Chicago Foreclosure Lawyer Blog

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.

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.

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.

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.

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.

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." »

According to the Wall Street Journal, Fannie Mae has a new plan to prevent strategic defaults. Strategic default is a bit different from strategic foreclosure. In a strategic foreclosure, homeowners in underwater mortgages can seek remedies like deed-in-lieu of foreclosure, consent foreclosure, or a short sale. A strategic default is simply walking away from the mortgage.

From a financial perspective, strategic default may expose you to a deficiency judgment once the house is sold at a sheriff's sale. Generally, homes don't sell for the value of the mortgage. Borrowers are liable for the difference between the value of the loan and the sale price of the house. Many of the strategic foreclosure options protect borrowers from deficiency judgments.

If that wasn't enough, the new plan from Fannie Mae aims to provide strong deterrents against walking away from an underwater mortgage. After the jump, I break down the new "time out" periods for borrowers who engage in a strategic foreclosure or default.

Continue reading "Fannie Mae's Plan to Prevent Strategic Defaults" »

As the person who often deletes spam comments on this blog, I have been discovering that many of them are posted by other firms that engage in bankruptcy practice. Our firm also handles bankruptcy cases, but generally separately from our foreclosure defense practice.

Here is the obligatory disclaimer: We are a debt relief agency. We assist people with filing for relief under the Bankruptcy Code.

My own concerns about the ethical implications of comments that do not provide this disclaimer aside, I feel that it is important to give it before the jump. After the jump, I will talk about bankruptcy vs. loss mitigation strategies and when they are most effectively used.

Continue reading "Bankruptcy vs. Loss Mitigation" »

The New York Times Op-Ed page states that the Administration's new foreclosure prevention plan could save up to 1.5 million homes from foreclosure. Some highlights of the plan include: requiring lenders to consider reducing the principal on some underwater loans, new short-term modifications for borrowers receiving unemployment payments, and added incentives and requirements for banks that should increase participation.

This plan sounds like a better deal for borrowers. By moving towards required participation, the Administration is taking a step in the right direction. However, even if the plan saves homes, we are still expected to lose 3.6 million more through 2012. This basically means that the housing market will stay depressed for quite some time.

In my opinion, the Administration should take a large step towards heavy regulation of mortgage lenders. Requiring lenders to participate in these programs and monitoring compliance would be a step in the right direction. Instead of backing up banks that lose money at foreclosure auctions, spend that same money on a program that pays down underwater mortgages (while also requiring principal reductions from the banks) to restore some equity into our nation's homes. For those who would immediately cry, "government handout," keep in mind that the money would be spent on a handout to a massive bank as opposed to a financially distressed individual. To prevent abuse, prohibit borrowers from using that equity to finance another loan for a period of two years.

There is still a lot that could be done, but we are slowly getting there via baby steps.

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.