Tag Archives: foreclosures

Richmond, CA wants to address foreclosures with eminent domain

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Richmond, California is seriously considering a more radical municipal approach to foreclosures:

The city has offered to buy more than 600 underwater mortgages at below the homes’ current value.

“If they are unwilling to negotiate a sale of the loans, which we want them to do, then we will consider using eminent domain as another option to purchase these loans at fair market value,” said Richmond Mayor Gayle McLaughlin…

Richmond is the first city in the country to take the controversial step of threatening to use eminent domain, the power to take private property for public use. But other cities have also explored the idea…

Banks, the real estate industry and Wall Street are vehemently opposed to the idea, calling it “unconstitutional” and a violation or property rights, and something that will likely cause a flurry of lawsuits.

It will be interesting to see how this plays out. I suspect a number of communities would argue they have few other options in order to force the hands of mortgage providers.

Projection: US homeownership rate to continue to fall

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One firm projects the homeownership rate in the United States will continue to fall through next year:

The homeownership rate in the second quarter was unchanged from the prior three month period, according to Census Bureau data released today. It will hit bottom at about 64 percent in the next year as families leave the foreclosure pipeline and enter rental homes, according to a May analysis by London-based Capital Economics Inc. It’s currently the lowest in almost 18 years after averaging about 64 percent for 30 years through 1995.

First-time buyers and minorities are among the groups that have seen the sharpest declines since the crash. While property ownership among senior citizens was little changed at about 81 percent, the share below age 35 that own a home fell to about 37 percent from almost 42 percent five years earlier.

The rate for blacks reached almost 50 percent in the second quarter of 2004 from about 43 percent in 1995, Census Bureau data show. By the second quarter of this year, it had dropped to 42.9 percent. The rate for whites fell to 73.3 percent in the second quarter, from 76.2 percent in 2004.

The good news: the projection suggests the bottom is about 64 percent. The bad news: there are still plenty of people caught in the foreclosure pipeline. This is a reminder that foreclosures aren’t just about people having to leave their current home; it also gunks up the market far down the road.

See charts of the trends, with the latest 2013 2Q data, here.

The rise of the zombie mortgage titles

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Here is what happens if a bank decides not to go through with a foreclosure and the owner is stuck with a “zombie title“:

Since 2006, 10 million homes have fallen into foreclosure, according to RealtyTrac, a number that in earlier, more stable times would have taken nearly two decades to reach. Of those foreclosures, more than 2 million have never come out. Some may be occupied by owners who have been living gratis. Others have been caught up in what is now known as the robo-signing scandal, when banks spun out reams of fraudulent documents to foreclose quickly on as many homeowners as they could.

And then there are cases like the Kellers, in which homeowners moved out after receiving notice of a foreclosure sale, thinking they were leaving the house in bank hands. No national databases track zombie titles. But dozens of housing court judges, code enforcement officials, lawyers and other professionals involved in foreclosures across the country tell Reuters that these titles number in the many thousands, and that the problem is worsening…

Banks used to almost always follow through with foreclosures, either repossessing a house outright – known in industry parlance as REO, for real estate owned – or putting it up for auction at a sheriff’s sale. The bank sent a letter notifying the homeowner of an impending foreclosure sale, the homeowner moved out, the house was sold, and the bank applied the proceeds toward the unpaid portion of the original mortgage.

That has changed since the housing crash. Financial institutions have realized that following through on sales of decaying houses in markets swamped with foreclosures may not yield anything close to what is owed on them.

It would be fascinating to know exactly how many of these homes there are – and what the best solution to this issue might be. I remember the stories of homeowners who thought it was easier to simply walk away from their homes but it sounds like the banks have caught on and realized they might not make much from that situation either. It sounds like we need some guidelines to determine who is responsible for the home if no one, the homeowner, the lender, and perhaps even the community, doesn’t want it.

Is it good for suburban neighborhoods for foreclosed homes to be purchased by private-equity funds who want to rent them out?

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Some neighborhoods are facing a new dilemma: how to respond to private-equity firms purchasing and fixing up foreclosed homes and then renting them out.

Similar scenarios and concerns are unfolding across Chicago and in other markets hard-hit by the housing crisis. Well-capitalized, out-of-town private equity funds are scouring neighborhoods, paying cash for distressed single-family homes and renting them out. The opportunities are plentiful, enabling investment groups to profit from low home prices, rising rents and an increase in the number of potential renters.

