Chicago Foreclosure Lawyer Blog

It looks like the talk about possibly letting former home owners rent their foreclosed properties has generated a bill that was introduced in the House on July 25.

H.R. 2636 -- The Neighborhood Preservation Act of 2011 -- would allow banks to lease properties, including an option to purchase, for up to 5 years. The bill, if passed, would sunset in three years -- it clearly states that it is not intended to be a permanent change in housing policy.

The proposed Congressional findings indicate that the bill is intended to help stabilize the housing markets by keeping foreclosed properties off the market. If we assume this bill passes on January 1, 2012 and is effective immediately, that means that some properties could remain in a lease until 2020. Whether this will be considered another attempt to "extend and pretend" or a real solution to a bad situation will probably depend on the observer's level of cynicism.

I find it to be closer to "good idea" than "kicking the can." Empty houses are not an efficient use of real property. One of the main reasons for a society having a system of property ownership is to promote the most efficient use of land possible. For those really interested in the theory behind this, I would suggest starting here. Yes, it's a Wikipedia link, but I'm not offering it to establish an eternal truth.

Empty buildings don't help anyone. They attract blight and crime. They devalue the other properties in the neighborhood. Will this bill, if passed, suddenly spur banks to speed up foreclosures and suddenly have a nation of renters? Probably not. Banks aren't in the business of being landlords. However, if enough banks got on board, we could see a temporary stabilization of the housing markets. At worst, we'd slow down further decay.

I am interested to see if this passes. It doesn't involve increasing spending and it could possibly lead to some job creation (all of those rental properties will need to have a guy like Schneider around at very least.)

If there's even a slightly plausible reason as to why this is a Bad Idea, I'd love to hear it.

Senator Al Franken recently introduced this bill in the Senate. The Homeowner Advocate Act of 2011 seeks to create the Office of the Homeowner Advocate. The Homeowner Advocate would assist "homeowners, housing counselors, and housing lawyers in resolving problems" with HAMP, identify problems with HAMP that could be remedied via legislation, propose changes to HAMP's administrative practices, and finding other means for assisting homeowners with obtaining assistance via HAMP.

The bill seems to establish a complaint hotline. Given the current move to cut spending, it seems unlikely that even this bill, which only uses funds that are already allocated, would get too far. What makes it an interesting bill is that it has two mandates that go beyond the "complaint department" aspects of the bill.

First, it prohibits homeowners engaged in a strategic default form using HAMP in any way. Second, it mandates that data submitted to the Treasury by banks participating in HAMP be made available to the public within 60 days for submission. The data will include in-depth information about the types of loans that are currently distressed. In essence, the bill is really a transparency bill and has much less to do with the advocate's office. The required data would be very useful to help identify instances of predatory lending, as well as predatory trends in a specific geographical area.

I've finished parsing through the entirety of the Foreclosure Fraud and Homeowner Abuse Prevention Act of 2011. For those interested, you can search for S.824 on Thomas. Thomas is a great service provided by the Library of Congress. Sadly, you cannot deep link the search results it generates.

Overall, I think this proposed legislation doesn't have a chance of passing both chambers of Congress. Why? It's just too good. If the 112th Congress has taught me anything, it's that we don't deserve nice things.

After the jump, my thoughts about the bill and why it's just too darn good to clear Congress unscathed, and why it should pass as-is. If you feel that the bill should pass as drafted, you can write your Representative and your Senator.

Continue reading "The Foreclosure Fraud and Homeowner Abuse Prevention Act of 2011 -- My Analysis" »

This is some promising legislation. Having said that, it is more than likely to fail, or emerge from the Congress as a shambling, hulking, unrecognizable Frankenbill. (No relation to Sen. Franken.)

Here are the highlights of the bill. Among other things, it would require delinquent loans to be handled by special, independent servicers. It would prevent dual-track activity. It would prevent lenders from holding second mortgages on properties they service for the primary lien holder. It would also require that second mortgages be written down to reflect the terms of the primary mortgage if the primary is modified. The bill also provides for principal reductions for underwater home owners and requires that lenders consider loan modifications before proceeding to foreclosure.

