Tag Archives: mortgages

Judge rules against man who wanted to claim Texas McMansion through adverse possession

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Last July, I wrote about a Texas man who claimed he could occupy an abandoned McMansion and then claim possession of the home after a certain amount of time. His “adverse possession” case has moved forward as a judge ruled that the bank can indeed remove him from the home:

Anyone who was rooting for the man who used Texas’ adverse possession law to snag a McMansion for only $16 will be bummed to hear that he’ll be forced to leave the home after Bank of America claimed ownership of it. Drat!

Kenneth made waves in Flower Mound, Texas in July when he claimed the right to take over a $340,000 home in suburban Dallas, after filing a simple document and paying $16 to the city. He cited a law which said he could legally take possession of the house after living there for three years. His neighbors grumbled while he watered the lawn and paid utility bills, and now a judge says he has to move by Valentine’s Day.

The Associated Press says Bank of America can boot Kenneth, as they hold the lien on the house. Foreclosure was completed last month, says BOA, and now it’s time for Kenneth to vacate the premises…

“I’m just thankful for Flower Mound and Denton County for following the proper lawful procedures,” [Kenneth] said. “I went in doing this strictly by following a lawful process.” And now that the process has played itself out, he says, “I’m neither happy nor disappointed.”

I would venture to guess that Bank of America and some other people paid special attention to this case in order to forestall efforts by others who might be interested in using adverse possession to claim homes.

It would be helpful to have more information here:

1. Are the neighbors now happy that the home has officially gone through foreclosure? Did Kenneth make peace with any of the neighbors?

2. Does Bank of America have a quick timetable for moving this house to the market and selling it or will it be another home that languishes while the bank decides whether to accept offers?

3. Has Flower Mound changed its rules yet, like perhaps upped the $16 application fee, in order to avoid cases and attention like this in the future?

4. Where will Kenneth live next?

Conservatives getting behind mortgage modifications?

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A journalist argues that conservatives are starting to argue that the federal government should step in and help homeowners stay in their homes:

Mortgage modifications have been a key pillar of the progressive response to the economic downturn–and they’ve been one focus of the Occupy protests that have sprung up across the country lately. The Obama administration offered its own such program in 2009, though it has helped far fewer homeowners than anticipated, thanks to a flawed design. But until lately, conservatives had by and large opposed the idea, arguing, as Santelli did, that taxpayers shouldn’t be forced to pay for borrowers’ bad decisions, and that banks shouldn’t have their actions constrained by government.

So what’s changed? By and large, policy hands and political leaders alike recognize that the economy isn’t going to get better on its own, at least not any time soon,. There’s a widespread consensus that until the United States tackles the massive overhang of housing debt–American homeowners’ wealth has fallen by a stunning 40 percent since 2006–the economic recovery won’t gain steam. As Feldstein wrote: “The fall in house prices is not just a decline in wealth but a decline that depresses consumer spending, making the economy weaker and the loss of jobs much greater.” Rogoff, too, views the crushing volume of personal debt as an unaffordable drag on growth. “Simply put, you can’t operate an economy where huge numbers of people are desperately in debt and have no real way out,” he argues.

Hubbard originally offered a modification plan in 2010 as a way to avoid another “costly stimulus package” designed to spur consumer demand. But he, too, may also recognize that mortgage modification, though necessary for the health of the economy, is likely to be politically unpopular. If so, better to have President Obama take the hit, rather than a future Republican president—like, say, President Romney.

Of course, right and left don’t see entirely eye-to-eye on the issue. Dean Baker, an economist with the liberal Center for Economic and Policy Research, last week slammed Feldstein’s plan as too soft on banks and a bad deal for struggling homeowners. And it’s hard to imagine that Republicans in Congress would react favorably to an aggressive mortgage modification proposal from the Obama administration.

So if this is true – and “three instances” doesn’t a trend make even as this journalist suggests – what is happening?

