Chicago Foreclosure Lawyer Blog

This info graphic has been in the Chicago Tribune and is also located here. It shows the rapid increase in foreclosures in Chicago's Belmont Cragin neighborhood. Between 2007 and 2009, the number nearly tripled. This is truly a sobering view for those who remain oblivious to the problem at hand.

David L. Washington, a Chicago homeowner, filed a complaint in the U.S. District Court for the Northern District of Illinois on July 12, 2010. The case challenges Presiding Judge Dorothy Kirie Kinnaird's General Administrative Order 2007-03, which allows plaintiff's firms that handle foreclosures to seek standing orders for the appointment of special process servers. These orders last three months, and then must be renewed.

The major issue in the case is whether Judge Kinnaird has the authority to issue such an order. The Illinois Code of Civil Procedure requires that plaintiffs seeking a special process server must file a motion with the court each time that they wish to have a special process server appointed. The suit claims that the only way to modify the process is via legislative action. I am inclined to agree.

The argument in favor of the Judge's order is due to the volume of foreclosures filed in Cook County, plaintiffs should be able to expedite the process, which likely helps clear up the court's dockets. However, this argument ignores two important points. First, special process servers are only as good as their word -- so-called "sewer service" not uncommon in Chicago. Sewer service is the practice of placing court documents in the sewer grate in front of a distressed property. Second, this practice short-circuits the due process requirements of the U.S. Constitution.

Mr. Washington seeks class certification. Regardless of his success in that regard, his complaint lays out what could shape up to be an interesting legal battle. Here's hoping that he emerges with a victory for himself and the other residents of Cook County.

CBS Channel 2 reports that the Cook County Circuit Court Clerk's office is holding almost $18 million in unclaimed funds. These funds are owed to those whose homes were sold at auction and actually sold for more than the value of the mortgage.

The money is held until someone claims it. The big problem is that the notice is sent to the last known address for the former home owner. That address is often the property address. Since the individual has already vacated the property, no notice is received and the money just sits. The Clerk's office makes attempts to call people owed their surplus, but with limited results.

Needless to say, those who have been foreclosed upon may want to visit the Clerk's website and see if there is a surplus waiting.

A recent report from NPR indicates that perhaps it is time for a more balanced housing policy in the United States. The general rule of thumb has always been that it is better to own than to rent; paying rent is basically building equity for someone else.

Now that "someone else" may not have any equity in their property. When the housing bubble drove prices ever skyward, landowners refinanced their investment properties, sometimes to make improvements, others simply for liquid cash. Now that property values have dropped, those same landowners are facing the fact that their investment properties are underwater.

Those that chose to rent don't have underwater mortgages. They aren't prevented from pursuing employment opportunities because they cannot relocate. It's pretty hard to move when you can't sell your home. It is also better to have no equity than negative equity.

The problem is that the government provides few incentives to rent. Homeowners get many financial incentives to purchase homes, in particular, the recent $8,000 first-time home buyer's credit. With banks unwilling to lend, more people are renting. There was once a time when saving $5,000-$10,000 was enough for a 20% down payment on a home. Even though prices have dropped, a 20% down payment can be upwards of $40,000. Renters are in the position of being able to decide when, if ever, to re-enter the housing market.

Many rental properties offer amenities that would drive the value of a home beyond the reach of many people -- dedicated work out facilities, indoor and outdoor swimming pools, tennis courts, &c. $1,200 can get a renter all of those amenities plus a garage, but without the head aches and costs of owning a home.

It seems clear that we need a more balanced housing policy, one that gives people options and incentives more than just home ownership. The following from the NPR story summarizes my thoughts on the issue:

"Nicolas Retsinas, the director of Harvard's Joint Center for Housing Studies, says the federal government is now wrestling with whether to favor homeownership or "seek a more balanced housing policy, talking more about giving people options, worrying more about whether people have a decent place to live, rather than whether they own or rent.""

A decent place to live sounds like a great option for a great many people right now.