The bill is broad, and has some great ideas. After I've had a chance to parse the bill itself, I will provide my own thoughts. Until then, here are Yves Smith's thoughts on the subject. If Yves's reading is accurate, I tend to agree with the opinion. More to come tomorrow.

The Illinois General Assembly may be considering a change to the rules for real estate appraisers. Right now, appraisers can use foreclosed properties as comparable sales ("comps") to determine the appropriate sale price for other properties in the area. This has contributed to the sharp decline in Illinois property values since the foreclosure crisis began. The proposed bill would prohibit appraisers from considering properties as comps if they were sold at a sheriff's sale in the last 12 months.

The bill is currently in front of the Rules Committee, so it's not going to a vote in the near future, but it is an interesting move. HB0092 is sponsored by Rep. LaShawn K. Ford, who is a Democrat from Illinois' 8th District. His district is located on Chicago's West Side, which has seen its share of foreclosure filings.

I am left torn on whether I support this move. On one hand, it may be an effective means of limiting the impact of foreclosed properties on the relative value of housing within a neighborhood. On the other, it seems to also be a means of artificially inflating home values that were already artificially inflated by the housing bubble. Should we simply kick the can down the road in this manner? Rep. Ford is/was a realtor, so it's possible that he's considering this from the perspective of a person who has lived on commission checks before.

It seems to me that we need to allow the market to fully bottom out. Yes, this means we will more than likely hit a double-dip recession, but that's how the invisible hand of the free market works -- sometimes it gives you the finger. Until people realize that the equity they "lost" was never real in the first place, a true housing market recovery cannot begin. Property is a long-term investment. The bubble turned it into a short-term, high-volume business. TLC used to have multiple reality shows about house flipping. That's just not how things should work. All of that house flipping drove values through the roof, but those values weren't sustainable.

Returning to reality will be painful, but this is a lesson that we, as a society, need to learn. If growth is not sustainable, it's not true growth. Bubble economies driven by speculators are great -- for the speculators who get in early and get out just before the bubble bursts. For everyone else, the results may vary. The dot-com bubble didn't hurt as badly because we didn't have people's homes caught up in the mix.

Instead of bears and bulls, perhaps the lowly dung beetle is the animal spirit driving this market right now.

In a move that will likely prove to be of only symbolic importance, the House voted to terminate the Home Affordable Modification Program (HAMP). The HAMP Termination Act is unlikely to pass the Senate. Even if it does, the Obama administration will likely veto it.

The GOP argues that HAMP was an utter failure and should be discontinued. It has not offered a program to replace HAMP. Terminating HAMP would leave many Americans without an alternative to foreclosure.

For those opposed to "big government," HAMP's failure is a dream come true. It demonstrates that government is inefficient and cannot get things done. The fact that private loan modifications eclipsed HAMP modifications is clear proof that private business is the driving force behind our nation's success. Or is it?

Wasn't HAMP's failure moreso that the government didn't do enough? It created a program with no real carrots or sticks. Banks had no incentive to participate in good faith -- they were going to receive their bailout money regardless. The government didn't provide strong enough rules -- it issued guidelines. Arguably, HAMP failed not because big government doesn't work, but because our government failed to go big enough.

At the end of the day, HAMP has been a failure. It has not helped the millions of Americans it was supposed to help. Some people were worse off after participating in the servicer-led HAMP non-effort. And there's the real problem. We let the fox guard the hen house. We basically let the fox tell the hens that, in order to be protected from the fox, they should leave the front door wide open.

And we wonder why HAMP has failed.

For those who received loan modifications, HAMP wasn't a failure. For those who bought more time in their homes, HAMP wasn't a failure. However, by allowing banks to run the show, we made HAMP a failure.

According to this article, the Florida state legislature is considering a bill that would give lenders the option of pursuing commercial mortgage foreclosures without involving the courts. Although this bill would not have any effect on residential mortgage foreclosures, the move itself boggles the mind.

