Chicago Foreclosure Lawyer Blog

The New York Times is reporting that a new Federal program seeks to provide new incentives for borrowers and lenders to resolve distressed mortgages via short sale. The new program, scheduled to take effect on April 4, will provide cash incentives to increase the number of successful short sales.

In a normal short sale, banks allow borrowers to sell their home for less than is owed on the mortgage. In some situations, borrowers are still on the hook for the remainder of the loan's balance. The new Federal program would absolve the borrowers of that deficiency. It would also provide cash payouts to lenders and borrowers.

One key element that may actually make this program work is that lenders will have realtors assess the value of the properties and then be forced to accept an offer that comes in at or over the assessed value. This is a large step forward from the current system where lenders will reject a short sale offer if they subjectively feel that the offer is "too low."

Only time will tell if this is going to be more or less successful than the HAMP loan modification program. At very least, it should keep a few REO properties off of lenders' books.

I've been aware of the legal issues involved in virtual world platforms for quite some time. On the least "worldy" end of the spectrum, you have massively multiplayer online games (MMOGs) like World of Warcraft. Blizzard Entertainment, the company that developed and maintains World of Warcraft has taken many steps to curtail the active secondary market that re-sells in-game currency, items and so called "levelling services," all of which allow players to spend real-world dollars to speed up their advancement within the game itself.

On the other end of the spectrum, you have virtual world platforms like Linden Lab's offering, Second Life. Second Life was a media darling a few years ago, as media outlets caught on the fact that Linden Lab wasn't just running a game client, but was allowing users to monetize their creations, as well as speculate in virtual real estate. Reuters even went so far as to open a "branch" office within Second Life.

A recent article in the Washington Post has me thinking about virtual property again. How is it relevant to our practice at Sulaiman & Associates? More after the jump.

Continue reading "Virtual Goods and Real Estate" »

Full disclosure: The tagline for this post is dripping with sarcasm. Hopefully, the scare quotes make it pretty obvious.

In response to the dramatic increase in foreclosure filings in the last year, Citigroup is rolling out a new program to help Citi customers whose mortgages are distressed. As reported by Chicago's own WGN TV, the new program will stop immediate foreclosure proceedings and let home owners stay in their homes an additional six months.

Oh, and you have to give your home back to the bank, which they will first try to short sell.

Citi is also saying it will provide, "relocation assistance," but what does that mean? It could be movers and help finding apartments. It could be some boxes and packing tape.

Here's what bothers me -- this isn't anything new. Citi is simply indicating that it is willing to enter into Deeds in Lieu of Foreclosure or Consent Foreclosures. Even with standard deeds in lieu or consents, it is possible to set a move-out date a few months into the future. In some cases, you can choose your month (within reason).

While it is nice to see Citi apparently loosening up its standards for deeds in lieu and consent foreclosures, it seems odd that it is being spun as a new program that is being launched. The industry has been doing this stuff for years.

According to The Chicago Sun Times, Illinois had the fourth-highest number of foreclosure filings in January, with 18,120 properties receiving a foreclosure filing. This figure is up 25% from January 2009.

Interestingly enough, this represents a ten percent decrease in the number of filings when compared to December 2009. As the article notes, this is similar to a year ago, when December 2008's filings jumped significantly, with a decrease into January 2009. If the pattern holds, this means that we will see foreclosure filings increase in the coming months as loan modifications and other loss mitigation attempts fail.

I never expected that an article at CNN.com would surprise me, but this one did. It discusses how people were shocked to discover that, after a successful short sale or judicial sale, the lender pursued them for the remainder of their debt.

This should come as no shock to anyone familiar with the industry and with the foreclosure process. However, if you're not familiar with those things, it can be a bit surprising. When an individual buys a home with a mortgage, there are two documents that are executed. One, the Note, contains a promise to pay back a debt. The other, the mortgage, ties that debt to a specific piece of property that can be taken to satisfy the debt.

So, don't be surprised. If a lender releases the mortgage, you may still be liable for the remainder of your obligation under the note.