I have a Google news search alert set up for "Chicago foreclosure." Some weeks, there's not too much in the news. Others, I find some interesting articles. This week, there were many articles, almost too many to spend time blogging about all of them.

After the jump, I share some of the most interesting links.

Continue reading "The Week In Google Alerts" »

It may be a cliche, but sometimes truth IS stranger than fiction. At least it seems that way. The New York Times is reporting that potential borrowers are being turned down for mortgage loans because they are on maternity or paternity leave. In some cases, those who anticipate being on leave in the near future are also denied loans.

This seems rather unfair. Why would a bank deny a new family the loan to purchase a home?

Many lenders are only lending money to those who have a "guaranteed" income -- those who are employed and have regular paychecks. Maternity leave, even if paid, no longer qualifies as "regular" income for most banks. Some lenders fear that new mothers will elect to remain home and not return to work.

Lenders cannot ask whether a potential borrower is pregnant; they can ask, however, whether a borrower expects a change in income. But even that expected change in income doesn't necessarily disqualify them, according to Fannie Mae. So long as a borrower can show that he or she will have adequate income upon returning to work, there shouldn't be an issue approving the loan.

The lenders claim that one bad loan could bring them down, given the new guidelines for approving them. While this may be the case, it seems clear that they are erring on the side of caution right now. In the meantime, expecting families may want to plan their home purchases accordingly.

At the end of the day, denying a loan simply because a borrower is pregnant is abhorrent. Dressing it up as "smart lending" or "cautious lending" is a semantic game at best.

On July 9, Norton Helton, a former Chicago attorney and radio personality, was found guilty of engaging in a mortgage rescue scam. Although this was done while the housing market was still high, these kinds of scams also work when the market is down.

It is very important that people facing foreclosure understand these scams so that they can be avoided -- what seems like a great deal at the time is often a vehicle for leaving a homeowner high and dry. Some red flags to look for based upon the facts of the Helton case are:

1. Deals where you transfer your property to another person, group, or company. These deals usually include a promise that the homeowner can remain in the property and rebuild credit. In a perfect world, with repaired credit, the homeowner would be able to repurchase the property from the "investor." In the case of these scams, it doesn't work that way.

2. Promises of credit "scrubbing" or credit repair. Nobody can magically repair credit, it takes time and responsible spending habits (as well as the responsible use of credit) to rebuild a score. Money given to someone promising to repair your credit is money that is ultimately wasted.

3. Scenario #1, but with the promise of bankruptcy assistance as well. Removing a home from your assets and liabilities may seem like a good idea. It is also likely fraud, in particular, if the plan is to repurchase the home after discharge.

The risks are wasted money and losing your home. These scams often loot the property for any equity value, meaning that the investors extract as much money from the property as possible. Not only does this make it that much more difficult for the scammed homeowner to repurchase the property, but it often leaves homeowners facing foreclosure on a property they no longer own.

As with anything, if it sounds too good to be true, it may not be true. Before committing to anything, seek out a competent attorney in your area to discuss your options.

The New York Times has published an article that speaks to the necessity of defending oneself in credit-related lawsuits, regardless of whether you proceed pro se or seek legal counsel.

Some firms, like Cohen & Slamowitz, are filing record numbers of debt-collection lawsuits. According to the New York Times, "The firm filed 59,708 cases in 2005, 83,665 in 2006, 87,877 in 2007 and 80,873 in 2008. . . " How does a firm file so many cases? Often, this is done with the help of legal document preparation software. The problem with doing such high volume is that it is easy for mistakes to be made. In some cases, firms only have the name, address, social security number, date of birth, and amount of debt owed as proof that a debt is, in fact, owed. Some judges are starting to demand more proof. However, this demand is generally only made when an individual contests the debt.

Most debt-related cases are decided upon default judgments. These judgments arise when a defendant simply does not show up to multiple court dates. The time period to issue a default judgment varies by jurisdiction, but it is safe to say that individuals who do not show up to court within 90 days of the first court date are going to be subject to a default judgment.