In what universe does it make sense to fast-track commercial mortgage foreclosures by having them conducted by a bank-appointed trustee? Even more troubling is that Florida is the epicenter of foreclosure fraud. Removing the courts from the process simply enables further dishonest conduct.

An interesting aside -- supporters of the legislation suggest that it will save many smaller banks from failure, thus supporting Florida's economy. On the other hand, the courts will be faced with a budget crunch when funds from filing fees stop rolling in.

According to the New York Times, a new state law in California is making it difficult for loan modification-seeking homeowners to obtain an attorney's assistance. This isn't because attorneys aren't allowed to assist homeowners in obtaining a modification, it's because they cannot charge the client any money until the work is complete. Anyone who has attempted to get a loan modification can tell you that the process can take months upon months to complete. During that time, the attorney has costs to cover and bills to pay. Some modifications fail. So, in that case, what is "completed" work?

As a result, many attorneys are just turning away potential clients who want help with their loan modifications.

This is an example of a regulation that fails to work as planned. The obvious intent was to prevent fly-by-night attorneys and mortgage rescue companies from fleecing California residents. Since California is largely a non-judicial foreclosure state, attorneys cannot simply make loss mitigation part of the services they offer in addition to litigation. The result of this rule is that people's access to the legal profession is limited by market forces, which means more people will likely lose their homes. This, in turn, increases the shadow inventory and ultimately delays the recovery of the housing market and the economy overall.

Illinois prohibits non-attorneys from taking up-front fees for loan modifications. I would imagine that we attorneys are allowed to take up-front fees because we have the attorney disciplinary and registration commission to deal with those attorneys that defraud their clients. You'd think that California has a similar regulatory body . . .

The Nation is reporting that the U.S. Treasury Department has informed the nineteen states receiving money from the Hardest Hit Fund that they cannot use that money to fund legal aid programs for home owners facing foreclosure. I won't rehash The Nation's article, but I highly recommend it as a solid read. Also worthwhile is Sen. Sherrod Brown's letter to Treasury.

Most amazing about Treasury's decision is that it hired outside counsel to help determine the answer. The firm? Squire, Sanders & Dempsey, a firm that lists some lenders amongst its clients. "Maybe TARP doesn't allow that kind of funding," you might think. "Clearly, this must be an issue of statutory interpretation," one might opine.

Feel free to plant your face into your palm after reading my analysis of the bill itself. (After the jump.)

Continue reading "Et Tu Tim? Geithner To States: Don't Use TARP Money To Fund Legal Aid" »

I have previously posted about Attorney General Madigan's desired changes to the Illinois Mortgage Foreclosure Law. Her proposed changes have finally been introduced into the Illinois General Assembly. You can look up the text of HB 6951 at the ILGA website, or you can keep reading. After the jump, I break down the most interesting bits.

Continue reading "Illinois Attorney General Madigan's Proposed Changes to the Illinois Mortgage Foreclosure Law" »

Although it did not make big news, a change to the Illinois Mortgage Foreclosure Law (IMFL), is a big deal for many Chicago-area and Illinois homeowners facing foreclosure. The change gives homeowners added leverage in dealing with their lenders.

When a lender proceeds to the sheriff's sale stage of the foreclosure lawsuit, it must first comply with the provisions of the Home Affordable Modification Program (HAMP). This means that if a homeowner applies for a HAMP modification, the lender cannot proceed to a sheriff's sale without first addressing the HAMP application. Lenders who do not comply will find their sales set aside, forcing them to go through the sale process again. However, this change will not help homeowners who do not help themselves. Since the circuit court judges won't necessarily know that a homeowner has applied for HAMP, it is vitally important that individuals show up to court and make this fact known.

As always, it is best to consult with a licensed attorney before proceeding with any legal action. You may have options and rights that you didn't know existed.

An article in the Chicago Tribune raises privacy concerns about the proposed changes to the Home Mortgage Disclosure Act. As a privacy advocate, I'd like to comment on the points raised by the author.