The transactions are returning vacant properties to active use. But they also are stoking fears among neighbors and municipalities about the long-term effect of large, private investors — including many that are operating under the radar — in their communities.

“This scares the hell out of me,” said Ed Jacob, executive director of Neighborhood Housing Services of Chicago Inc. “In this rush to say this is a new asset class, are we creating the next community development problem?…

The general strategy of the companies is the same: buy low, make the necessary upgrades, fill them with tenants and then sell the homes in three to seven years. With companies and analysts anticipating projected returns of at least 8 percent, there also is talk of creating publicly traded real estate investment trusts.

This presents quite an issue for suburbanites worried about property values (which is a top-level concern). Foreclosures are not good for a neighborhood. They tend to drag down sales prices for homes with residents because investors or buyers can try to get the foreclosures for cheaper. Foreclosures may not be maintained well so the yard and exterior appearance can suffer. Suburbanites fear such homes might also fall prey to more criminal activity.

On the other hand, renters are not typically viewed positively in single-family home suburban subdivisions. Renters are perceived to be more transient, not as concerned about the property itself or the neighborhood. Renters can be viewed as a different class of people, meaning people who don’t have the resources to settle down and buy a home. Renting might mean absentee or less-involved landlords who might still let the property become run-down.

What is the long-term verdict? I think rentals make sense in a lot of suburban neighborhoods. Without buyers willing to pay good money for homes, it is better for a community to have people consistently in the homes than to have series of foreclosures. The situation could be made a lot better if the landlords and/or rental investors are good landlords who make efforts to help the neighborhood. As the article notes, different communities can also look into the matter and see how they want to respond. I would guess most communities and neighbors hope the rental properties again become owned homes but this will take some time for housing prices to climb again.

Leader in Texas adverse possession movement hasn’t been successful yet

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The adverse possession advice being peddled through a Texas man’s website and e-book hasn’t exactly worked out yet:

If you direct your browser to 16dollarhouse.com and plunk down $9.97 for an e-book, you can still learn from Ken Robinson ( “poised, measured, insightful and wise” and an AMERICAN, all caps, as the site informs you) how to use adverse possession, a once obscure Texas law, to get a house on the cheap.

Be forewarned that Robinson’s legal theories haven’t worked out so well in practice. Earlier this year, he was evicted from his $350,000 Flower Mound McMansion after a judge decided that his claim to the house was bullshit. His disciples have fared little better.

Following news of Robinson’s scheme, officials in Tarrant County made the rounds evicting squatters who moved into homes after filing adverse possession claims. Eight of them were charged with theft or burglary.

David Cooper was the first to go to trial, which wrapped up today…

But Texas law also says you can’t steal people’s stuff and, in Cooper’s case, the house actually wasn’t abandoned. It belonged to a couple who were spending a lot of time in Houston, where the wife was undergoing cancer treatment. When it became clear that the home wasn’t abandoned, Cooper was arrested and charged with burglary and theft.

See more about the ruling on Robinson’s Flower Mound case here.

This would be an interesting protest movement that someone like Occupy Wall Street might want to take up: identify and then occupy Texas houses.

Seeing the social layers in the foreclosure crisis through a photography exhibit

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A new photography exhibit at the Argus Museum in Ann Arbor, Michigan takes a unique look at the foreclosure crisis:

Sociology, economics, and ultimately, autobiography, are the featured artistic elements in Charles J. Mintz’s “Every Place (I have ever lived)” at the Argus I Building’s second-story museum.

Subtitled “The foreclosure crisis in twelve neighborhoods,” this Cleveland-based photographer’s mixed-media investigation into his personal history—as told through a dozen color foreclosed dwellings in the vicinities where he’s lived—is touching and telling in equal measures…

“Each work,” Mintz tells us in his gallery statement, “is a 4’ x 4’ sheet of raw plywood with two photographs that are printed on fabric. The ‘inside’ photograph is screwed in place. The top image has been made into a window shade that pulls down over the first…

“Maps on the side pieces show where you are in my personal journey. In addition, there are charts of both the changes in median family income between the time I lived there and now (based upon the 2000 census) and the changes in racial mix between then and now (based upon the 2010 census).”…

Even as the economic and sociological demographics do their part in Mintz’s story, he makes it clear that he believes race and financial position are ultimately relative to the journey. The story might have differed at another time, but from mid- to late-20th century, Mintz seeks to build a case that our American commonalities are more tightly bound than we might otherwise expect.