The take-away from all of this? Don't ignore it if you are served with a summons. Show up to court and ask for time to file and answer, ask for time to hire an attorney, go interview area attorneys and see which is the best fit for you. Sitting back and letting things happen will only work to your detriment.

On July 2, 2010, the FDIC filed a lawsuit against former officers and directors of IndyMac's Homebuilder Division -- the branch of the failed mortgage lender responsible for funding construction loans. The 309-page complaint alleges that, among other things, the four named defendants disregarded the division's lending regulations, approving loans to builders regardless of whether they were creditworthy or had provided significant collateral. In addition, the suit alleges that they ignored the declining housing market, instead pushing for growth, even in areas that were already in decline.

Of particular note is the Division's alleged practice of allowing developers to rely on so-called "market equity" to collateralize developments. Although internal policy required that developers owned the subject property for more than two years, this policy was frequently ignored. Since this equity was based on recent increases in property values, and not on long-term growth, it was a particularly risky investment. The Division also frequently waived other policies designed to protect the equity-backed investments, including provisions that would have protected IndyMac from becoming over-invested in larger developments.

The complaint further alleges that the Division ignored many red-flag warning signs that generally point to bad loans. Some examples include: (1) loans with no or minimal borrower equity; (2) loans based on speculative, undeveloped property where the only method of repayment was sale of land or homes; (3) land with inflated value based on recent "land flips;" and (4) loans to borrowers with no development plans. The Division also developed a credit risk matrix that was flawed enough to allow a critically-flawed loan to be granted, so long as the other scores on the matrix were high.

The complaint also alleges that the compensation package for account officers encouraged risk taking and the sale of tenuous loans. Officers frequently received a front-end payout of 50% of the loan's anticipated commission, regardless of actual performance over the long-term. Officers were also paid an additional 1% for loans producing ROEs of 24% or more, loans that were typically high-risk with lower credit scores.

Overall, the suit does a good job of outlining how the named officers and directors of the Home Builder Division ignored their duties to IndyMac and likely accelerated the collapse of one of America's sub-prime sweethearts.

Back in April, I wrote about the fraud charges the SEC filed against Goldman Sachs. I was looking forward to seeing what was uncovered in the investigation.

Today, Goldman Sachs settled the matter for $550 million and a three-year internal oversight mandate. $550 million may seem like a lot. Goldman Sachs reported $3.5 billion in profits for the first quarter of 2010. For Goldman, this is a paper cut, not a true wound. The regulatory plan looks reasonable, or at least an improvement on the status quo at Goldman.

More after the jump.

Continue reading "Goldman Sachs Settles SEC Suit" »

In our last update on this topic, we gave some raw numbers from the National People's Action report on Bank of America and Chicago foreclosures. A quick analysis of those numbers indicates that although it holds a large number of properties, Bank of America has been less than quick to get homeowners into permanent modifications.

This has had a significant effect on Chicago neighborhoods, in particular those on the west side of the city, as well as some on the far north. Bank of America filed 202 foreclosures in Chicago's West Ridge neighborhood in 2009. When you combine West Ridge's foreclosures with those of neighboring Rogers Park, you have a total of 297 foreclosures filed by Bank of America within the northeast corner of Chicago. When looking at the neighborhoods of Austin, Humboldt Park and West Town, Bank of America is responsible for 369 foreclosures west of the recently-gentrified Near North neighborhood. On the South Side, West Lawn, Chicago Lawn, West Englewood and Englewood total 348 Bank of America foreclosure filings for 2009.

These neighborhoods are further impacted by these foreclosures and others -- empty properties provide safe haven for drug dealers, gangs and an increasing homeless population. These empty buildings also make it much more difficult for other distressed home owners to pursue remedies like a short sale. The decline in property values has left 1 in 4 homeowners underwater on their mortgages -- the increase in foreclosures in this neighborhood is bound to drive property values even lower.

