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Monday, September 23, 2013

Buy a House, Make Your Payments, Then Discover You've Been Foreclosed On Without Your Knowledge



      
      

Buy a House, Make Your Payments, Then Discover You've Been Foreclosed On Without Your Knowledge

 

This should never happen, but it did, thanks to the sordid mortgage servicing industry.

 
 
 
Photo Credit: Shutterstock.com/iQoncept

 
 
 
 
A few months ago, Ceith and Louise Sinclair of Altadena, California, were told that their home had been sold. It was the first time they’d heard that it was for sale.

Their mortgage servicer, Nationstar, foreclosed on them without their knowledge, and sold the house to an investment company. If it wasn’t for the Sinclairs going to a local ABC affiliate and describing their horror story, they would have been thrown out on the street, despite never missing a mortgage payment. It’s impossible to know how many homeowners who didn’t get the media to pick up their tale have dealt with a similar catastrophe, and eventually lost their home.

As finance writer Barry Ritholtz has explained, home purchases involve a series of precise safeguards, designed to protect property rights and prevent situations where borrowers who are perfect on their payments get evicted. “In a nation of laws, contract and property rights, there is no room for errors,” Ritholtz writes. “The only way these errors could have occurred is if several people involved in the process committed criminal fraud.”

Any observer of the mortgage industry since 2009 is no stranger to foreclosure fraud, and the fact that virtually nobody has paid the price for this crime. But the case of the Sinclairs involves a new player in that rotten game: Nationstar. Unheralded just a few years ago, the firm, owned by a private equity behemoth, has been buying up the rights to service mortgages, accepting monthly payments and distributing the proceeds to the owners of the loan, taking a little off the top for itself.

Nationstar has racked up an impressively horrible customer service record in its short life, failing to honor prior agreements with borrowers and pursuing illegal foreclosures. The fact that Nationstar and other corrupt companies like it are beginning to corner the market for mortgage servicing should trouble not only homeowners, but the regulators tasked with looking out for them. It didn’t seem possible that a broken mortgage servicing industry could get worse, but it has.

Nationstar is at the forefront of a massive shift in mortgage servicing. In the past few years, the largest servicers were arms of major banks, like JPMorgan Chase, Wells Fargo, Bank of America, Citi and Ally Bank. Those were the “big five” servicers sanctioned for an array of fraudulent conduct in the National Mortgage Settlement, which mandated specific standards for servicers to follow, like providing a single point of contact for customers and an end to “dual tracking,” when a servicer offers a trial modification to a borrower and pursues foreclosure at the same time.

The banks realized that they could sell the servicing rights and evade these standards, along with the higher labor costs associated with implementing them. What’s more, they would avoid new, higher capital requirements associated with holding servicing assets, allowing them to give bigger dividends to shareholders and bigger bonuses to executives.

So the big banks started selling off their servicing rights, not to other banks, but to specialty financial services firms like Green Tree, Nationstar, Walter Investment Management and Ocwen, all of whom are in kind of an arms race to become the biggest servicer.

Last October, Ocwen purchased the entire servicing portfolio of Ally Bank, covering about $329 billion in loans. Ocwen has also purchased part of JPMorgan Chase’s servicing, as well as a slice from OneWest Bank; it is attempting to dominate the market.
Nationstar acquired business from Bank of America and Aurora Bank in 2012, and more in 2013. Wells Fargo is poised to sell some servicing rights as well, and Nationstar will surely bid for those rights. As of June 30 of this year, Nationstar has the right to collect on $318 billion worth of home loans—growing three-fold in under two years—and it will seek to add even more in the future. The company, majority owned by the private equity firm Fortress Investment Group, recently raised $1.1 billion in capital to buy up more servicing rights from banks around the country.

This means that homeowners victimized by big-bank servicers, who were supposed to get a commitment to honest treatment as part of the National Mortgage Settlement, instead got their servicing rights sold to companies no longer bound by the terms of that settlement. So homeowners lose all of their protections, and often have to start back at square one with their new servicer. For example, if a borrower was in process on a loan modification with their old servicer, the new servicer can choose to simply not recognize that modification, and demand the full monthly payment under threat of foreclosure. This is a very common practice.

What’s more, this new breed of non-bank servicers scooping up all these servicing rights has proven themselves as a bunch of cheats profiting off their customers. Green Tree Servicing has a terrible record of ripoffs. Ocwen has been sued in state court over its practices, including an innovative scam involving sending homeowners a check for $3.50, and claiming that cashing the check automatically enrolls the customer in an appliance insurance plan, which costs $54.95 a month.

Fitch, the credit rating agency, wrote in a research note in June that the growth of non-bank servicers “may pose challenges to a potential orderly transfer of servicing,” and that the involvement of private equity firms “raises questions” about the ultimate endgame for these servicers. In effect, servicing has shifted from big banks to private equity and hedge funds, and neither really have the customer’s needs in mind.

Nationstar is no different in the non-bank servicer space. While the company promised California that it would adhere to all settlement obligations on the servicing rights it purchases, the Sinclairs were subjected to familiar abuse. The family paid their mortgage on time since purchasing their home in 2003. Last year, they received a loan modification. But their servicer sold the rights to Nationstar, and Nationstar didn’t honor the modification. In June, the Sinclairs sent in their mortgage payment, and Nationstar sent it back in full. Then it sold the home. When questioned, Nationstar claimed the Sinclairs didn’t notarize one page of their modification, which turned out to be untrue.

It was a clear attempt to find an excuse to deny the modification and push the Sinclairs into foreclosure. Mortgage servicers actually make more money with foreclosures than with loan modifications, because of how their compensation structure works. Servicers load up various foreclosure fees on homeowners that they get to keep, and they get paid off first in a foreclosure sale. A loan modification simply cuts their percentage balance on the loan.

This is not Nationstar’s only scam. The Consumer Financial Protection Bureau, which recently started examining non-bank servicers, put out a report this summer on the illicit practices of these firms. CFPB found that servicers like Nationstar often failed to inform homeowners about the change in servicing rights when they are transferred, meaning that the homeowner kept paying the wrong servicer. This is a clever way to facilitate late fees; just don’t tell the customer where to send their money.

Servicers also delayed property taxes paid out of escrow accounts, making borrowers late on those taxes and triggering more delinquency fees; failed to refund insurance premiums and other fees due back to borrowers; did not communicate properly with borrowers in need of a loan modification; lost documents solicited from borrowers for that process and made it impossible to complete the applications; failed to even properly file documents associated with the transfer of servicing rights; and charged customers default fees “without adequately documenting the reasons for and amounts of the fees,” and neglected to waive certain fees or interest charges.

CFPB also found that non-bank servicers like Nationstar had no comprehensive compliance management system in place to ensure that they followed all applicable consumer protection laws. Many didn’t even have formal, written policies or independent auditors. They hadn’t been subject to any examination prior to CFPB, so this stands to reason.

Nationstar is being sued in New York’s Supreme Court for auctioning off non-performing loans that it would rather not service at a severe discount, shortchanging investors in the process. The company’s auction sales, made with an online auction company that its private equity parent firm has a “business affiliation” with, end up allowing Nationstar to recoup its take, with all the losses falling on the underlying loan owners. So Nationstar has managed to infuriate both sides of the mortgage deal, the lenders and the borrowers, with its unscrupulous practices.