It is one thing to see the numbers about foreclosures, such as the fact that the foreclosure rate in Illinois is still rising, and another to look at how this affects communities and individuals within them. What sounds particularly interesting to me about this exhibit is that this isn’t just about one person. For example, in political debates and speeches, we tend to hear stories about individuals or families which are meant to put a “human face” on the larger issues. But, through connecting individuals, communities, and larger social forces, such as the artist Mintz explaining his personal experiences as embedded in communities as well as race and socioeconomic status, we can better view and understand the multiple levels of foreclosures and how different actions at each level might be needed.

Los Angeles files complaint that U.S. Bank is not maintaining its foreclosed properties

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Looking to help residents who don’t like foreclosed properties in their neighborhoods falling into disrepair, Los Angeles is fighting back:

U.S. Bank is the country’s fifth-largest commercial bank, with 3,000 branches in 25 states. It’s also “one of the largest slumlords in the City of Los Angeles,” according to the L.A. city attorney’s office.

In a complaint filed last month, the office accused U.S. Bank of failing to maintain more than 170 foreclosed properties, blighting neighborhoods, decreasing property values and increasing crime rates.

The allegations are similar to those made in a lawsuit filed by the city attorney’s office last year against Deutsche Bank (DB), as well as other complaints from activists around the country who say their communities have suffered as neglected foreclosures deteriorate in the aftermath of the housing bubble.

This is a potentially large problem with the number of foreclosed properties in the United States:

Roughly 620,000 foreclosed properties in the United States are owned by lenders, according to RealtyTrac. The number of these properties, known as REOs, or “real estate owned,” surged after the housing bubble but has since begun to drop, down from over one million in January 2011.

Still, of those 620,000 houses, 24% had been waiting for a new buyer for two years or more, and 11% for three years or more.

You have a confluence of events here: large banks who have thousands of distressed properties on their hands, depressed housing markets, neighbors who are worried about their own property values as well as other neighborhood issues (crime, middle-class appearances, etc.), and communities who don’t want to have to foot the bills themselves.

Throughout the last few years, I haven’t really heard from the perspectives of the big banks on how they are really dealing with these properties. What are their strategies? If they want to hold onto the properties and wait for prices to rebound, they’ll have to pay for upkeep. If they want to sell quickly, they probably can find buyers but would have to write-off significant portions of mortgages. Have the banks hired teams to take care of foreclosed properties? Could a bank take these foreclosures and legitimately and profitably spin off a property division? It seems like this could be a real opportunity for someone yet the big banks appear to killing time with some of the foreclosures.

 

How mowing your lawn might be soon affect your ability to get a mortgage

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A new proposed FICO score algorithm will include things like whether you have been cited for not mowing your lawn:

Just when you thought you knew all the ins and outs of how your credit score is calculated, it all changes. Last month FICO announced a new partnership with CoreLogic to create a new FICO score for use in the mortgage industry. While there are many credit bureaus that provide scoring on Americans, your FICO score is the report most widely used for mortgages. That’s because FHA and other government-backed mortgages use FICO as part of their means testing for approval. If FICO standards change, it could have a widespread effect on families looking for mortgage approval…

The addition of the CoreScore to your FICO will greatly increase a bank’s access to your personal finance information. The more doors that are open, the more doors that you will need to guard—even doors you didn’t know existed.

It’s not common knowledge, but seemingly unrelated aspects of your finances can get exposed through public information. Town ordinances and zoning are becoming increasingly restrictive in communities. There are plenty of local governments that can cite you for not mowing your lawn, leaving your garbage out on the curb overnight or owning one too many dogs. These types of local penalties may seem ridiculous and unfair, but they do have teeth. Many localities have the ability to place a lien on your property if citations remain outstanding. That means that it could get noticed by the new FICO score.

Failure to mow your lawn really could lead to a rejection on your mortgage application. The addition of the CoreScore opens the floods gates on financial information that was once unavailable to lenders.

From a lender’s point of view, having extra information is helpful. Yet, I wonder at the statistical connection between maintaining a lawn (and avoiding local fines) and paying a mortgage: are they always linked? Having too many pets/animals indicates less of a likelihood of paying a mortgage?

