Borrowers can avoid this exit with a short sale!

The short sale has and will always be, a much better alternative for the banks. In many cases, when modification isn’t an option, a short sale is better for the existing homeowners  as well.

It’s good for the banks because it’s the fastest way to bring down their massive backlog of foreclosures.

Now that more and more foreclosures are lingering in the courts, banks now realize its the simplest way to get these homes back on the market, sometimes in just a few months.

They may not get back the full value of the home but their losses are about 15 percent less than if the home was foreclosed on, according to Bloomberg News.

It’s good for the borrower because they can walk away, legally, with little or no debt at all. Some banks are even offering cash incentives, as much as $35,000 in some cases, to entice homeowners to sell back their homes.

It’s win-win! In fact, it’s better than that. It’s win-win-win! The stress, the headaches, the months and years of inaction, can be put to bed with a short sale.

A short sale, in short, is quite simple. A distressed homeowner can sell the bank their home for less than what they originally owe. Banks will often agree to not go after a deficiency judgement if borrowers agree to a short sale.

JP Morgan, who approves about 5,000 short sales a month,  is giving the largest incentives, but more and more lenders are now agreeing to them.

There’s a ripple effect here that’s good for everyone. The seller gets to leave foreclosure hell once and for all, and can get money to help them transition into a rental and start fresh.

A new family gets to buy the home at a nice discount, and the neighbors don’t have to live next to an abandoned home or deal with having a non-caring faceless entity, namely the banks as their neighbor.

The lawn guy, the bug guy get back to work, and the new owners buy new furniture, new drapes, and suddenly the economy is bouncing back!

Banks might have thought foreclosing was the right idea. It wasn’t then, it isn’t now, and it will never be.

Courtesy: New York Giants

The clock may have run out on this year’s Super Bowl (Way to go Giants!!) but there’s still a few minutes left in this year’s REAL grudge match, the Banks vs. the Attorney Generals.

It’s 4th and Inches, the score is tied, and it would be nice to avoid overtime.

Today we could learn whether the much-discussed robo-signing settlement with Wells Fargo, Bank of America, JP Morgan Chase, Ally Financial and CitiGroup will come to pass, and in what form.

With California AG Kamala Harris returning to the negotiating table, the deal looks closer than ever to being sealed. Harris, who represents the state with the largest amount of foreclosed homes, has rightfully been hesitant to sign off because her state has the most to gain, or lose, from this deal.

We were initially very hesitant to see this deal go through ourselves, but the time has come for it to put to bed.

Why?

Because we feel the deal in its current form does a lot. Does it help every single homeowner who’s underwater? Of course not. There is no deal that will.

But here is who it does help. The homeowners who have fought to keep their homes from day one, who were at the forefront of these legal challenges against the banks. Much of what we have learned about robo-signing and the lack of standing banks had to bring foreclosure, would not have come to light without these crusaders, and its time they got a reprieve.

In theory it also helps the responsible homeowners, the ones who paid their mortgages on-time and whose homes went underwater through no fault of their own. They too need to be rewarded.

The reported 25 billion dollars (perhaps more if all 50 states sign on) that the banks are putting up will finally offer these homeowners some principal reduction, and the chance to refinance, two things we have long sought to see.

For those who just walked away, who left their homes to fall into disrepair, it’s our opinion that they should not be a priority.

The longer this deal lingers without any hope of conclusion, the longer we face the chance of a social contagion where everyone decides to stop paying their mortgage.  That will not help the market, and more importantly it won’t help the homeowners who’ve truly been wronged by the banks.

There are some bloggers and commentators who are still urging the AGs to not sign this deal. Is is a slap on the wrist? Yes, but that’s all it can be. We must not forget that rob-signing is the tip of the iceberg.

Whatever state claims that might be washed away by this agreement will seem like small potatoes once Schneiderman and his team wrap their investigation.

In fact they’ll seem more like little potato crumbs. Trust us what lies ahead is far worse.

If this settlement is the homeowner’s Super Bowl, then what lies on the horizon is the Supercalifragilisticexpialidocious Bowl.

There is nothing more important to us than making sure the banks face punishment for their dirty dealings.  It is very important that people continue to challenge the banks by trying to flesh out whether they  truly have standing to bring foreclosure. There’s no reason why this should end with this settlement. When it’s said and done, we believe the banks will be punished.

So far Schneiderman has not not wavered in his efforts to go after the banks. His efforts in the last few weeks have them running scared for the first time. We’re confidant he’ll do whatever it takes to get the banks. He has been one of the holdouts against this deal, but he is starting to turn around on it.

If he can be comfortable with it, then so can we.

Like the characters in "The Blair Witch Project", the banks are running scared!

Well what a wild week it has been.  When we came to work on Monday we feared President Obama would put the housing crisis to bed without ever holding the banks’ feet to the fire.