Citing several competing factors, Crain's reports that the Chicago housing market won't recover until 2013. It is predicted that existing home sales will reach 95,000 a year by 2013. During the peak of the housing boom, that figure was over 50,000 higher. If we assume that the 95,000 figure is based on more sensible lending practices, it would seem to be a sustainable recovery if it happens.

One of the more disturbing quotes from the article is, "Chicago homeowners will have to get used to a new reality, where selling a house routinely takes six months or more and home appreciation just barely outpaces inflation." This indicates that real estate may not be the way to invest money for the long-term. When I was growing up, my father, a high school teacher "lucky" enough to teach a section of consumer economics, always told me, "Everyone should buy a home. You save your 20% down, you find one that won't have a mortgage payment greater than 40% of your monthly income, and you begin to build equity."

This is clearly not the case as it is projected that home values in Chicago will drop 5.7% by the third quarter of this year. Moreover, the price of a home in Chicago compared to income is upside down. The median home price was 3.3 times that of the median income in the third quarter of 2009. On average, from 1980-2000, this figure was 2.6. If the market takes a long time to rebound, we may see the City of Big Shoulders become the City of Big Rentals.

As we get into the underwater mortgage foreclosure wave, we may see housing values decrease even further. According to Crain's, 21% of mortgages in Chicago are underwater. As those homes go to foreclosure, we can expect them to further devalue housing. Since most people don't fight their foreclosures, we can further expect that the market will be flooded with judicial sale properties as well as even more REOs.

This may seem like a buyer's market, but since banks aren't lending as freely as they once did, the decreased cost of a home will not do much to drive purchases. The more I think about it, the more I realize that Crain's estimate is pretty generous.

This article in the New York Times discusses the increase in what I would call, "strategic foreclosures." Let's face it, to many people, making mortgage payments on a property that has dramatically decreased in value is simply throwing good money after bad. Condos that were purchased for $300,000 four years ago are, in many cases, worth half of that now. Homeowners are finding themselves in a situation where their potential equity in the home has effectively evaporated.

Here in Northern Illinois, we're seeing no decrease in the number of foreclosures. When I attend court calls in the chancery division, there are easily fifty-plus cases up on any given day. The problem is so profound that Freddie Mac has started setting up centers where homeowners can get help obtaining a loan modification. It is estimated that the Chicago housing market won't recover until 2013 at the earliest. (More on this in another post.)

Quite simply, it seems that we may be seeing another type of foreclosure in the near future -- the strategic foreclosure. I am already aware of a few based solely on anecdotal evidence, I am sure that there are plenty more out there. I wonder, however, how many are pursuing a consent foreclosure or a deed in lieu of foreclosure. Are they all simply defaulting and hoping for the best? Time will tell.

I'm pretty excited about the coming week. I had planned to launch our new Virtual Law Office (VLO) this week, but it's been a lot more work than I'd expected. However, by next Wednesday, everything should be live and accessible by other people.

At this point, you might be wondering what a virtual law office is. Quite simply put, it is an online law office that can provide service to the entire state of Illinois as opposed to our current reach to the counties of Cook, DuPage, Lake, McHenry, Will, Kendall and DeKalb. Once it is live, it will be accessible via our website. We aren't the first people in the country to be doing this, but the VLO field is pretty small at this point.

More detail on what this all means after the jump.

Continue reading "On The Virtual Law Office " »

In November 2009, the Legal Aid Society of New York filed a class action suit against Aurora Loan Services, L.L.C., Timothy Geithner, and other Federal officials. The suit, filed in the U.S. District Court for the District of Columbia, takes an interesting approach.

First and foremost, any individual who is eligible for a loan under the Federal Home Affordable Modification Program (HAMP), and whose loan is serviced by Aurora is likely a member of the class. This means that an untold number of borrowers in Chicago, greater Cook County, and across the state of Illinois may be part of the class. Some of our own clients may very well fall within the class. At some point in the future, those whose loans are serviced by Aurora may very well receive a notice telling them that they may opt-out of the class if they wish to pursue their own lawsuit.

More thoughts on the complaint after the jump.

