South Florida law blogger and foreclosure attorney Roy Oppenheim strongly opposed the deal, which is being sought by state Attorneys General including Florida’s Pam Bondi, in a recent FOX newspiece. Now New York Times columnist Gretchen Morgensen has backed up Oppenheim’s assertion that the deal, in its current proposed form, is not worth the potential relief that it might provide to homeowners.

Oppenheim called the reported $20-25 billion dollars in principal that homeowners would be forgiven for “a drop in the bucket” and now Morgensen reports that deal would only cost the banks between 3.5 and 5 billion dollars in actual cash, to be paid by about a dozen or so institutions. The rest of the banks’ penalties would come in the form of credits.

While HUD secretary Shaun Donovan insisted in the Times article that the settlement will hold banks accountable, both Morgensen and Oppenheim remain unconvinced. Oppenheim told FOX the deal isn’t worth a “deal with the devil”, and that it robs homeowners of the chance to bring legal action against the banks.

And will it really provide the relief homeowners are seeking?? The Times piece points to a 2008 settlement involving Countrywide Financial that promised $8.7 billion in relief to borrowers in Illinois and California that failed to deliver anything close to that. And California is one of several states that has backed out of this current negotiation.

It’s also worth noting that not all troubled mortgages would be covered under this proposed settlement, according to Morgensen. People with loans from Freddie Mac and Fannie Mae would not be able to get their principals reduced, leaving many homeowners out of luck. Only privately funded mortgages would be eligible.

Yet another strange twist to this deal is that any homeowner who lost their home since 2008 would get $1,500 from the banks, the New York Times reports, costing the banks a total of $1.5 billion. As Morgensen rightfully points out, this is far less than any wrongfully foreclosed on homeowner deserves, and more than anyone who was legally foreclosed on should receive. This incentive makes no distinction between people who were victims of mortgage fraud and those who were not.

Bottom line, a deal still seems likely, and all the parties involved emphasize they are seeking a deal which is fair to both sides, but Oppenheim cautions that can’t happen unless there are greater repercussions to the banks or should we say bank robbers?

As the large inventory of distressed homes on the market continues to push a reduction in home prices as well as an increase in rental prices, the government is thinking about renting the homes owned by Fannie and Freddie.

The proposal has two benefits:

1. Reducing the amount of distressed homes for sale
2. Clearing the surplus of homes currently unoccupied.

These benefits would be the keys to a successful housing market recovery. Increasing the amount of rental properties available can also stabilize rent prices, which have been going up as foreclosed families wait before buying another home.

While the benefits of the proposal are obvious, it is still just a proposal. It’s too bad the Administration did not listen to Oppenheim Law back in 2009 when we advocated using the inventory of foreclosed homes to benefit communities, instead of just letting them sit unoccupied and cause suburban blight.

The Government could easily enact the proposal by ordering Fannie and Freddie to sell their foreclosed homes to investors who promise to rent them out. The investors could then hire management companies to look after the houses. If the Administration decides to follow through with the plan, the Government might actually make money on the deal and help the housing recovery at precisely the right time for it: before the next wave of foreclosures hit. That way, the market can be more resilient when the next hit comes and absorb more losses.

Roy Oppenheim and his client shared their recent story in this week’s Daily Business Review with an inside look at the trials and tribulations of a system where one asks: Who is on first?

Under a state Supreme Court order issued 18 months ago, banks have been paying third-party mediators to perform outreach and mediation in an effort to keep Floridians in their homes. But in spite of spending at least $750 per case, the lenders rarely get homeowners into mediation.

According to defense attorneys, lenders appear unprepared to mediation, only prolonging a foreclosure case. It took homeowner Juan Picasso, who went into default after his son was diagnosed with a rare cancer, 26 months to get a modification on his mortgage. Deciding to do the application for modification himself, Picasso’s application for modification was denied three times and it wasn’t until he sought foreclosure defense attorney Roy Oppenheim’s help, that the case was settled with the bank.

Picasso described a mediation session that could have been in a Three Stooges short film.
Oppenheim, a foreclosure defense attorney in Weston, produced the letters as proof and noted the bank kept losing its copies of Picasso’s financial information and the bank’s responses.

“They kept saying all kinds of different things. They force-placed insurance on the property. They said Mr. Picasso’s insurance ran out so they put a ridiculous insurance policy on the property, which quadrupled the cost of insurance. He was in default because they were not keeping track of the insurance they put on his home.”

Roy Oppenheim explained to the Daily Business Review that the mediation program was designed to be a more flexible forum for homeowners to get a loan modification or sale to avoid foreclosure.