The settlement with the banks, which we have blogged about ad nauseam this week, seemed as sure as a chip-shot field goal.

But thanks to President Obama’s suddenly get-tough approach, as evidenced by his State of the Union speech, we’ve seen the banks’ kick go wide-right and now all bets are off.

Can There Be Real Change In Mortgage Industry?

Now we are not completely sold that things will play out exactly as homeowners would like, this is of course the federal government we’re talking about, but for the first time we have a true sense of optimism. The President may finally be seeing things our way, and we want to throw our full support behind him.

There is no doubt cages have been rattled in the mortgage industry, and nerves have been frayed. If Obama’s plan to re-write the foreclosure rules didn’t have some kind of teeth, then we doubt we’d be seeing the type of reverberation thorough the media and the top echelons of government that we’ve detected in the last few days.

Banks Are Fearful of Settlement Collapse

The settlement could be falling apart at the seems, at least JPMorgan Chase CEO Jamie Dimon thinks so.  He told CNBC this morning that Obama’s announcement to investigate the packaging and servicing of mortgage loans could stop the settlement cold.

“It has a pretty good chance of derailing it,” Dimon said in a televised interview from Switzerland, adding later, “I think it would be better for America if the settlement took place.”

Guess Dimon hasn’t been reading the South Florida Law Blog. You and I know it would be better for the BANKS if a settlement took place now, and we suspect Dimon knows that too.

From the moment the details of the settlement became public, there was push back from some of the Attorneys General, the legal community, and the media.

The New York Times mirrored our thoughts, in this Op-Ed piece published in Thursday’s paper they also wondered if this was finally the investigation that would end with criminal prosecution and dare we say, jail time.

New York AG Promises to Leave No Stone Unturned

The importance of the appointment of New York AG Eric Schneiderman, which we mentioned yesterday, can not be understated. His new unit, which will answer to the existing Financial Fraud Enforcement Task Force, will be composed of members of the Department of Justice, the SEC and the IRS. It will also be working with the existing hierarchies of those organizations.  So his reach will be far and wide, and we believe this investigation has the potential to do some real good.

Schneiderman, along with California AG Kamala Harris, have been some of the most outspoken critics of the settlement, and he is promising a thorough investigation of ‘every aspect of the conduct that created the bubble and crash’.

To us, those words ring true. Obama is embracing real change with his appointment, and we can’t wait to see what happens next.

In an era in which almost every bank on Wall Street was entangled in financial scandal, millions of Americans are left in an impoverished hole and billions of dollars in wealth has been destroyed, no one has been held accountable.

Considering these circumstances, Rolling Stone Magazine Writer Matt Taibbi begs the question, “Why isn’t Wall Street in Jail?”

Today’s article highlights a corrupt government culture in many of the agencies that were supposed to protect Americans from banks like AIG, Goldman Sachs, Lehman Brothers, JP Morgan Chase, Bank of America and Morgan Stanley. Particularly, there is a glaring problem at the SEC where a revolving door that sends government employees out into to private practice and then back to the government, blurring loyalties and breeding distortion.

And Wall Street’s punishment for their brazen schemes and artificial financial boom?  According to Taibbi: “carefully orchestrated settlements — whitewash jobs that involve the firms paying pathetically small fines without even being required to admit wrongdoing.”

Americans who sense two sets of laws in this country are completely correct.  One set has developed for the masses, and a second special set of rules exists for the wealthy and powerful.  This is not the America many of us remember growing up in.

Join Oppenheim Law next Wednesday, March 9 at 6 PM as Roy Oppenheim discusses how the aftermath of Wall Street’s greed is still affecting homeowners across the country and what you can do to pull yourself out of the hole the banks created.

Tomorrow, we will examine the perspective of arguably the poster child of Wall Street greed with Bernie Madoff’s jailhouse interview.

In the meantime, here are the top 2010 headlines from South Florida Law blog:

1.      What to Tell Our Kids About Foreclosure: From the Heart

2.      Roy Oppenheim on “Asset Protection” Discusses Deficiency Judgments and Homeowner Negotiating Power

3.      Even More Embarrassment for Banks: Foreclosure Fraud

4.      Roy Oppenheim on Strategic Foreclosure: Shay’s Rebellion 2.0

5.      Back To School: Learn the ABC’s and D for Deflation?

6.      How the Banks Aren’t Playing Fair: CBS News, Roy Oppenheim Talks with Investigative Reporter Stephen Stock

7.      Roy Oppenheim to the Wall Street Journal: “Your editorial will make future investors think twice about entire system”

8.      Cracked! Humpty Dumpty, Chase, and GMAC: The Bank Mortgage Foreclosure Fraud Crisis Continues to Fall by Roy Oppenheim

9.      The F Words: Fraud and Foreclosure – Watch Roy Oppenheim’s Workshop Replay on Bank Fraud and Mortgage Foreclosure

10.    Foreclosure Defense in a New York Times Minute with Roy Oppenheim

There is something so deeply wrong and disturbing with the current foreclosure crisis.