Getting examiners inside these “specialty” companies is a start, and new servicer rules coming from CFPB in January would cover non-bank servicers as well. But no regulator has the resources to deal with such flagrant abuses. Mortgage servicing is a sewer, and it needs to be completely overhauled from the ground up. If Nationstar represents the future, then until it faces real penalties or an expulsion from the industry for its conduct, private property rights in America will have to be seen as theoretical. Just ask the Sinclairs.

David Dayen is a freelance writer based in Los Angeles, CA. Follow him on Twitter at @ddayen.

Friday, September 20, 2013

Homeowners vs. Big Bad Banks


THE AMERICAN PROSPECT

 

Homeowners vs. Big Bad Banks

AP Photo/Michael Dwyer, File
 
 
In June, six former employees of Bank of America's loan-modification department testified in court that since 2009, they had been instructed to lie to struggling homeowners, hide their financial documents, and push them into foreclosure. In the most egregious example, the employees said they were offered Target gift cards as a bonus for more foreclosures, which generated lucrative fees for the bank. The employees, who were in charge of implementing the government’s Home Affordable Modification Program (HAMP) at the bank, described the same deceptive practices across the country.

Two weeks ago, U.S. District Court Judge Rya Zobel dismissed the case, denying class-action certification to 43 homeowners in 26 states who suffered because of similar conduct. “Plaintiffs have plausibly alleged that Bank of America utterly failed to administer its HAMP modifications in a timely and efficient way,” Zobel agreed, adding that vulnerable homeowners had to wade through a “Kafkaesque bureaucracy,” and that the legal claims of missing documents, arbitrary denials, and deliberate misinformation “may well be meritorious.” But she would not grant class-action status because of differences in the individual cases. Homeowners are now free to pursue cases on their own, but the advantage of class-action suits is that they put expensive and burdensome litigation within reach for victims; if these homeowners had the money to sue powerful banks, they probably wouldn’t have needed a loan modification in the first place.

A decade ago, homeowners may not have faced the same hurdles in litigation. But a more stringent test for class-action certification, formed by precedents reaching all the way to the Supreme Court, has become another tool for large corporations to resist accountability. Class-action suits can have a societal benefit, exposing systemic wrongdoing and bringing an end to it. But if nobody can acquire class-action status, the courthouse doors have been effectively shut to a large number of Americans.

Without class actions, individuals face the hurdle of asymmetrical legal warfare, pitting a resource-constrained victim against a deep-pocketed corporation. And because individual damages are far lower than in a case affecting thousands or millions of people, it becomes difficult to find a lawyer willing to take the case. “Low-value claims mean a lot to individuals living paycheck to paycheck,” said Michelle Schwartz, an attorney at the Alliance for Justice, a progressive organization focused on the judiciary. “But banding together is the only way to get into court. A personal lawyer on a mission might take the case, but they would have to bankrupt themselves in order to do it.”

The most dramatic example of how courts have restricted class-action suits is the 2011 Supreme Court ruling, Wal-Mart v. Dukes. Led by former store-greeter Betty Dukes, 1.5 million women banded together to argue gender discrimination in pay and promotion policies at the world’s largest retailer. They pursued class-action status to sanction Wal-Mart because they could better show the reduced pay and fewer opportunities for advancement for women as a pattern and practice. “Standing on their own, you might not see the pattern, but when you see this has happened to hundreds or thousands—or in the case of Wal-Mart, 1.5 million people—you can make the case that it’s not an isolated incident,” says Schwartz.
     
But the Supreme Court reversed three lower-court rulings and denied class-action status in Wal-Mart v. Dukes, essentially arguing that the retailer had discriminated against so many women that they couldn’t possibly have all faced the exact same type of marginalization. Moreover, the Court set a precedent that limits class-action certification. Whereas before, class-action certification mainly hinged on whether the claims boiled down to a common question—whether gender discrimination had occurred, for example—in the Wal-Mart v. Dukes ruling, the Court said plaintiffs must prove whether the commonality of those claims was the most important factor in the case. That required law firms to obtain evidence, previously confined to the discovery phase, showing that the similar nature of the claims was the most relevant factor in the case. This adds to the expense of the class action at the outset, and heightens the burden on the plaintiffs in order to get certification for a class-action suit.

This has led to predictable consequences. Circuit Courts of Appeal have followed the Wal-Mart precedent, denying class-action status in multiple cases. Class actions involving securities law hit a 14-year low in 2012, and accounting class actions last year were nearly cut in half.  In 2012, employers settled fewer class-action discrimination suits than at any time over the past decade, and the top ten settlements of the year totaled $48.65 million, compared with $346.4 million in 2010, before Wal-Mart. Meanwhile, the Wal-Mart women started pursuing claims 12 years ago, and none of them have had their day in court yet.

In the Bank of America case, Judge Zobel determined that individual borrowers had to jump through so many hoops in the loan-modification process—certifying they lived in the residence and could not afford their monthly payments, documenting their income, making required trial payments, and potentially seeking credit counseling—that no two cases were similar enough to grant certification as a class. In other words, the very convoluted nature of the process at Bank of America protected the company from the suit. Additionally, Judge Zobel cited discrepancies on whether certain members of the class actually made their trial payments on time, turned in the correct documents, or lived in the homes being foreclosed upon, arguing that these inconsistencies would have to be litigated individually. But that grants tremendous discretion to the bank to simply muddy up the records (which they are in fact accused of doing) and evade class action on the larger question of denying eligible borrowers a loan modification. In a tragicomic example, Bank of America claimed that one plaintiff, Aissatou Balde, did not seek credit counseling when required; Balde claims that she never obtained credit counseling because the phone number Bank of America gave to her for their credit counselor was faulty.

While the judge cited the proliferation of mortgage-related cases working through courts to argue that “individual plaintiffs are normally well-motivated to bring any claims they might have in order to save their homes,” the reality is that almost all of these plaintiffs don’t have the funds to pursue a case against Bank of America on their own.

Zobel cited the Wal-Mart case near the end of her ruling to bolster her argument that “there is no commonality where plaintiffs did not suffer the same injury from the same practice.” But Wal-Mart is far from the only example of the Supreme Court limiting class-action cases. The 2011 ruling in AT&T Mobility v. Concepcion allowed companies to make their customers sign contracts forcing any complaints to go through a “mandatory arbitration” process, taking away an individual’s right to sue whether alone or in a class action. Numerous other cases have constrained class actions in recent years. “They’re creating an impenetrable fortress around corporations and the Supreme Court is helping them do it,” said Schwartz. As Elizabeth Warren noted in a speech last week at the AFL-CIO convention, a recent study found that the five conservative Justices are among the top ten most pro-corporate in the past 50 years, and that Justices Samuel Alito and John Roberts are numbers one and two. “Sooner or later, you’ll end up with a Supreme Court that functions as a wholly owned subsidiary of big business,” Warren said.