“If you think there’s going to be a principle reduction, forget it,” Oppenheim said. “That’s never on the table. Those are just urban legends and the stuff of Internet scams.”

In many cases, mediation settlements resulted in a short sale to avoid affecting the Florida homeowner’s credit history. The program requires homeowners eligible for mediation, some 63,019 individuals, to pro-actively take advantage of it. However, by the end of 2010, only 8,669 mediations were conducted, of which only 2,309 resulted in an agreement.

A major bottleneck in the process is that banks continue to be overwhelmed. The lawyer for the bank may attend the mediation in person, but he has no authority. The bank’s modification officer appears by phone and the bank representative online has limited authority, never makes a decision during the meeting and routinely discusses the case as if he is looking at the file for the first time.

Click here for the full article

House prices have been continuously falling for the first time in 70 years, and South Florida homeowners should expect the trend to continue.

A surplus inventory of houses caused by Florida foreclosures and short sales is the mortal enemy of home prices. Lower prices are needed to sell off excess inventories of residential properties, and in turn lower prices encourage more inventories from anxious sellers.

So how big are excess inventories and how long will it take for the real estate market to absorb them?

According to Economic Consultant Gary Shilling, we are currently facing a surplus of up to 2.5 million excess house inventories in the United States, a number that is subject to rise with further foreclosures and falling home prices.

To forecast the length of time to work off this excess inventory and have the market return to more favorable inventory and price conditions, Shilling developed projections of supply and demand for residential units.

Household formation averaged about 900,000 per year over the past decade as measured by the Census Bureau. Shilling uses this number as a reasonable estimate of yearly housing demand. However, with many college students moving back with their parents after graduation, household formation is not happening as fast as it once did.

New construction of single family homes and apartment units is running about 700,000 per year, and about 300,000 U.S. homes are torn down, converted or removed from housing stock each year. Based on these numbers, Shilling calculates new housing supply to be about 400,000.

So if demand is averaging 900,000 per year, while new housing supply is averaging 400,000, about 500,000 of the excess housing inventory will be absorbed per year. This means it will take 4 or 5 years for the market to absorb the 2 million to 2.5 million excess inventories that Shilling believes exist at a minimum.

So what does this mean for South Florida homeowners?

• First, there is no quick fix to this mess. No amount of federal mandates can make up for the enormous excess inventory of houses in this country.

• Second, homeowners should not be surprised if home prices continue to fall. In fact, estimates still show that prices could fall at least another 20% to return to their long-run trends.

• Finally, the market will eventually correct itself. Inevitably, supply and demand will even out. As this happens, prices stabilize and in turn can begin to rise again.

Everyone wants to know if the end of the real estate crisis is coming soon. Based on these numbers, we still have a way to go. Whichever end of the real estate crisis you are on, the Offices of Oppenheim Law and Weston Title are here to help.

From The Trenches,
Roy Oppenheim

The IRS.

Last week, Reuters News Service published an exclusive article exposing yet another way the banks have been defrauding taxpayers. This time it wasn’t directly through improper lending practices, robo-signing or bad assignments of mortgage.

Now, the IRS discovered that banks acting as servicers for “REMICs”, otherwise known as Real Estate Mortgage Investment Conduits, have been claiming tax-exempt status on the income they generate under favorable tax code provisions.

So what is a REMIC? A REMIC is a passive entity where mortgages are pooled and securitized into investments. Generally, the investors in REMICs are large funds, pension plans, and 401ks.

Not only did the banks failed to comply in any manner with the requirements of the Internal Revenue Code that allow this favorable tax treatment, they have apparently decided to ignore the IRC altogether.

So what does this mean for taxpayers?

It means that the banks have been systematically ignoring IRC provisions, thinking the IRS is too sheepish to enforce the law. These entities, as a result of the actions of the banks servicing the mortgages, have failed to pay billions of dollars in taxes, and robbed the government, and thus the American people, of that money.

The reason that REMICs were afforded this massive tax break is due to the fact that they are meant to be vehicles for passive investing, and as such they have rules for strict compliance that require that all mortgages passing into a REMIC must be transferred into a trust within 90 days of trust formation.

The IRS confirmed to Reuters that an investigation is ongoing based on mounting evidence banks mishandled the transfer of mortgages and violated tax requirements.

The real question is, how was this discovered? In all likelihood the banks, in trying to cover up one misdeed, inadvertently tipped their hand to a much larger one. In order to foreclose on a home, the bank must show that they own the mortgage and the note. In order to prove ownership of the mortgage, if it was not the originating lender, the bank would have to show an assignment of mortgage. In many foreclosures, assignments are often executed and recorded just before filing the foreclosure, or sometimes even after the foreclosure has been filed. The problem: these assignments show that the mortgages could not have been transferred 90 days after the trust was formed, since they are being transferred by assignment now, often years later than the Code requirements.