1. Conservatives are recognizing that the mortgage debt is holding up the larger economic recovery. If people can’t move, they can’t go to the open jobs. The debt doesn’t allow them to spend on other consumer items. If government involvement can move people past this logjam, then the “free market” can work again. Desperate times mean that political ideology has to be bent a little.

2. As the journalist suggests, they only back this when a Democrat is in charge.

3. This is pandering for votes. American culture has a dream of homeownership – neither party wants to be against that.

This bears watching. Of course, the devil is in the details: who is actually going to support what? Who is going to pay for this? How many homeowners could be helped?

Mortgage interest rates may be really low but only a few will qualify

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You may hear a lot of ads for refinancing your mortgage because of historically low interest rates. But, only a small number of people searching for prime mortgages will qualify for the really low rates:

Have a look at a key detail about the criteria for mortgage quotes from which Freddie derives its weekly mortgage interest survey:

The survey is based on first-lien prime conventional conforming mortgages with a loan-to-value of 80 percent…

But the second criterion is even more significant. Let’s say that you have a house worth $200,000 and a mortgage balance of $175,000 that you want to refinance. Your loan-to-value ratio would be 87.5%, so you wouldn’t be included in this average. You might manage to achieve a low rate, but someone with so little equity shouldn’t expect to necessarily achieve rates near this average.

So those qualifying for these ultra-low rates must have pretty spotless credit histories and a pretty significant chunk of equity. That excludes anyone underwater or even slightly above water. And unfortunately, they’re the ones who would benefit most by refinancing. According to real estate analytics firm CoreLogic, about three-quarters of underwater borrowers have mortgage interest rates above 5.1%.

So the low interest rates only really help people who don’t need the help as much? Not much relief then for people looking to lower their payments and perhaps stay in their once-overvalued houses.

This reminds me of an issue that has kind of disappeared from the national news: what about plans to adjust mortgages? As long as the jobs situation remains difficult, have government programs and mortgage lenders made changes so that a good number of people can stay in their homes?

Lenders pursue options for foreclosures: bulldoze them, donate them…

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While some people may be interested in obtaining foreclosures through “adverse possession,” lenders are pursuing other options to rid themselves of a glut of foreclosures:

The biggest U.S. mortgage servicer [Bank of America] will donate 100 foreclosed houses in the Cleveland area and in some cases contribute to their demolition in partnership with a local agency that manages blighted property. The bank has similar plans in Detroit and Chicago, with more cities to come, and Wells Fargo & Co. (WFC), Citigroup Inc. (C), JPMorgan Chase & Co. (JPM) and Fannie Mae are conducting or considering their own programs.

Disposing of repossessed homes is one of the biggest headaches for lenders in the U.S., where 1,679,125 houses, or one in every 77, were in some stage of foreclosure as of June, according to research firm RealtyTrac Inc. of Irvine, California. The prospect of those properties flooding the market has depressed prices and driven off buyers concerned that housing values will keep dropping…

Bank of America had 40,000 foreclosures in the first quarter, saddling the Charlotte, North Carolina-based lender with taxes and maintenance costs. The bank announced the Cleveland program last month, has committed as many as 100 properties in Detroit and 150 in Chicago, and may add as many as nine cities by the end of the year, said Rick Simon, a company spokesman.

The lender will pay as much as $7,500 for demolition or $3,500 in areas eligible to receive funds through the federal Neighborhood Stabilization Program. Uses for the land include development, open space and urban farming, according to the statement. Simon declined to say how many foreclosed properties Bank of America holds.

This article describes small efforts by these lenders. If there are indeed over 1.6 million homes in some stage of foreclosure and more likely to come, lenders would need to bulldoze or donate a lot more homes to really clear up the supply and help stabilize home prices.

I wonder if the lenders are pursuing these goals with these small moves:

1. Building goodwill within the community.

2. Getting rid of the worst of the worst properties and just cutting their losses.

Neither of these options are bad but it remains to be seen what lenders will do with the majority of foreclosed properties. I think we’re a ways from Warren Buffett’s suggestion that we simply “blow up a lot of houses.”