Class-action suits are an imperfect way to get restitution for a group of individuals. The real remedy to stop homeowners from being snookered by banks is for law enforcement to start throwing executives in jail. But class actions can bring to light systematic illegal activities and can lead to legitimate changes in corporate behavior. Reforms to the tobacco industry and auto safety have come from class actions. “They’re really acting as a private Attorneys General, bringing cases on behalf of the public, and it’s often a way you can bring an end to wrongdoing,” says Schwartz of the Alliance for Justice.

Sadly, the actual attorney general has walked off the playing field when it comes to prosecuting financial fraud. In the Bank of America case, the ex-employees delivered a road map for what the company did and how they did it, even naming specific executives who directed the conduct and citing documentary evidence in the form of email communications. But it took victims attempting to certify a class-action suit, not a federal investigation, to bring these misdeeds to light. And because of the way in which big business has pushed the courts to their side, even that class action will amount to nothing.

Tuesday, August 6, 2013

Banks Continue To Flout Foreclosure Laws In Massachusetts






Banks Continue To Flout Foreclosure Laws In Massachusetts

By Alan Pyke on August 5, 2013 at 9:00 am

 foreclosure



Massachusetts homeowners continue to face wrongful foreclosures based on improper documents, despite various multi-billion-dollar legal settlements meant to end lender abuses nationwide. Housing attorneys in the state say banks and lenders are flouting a state law providing struggling homeowners five months to get their repayments back on track before the lender can initiate a foreclosure, as well as frequently basing their foreclosure actions on faulty documents.

Massachusetts is one of 28 states where foreclosures do not need final approval from a judge. State law requires banks to send something called a “right-to-cure notice” when a homeowner goes into default. The document includes information on who actually owns the borrower’s mortgage, who the borrower should contact, and what steps he or she must take to “cure” the default and avoid foreclosure proceedings. But attorneys have found dozens of examples of erroneous or missing information in the notices, the Boston Globe reported on Sunday.

The Massachusetts Alliance Against Predatory Lending’s Grace Ross said the organization’s review of a sampling of the notices showed “an ongoing issue that the banks continue to disregard our laws.” Because judges don’t need to sign off before authorities take a defaulted borrower’s home in Massachusetts, errors in the legal notices don’t always keep people in their homes.

A $25 billion settlement with the country’s largest banks in 2012 and a subsequent $8.5 billion settlement from January were supposed to curb widespread wrongful foreclosures based on erroneous documents. Investigators estimate roughly a quarter-million homeowners lost their houses thanks to improper foreclosures and that another 1.2 million had faced foreclosure proceedings based on insufficient or incorrect documentation. But the independent auditor of the national mortgage settlement says the banks continue to violate the terms of the deal and received 60,000 separate borrower complaints in just six months from late 2012 to early 2013.

Thursday, August 1, 2013

UPDATE: Occupy Homes Celebrates Fending Off Eviction




Supporters gather at the Occupy Homes event celebrating their fending off the first eviction attempt against the Ceballos home last week. (Photo/Mark R. Brown via Occupy Homes)
Supporters gather at the Occupy Homes event celebrating their fending off the first eviction attempt against the Ceballos home last week. (Photo/Mark R. Brown via Occupy Homes)


UPDATE: After successfully fending off the first eviction attempt against the Ceballos home last week, Occupy Homes celebrated Monday night with a concert and community gathering attended by 250 people.


Brother Ali performs a set at the Occupy Homes event. (Photo/Mark R. Brown via Occupy Homes)
Brother Ali performs a set at the event. (Photo/Mark R. Brown via Occupy Homes)


Hip-hop artists Brother Ali and Haphduzn performed at the celebration as participants geared up for the ongoing defense of the property. The Ceballos family seeks a loan modification from JPMorgan Chase, which the family says violated key provisions of the national mortgage settlement.

The celebration follows a report from Occupy Homes that 30 police officers attempted to evict occupants during an unannounced raid on the property. Two were arrested, but the Ceballos family was able to retake their home with the help of 75 community members who removed boards after the officers left.

Original article, “With Banks Unwilling To Help, Victims Of Foreclosure Turn To Unconventional Tactics,” from July 22:

Last week, housing rights advocates in 15 U.S. cities delivered 10,000 petition signatures to Chase Bank branches demanding justice for Sergio Ceballos, a Minneapolis resident who faces what advocates believe is an unjust foreclosure proceeding.

Despite being one of five major banks to agree to the $25 billion National Mortgage settlement last year, Chase continues to practice “dual tracking,” a process in which the bank negotiates a loan modification while carrying out foreclosure and eviction proceedings against a homeowner. It’s one of many practices explicitly banned by the settlement.

As the summer weather heats up across the U.S., so do the actions in defense of besieged homeowners like Sergio, a father of three.

Internationally recognized hip-hop artist Brother Ali joined dozens in demonstrations this week both to defend the Ceballos home and to demand a change to Chase policies.

“We all know that something is very very wrong. We read in the news about people losing their homes, we hear about people losing their jobs, we hear about the common people getting more and more poor, having less and less while the people at the top enjoy more — record profits, record bonuses and all these things,” said Ali in a statement to Mint Press News.

Occupations heat up

Ali has lent more than just his name to helping defend homes in the Twin Cities. When he isn’t touring, Ali often speaks at events, attends demonstrations and even got arrested last year while peacefully defending a home against foreclosure.

“When people open up their lives so that we can come and be activists it’s something that does make a difference. We’ve seen a lot of families fight and win,” Ali said. “There has been the Homeowners’ Bill of Rights. The legislators that passed that let us know that this work was a huge motivation and helped a lot. If everyone knows that there is a group of activists in the streets going to jail forcing the issue, forcing banks to renegotiate it makes it easier to pass legislation.”

Minneapolis passed a Homeowners’ Bill of Rights earlier this year joining California among just a handful of states and cities to have laws protecting homeowners from predatory foreclosure practices. The results have been dramatic in California, where foreclosure proceedings have dropped 75 percent between January 2012 and February 2013, according to statistics from RealtyTrac.

Jonathan Ceballos, Sergio’s son, tells Mint Press News that the ongoing battle dates back to 2010, when his father struggled to obtain a loan modification after a divorce made it more difficult for him to make payments.
“This battle has been going on since 2010, before we found Occupy,” he said. “Once my parents got divorced, it was a little harder for my dad to make payments. Right away we tried to get on board with Chase and let them know that we needed a loan modification.”

Since then, the family has received the runaround, filing paperwork only to be told that the bank lost or misplaced papers.

“We’ve had to resend over and over,” Jonathan Ceballos said. “We would speak to one person and every time it would be someone else. This went on until now. At this point we are waiting for another modification.”

This violates a key point of the national foreclosure settlement, which stipulated that banks must maintain a single point of contact for those who are trying to obtain a loan modification.

Things became more complicated when Sergio would request to speak to someone in Spanish, his native language.

“When my dad would call and I wasn’t around he would need translation or something in Spanish, that wasn’t involved either, they couldn’t help him out with that,” Jonathan Ceballos said.

Now, there is a round-the-clock presence in the home, with sometimes 10 or more people who have barricaded themselves inside, waiting for the police to arrive at any time to carry out an eviction. Using non-violent resistance, supporters have moved a 1,500-pound barrel filled with debris into the living room. They plan to lock themselves to the barrel — slowing down any eviction or deterring it altogether.

