Chicago Foreclosure Lawyer Blog

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.