Do these neighborhoods also indicate a trend of predatory lending in Chicago? Perhaps. However, with neighborhoods like Lakeview and Lincoln Square facing over 50 Bank of America filings each, it may be a bit difficult to establish a serious trend. Add to that the fact that Bank of America inherited a large amount of this debt from Countrywide. It may very well be that predatory lending occurred. The bigger story, in my opinion, is that Chicago's biggest forecloser is not doing much to work with borrowers.

A recent article in the New York Times was rather surprising, even to me, someone who practices foreclosure defense litigation. As you may have read in our previous post, Fannie Mae's plan to prevent strategic defaults seems designed to punish all homeowners who find themselves seriously underwater on their mortgages.However, the New York Times indicates that the wealthy are engaging in strategic defaults than any other group.

More analysis after the jump.

Continue reading "Strategic Defaults -- Who's Foreclosing Now?" »

The L.A. Times reports that two new bills in the California state legislature seek to prevent banks from seeking deficiency judgments against individuals that walk away from underwater mortgages and those that give up their properties via short sale. As someone who generally likes California, I have to admit, this just makes me like the state even more.

Given the fact that property values were obviously inflated during the lending boom, it seems that homeowners shouldn't be left holding the bill. Some may argue that it is an issue of personal responsibility -- these people made a choice. The difference here is that these choices were generally made based on bad information. If a doctor told you that a heart transplant had a 0% chance of complication, and you consented to that surgery, did you really give informed consent? How is it different for home purchasers who were told that values only went up, that they could refinance that exotic ARM before it adjusted, &c.?

So, State of Illinois, I challenge our legislators to introduce similar legislation. Many of the Federal statutes have protections that expire before homeowners need them or are aware that they were protected. It is incumbent upon the states to protect their citizens from this crisis.

A report recently issued by National People's Action indicates that Bank of America, which acquired Countrywide when it failed, is now the largest mortgage loan servicer in the United States. On a national level, Bank of America owns over 14 million residential mortgages that are worth $2.159 Trillion.

In Chicago alone, Bank of America was responsible for almost one in five of the 23,000 new foreclosure filings in 2009. It is likely that a good number of these mortgages were eligible for the Making Home Affordable program -- over a million of BoA's delinquent loans were eligible. Unfortunately, only 5.8% of those loans were offered a permanent modification. For those who don't like to do math, that's 62,969 permanent mods out of 1,086,894 eligible homeowners.

The National People's Action report has a wealth of information. You can find it here. We will be adding more posts on this subject in the next two weeks, check back often and learn just how deep the rabbit hole goes.

Cook County residents who are facing foreclosure may receive a visit from Action Now/Foreclosure Convening representatives in the near future. Ten groups will be covering Cook County in an attempt to get home owners who are facing foreclosure involved in the Cook County Mortgage Foreclosure Mediation Program. This program seeks to put home owners in touch with mediators and their lenders to work out alternatives to foreclosure such as loan modifications, refinancing and other payment plans.

The program has $3.5 million in funding from the Cook County Board of Commissioners and began on July 1, 2010. This outreach program will put volunteers on the doorsteps of area home owners. The volunteers will explain the benefits of the mediation program and offer to make a call to the county's toll-free helpline then and there. While this program may not produce dramatic results, some positive outcomes will still be an improvement on the status quo.

More information about the program is available here.

To read the article on which this post is based, and to see a frightening look at the number of homes in foreclosure within a 7 block by 5 block area on Chicago's West Side, click here.

Two days, two articles, two different viewpoints. If you listen to NPR, you may have heard the segment on the "troubled Obama mortgage program." If you read MarketWatch, you may have read that loan modifications are on a sharp rise. So, which one is right? Oddly enough, both are pretty accurate once you filter out the spin.

After the jump, I attempt to do just that.

Continue reading "The HAMP Program -- Success or Failure? It Depends Who You Ask." »