Occupy Homes rolls on reclaiming properties

As the Ceballos family continues its battle with Chase, another home defense is occurring just down the street.

The home originally belonged to Michael McDowell’s grandmother, who lost it when she lapsed into financial trouble. She and her husband lived in the house for 10 years. McDowell is now one of four people who have reclaimed the home.

“I just don’t want to see it go to waste. That’s why I have people here occupying it, that’s why I’m moving in,” said McDowell to Mint Press News.
Lawrence Lee, one of McDowell’s new roommates, was connected with the house by Occupy Homes, which helped him find a decent place to live after weeks on the street.

“I was sleeping outside in the streets for two weeks straight. It was a little family dispute so I chose to sleep outside and then my sister’s boyfriend hooked me up with the people to talk to and from that I have been on my feet and going,” said Lee to Mint Press News.

Moving poor and homeless into vacant or abandoned homes sounds like a simple concept that would help solve an epidemic across the U.S. With 18.5 million vacant homes across the U.S. and more than 3.5 million homeless, the solution to the housing crisis appears self-evident, but it remains out of reach because of current property laws.

McDowell and his fellow occupants say they are fixing up the property and pay utilities.

“We pay the utilities. I have the light bill in my name and we have the water bill about to come in my name. We plan to pay taxes on the house,” Lee said.
“We’re fixing up the house. We’ve done a lot of repairs on the piping. We’ve got the water back on and the electricity because all of that was turned off. We’ve done a lot so far,” said McDowell, a cafe manager and an employee at his uncle’s catering business.

A vacant home can be a blight to any neighborhood. Without regular occupants, a property can fall into disrepair or become an area that attracts crime. By moving into vacant homes, McDowell and his friends appear to be killing two birds with one stone — reducing homelessness while making good use of a property that would otherwise have a negative presence in the community.

“I think the neighborhood is loving it. The neighbors don’t want an abandoned house in the area,” Lee said.

But instead of encouraging this type of positive community action, Lee reports that the police responded with hostility.

“They dragged me out of the house starting being disrespectful. The sergeant came up and told me that he wanted to kick my butt and take me in the alley and beat me up and all this,” he said. “I thank everyone for helping me out. If it wasn’t for them I don’t know where I would be. I could be dead, in the hospital, or whatever. I have three kids to live for so I’m just trying to do it for my kids.”

Minneapolis police arrived and issued two trespassing citations Wednesday. Minutes later, a local elected official had the citations thrown out, according to Nick Espinosa, an Occupy Homes spokesperson.

A study by the Minnesota Coalition for the Homeless found more than 13,000 homeless people across the state in 2009.


Protesters marched for International Workers Day on May Day in Minneapolis, Minn. (Photo/Fibonacci Blue via Flickr)
Protesters marched for International Workers Day on May Day in Minneapolis, Minn. (Photo/Fibonacci Blue via Flickr)

10 Million Americans Have Had Their Homes Taken Away by the Banks -- Often at the Point of a Gun







Investigations  

 

Against all odds, and continued predatory Wall Street behavior, community activists are working to reclaim devastated neighborhoods.

 
 
 
Photo Credit: Frontpage/Shutterstock.com
 
 
To stay on top of important articles like these, sign up to receive the latest updates from  TomDispatch.com here.

We cautiously ascend the staircase, the pitch black of the boarded-up house pierced only by my companion’s tiny circle of light. At the top of the landing, the flashlight beam dances in a corner as Quafin, who offered only her first name, points out the furnace. She is giddy; this house -- unlike most of the other bank-owned buildings on the block -- isn’t completely uninhabitable.
 
It had been vacated, sealed, and winterized in June 2010, according to a notice on the wall posted by BAC Field Services Corporation, a division of Bank of America. It warned: “entry by unauthorized persons is strictly prohibited.” But Bank of America has clearly forgotten about the house and its requirement to provide the “maintenance and security” that would ensure the property could soon be reoccupied. The basement door is ajar, the plumbing has been torn out of the walls, and the carpet is stained with water. The last family to live here bought the home for $175,000 in 2002; eight years later, the bank claimed an improbable $286,100 in past-due balances and repossessed it.

It’s May 2012 and we’re in Woodlawn, a largely African American neighborhood on the South Side of Chicago. The crew Quafin is a part of dubbed themselves the HIT Squad, short for Housing Identification and Target. Their goal is to map blighted, bank-owned homes with overdue property taxes and neighbors angry enough about the destruction of their neighborhood to consider supporting a plan to repossess on the repossessors.

“Anything I can do,” one woman tells the group after being briefed on its plan to rehab bank-owned homes and move in families without houses. She points across the street to a sagging, boarded-up place adorned with a worn banner -- “Grandma’s House Child Care: Register Now!” -- and a disconnected number. There are 20 banked-owned homes like it in a five-block radius. Records showed that at least five of them were years past due on their property taxes.

Where exterior walls once were, some houses sport charred holes from fires lit by people trying to stay warm. In 2011, two Chicago firefighters died trying to extinguish such a fire at a vacant foreclosed building.  Now, houses across the South Side are pockmarked with red Xs, indicating places the fire department believes to be structurally unsound. In other states -- WisconsinMinnesota, and New York, to name recent examples -- foreclosed houses have taken to exploding after bank contractors forgot to turn off the gas.

Most of the occupied homes in the neighborhood we’re visiting display small signs: “Don’t shoot,” they read in lettering superimposed on a child’s face, “I want to grow up.” On the bank-owned houses, such signs have been replaced by heavy-duty steel window guards. (“We work with all types of servicers, receivers, property management, and bank asset managers, enabling you to quickly and easily secure your building so you can move on,” boasts Door and Window Guard Systems, a leading company in the burgeoning “building security industry.”)

The dangerous houses are the ones left unsecured, littered with trash and empty Cobra vodka bottles. We approach one that reeks of rancid tuna fish and attempt to push open the basement door, held closed only by a flimsy wire. The next-door neighbor, returning home, asks: “Did you know they killed someone in that backyard just this morning?”

The Equivalent of the Population of Michigan Foreclosed


Since 2007, the foreclosure crisis has displaced at least 10 million people from more than four million homes across the country. Families have been evicted from colonials and bungalows, A-frames and two-family brownstones, trailers and ranches, apartment buildings and the prefabricated cookie-cutters that sprang up after World War II. The displaced are young and old, rich and poor, and of every race, ethnicity, and religion.  They add up to approximately the entire population of Michigan.

However, African American neighborhoods were targeted more aggressively than others for the sort of predatory loans that led to mass evictions after the economic meltdown of 2007-2008. At the height of the rapacious lending boom, nearly 50% of all loans given to African American families were deemed “subprime.”  The New York Times described these contracts as “a financial time-bomb.”

Over the last year and a half, I traveled through many of these neighborhoods, reporting on the grassroots movements of resistance to foreclosure and displacement that have been springing up in the wake of the explosion. These community efforts have proven creative, inspiring, and often effective -- but in too many cities and towns, the landscape that forms the backdrop to such a movement of hope is one of almost overwhelming destruction. Lots filled with “Cheap Bank-Owned!” trailers line highways. Cities hire contractors dubbed “Blackwater Bailiffs” to keep pace with the dizzying eviction rate.