This may be more bad news for the banks, but good news for the American people if the IRS can recover some of these taxes. Due to the strict compliance requirements under the REMIC code provisions, any transfer made outside of the requirements that produces income is subject to 100% taxation of that income. Essentially, this provision ensures that the REMICs cannot benefit at all from income earned on improperly transferred mortgages. Adam Levitin, a Professor at Georgetown University Law School, points out in the article that this could result in “potentially enormous tax revenue that would be passed on to the federal government . . . given the federal budget deficit that’s not something to sniff at.”

While other experts seem to be concerned about potential harmful effects on the investors, their fears are unfounded. In anticipation of such problems, there are very specific provisions in the REMIC pooling and servicing agreements which provide for indemnification by the servicing bank for any acts of the servicer which result in loss of the REMIC status by the trust. While no one really knows what the IRS will do with its investigation, it is clear that federal agencies are at least trying to stem widespread bank misdeeds outside of the court system. While it may or may not help struggling homeowners directly, it is nice to see one government agency that is finally not afraid to take on the banks.

Oppenheim Law continues to support the Florida homeowners through bank battles, Florida short sales and foreclosure defense.

Do such offers signify that banks have learned their lesson and are trying to get out of sub-prime loans, or are they looking to just prevent further losses? Perhaps the answer is that the banks are concerned about existing home prices. Bank of America’s chief economist, Mickey Levy, while speaking privately, spoke of the concern that the 1.8 million bad loans in the nation will drive down the market if they go into foreclosure. Such fears help explain why the banks are desperate to avoid foreclosing on homes. They don’t want the rest of their loans to become vulnerable: the more foreclosures, the more house prices fall, therefore, the value of the banks’ loans go down and more people want to walk away from their homes, causing the banks even more losses.

In the end, this situation is a win-win. Not only do banks protect home prices, but they stand to get back more money quicker from a short sale than a foreclosure and the good publicity would be a nice change of pace for their PR departments. Homeowners in trouble are also helped because they can get out of their houses with some cash in their pockets and get on with the rest of their lives.

With the major banks virtually halting all of their foreclosures due to the document mill scandals, the fees have dried up and now we can see the impact of the courts falling asleep at the switch. The tremendous irony in the matter is that the failure of the courts to properly scrutinize fraudulent foreclosures, leading to the halting of new foreclosures and the drying up of the courts’ fees, would have lead to new foreclosures. Only this time, court employees would have been processing their own foreclosures. According to the Sun-Sentinel, most of the hardship of the court furloughs would’ve been felt by low income employees who are already struggling to make ends meet.

Thankfully the state has stepped in to avoid this mess and hopefully the courts will learn not to be too reliant on foreclosure filing fees in the future. Maybe they will even make sure that foreclosures aren’t fraudulent before kicking people out of their homes and denying them their constitutional right to due process.

The Sun-Sentinel interviewed investor, Gus Armenakis. Armenakis bought what he thought was the only mortgage on a home for $102,600. The County had appraised the home at $325,800. After the sale, Armenakis found out that Wells Fargo had a first mortgage on the home for $386,593. This means that as soon as Wells Fargo forecloses on the house, the bank will be able to recoup as much of the value of the house as they can, up to the value of their mortgage, effectively leaving Armenakis out of the entire $102,600 he spent.

This problem is getting worse now that counties offer foreclosure auctions online. Online access opens up the bidding process to more people, most of whom are inexperienced. While the counties do disclose the risks of the bidding process, marketing ploys have effectively played down the risks involved. One such tactic suggested that bidding on real estate is as easy as eBay.

Take it from the experts: it’s not! In foreclosure auctions, there are no guarantees and you can’t return the goods. The foreclosure bidding process is a treacherous one and should not be undertaken by the faint of heart.

However, investors can safeguard against some of the pitfalls by performing a title search, often for as little as $100. Weston Title and Escrow has been performing title searches and issuing title policies for foreclosure investors since 1994. Title searches allow potential investors to find out who has a lien against a particular property, which then enables them to make sure that the foreclosures that they are bidding on are the primary liens. If you are an investor or potential investor in foreclosure properties, protect yourself by getting a title search before laying down big money on a foreclosed property.