(h/t Instapundit)

A growing interest in acquiring property through “adverse possession”?

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I highlighted a story last week about a Texas man who hoped to become the owner of a $350,000 McMansion through “adverse possession.” One writer suggests there is a growing interest in this method of acquiring land:

People have been making adverse possession claims for decades. The most famous cases happened on the Lower East Side of Manhattan in the 1980s and ’90s, when artists, punks and homeless people squatted in vacant buildings and brownstones.

Under the law at the time in New York State, people could take possession of a property if they lived there for ten years and made efforts to “cultivate and improve” the property, says Kathy Zalantis, a real estate lawyer with Silverberg Zalantis in White Plains, NY. That’s why you saw people who did this during the 1980s and ’90s mowing the grass, planting trees and gardens, and making structural improvements to the buildings themselves, Zalantis says.

Now, interest in adverse possession is growing again. Across America, hundreds of thousands of homes are sitting empty. If you live in New York or have visited since 2008, you’ve probably noticed all those big empty buildings that were constructed during the housing boom but never quite finished, and are now sitting empty. Zalantis says she’s receiving a big surge in phone calls from people who have taken up residence in empty spaces (yes, squatting), including one just this Wednesday.

Most of the calls are from people taking advantage of the foreclosure crisis by moving into vacant houses, apartments and condominiums where the foreclosure process has stalled in the courts, Zalantis says. Now they’re living rent-free. And they’re checking to see if they can take permanent ownership of the place.

It seems like two things are key then to acquiring property by this method: being in the building for a certain amount of time (which appears to vary by state) and doing something to maintain/improve the property. I assume, however, that the rightful owners can come back to the property and kick out the squatters. Therefore, shouldn’t someone who pursues this be pretty sure that the current owners have such little interest in the property that they are willing to lose ownership?

In the case of a lot of single-family foreclosures, I can’t imagine banks would be willing to simply write off their losses and lose these properties. However, if housing prices continue to drop, perhaps some institutions will be willing to lose properties rather than devote resources to trying to squeeze some money out of these homes.

A unique way to acquire a McMansion: “adverse posession”

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Amidst many foreclosures across the country, one Texas man believes he has found a way to acquire a suburban McMansion for $16. The move involves invoking “adverse possession” to take possession of the $300,000 home:

“This is not a normal process, but it is not a process that is not known,” he said. “It’s just not known to everybody.”

He says an online form he printed out and filed at the Denton County courthouse for $16 gave him rights to the house. The paper says the house was abandoned and he’s claiming ownership…

But, Robinson said just by setting up camp in the living room, Texas law gives him exclusive negotiating rights with the original owner. If the owner wants him out, he would have to pay off his massive mortgage debt and the bank would have to file a complicated lawsuit.

Robinson believes because of the cost, neither is likely. The law says if he stays in the house, after three years he can ask the court for the title.

It will be interesting to see how this plays out as it would require someone, the true owner, the bank holding the mortgage, or the government, to move this guy out. It is funny that the neighbors seem to be the ones leading the charge against this guy: are they simply jealous that he was able to acquire a home for this little money?

But perhaps this story hints at a positive side effect of the foreclosure crisis: states and other governmental bodies get a chance to review all sorts of laws regarding mortgages, foreclosures, and housing possession.

Attempting to set up an American style home lending system in Russia

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Housing and mortgage industries can be quite different across countries. While many Americans might be quite used to our system (even though the system of 30 year mortgages we know now was a product of the mid-twentieth century), what happens when you try to apply the American system to another context? A sociologist looked at how this worked out in Russia after the collapse of the Soviet Union:

The new government tried to create a housing market by replicating the American housing system, essentially using the Federal National Mortgage Association, or Fannie Mae, as a template to encourage Russians to take out mortgage loans.