Simply:  While most of us have some opinion as to the foreclosure mess, many don’t seem to care about the incredible amount of fraud that has occurred and continues to take place each day.

Some argue that people who fail to pay their mortgages, regardless of their reasons, are “deadbeats.”  But, what about the fact some of the largest and wealthiest banks are missing documents used to remove people from their homes?  And, in our “rocket docket” State of Florida, there are retired judges who are merely rubber stamping the foreclosure papers filed by the lenders’ firms without actually reviewing the merits of each case?

In Matt Taibbi’s rather eye opening and disturbing article Courts Helping Banks Screw Over Homeowners appearing in Rolling Stone Magazine November 10 issue, he recounts a day of going to a Jacksonville court and experiencing first hand the outrageous and flagrant rubber stamping of cases without judicial review.

Shouldn’t it matter that many of these cases result in people being forced to leave their homes when the very banks in question can’t even produce the documents needed to prove their case?  Isn’t it a bit odd that these wealthy banks are not being subject to the same level of scrutiny?

Or is this politics as usual?  After all, many of these banks sold the mortgages of people to “investors” –other banks or trusts.  And, many of those trusts do not have the documentation to prove they have the original documents.  Wall Street, in fact, was part of this process and made huge sums of money.

And, what about the fact that banks have broken into homes that are in foreclosure?  Where is the punishment called breaking and entering?

While each of us has a responsibility to pay our debts, there has to be some accountability by the banks for creating an environment where many people borrowed too much and where they themselves have not responsibly acted.    Ironically, our government spent billions to bail out the banks who, for the most part, have acted without impunity in this foreclosure nightmare.

Will the government bail out the homeowner?  Or will the massive fraud that is now being exposed, and yet used everyday in court, continue to be ignored?

Wall Street, One Year Later

The Times’s Andrew Ross Sorkin, Gretchen Morgenson and Joe Nocera recount the events of the weekend that Lehman Brothers failed and discuss the lessons learned from the financial crisis…

First and foremost, the study validates the fact that principal balance reductions in mortgage modification were truly an urban legend.

How mortgage modification shops were set up to influence individuals into thinking that they could get massive reductions in principal is beyond me…

However, at least for 2008, the verdict is now in.  Only about 1.3 percent of all mortgage modifications included any principal reduction at all.  Frequently, mortgage modifications have included increases in the outstanding principal balance.  In fact, in the third and fourth quarters of 2008, principal balance increases occurred on 70.9 percent and 61.5 percent of all loans respectively.

What did occur, however, is there were indeed meaningful reductions in the monthly outlay that individuals had on their particular mortgages because of increasing the term of the loans as well as substantially reducing the monthly interest due on the loan.  Thus, the average loan that was modified in the third and fourth quarter of 2008 saw a 21 percent reduction in monthly payments.  In a few cases, however, approximately 6 percent of modifications during that same period actually saw an increase.

Now it is very important to understand that in 2008 President Bush was still in office and President Obama had not yet implemented any of his financial stimulus packages.  Thus, anecdotally, we are now starting to see, on occasion, principal reductions in certain modifications.  Certainly, the number is well in excess of 1 percent, but is not something that is occurring on every loan with any certainty.

Policymakers and individuals frequently do not understand why banks are so reluctant to reduce the principal balance of a loan to the value of the property.  I always thought that the reason was that the banks were concerned about creating a contagion of individuals who possibly could afford to pay their mortgage, but have decided to seek modification because they don’t feel it’s fair that their neighbor is getting a modification while they are not.

In fact, as previously discussed in my prior blog about foreclosures and social networks, researchers have distinguished “strategic foreclosures” to be when an individual walks away from their home because it does not make economic sense to continue making payments when the property is underwater. While the term does not exist in the area of mortgage modification, perhaps banks are concerned about continuing to modify too many loans thereby unwittingly encouraging “strategic modifications.”

In fact, a bank’s decision to not embrace modifications is actually quite simple, yet it lurks beneath the surface…

Loan Modifications and Decreased Values
First and foremost, the reason many banks chose not to embrace modifications was that property values were going to continue to erode and decrease.  Under such circumstances with knowledge that many such modifications would fail, the bank would net even less money than they would if they brought the foreclosure immediately.  Thus, the banks thought they should just get it over with, take the medicine and this would leave them in better shape than if they allowed for a modification that then subsequently failed.  The fact of the matter is that, certainly in the past year, the banks were not wrong in that prices have continued to fall and thus by doing a quick foreclosure they would be in better shape than allowing the property to linger and continue to deteriorate in value.