Continue reading "A New York Lawsuit With Promising Implications for Chicago Homeowners" »

Now that so many people have web-enabled cell phones, the risk that jurors may self-educate during breaks in a trial has caused some jurisdictions to contemplate restricting access to cell phones for jurors. According to Time.com, a case in Miami became a mistrial when the judge interviewed the jury and discovered that nine of the twelve jurors had done research on Google to help form their verdict.

I honestly find it surprising that so many people manage to bring cell phones into courthouses -- there are quite a few in the Chicago metro area that won't allow you to bring a phone with a camera inside the courthouse. How many phones don't have a camera these days? I look forward to the day that one can present evidence 100% electronically. Perhaps seeing the info on a giant screen would keep people from looking for more info on their phones -- the need for fancy electronic gadgets would be satisfied.

Per the New York Times, Freddie Mac and Fannie Mae are to receive more Federal funds. The new deal removes the $400 billion cap on money to be paid to Freddie and Fannie over three years. While this should increase liquidity in the mortgage industry, there is an interesting side note. It turns out that the executives in charge of the two mortgage giants will be receiving some pretty hefty compensation, and not in the form of stock.

Here's the compensation package for the chief executives of both companies: "$900,000 salary, $3.1 million in deferred payments in 2010 that are not dependent on performance and an additional $2 million tied to meeting certain goals." Here's a great idea -- why not roll some of that money into securing loan modifications for the multitudes of people with distressed mortgages.

According to the New York Times, the four biggest mortgage backers in the U.S. are going to remain on government support for quite some time. Why? Because someone has to guarantee the securitized mortgages that are still out there. As homeowners default, someone has to absorb the value of the defaulted mortgage.

Ultimately, that responsibility falls upon taxpayers -- money given to these mortgage giants comes at a cost. Much like a pay day loan, these companies are finding themselves in a position where they must borrow more money from the government in order to keep up with their existing debts to the government.

To make matters worse, AIG, a company oft-described as, "too big to fail," is unable to sell assets that could bring it revenue to pay off its existing commitments. In some situations, this is because subsidiary businesses are not wholly owned by AIG and require that their investors be bought out before a business can be sold.

Although many of the major banks are repaying or have repaid their TARP loans, it seems that the mortgage backers are nowhere near being out of the woods yet. Perhaps this will lead to increased pressure to comply with the government's loan modification programs.

Most standard mortgages contain an acceleration clause. The clause generally requires a lender to provide a borrower with notice of default and its intent to accelerate. It also requires that the lender prescribe steps that can be taken to cure the default and a date at least thirty days from the date of notice by which a borrower must cure the default.

This clause is often ignored by lenders and is a condition precedent to filing a foreclosure action. Simply put, a condition precedent is an affirmative action that must be taken before performing another action. In this context, a lender must take the steps outlined in the mortgage's acceleration clause prior to filing for foreclosure. Failure to do so does not invalidate the mortgage, but it can lead to the temporary dismissal of the foreclosure claim, resetting the clock for the distressed borrower.

More after the jump.

Continue reading "Using 2-619 Motions and Affirmative Defenses When Plaintiff Fails to Accelerate" »

According to CNN.com, foreclosure filings were down 8% in November. As the article indicates, this number may be a bit artificial as mandatory mediation and other remedies delay the filing process. At the same time the S&P/Case-Shiller home price index has shown a small increase in property values for five consecutive months. This has slightly reduced the number of homeowners whose mortgages are valued higher than their homes.

As long as housing values continue to increase steadily, it would stand to reason that many people facing foreclosure could completely avoid it or have a stronger bargaining position for a loan modification. Any recovery, if sustainable, should be gradual, but it's nice to hope for a better market in 2010.

A previous post hinted that the Treasury and HUD would be finding ways to spur banks to work out more loan modifications pursuant to HAMP. Today, Secretary Geithner indicated that TARP will be extended to October 2010. Part of the unspent TARP money will be used to spur the loan modification programs originally implemented by the stimulus package.

This is good news for those who are currently attempting loan modifications and having no luck. However, it is best to take a wait-and-see approach on these things. Who knows which financial shoe will drop next.