“This was all designed by USAID, one of their biggest foreign aid programs ever,” Zavisca said. “It was an American model of what a housing market is: home ownership and securitized mortgages.”

Supposedly all of that privatized housing and wealth would spur the natural development of a housing market. Those who felt they had more housing than they needed would look to trade down and use the leftover money for other things. The private sector would emerge to produce housing for those who had been left out.

“That didn’t really happen,” Zavisca said.

Housing construction declined by 70 percent from 1992 to 2002, the first decade after the Soviet era. The construction industry in Russia has evolved to cater to wealthy and well-to-do middle class clients who could pay with cash, but there is a lack of trust by both contractors and consumers. No one wants to pay up front and wait, or deal with credit.

Unlike Americans who for decades have willingly taken on 30-year mortgages to buy housing, Russians have largely balked at the notion. Even when young families were offered a $10,000 credit, roughly a year’s wages and the equivalent of $60,000 in the U.S., toward the down payment for a house, Zavisca said there was little interest.

“Few Russians are willing to take out mortgages because the risk of foreclosure is unacceptable, and because they view interest payments – which they call overpayments – as unfair. As one Russian put it: ‘To enter into a mortgage is to become a slave for 30 years, with the bank as your master.'”

That hasn’t stopped Russians from going into debt, though. They may be averse to mortgages but they love credit cards, small consumer loans and point-of-purchase store credit.

“In my interviews, people there often compared credit card debt favorably to mortgages, the inverse of here in the U.S., where mortgages are viewed as virtuous and responsible.

“Russia is completely the opposite. It may be a legacy of Soviet entitlement to housing, where housing is viewed as a right to them. Even thought the Soviet government owned the housing, people thought of it as their own and had the right to pass it down to their children, or swap with someone who wanted to trade with you.

“It was a kind of quasi-marketplace. It just wasn’t financialized.”

She said Russians find it odd that Americans call themselves “homeowners” from the day they close on a mortgage loan. For Russians, ownership only begins after all debts are paid off.

This suggests that our system may be more cultural than anything else. It goes beyond just being used to a particular set of economic and financial tools regarding homeownership; these instruments are backed by a particular set of cultural values that sees mortgages, and working hard to reach the point where one can afford a mortgage, as acceptable. The Russians may have a point here: one doesn’t technically own a home until the mortgage is paid and with the high rates of American mobility (moving roughly every 5-6 years on average), many homes are never truly owned.

It would be interesting to hear how Americans, in USAID or elsewhere, explained why this didn’t work in Russia. Have we tried implementing similar policies elsewhere and if so, how did those situations work out?

Federal government looking into redlining practices

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During the economic crisis of recent years, mortgages have been more difficult to obtain for many compared to what was available in the mid 2000s. With these tighter lending practices, the US government is looking deeper into possible redlining practices by lenders:

At the Justice Dept., a new 20-person unit dedicated to fair lending issues received a record number of discrimination referrals from regulators in 2010 and has dozens of open cases, according to a recent agency report. Potential penalties can reach into the millions of dollars. “We are using every tool in our arsenal to combat lending discrimination,” Thomas E. Perez, the assistant attorney general for the Civil Rights Div., told a conference of community development advocates in Washington in April.

To some banks the crackdown has come as a surprise, say consultants and lawyers representing financial institutions in discussions with regulators. Like Midwest BankCentre, some lenders are being cited for failing to operate in minority and low-income census tracts near their branches, even when they have never done business there before. “If you put your branches only in upper-income areas, the regulators are not accepting that anymore,” says Warren W. Traiger, a lawyer at BuckleySandler in New York, which advises banks on fair lending issues.

Mortgage refinancing activity doubled in white neighborhoods but dropped sharply in minority neighborhoods in a sample of major U.S. cities in 2008 and 2009, according to Paying More for the American Dream, an April study by a group of seven community development nonprofits. “The pendulum has swung back too far the other way,” says Kevin Stein, associate director of the California Reinvestment Coalition in San Francisco, one of the report’s authors.