Loan Modifications and “Self-Curing”
The second reason that the banks were reluctant to conduct modifications is because they felt that they would be shooting themselves in the foot.  Specifically, the banks know that a fairly decent percentage, as much as 30 percent of all loans that are in default, will “self-cure” and bring themselves back into compliance— meaning that they will no longer be in default.  Obviously, if the banks decided to modify an entire portfolio of mortgages they would lose the opportunity to receive the additional income from those mortgages or individuals that decided to self cure their default.  When the bank factors in the loss of “self-curing” mortgages their loss is much higher than when they decide to only modify certain loans and then anticipate that other loans may indeed “self cure.”

The problem with the self-cure analysis is that it is based on an economic environment where equity in homes historically had not fallen more than 20 percent below the mortgage amount.  As discussed previously we are now in an environment’ where many homes are as much as 50 percent underwater and the idea of self-cure is highly unlikely.

The Feds paper concludes, that “if the presence of ‘self-cure’ risk and re-default risk do make renegotiation less appealing to investors, the number of easily ‘preventable’ foreclosures may be far smaller than many commentators believe.”

Thus, it is still my contention that if the government wants to deal with the foreclosure crisis and make sure that it does not continue to get worse and become a contagion, that the focus must be on restoring an orderly pricing structure to the market by providing the proper incentives to individuals and investors to come back into the market and re-stabilize the housing market.  Like any market, if there are too few buyers and too many sellers, prices will continue to decrease.  If we are able to bring more buyers back into the market prices will stabilize, the number of defaults will decrease, people will be more reluctant to walk away from their homes, the number of foreclosures will no longer increase, and what economists call a “negative feedback loop” will finally be stopped in its tracks. And guess what? The banks will no longer be afraid to modify loans.

For more information view my video interview about banks and mortgage modifications.

Roy Oppenheim

As I was in court the other day, I couldn’t help but laugh as condo associations are now turning the tables on the banks.  You see the banks are not exactly the best kind of homeowner. They don’t like to clean their pools, maintain their property… or pay their HOA dues.  The judge even commented on the irony and the trend as expressed in a related article in the WSJ last week.

In fact, the Associations have had enough and are now foreclosing out the bank’s interest by suing the banks for back assessments as well as for new assessments that the banks have incurred since the bank became the owner of the property. Interestingly, the banks thought they were so eager to own the property and now have all the “joys” of ownership.

It reminds me of the proverbial proverb to “always watch out for what you wish for.” Here the banks wanted the property… well now they got it.

If you are on the board of a condo or homeowner’s association and would like our firm to evaluate the possibility of suing the real estate owned by the banks (REO) for failure to pay their association obligations please feel free to contact us.

The Obama Foreclosure plan problem:  it does little for people who have a small amount or no equity in their homes.

The reason is simple: When you have little or no equity in your homes you have little or no incentive to keep the mortgage current.  “Owner” becomes “renter”… of his or her own home. Meaning that at the end you will have built zippo equity after making your mortgage payments.

Thus, the consensus is building fast. The stock market too seems to be speaking. Until the markets and government address a way to eliminate the negative equity in the mortgage market we will likely not get through this foreclosure mess.

The House of Representatives spoke yesterday too! They passed a major change in the bankruptcy rules allowing a judge to alter the principal amounts of outstanding principal balances of mortgages when it exceeds the market value of homes. We all call that a “Cram Down”. Because the judge is cramming down the principal reduction down the throat of the banks. In other words it’s a forced modification. Some people consider it a cram up… but I won’t go there!

As a foreclosure defense attorney, I’ve been strongly advocating for the judges to have this new authority since it gives us attorneys a new weapon to negotiate with the banks. In my opinion, the threat of the cram down is as important, if not more important, than actually going through the whole bankruptcy process.  In fact, just last night I noted this the missing “club” in the weapon’s arsenal of foreclosure attorneys to help level the negotiating playing field.

I must say it has been rather lonely out there– with little support from anyone including the courts. So, it’s great to see we finally we are getting some help from The President and Congress. But the law has not passed yet. The Senate still needs to vote and things are less certain there.

What can you do?

Do what we’ve been trained to do. Call BOTH your United States Senators and tell them what you think. And remember, if you live in one of the hard hit states for foreclosure: California, Florida, Arizona, Nevada, Michigan and a few others. This new law may determine you, your family’s and your State’s financial health.

For those who joined me last night at the Foreclosure and Bailout Workshop… I thank you for your time and input. Be my guest at my up to the minute Foreclosure Defense Workshops on the first Thursday of Each Month. Next one is schedule for Thursday April 2, 2009 at my office.