Signing 4000 documents a day for $10/hour
Pelley interviews Chris Pindley, a former robo-signer who estimates that he signed over 4,000 documents a day. Pindley signed the documents using a coworker’s name because her name was short and easy to write. This coworker, Linda Green, was given the title of “vice president” of about 20 different banks… at the same time. This “vice president” of multiple banks and her coworkers were paid 10 dollars an hour for their work. Pindley even remarked that as they sat around a table signing papers, he told the others that one day they would be on 60 Minutes: how prophetic.

Homeowner must have all paperwork perfect, while banks cheat and forge
While requiring thousands of everyday folks to have all of their paperwork perfect and wait in line for days just for the chance to beg for some sort of a reprieve, these banks felt that they could forge the documents they needed to throw people out of their homes. These kinds of double standards are endemic in the industry and are an unconscionable assault on the public. Scott Pelley’s work here is an invaluable insight behind the colossal corporate wall into the shenanigans of the banks and the everyday people caught up in the mess.

Banks are finally getting busted, will they ever be trusted? What next?
Roy Oppenheim
From the trenches

PS: If you liked this post, please take a second to vote for the South Florida Law Blog, nominated for three categories for the Sun-Sentinel’s Best of Blogs Awards (Best Business Twitter Feed @oplaw, Best Business and Technology Blog and Best News Blog)! Thank you!

While South Florida is #1 for mortgage fraud and foreclosure settlement talks between banks and the Obama administration appear futile at best, this week’s new was not all doom and gloom.

Check out Oppenheim Law’s and Weston Title’s picks in the week’s winners and losers for Florida foreclosure, real estate and the economy.

Winners

Pending home sales up 18% in Miami-Dade
Pending home sales rose 18 percent in Miami-Dade County over the course of the past month, according to new data released today by the Miami Association of Realtors.

Pending home sales, which include single-family home and condominium unit sales, were also up 3.24 percent month-over-month in March, the figures show.

“Increased pending sales reflect the existence of pent-up demand and should result in strengthening home values as distressed housing inventory continues to be absorbed,” said Jack Levine, chairman of the board of Miami Realtors.

Hiring Shows Growing Strength
The American job market is starting to show some muscle, according to The Wall Street Journal.

The jobless rate, our most politically salient measure of economic health, edged down to 8.8% in the fourth consecutive monthly decline despite the fact that more Americans entered the job market.
“It’s a very solid report that shows the labor market gaining momentum,” said David Greenlaw, an economist with Morgan Stanley in New York.

The public sector remained a weak point, as local governments shed 15,000 jobs last month in an effort to close budget gaps, but many other sectors showed strong growth, according to The Wall Street Journal.

Professional and business services gained 78,000 jobs. Factories added 17,000 jobs, while health care added 37,000. Over the past 12 months, health care has added an average of 24,000 jobs a month.

Losers

South Florida is #1 for Foreclosure Fraud
South Florida is first in the country for the number of mortgage fraud suspicious activity reports per capita, according to a new report from the Financial Crimes Enforcement Network and The South Florida Business Journal.

The region, which recorded 11,833 such reports last year, also leads the nation in Medicare fraud and auto insurance fraud.

Overall, mortgage fraud reports rose significantly in 2010, with 70,472 reports filed last year, up from 57,507 in 2009.

In Foreclosure Settlement Talks With Banks, Predictions of a Long Process
Little was settled in the first round of foreclosure settlement talks, according to The New York Times.

As negotiations begin over new rules for homeowners who are in default, experts all agree that progress is going to take time.

But lengthy negotiations work to the banks’ advantage, according to The Times.

“The banks’ strategy is to run the clock,” a Georgetown University law professor, Adam Levitin, said. “The chances of a settlement that meaningfully reforms mortgage servicing and makes the banks pay an appropriate price for illegal conduct are rapidly slipping away.”

Draw

Subprime Bonds Are Back

As the economy recovers, long-term investors are willing to take on more risks and subprime and other residential mortgage bonds that helped trigger the financial crisis are back in vogue, according to The Wall Street Journal.

The stock market ended its best first quarter since 1999 last week, with the Dow Jones Industrial Average closing up 6.41% on the quarter.

The willingness to take on risk is helping ordinary borrowers, too, by leading banks to make more nontraditional loans, such as jumbo mortgages, and to charge lower interest rates for them.

While it is encouraging that the markets are continuing on an upward swing, cautious optimism is needed any time subprime bonds are involved.

So, while it looks like housing values keep dropping around the country and new construction is also off, South Florida real estate may have hit rock bottom or close to it.

It seems that South Florida’s position as an international location is encouraging foreigners to swoop in and purchase homes and condos that based on an international standard are outright cheap. Of course; a strong stock market, a dollar that is fairly weak and the prospect of huge government defecits that forshadows inflation, only helps.