In recent years, the foreclosure crisis has been turning many African American communities into conflict zones, torn between a market hell-bent on commodifying life itself and communities organizing to protect their neighborhoods. The more I ventured into such areas, the more I came to realize that the clash of values going on isn’t just theoretical or metaphorical.
“Internal displacement causes conflict,” explained J.R. Fleming, the chairman of the Chicago Anti-Eviction Campaign. “And there’s no other country in the world that would force so much internal displacement and pretend that it’s something else.”

Evictions at Gunpoint 


It was three in the morning when at least a dozen police cruisers pulled up to the single-story, green-shuttered house in the African American Atlanta suburb where Christine Frazer and her family lived. The precise number of sheriffs and deputies who arrived is disputed; the local radio station reported 25, while Frazer recalled seeing between 40 and 50.

A locksmith drilled off the home’s locks and dozens of officers burst into the house with flashlights and handguns.

“Who’s in the house?” they shouted. Aside from Frazer, a widow with a vocal devotion to the Man Above, there were three other residents: her 85-year-old mother, her adult daughter, and her four-year-old grandson. Things began to happen fast. Animal control rounded up the pets. Officers told the women to get dressed. Could she take a shower? Frazer asked. Imagine there’s a fire in your house, the officer replied.

“They came to my home like I was a drug dealer,” she told reporters later. Over the next seven hours, the officers hauled out the entire contents of her home and cordoned off the street to prevent friends from helping her retrieve her things.

“I have no idea where some of my jewelry is, stuff I bought when I was 30 years old,” said Frazer. “I am sixty-three. They just threw everything everywhere, helter-skelter on the front lawn in the dark.”

The eviction-turned-raid sparked controversy across Atlanta when it occurred in the spring of 2012, in part because Frazer had a motion pending in federal court that should have stayed the eviction, and in part because she was an active participant of Occupy Homes Atlanta. But this type of militarized reaction is often the outcome when communities -- especially those of color -- organize to resist eviction.

When Nicole Shelton attempted to move back into her repossessed home in a picket-fence subdivision in North Carolina, the Raleigh police department sent in more than a dozen police officers and an eight-person SWAT team. Officers were equipped with M5 submachine guns. A helicopter roared overhead. In Boston, one organizer with the community group City Life/Vida Urbana remembers the police acting so aggressively at an eviction blockade in a Haitian neighborhood that the grandmother of the family had a heart attack right in the driveway.

And sometimes it doesn’t require resistance at all. On the South Side of Chicago, explained Toussaint Losier, a community organizer completing his Ph.D. at the University of Chicago, “They bust in the door, and it’s at the point of a gun that you get evicted.”

Exiles in America


There have been widespread foreclosures -- and some organized resistance -- in predominately white communities, too. Kevin Kirkman, captain of the civil division of the Lee County sheriff’s office, explained, “I get so many [eviction] papers in here, it’s unbelievable.”

More than 75% of the residents in North Carolina’s Lee County are whites. But Kirkman still sees the ripple effects of mass foreclosure here. “You’re talking about a mudslide where a lot of things are affected. You’re talking about taxes, about retail sales if people move, about food services, about gasoline. You see what I’m talking about? When you lose a family in the community? Some people leave the community. I have seen people leave the state of North Carolina.”

He added, “I’m going be honest with you, my feeling is that I would not do these evictions.”

Still, the difficulties white America has faced during the foreclosure crisis don’t compare with what Wall Street and the banks have inflicted, physically and psychologically, on African American neighborhoods. As countless leaked documents, insider dispositions, and Department of Justice filings demonstrate, those neighborhoods were systematically and illegally targeted for the worst of the worst mortgages. As one former Wells Fargo mortgage broker explained in a sworn affidavit, “The company put ‘bounties’ on minority borrowers. By this I mean that loan officers received cash incentives to aggressively market subprime loans in minority communities.”

This pushing of predatory loans was all the more insidious because these same communities had been starved of mortgages for decades as a result of the Federal Housing Authority’s refusal to guarantee loans in communities of color. As Mike Fannon, development associate for the Charles H. Wright Museum of African American History in Detroit, explained, “The same banks that denied capital now injected too much toxic capital and decimated the local economy.”
The effect, according to a 2012 National Fair Housing Alliance report, has been “the largest loss of wealth for these communities in modern history.” Between 2009 and 2012 African Americans lost just under $200 billion in wealth, bringing the gap between white and black wealth to a staggering 20:1 ratio.
There is also a longer trajectory of racial exclusion at play here, a history that makes the foreclosure crisis yet another chapter in an epic and enduring quest for home. From enslavement to sharecropping, redlining to restrictive covenants, the United States has too often been an inhospitable land for people of color. Fifty years ago, Martin Luther King echoed W.E.B. Dubois in declaring that the African American still "finds himself in exile in his own land.” Today, it’s hard not to see that reality painted across the 2010 census data, where the maps measuring the concentration of vacant houses and the maps measuring the concentration of African Americans, while not exactly the same, are uncomfortably close to a match.

As Ben Austen wrote in the New York Times Magazine, “The U.S. Postal Service, which tracks these numbers, reported that 62,000 properties in Chicago were vacant at the end of last year, with two-thirds of them clustered as if to form a sinkhole in just a few black neighborhoods on the South and West Sides.” The same phenomenon holds true in cities across the country. And once a house is empty in such neighborhoods, all too often, no one is moving back in.

Crime Starts at the Top


“There were feces in the basement, urine, rolled-up carpet,” said Thomas Turner, a housing activist in Chicago describing the inside of a foreclosed home, once owned, according to neighbors, by an 80-year-old man. Under the ownership of the Pittsburgh-based bank PNC, Turner explained, “It was abandoned for six years, so squatters and strippers had punched holes in the walls. There was no toilet, no tub, all the kitchen cabinets were torn out. The bedroom looked like someone had taken a sledgehammer and just started swinging… I still see gang members on the front porch or rolling up real slow in the car.”

Another Chicago resident, Erica Johnson, described a vacant home similarly. “There were clothes, books, broken dressers, little white drug bags, used condoms,” she said. “It was a little drug house, and they were probably bringing their girls up in here.”

Some foreclosed homes become brothels, such as a Deutsche Bank-owned house in South Los Angeles where the girls’ names and prices were scrawled in blue marker across the upstairs walls. Others become meth labs or gang hideouts.

These bank-owned vacant houses help spread crime and poverty in already distressed communities -- a reality that became obvious to me when I accompanied Dorian Morris, a certified building inspector, on one of his surveys of the vacant homes on the north side of Minneapolis. Signs on nearly every home advertised the severity of the housing crisis in this area: neon green “no trespassing” stickers on boarded-up foreclosed homes and red “stand together, stop foreclosure” posters on places supporting Occupy Homes Minneapolis. On more than a dozen lots, the only indication that a family once lived there was a skinny red metal rod marking the spot where a razed house once stood.

