taxed out of their homes...

    CHICAGO (CBS) — It's sticker shock in the mail. Tax bills went out to Cook County homeowners this week and the big jump in the amount due to many homeowners has some wondering if they can keep their house.

    CBS 2′s Dana Kozlov takes a look at how the dramatic jump in property tax bills is affecting people and what you can do about it.

    According to the Cook County Clerk's office, tax rates are up for schools, park districts, municipalities and other government bodies. Some of those tax levies have made double-digit increases in tax rates.

    The property tax reality was setting in with Markham homeowner Patricia Taylor on Wednesday.

    Asked if she can keep her house after receiving an $8,100 property tax bill, Taylor said, "I don't know right now. It's bad right now, it's really bad."

    That's because her property tax bill for her three bedroom, one bathroom house shot up from $6,400 last year to $8,100 this year — a whopping 27 percent jump.

    Taylor took time on her day off to head to the Cook County Assessor's office to see if anything could be done for herself and her mother.

    "What do they expect? I don't live in Beverly Hills, I stay in Markham and this is ridiculous," Taylor said.

    Kelley Quinn, spokeswoman for Cook County Assessor Joseph Berrios, said the office has had thousands of taxpayers like Taylor walk through their halls this week, wondering what was going on with their bills.

    Countywide, property tax bills will jump an average of almost 2.7 percent, according to Quinn.

    "What we're seeing are a lot of anxious people," Quinn said. "But what we're also seeing is once they leave here, they're satisfied and many of them are happy because they are seeing a tax bill that does go down a bit."

    Quinn said many of the people voicing complaints about their tax bills are senior citizens who didn't apply for their senior exemption, which they must do every year, because of a new law.

    Those seniors can still get their exemption with help from the county.

    But everyone else? They could be out of luck, because taxing districts — from schools to parks — needed the extra revenue and the taxpayers were forced to foot the bill.

    "So your local tax rates are going up, even though your assessments are going down, which results ultimately in a tax bill that could be a little bit higher," Quinn said.

    People who believe their tax bills are incorrectly assessed can appeal through the Cook County Board of Review, but dates for that are very specific and depend on your township.,il


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