Several things strike me as interesting about this:

1. As the article notes, this oversight goes back to the 1977 Community Reinvestment Act (CRA). I wonder how the HMDA data, data lenders must report every time someone applies for a mortgage (including factors like race), has been a part of these government efforts. With this data, regulators (and others) can get an idea of who lenders approve for loans and who they do not.

2. The Drudge Report headline about this article,  “Obama admin pushing banks to offer subprimes again…,” seems somewhat misleading. There is little to indicate in this article that the government is telling lenders they should make subprime loans. Rather, it sounds like the government is suggesting that lenders need to make their products available to all people. One adaptation to this in order to account for worse credit scores or other factors might be for the lenders to offer subprime loans in order to protect some of their investment. But there is little indication the government is saying that lenders have to offer subprime loans.

3. Access to credit really is an important issue. If it is not widely available or limited to certain groups, the purchasing power of consumers for goods like houses or cars can be severely limited. And this can then have a large impact on the greater economy.

Boost home values by leaving out distressed sales

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The Chicago Tribune looks at one way home values might stabilize: simply don’t include distressed home sales in the calculations and in appraisals.

A report from data provider CoreLogic showed that Chicago-area single-family home prices were relatively flat in February, down only 0.37 percent from a year ago. But that figure includes only traditional sales and not the impact of distressed-sales prices. Add in the sales of foreclosed, bank-owned homes and short sales, and Chicago-area home prices fell 10.4 percent in February on a year-over-year basis…

There’s one problem with Ford’s proposal, though. Appraisers are licensed by the state of Illinois but follow uniform federal guidelines that dictate that they analyze available comparable sales.

“It would lead to a misleading report,” said Chip Wagner of A.L. Wagner Appraisal Group Inc. in Naperville. “You can’t overlook any of the factors in the marketplace that are influencing factors. It sounds like a good idea in fairness to homeowners, but the appraisers that follow that would be in (danger) of losing their licenses.”

While this is being considered in a number of locations, it does seem that legislators would need to decide whether the benefits for homeowners outweigh the limitations.

Additionally, this sort of story might be good ammunition for those who are cynical about statistics: can’t you just change around a definition and say something very different (in this case, Chicago home sales have declined versus they have barely declined)? But at the same time, most statistics are dependent on their operationalization: whether home sale values should include the sales of distressed homes is more of a definitional issue and decisions about this would likely come down to vested interests and motivations.

Habitat for Humanity limits foreclosures for lower-income homeowners

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Some recent data about Habitat for Humanity suggests that it may still be possible to have lower-income homebuyers without higher risks of default or foreclosure:

A recent study led by the Cox School of Business at Southern Methodist University, which was commissioned by the Dallas branch of Habitat, found that foreclosures in Habitat’s Dallas market were less than 2% last year. Although the report only looked at the Dallas office of Habitat, the findings mirror those found in other Habitat offices across the country, the organization says.

If this data holds up across the country, we should then ask why Habitat owners have such low foreclosure rates. Is it just because Habitat for Humanity has a limited operation each year (a small sample to work with) or is there something about their program that makes a difference?

The article suggests that Habitat’s particular program is what makes the difference: the homebuyers go through “home-ownership education,” there is consistent interaction with Habitat after the home purchase, the purchased homes are relatively modest (not “McMansions”), and Habitat imposing a less punitive late fee for late mortgage payments. One of the study’s authors sums up the impact of what Habitat does:

“These are practices that I think any bank should implement, particularly after looking at the foreclosures in the last five years,” said Paul Hendershot, lead author of the Dallas Habitat report and an adjunct University of North Texas professor.

It would probably cost quite a bit for lending institutions to adopt the practices of Habitat for Humanity for each mortgage holder. While the up-front costs are prohibitive, the lenders would save down the road as homeowners would go through fewer foreclosures.