As in other hard-hit African American neighborhoods across the country, residents here had organized to stop bank-pursued evictions from stripping the value from the community. Neighborhood support had, for instance, helped a mother named Monique White beat her eviction in a highly publicized six-month battle against US Bank only weeks before I arrived. Still, the never-ending evictions were eating away at the stability of the neighborhood.
“That’s a known crack house,” said Morris, as he pointed at a brick structure less than 100 meters away from a neighborhood park. More than half the homes within sight were boarded up with plywood. Within five minutes, we had passed two former residences he identified as current drug houses and a handful more that he said had already been raided by the police -- all foreclosed homes where families used to live.

As we drove, we discussed the illegal chain of events that transformed these homes into drug dens. The crimes started at the top. Banks peddled toxic mortgages like crack, paying employees cash incentives to push them in African American neighborhoods. The loans exploded, so they forged millions of foreclosure affidavits to speed state-enforced evictions.

Once homes are vacant, bank contractors insufficiently seal and maintain them, allowing intruders to strip the houses of their copper wiring, plumbing, and sometimes even the furnace. The copper alone sells for anywhere from 50 cents to a dollar per pound. Finally, people dealing drugs begin to use the houses at night as distribution centers. The street-level crime drags down neighboring property values, spurring more foreclosures and evictions. And so the cycle continues.

Banks are legally obligated to maintain and market their foreclosed properties, but they often shirk those responsibilities -- especially in communities of color. In an investigation of more than 1,000 homes across the country, the National Fair Housing Alliance found that bank-owned homes in communities of color were more likely than homes in white neighborhoods to have graffiti and peeling paint on the exterior, trash and dead leaves strewn across the sidewalk, unsecured locks on the doors, and be missing “for sale” signs on their front lawns.

Foreclosed houses in such neighborhoods were also 80% more likely to have a broken or boarded-up window, and 30% more likely to have trash on the front lawn. After a lawsuit, Wells Fargo paid $42 million to settle charges of racially discriminatory maintenance; there’s scant evidence to suggest the practice has changed since. Cities have increased fines levied against banks that don’t maintain their houses, but not a single bank has been held accountable for drug dealing, murders, and rapes that occur on their unmaintained or poorly maintained properties. The only “crime” they appear concerned about is when community activists try to fix up such homes and move families in -- doing the job the bank was supposed to do in the first place. Then banks call the police to arrest the “trespassers.”

Sacrifice Zones


The double standards in property maintenance lead to an “extremely troubling” trend in home sales: these uninviting neglected houses, disproportionately located in communities of color, are most often being snapped up by investors rather than families. Overwhelmingly, the investor of choice is the Blackstone Group, one of the world’s largest private equity firms and now the nation’s largest owner of single-family homes. Since April 2012, Blackstone has spent more than $4.5 billion buying at least 30,000 houses concentrated in cities hard-hit by foreclosure, including Atlanta, Jacksonville, Orlando, Chicago, Charlotte, Phoenix, and urban areas across California. According to local real estate brokers, the company often makes its purchases in cash.

The idea is that there’s big money to be made in rental properties these days, given that there are millions of displaced, former homeowners with wrecked credit scores looking for places to stay. It’s like a pay-to-play game of musical chairs -- except Wall Street owns the stereo, the speakers, the chairs, and the roof, and somehow when the music stops you’re always out.

Vacant houses, whether owned by banks or Blackstone, create foreclosure spirals, each vacant house dragging down the property values of neighbors, which, in turn, decreases a city’s property tax revenue and the capacity of local government to provide essential services. Shuttered schools in Philadelphia and Chicago. Closed hospitals in Cleveland. Slashed senior programs in Baltimore. All of these essential services, eliminated far more often in communities of color, are the collateral damage of the foreclosure crisis.

2011 report by the U.S. Government Accountability Office, submitted to the House Subcommittee on Regulatory Affairs, cited nearly a dozen examples of how such declines in tax revenues caused by vacancies have led cities to cut funding for public works, libraries, parks, recreation programs, and school districts. One city even cut a program intended to address vacant foreclosed properties, thanks to a tax revenue shortfall.

The final dystopian outcome of this spiral is what journalist Naomi Klein
famously termed the shock doctrine: a crisis is pushed so far that it finally justifies dramatic outside intervention (read: privatization). It’s the type of outcome we’re currently seeing in Michigan, where, according to a court rulinglast week, "Detroit’s recent bankruptcy filing only emphasizes the broader consequences of predatory lending and the foreclosures that inevitably result."  That city may be undergoing the largest municipal bankruptcy in U.S. history, but unlike when the big banks and giant financial outfits teetered at the edge of collapse, President Obama has made it clear that this time there will be no billion-dollar federal bailout.

“With the mass displacement, it ends up being a situation where people are just like, ‘Well, we’ll just have to bulldoze those homes,’” Chicago organizer Toussaint Losier told me. “They become sacrifice zones rather than places where people bring imaginative solutions.”

The Shield and the Sword


Small groups of community organizers are shouldering the Herculean task of protecting such neighborhoods abandoned by the federal government.

“Look, if you want to take our home, it’s an act of war,” explains Losier, so his group’s response is, metaphorically, “the sword and the shield.” It’s a strategy he learned from the Boston anti-foreclosure group City Life/Vida Urbana. The shield represents the exceedingly modest legal protection afforded to people under a judicial system that assigns more rights to the banks than them -- and allows no-guilt settlements for the powerful caught flagrantly breaking the law. (In the case of foreclosure crimes, see for example the $335 million Bank of America discrimination settlement in 2011, the $26 billion robo-signing settlement in 2012, and the $8.5 billion settlement over wrongful foreclosures in 2013.)

The sword represents actions -- from petitions to eviction blockades -- aimed at stopping evictions and repairing neighborhoods. And yes, there is a life-size, fabricated sword-and-shield set at the City Life office in Boston.  First-time attendees of the group’s weekly meetings must hoist the sword over their heads and assert that they are willing to fight for their homes. “Then we will fight with you!” the rest of the group cheers.

Across the country, communities of color deploy these two strategies, and a third that could be called “the paintbrush”: creative tactics aimed at building something new amid the devastation. In Detroit and Philadelphia, neighborhoods are seeding community gardens in hundreds of vacant lots. In Boston, one set of community activists cleaned up their block and dumped the trash -- gathered from the front lawn of a foreclosed Bank of America-owned home -- on the doorstep of the regional bank president’s brownstone.

In Minnesota and California, grassroots political organizing pressured state legislatures to adopt the nation’s first two homeowner bills of rights. A Barclays report later complained that “servicers have become significantly more cautious when carrying out foreclosure sales” as a result of the legislation. In Chicago, home liberation groups are rehabbing and occupying vacant properties, while anti-violence groups are intervening in the conflicts caused by poverty and mass displacement.

Both of the foreclosed Chicago houses that Thomas Turner and Erica Johnson described as being filled with feces, used condoms, and drugs are now clean, painted, and occupied. Turner even stenciled small purple birds on the walls of the one he worked on. But the continued scale of the crisis -- forgotten by a media more interested in rising home values than eviction notices -- requires more than community rehab and tepid financial regulation. It demands that we question, and reimagine, a system of property ownership that has prevented large segments of the population from making real decisions about the communities in which they live.  And in case you’re thinking that this is a problem only for Black America, think again. As the New York Times warnedin April, “The alchemists of Wall Street are at it again… reviving the same types of investments that many thought were gone for good.”

