Best Coffee: foreclosure victims

Ask not for whom the foreclosure bell tolls house flippers. It tolls for thee.

With profuse apologies to Ernest Hemingway, that butchered metaphor sums up the predicament facing many real estate investors caught in a legal Noman’s land caused by the robo-signing scandal which has left them with properties which they are no longer sure they own. If they want to get their money back, they may have to prove that the bank knew it was conning them, something that may be difficult to do. They also may face legal action from people evicted from their homes because of faulty paperwork

A foreclosure freeze that several banks instituted hurt sales of existing homes in several hard-hit markets. Foreclosure auctions have plunged more than 30 percent in California, Nevada and Arizona, according to ForeclosureRadar. Sales of existing homes in Florida tumbled 21 percent in October compared with a year ago.

Though several banks including Bank of America (NYSE: BAC) and housing finance giant Fannie Mae have restarted at least some foreclosures, the process has been irrevocably tainted by the industry’s apparent willingness to put profits above the law. Their legal exposure may be gigantic — billions of dollars — particularly if courts find that they improperly evicted people from their residences. Not only could the foreclosure be reversed, but they could face punitive damages as could the realtors and attorneys involved in the transaction.

But what about the people who bought these homes? That’s where things get a little dicey. Clearly, their rights were violated as well. But in the legal tsunami created by the robo-signed documents, they should be last in the pecking order. Many of them, particularly sophisticated investors looking for a quick flip, probably knew or should have known that something was amiss. How is it that the foreclosure process — which is purposely cumbersome to protect the rights of homeowners — suddenly became streamlined? What about the same people’s names appearing in hundreds of documents? That did raise any red flags either.

“The ones who are really upset are the investors, who buy on the courthouse steps,” said Kevin Berman, a broker with Bankers Realty Services in Fort Lauderdale, Fla, told CNNMoney. “There used to be sometimes 700 sales a day. Now there are like, seven.”

Adds to this the lower prices that new homes are fetching and it becomes even harder for flippers to make a profit on an existing dwelling that has been extensively fixed up. It’s human nature to prefer something new over something old if they are priced about the same.

Still, there are thousands of people in this country who believe they have what it takes to become the next Donald Trump. They get plenty of encouragement from cable television shows such as A&E’s “Flip This House” and Bravo’s “Flipping Out” and TLC’s “The Property Ladder.” Though these programs do illustrate the downside of flipping — potentially losing boatloads of cash — they make it seem like a grand adventure. These shows offer as realistic view of real estate as “Gray’s Anatomy” does for medicine. Untold millions watch the flipping shows, though, and figure that if those bozos on TV can do it, so can I.

This sort of delusional or magical thinking is evidence of what economists call a moral hazard. Essentially, it means that the government shouldn’t reward people for making stupid decisions. Though the idea was turned on its head during the recent bailouts of industry, it is still a worthwhile idea. It shows ` there are consequences to actions. People who acquired homes that they should have known they couldn’t afford crossed the moral hazard threshold. They deserve some help, particularly if they can prove they were victims of fraud. Otherwise, their rights should come secondary to the victims of fraudulent mortgage documents. Flippers are private businesspeople who should have known the risks they were getting into before they entered a deal. Few if any deserve government help.

Real estate has become a spectator sport in the U.S., which is unfortunate because many people have business playing it.

Jon Berr

ubetchaiam @ 30

I’m not sure I understand your hypothesis wrt the MBS tranches. No one who I’ve been reading, about foreclosure, writes about what’s happening to the thousands of houses in foreclosure, except as one-off anecdotes. There was a NYT magazine article about Cleveland last year that indicated there are thousands of vacant, stripped houses that the banks have abandoned, and a pattern of sending foreclosure notices, the people moving out, the house being stripped, and then the bank stops the foreclosure in order to avoid responsibility. But this may just be Cleveland and similar rust belt cities. I’m wondering about the pattern in newer, spiffier towns and neighborhoods, such as the Inland Empire in CA or Cape Coral, FL.

The suspicion that Fannie and Freddie are winding up with these houses is very strong, having just read Mortgage Lenders Meet Resistance in Courts (scroll down) with a graph captioned: “PILING UP: Fannie Mae and Freddie Mac are acquiring foreclosed homes faster than they are selling them, creating a backlog of foreclosed properties that must be sold.”

Getting back to the MBS tranches: If you mean that the foreclosures are to trigger CDSs, ok. But who’s paying off on the CDSs at this point? That news seems to be off the radar now. BAC is suing Old Republic, its mortgage insurer who has now stopped paying.

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@ 31

I actually learned nothing in the Taibbi article that I hadn’t already learned over the past two years of reading about foreclosure fraud (and personal experience). He did an excellent job, as usual, in telling the story of this outrageous fraud, except for one major, major narrative: the intentional servicer fraud, designed to force people into foreclosure, regardless of HAMP. If he wants to really explain why the ‘deadbeat borrower’ narrative is so very wrong he needs to write about the way people who could afford their mortgages are forced out by tacking on outrageous fees. One might even get the idea that the game is to see how quickly the servicers can force people into default, so that the bank can reclaim and re-mortgage the houses. In essence the banks are the house-flippers, taking huge fees, mortgage insurance, and bonuses at each flip.

The case of Ms. Cooper is the norm. The funny thing it points out is the lack of anyone at the foreclosure mills to keep time lines on the cases, in order to make sure the dates on the robo-signed documents conform to a plausible narrative for the foreclosure and how the bank came to have (fictitious) standing. This is more of an indictment of the courts, than just mere sloppiness or carelessness of the foreclosure mills: The fact that it wasn’t deemed worth the bother because the judges wouldn’t notice. Fact: none of the documents exist until foreclosure begins. The documents acquire dates when the robo-signers process and sign them. The depo of Tammie Lou Kapusta explains how it was recognized at one point that the notary stamps were dated differently from the signatures they purported to witness, and that thence forward they had to make the notary dates match the signature date not the date that the notary seal was applied. That’s how sloppy the paperwork was. And it’s those kinds of issues that the banks were trying to clean up in October, during their moratorium.

bench craft company scam

Wednesday 8 December 2010

foreclosure victims

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