If the Privacy Act of 1974 is faithfully enforced, the data collected under the HMDA will be obfuscated to make the collected information devoid of personally indentifiable information. The collection of what amounts to statistical information is little cause for alarm. What is truly important is how the government plans to anonymize the data and what plans it has for the retention of the more detailed data.

The proposed changes to the HMDA are valuable for their ability to effectively track predatory lending trends. So long as the personally identifiable information is properly protected, there is little about which to worry. If that information is retained by private entities as well as the government, whether the private entities sell that information without the permission of the provider is a legitimate concern.

We'll see how things develop in the future.

Passed in 1975, the Home Mortgage and Disclosure Act (HMDA) requires lenders to make annual disclosures about home purchases, home purchase pre-approvals, home improvement, and refinance applications involving 1 to 4 unit and multifamily dwellings. One use of this data is the identification of discriminatory lending practices.

On Thursday, September 16, representatives of The Woodstock Institute and the National Council of La Raza will testify at the Federal Reserve Bank of Chicago. Their testimony will focus on recommended changes to the HMDA. One suggested change is requiring lenders to indicate how they documented the credit-worthiness of borrowers. If a large number of under-documented loans crop up in a specific area, it may be evidence of predatory lending targeting a specific population.

The groups would also like to see disclosure of loan performance over time. It is very possible to manipulate initial loan figures to make loans seem appropriate for the community in which they are issued. However, performance over time is a better indicator of whether the loan has succeeded or failed. I've seen too many loans that worked out fine until the first adjustment year. Being able to spot areas where a large number of loans failed in a similar time frame may also indicate less-than-ethical lending practices.

More information about the proposed changes is available in this article. More information about the HMDA can be found here.

Governor Quinn signed two new bills on August 2, according to the Illinois Government News Network. Of particular interest for our readers is Senate Bill 3739, which creates the Save Our Neighborhoods Act of 2010.

The bill provides funding to foreclosure prevention outreach groups and housing counselors. It generates some of this funding by adding an additional $50 fee for filing foreclosure actions. The bill also extends the Homeowner Protection Act. The Act requires lenders seeking foreclosure of residential mortgages to send the homeowner a 30 day grace period notice. Among other things, that notice informs homeowners that if they seek counseling from a HUD-approved counselor they will receive an additional 30 days to work something out with the bank. The bill extends this period to 90 days, which seems a bit more realistic given the difficulty that many people have with obtaining loan modifications.

The bill goes into effect January 1, 2011. We here at LOSA hope that it is a step towards alleviating the current mortgage crisis.

HB 5055, which modifies portions of the Illinois Mortgage Foreclosure Law, was sent to Governor Quinn on June 17, 2010. On July 21, 2010, Rep. Dan Brady withdrew himself as one of the bill's co-sponsors. The bill itself adds some new provisions to the IMFL, but the issue that has caused Rep. Brady to withdraw his support is based on a specific change to the law. If signed into law, the bill will allow foreclosing banks to select their own selling agent for the property, avoiding the use of the county sheriff and its services.

At first look, this provision seems to be a measure that might streamline the sale process. The ability to choose the method by which a property is sold seems to be available to any party involved in the foreclosure, which may give foreclosed home owners some say in the process. However, that simple provision threatens the bottom lines of many counties, particularly those in Chicago's collar counties. Since the dramatic increase in home foreclosures, many counties have been bringing in an extra one to two million dollars per year. What is the source of these funds?

Administrative fees paid to the sheriff during the foreclosure process.

According to the Chicago Tribune, Will County earned an additional $1.5 million last year, and expects to make $2.5 million this year. DuPage and Lake counties made over $1.2 million. Kane county came in at $1 million. With budgets already tight, this extra cash is obviously useful for the counties that have a large volume of mortgage foreclosures. However, for those facing foreclosure, the idea that their misfortune is funding their county's government is cold comfort at best.

Members of the Illinois General Assembly are asking the Governor to veto the bill so that they can change it. Although it may seem like a cash grab by the county governments, having the sheriff involved, as opposed to private companies, provides for significantly more oversight and accountability.