The question is whether, this time around, we’ll see their potion for what it is: poison that threatens to turn each of us, as W.E.B. Dubois wrote, into “an outcast and a stranger in my own house.”
 
Laura Gottesdiener is a journalist, social justice activist, and author of A Dream Foreclosed: Black America and the Fight for a Place to Call Home,published this month by Zuccotti Park Press. She is an associate editor for Waging Nonviolence, and she has written for Rolling StoneMs. magazine, theArizona Republic, AlterNet, and other publications. This is her firstTomDispatch piece.  She lived and worked in the People’s Kitchen during the occupation of Zuccotti Park.

Tuesday, July 2, 2013

Murky Language Puts Homes Underwater

 

THE AMERICAN PROSPECT

Murky Language Puts Homes Underwater




AP Images/Don Ryan
 
Revelations from Bank of America whistleblowers show widespread and ongoing abuse of homeowners seeking loan modifications to avoid foreclosure. Customer service representatives were told to lie about pending modifications and were given bonuses for pushing homeowners into default. The allegations mirror continued complaints about “dual tracking,” a practice where mortgage servicers pursue foreclosure while deciding whether or not to grant a loan modification. Servicers at the five biggest banks were required to pay $25 billion in fines and agree to dozens of new guidelines to curb these abuses as part of last year’s National Mortgage Settlement. While the banks argue that they have fixed any outstanding problems, a recent report from the settlement’s oversight monitor, Joseph Smith, showed continuing violations in several key areas, though not to the degree that housing advocates claim.

This discrepancy between homeowner complaints and bank pleas of innocence can perhaps be explained by a gap in the settlement’s dual-tracking language, which mirrors other state and federal rules for servicers. The restrictions state that servicers cannot pursue foreclosure once a homeowner turns in a “completed” application for a loan modification. However, the rules do not meaningfully define “completed.” Does this mean the initial delivery of forms and financial documents? Do all documents have to be authorized by the bank? What if documents are lost? What if servicers are missing just one piece of information? It sounds wonky, but banks have exploited these ambiguities for financial gain, and it has led to people losing their homes.

Katherine Porter, a law professor at UC-Irvine and the monitor chosen by California’s Attorney General to oversee the mortgage settlement in the Golden State, has written a white paper on the problem. “The path to becoming ‘complete’ often requires dozens of back-and-forth communications between homeowners and banks,” Porter writes. “It drags on for months, creating uncertainty and frustration and putting families at risk of foreclosure.”

A typical loan-modification application includes a standard form, authorization for the release of tax returns, and documents showing evidence of income, like recent pay stubs or a profit-loss statement. Banks require financial documents from homeowners to determine what would make an affordable modified mortgage payment. If a homeowner has a straightforward financial situation, with a single employer and relatively few outside sources of income, collecting financial documents is relatively easy. But lots of people have complex income situations—second jobs, income from renters on their properties, small businesses. The more multifaceted the income sources, the more information a bank will require.

Porter’s report tells the story of “Peggy B.,” who lost her home to foreclosure last November. Peggy was in the process of collecting documents when her home was sold. The bank told her that the sale would be postponed while she complied with requests for documents, but they sold the home anyway. Porter’s office contacted the bank, and “it informed us that Peggy’s application was missing documents at the time of the sale … because her application was not complete, the bank had not violated the dual-tracking protections in the settlement.”

This is not just a problem with the mortgage-settlement standards, but virtually all dual-tracking rules on mortgage servicers. The Consumer Financial Protection Bureau’s (CFPB) servicing rules define a “completed” application as “when a bank receives all the information that the bank requires.” This puts the discretion in the hands of the bank to decide when an application is completed. CFPB states the bank must use “reasonable diligence” to obtain the documents it needs, another term with significant wiggle room.
     
California enacted a new “Homeowner’s Bill of Rights” this year, which bans dual tracking when an application is completed, defining that as “when the homeowner sends in all the documents required by the bank within a reasonable amount of time.” But that doesn’t fully define “reasonable,” and doesn’t account for back-and-forth on documents with missing information, or lost documents. The legislative analysis from the Homeowner’s Bill of Rights does say it would be unreasonable for banks to file a notice of foreclosure in California during the timeframe it takes for the homeowner to collect documents. But that’s not in the statutory language that banks are required to follow, and courts have not yet ruled on the matter. Additionally, banks have been accused of deliberately misplacing documents to delay the modification process. It’s unclear whether that would even violate CFPB or California dual-tracking rules.

Game-playing like this allows banks to ignore modification timelines, while technically staying within the law. Plus, continuing to pursue foreclosure means servicers can increase their profits—by endlessly delaying modifications, servicers can keep their staffs lean, reducing labor costs. And servicer compensation provides an incentive to foreclose over modifying a loan, because they can add on foreclosure fees, and because in a foreclosure sale, losses flow to the owners of the homes, rather than the servicers.

Porter has an elegant solution for this problem, which she describes as a “gap” rather than a loophole. Her proposal would provide protection from foreclosure for any homeowner who turns in the three standard documents—the application for modification, authorization to release tax returns, and “evidence of income"—as long as they respond to this request within 30 days. Servicers would have to pause their foreclosure process as they collect and verify the documents they need, and make a decision on whether to offer a modification. This would especially help homeowners with complex incomes or language barriers, who might need more time to examine and understand all the document components involved. And Porter would include restrictions on homeowners making serial modification requests and never completing the documents, just to stay out of foreclosure.

“This would give incentive to the bank to make people complete,” Porter said in an interview. If servicers could not pursue foreclosure while processing a modification request, she believes, they would act diligently to acquire all necessary documents and make a decision. That’s not currently the case; bank communications with borrowers are often sloppy and confusing, with homeowners unable to decipher the bank’s requests. Porter thinks this change in incentives would go far to clean up the process. “When banks are motivated to get people to respond to their requests, they’re really good at it. Their refinance requests are very streamlined. If the incentives were better aligned, banks would bring their expertise to the problem.” Porter includes in the white paper sample document request letters from banks to homeowners that would make things easier for understand. Banks don’t tell homeowners in a timely manner when specific documents are received and complete, or what is wrong with documents already submitted, and Porter would add a recordkeeping worksheet to the process as well.

Since California enacted the Homeowner’s Bill of Rights this January, servicers in the state, initially wary of testing the law, are pausing their foreclosure pursuits upon initiation of the modification process, and keeping them paused as homeowners complete their applications. Despite protests from banks that they could not reasonably stop foreclosures around the country for that long a period, “they’re doing it in California and the world has not ended,” Porter said. Referring to other states like Florida, where the law requires banks to start the foreclosure process over from scratch rather than “pausing,” Porter replied, “We should not let one state’s struggle with the foreclosure system define substantive protections.”