I wonder if there isn’t something else at work here. Given the increase in foreclosures, mortgage holders behind in their payments, and underwater mortgages, perhaps lenders are more interested in how well the home will be maintained so that if the lender does end up reclaiming the property in a few years, they don’t have to drastically reduce the price or spend money to fix up the home.

A last comment: the article suggests such local ordinances “may seem ridiculous and unfair” but there are at least two big rationales behind him. First, it is all about property values. You may want the right to keep garbage and junk on your property or return your yard to a more natural state but your neighbors could be negatively affected. Second, the uptick in foreclosures in recent years has pushed many communities to adopt stricter regulations as homeowners and banks don’t keep up some properties, affecting nearby property values as well as contributing to the appearance of social disorder.

New party spot: foreclosed McMansions

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Curbed National hints at a new possibility: foreclosed McMansions could become party spots for teenagers.

Certain youngsters in certain parts of the country have turned their attention to foreclosed McMansions, which prove better accommodations than, say, dorm rooms and are generally really great places to throw parties. This is kind of on par with that burgeoning trend, except the mansion in question here is not foreclosed, nor is deserve the preface “Mc”: recently more than 100 local teenagers threw a raging party at the Marin County home of imprisoned former Ukrainian Prime Minister Pavlo Lazarenko, trashing the place and making off with silver candlesticks, leather coats, laptop computers, and a Pablo Picasso lithograph worth $30K. Apparently police were called to the sprawling home as early as 10 p.m. on the night of the festivities, despite its remote location down a private lane, at which point attendees scattered into the surrounding countryside. The nine-bedroom, 19,500-square-foot house, where Eddie Murphy once stayed during filming, belongs to an LLC tied to the disgraced former Ukrainian P.M., who is currently imprisoned in Marin while seeking asylum to avoid money laundering. That left the place wide open for the party of the century.

Is the Picasso the party favor? Here are a few more details on the story:

The caretaker, who has not been identified, returned a day later to discover three teens, including two boys and a girl in the backyard, Riddell said. The three fled, and the caretaker discovered that a glass coffee table in the house was broken and a fire extinguisher was inside.

The nine-bedroom, 19,500-square-foot house was acquired by Dugsbery Inc. a Novato entity prosecutors have linked to Lazarenko in 1998, just months before the former head of state was arrested in Switzerland on suspicion of money laundering.

Two quick points. First, I don’t envy the task of lending institutions, municipalities, and homeowners in trying to keep foreclosed and/or abandoned homes secure. However, it seems like some low-level security, such as a home security system or occasional checking-in, would help in avoiding these situations which could get out-of-hand or even dangerous. Second, this is a mansion at 19,500 square feet, not a McMansion.

But perhaps the occasional teen party is better than finding that a squatter has claimed the McMansion through “adverse possession”…

Illinois has the third highest rate of foreclosures in the US

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New data shows that Illinois has the third highest rate of foreclosures in the country

Almost 7.5 percent of all one-to-four-unit mortgage loans in Illinois were in foreclosure in the first quarter, compared with a national average of 4.39 percent, according to data released Wednesday by the Mortgage Bankers Association.

“Illinois and New Jersey trail only Florida as being the worst in the country, and they’re getting worse,” said Jay Brinkmann, the association’s chief economist “The rate in Illinois more than twice that of California. In the judicial states the problem continues to get worse in terms of the backlog of loans in the foreclosure process.”

Added Michael Fratantoni, the association’s vice president of research and economics, “This is not a case that loans are entering foreclosure at a greater extent than in nonjudicial (states.) It’s that they’re staying in foreclosure longer.”

Illinois is not alone, according to the trade group’s quarterly national delinquency survey. In judicial states, the percent of loans in the foreclosure process reached an all-time high of 6.9 percent during the first quarter. That compares with a rate of 2.8 percent in non-judicial states, the lowest since early 2009.

The larger story about foreclosures in recent years has tended to focus on certain Sunbelt places like Florida, Las Vegas, and California so it is interesting to hear that Illinois has one of the highest rates – even if this is due to the particulars about how foreclosures are dealt with in the courts.

Based on this, could one argue that places like Las Vegas, said to be hard-hit by foreclosures, actually will be able to move past foreclosures more easily because of quicker court procedures? Speaking broadly, is it better for a state’s economic health and for its citizens for foreclosures to move more quickly in the courts even if this has some negative shorter-term effects? What is the proper trade-off between helping current residents and clearing bad mortgages off the books?