Porter believes that state and federal regulators could reopen servicing standards to define “completed” and realign incentives for banks. Officials overseeing the National Mortgage Settlement are in discussion with banks over making these changes, though because it’s a settlement rather than a court order, they must negotiate with the banks to get sign-off on the proposed new rules. The CFPB could do a technical amendment to their servicing rules to revisit the definition; they would have to go through a public comment phase and would take several months to adopt. Finally, other states could follow California’s lead, and go further, by more rigidly defining a “completed” application. Minnesota had the first chance to do this with their own Homeowner’s Bill of Rights, but they left the “completed” definition vague as well.

Without changes, banks are likely to continue to string along borrowers with relative impunity. As long as they never complete the application, the foreclosure protections for homeowners never have to kick in. This serves as a lesson for financial regulators—every word in a rule matters. Even “completed.”

Tuesday, May 28, 2013

Critics say Michigan foreclosure bills seek to 'get people out of their homes quicker'





MLive

All Michigan



Critics say Michigan foreclosure bills seek to 'get people out of their homes quicker'


Jonathan Oosting | joosting@mlive.com By Jonathan Oosting | joosting@mlive.com
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on May 24, 2013 at 8:40 AM, updated May 24, 2013 at 9:06 AM







foreclosure-genericjpg-bb797e18a55e03da_large.jpg 
 
 
 
LANSING, MI -- Michigan homeowners could have more time to avoid foreclosure but less time to reverse it under legislation moving quickly through the state legislature.

The Senate Banking and Financial Institutions Committee on Thursday approved a four-bill package, introduced one day earlier by a group of Republican lawmakers, that would extend a pre-foreclosure negotiation period allowing residents to seek loan modifications but shorten a post-foreclosure redemption window allowing them to retain or short sell their homes.

The bills now head to the full Senate for consideration.

Supporters say a quick fix is needed because the state's mandated negotiation period is set to expire at the end of June, but critics believe reducing the redemption period could result in more Michigan residents losing their homes and damaging their credit as the state continues to emerge from a prolonged foreclosure crisis.

"This is so inconsistent and going in the wrong direction of federal policies, where the concern is to do everything you can to keep homeowners in their homes," Lorray Brown, a statewide foreclosure specialist with the Michigan Advocacy Project, said in testimony before the committee on Thursday. "And here we are in Michigan, trying to get people out of their homes quicker."
Senate Bills 380-382, sponsored by Sens. Randy Richardville of Monroe, Mike Nofs of Battle Creek and Jim Marleau of Lake Orion, would extend the state's 90-day negotiation period, which is set to expire at the end of June, through January 10. That's when new federal regulations kick in mandating a 120-day period, which would allow additional time for homeowners to seek loan modifications or other agreements with their lender in an attempt to avoid foreclosure.

Senate Bill 383, sponsored by Sen. Darwin Booher of Evart, would shorten Michigan's post-foreclosure redemption period by 120 days -- from six months to two months -- providing residents with less time to pursue a short sale or reclaim their home by paying off outstanding fees after it is placed in foreclosure and sold at a sheriff's auction.

While the foreclosure crisis hit Michigan early and hard, numbers are now trending in the right direction. The state saw fewer than half as many foreclosures in March of 2013 than it did in March of 2012. Still, Michigan totaled roughly 70,000 foreclosures during that 12-month period, more than all but two other states.

Booher, who chairs the committee and worked in Michigan banks before entering politics, said the proposal is appropriate because the state's foreclosure rate is slowing, and with federal regulations mandating a longer negotiation period, it makes sense to shorten the redemption period. All told, he pointed out the entire process -- from a missed mortgage payment to loss of a home -- could still take more than 200 days to complete.

"I believe this is the right time and the right policy for Michigan," Booher said. "I believe that this really isn't a shortening of the foreclosure process, but rather a shift in our time frame."

The bills are tie-barred together, meaning that none will take effect unless all four are approved by the legislature and signed by the governor, frustrating some who would support the pre-foreclosure provisions but strongly oppose the shortened redemption period.

"This is really a sad situation," Neeta Delaney, head of the Michigan Foreclosure Task Force, told MLive earlier Thursday. "It was a very political, strategic move on the part of the legislators who are pushing it. It's frustrating to tie those three bills to something else that is so drastic."

Booher said it is important to move quickly on the bills because state law mandating the 90-day negotiation period expires in June but the federal regulations do not take effect until early January. Michigan lawmakers are expected to begin their summer break on June 13, he said, meaning the bills would have to move through both chambers in the next few weeks.
Michigan banks and credit unions widely support the package, pointing to the wide scope of pending federal regulations and their own pro-active efforts to work with borrowers.

"We have little to no redemptions during the redemption period," said Kieran Marion, vice president of governmental affairs for the Michigan Credit Union League. "We have very little people taking advantage of the 90-day process on the front end. We do a lot of work with our borrowers to try to keep them in their homes, and that's probably a result of that."

Local lenders aren't the problem, according to Democratic Sen. Jim Ananich of Flint, who said that Michigan banks and credit unions are generally willing to work with owners to keep them in their homes.

"My problem is with the bigger folks that it's impossible to get on the phone," said Ananich, who cast the lone "no" vote against SB 383. "When I had a Bank of America loan -- I was trying to pay if off, I wasn't even in the foreclosure process -- it took me three weeks to get someone on the phone.

"I feel like we're dealing with folks that are doing the right thing, and we're letting off the folks that are hurting a lot of citizens across the state and across the country."

Booher, pointing to his own experience in the profession, said banks that do everything right during the pre-foreclosure negotiation period, which would be extended to 120 days, should not be "penalized" by having to wait another six months to take possession of a property after they have foreclosed. During that window, he argued, some residents neglect or damage homes they are not intending to fight for.

"People tear up those homes," he said. "They destroy it, or somebody does. Whether or not they've left the home, those buildings are being destroyed and causing the value of my property to go down. So that additional 120 days, I've got to be convinced is worth having on the end of this during the foreclosure process."

But shortening the redemption period would do little to deter outgoing homeowners intent on defacing their property, according to Brown, who said other states have taken a more direct approach by allowing banks to take possession of a home, with a court order, if it is significantly damaged during the foreclosure process.

"If someone's inclined to destroy the property, they'll do as much as they can in two months," she said. "So we have to look at what is the most effective policy to address that issue. That's not done with a blanket reduction of the redemption period."

Underwater homeowners are increasingly using the redemption period to negotiate a short sale, which requires lender approval to sell their home for less than they owe on the mortgage. Banks lose money in the process, while the homeowners avoid significant damage to their credit and a neighborhood can be spared a vacant home.

Short sales can often take six months to complete, according to Kathy Persha, a real-estate agent in Metro Detroit who specializes in helping homeowners facing foreclosures. She said that reducing the redemption period to only two months would prohibit some residents from being able to find a buyer and get lender approval to sell their home once it enters foreclosure.

"It's a joke," she said. "With some of the new rules that came out last October, we thought the process would happen a lot quicker. Instead, everyone I've talked to in this business have all said the same thing: the time frame has gotten much longer for short sales. And some banks would rather not approve short sales and just take the property back."

Michigan Senate Bills 380-383 now head to the full Senate for consideration. Booher said he plans to meet with interested and concerned parties in hopes of fine-tuning the legislation in coming weeks.

Jonathan Oosting is a Capitol reporter for MLive Media Group. Email him, find him on Google+ or follow him on Twitter.