Law Blog

Sanctuary. Adobe. Spacious. Luxurious. Vacant??  Times have changed when it comes to the words landlords used to describe the once highly competitive apartment and other rental spaces market.  Apartments with 5, 10, 15+ applicants the second it is advertised has dwindled down do a couple, if that, and landlords are finding themselves desperate to fill vacancies.

If you are a renter, like myself, and able to afford city life then this is the prime-time to enter into a lease in an apartment at a lower rental cost.  I have seen some of my friends move out of their beautiful high-rent apartments in attempts to save money by moving home, getting roommates or moving to a cheaper location.

Perhaps “Renters Paradise” was a little much for my blog title, but the number of vacant apartments out there is almost at unprecedented levels.  Unfortunately, so too are the factors that tether this fact back to reality: unemployment and economic uncertainty.

According to a recent study, U.S. apartment vacancies are nearing a record low.  Currently at 7.5% and projected to increase, the rising figure reflects the difficult economic times.

Not surprising, the struggling real estate and rental industries are accompanied by an increase in legal problems and litigation.  A study conducted by LegalMatch, looking nationwide at the past 12 months saw a rise in legal inquiries across the board in the Real Estate category.  Landlord tenant issues are on the rise as landlords are feeling the pinch and tenants are demanding more concessions and lower rents. I agree with a recent Yahoo News article that attributed much of the rental issues to the employment problems that have befallen the 18-24 year old category.

Obviously, the effects increased vacancies are having will not be isolated.  An interesting prediction regarding falling home prices relationship to the rental market was articulated in a recent Wall Street Journal article.  The author felt that falling home prices could hit landlords in two ways: “they could force landlords to lower rents to keep up, and could spur some renters to purchase homes. Still, the number of renters who move out to purchase homes isn’t expected to surpass levels seen during the housing boom earlier this decade.”

Whether a renter or buyer these are really interesting times to explore your financial options and research the best financial approach to housing for you!  Don’t be afraid to negotiate your rent, demand concessions at your current location, or look into buying.

You’ve always paid your mortgage on time but now you find yourself unemployed.  You’ve tapped out your savings. You haven’t paid your mortgage in 3-months and discovered a Notice of Default in your mail.  Not only are you put on notice of a default, but since this notice is also recorded with your County Recorder’s office, there are others on the lookout, too.

Take the experience of Charleen Trana a 78 year-old widow living in her San Fernando home of 50 years, worth at least $350,000.  (Dreams Foreclosed: The Rampant Theft of American’s Homes Through Equity Stripping Foreclosure “Rescue” Scams) Because her disabled son was having difficulty maintaining jobs, Trana took out a $100,000 mortgage on her home to help him.  However, when Trana’s health began to fail, her costs skyrocketed.  She fell behind in her mortgage payments. Trana received a notice of default, but that wasn’t all that she received.  Some very nice men approached her days later and offered to rescue her home from foreclosure. Desperate, Trana signed her property deed over to these men for a small sum down.  She also signed inch-thick documents with the promise that these rescuers would not only pay off her mortgage but, in exchange for rent, Trana could continue to live in her home.  But, there was a catch; the rescuers failed to pay-off the mortgage, leaving Trana on the hook both for the mortgage and the rent while they held the deed (and equity) to her home! 

Trana’s story is not atypical.  Indeed, the Federal Trade Commission (FTC) just announced a new crackdown in foreclosure equity stripping schemes.  (Federal and State Agencies Crack Down on Mortgage Modification and Foreclosure Rescue Scams)  One of these schemes concerns loan modification scams.  Firms involved in these scams use on-line ads, spam, and direct mail targeted to homeowners in financial distress, promising high success rates at modifying their mortgages and saving their homes.

While LegalMatch does not specifically track foreclosure equity scams, we have had an explosion of customers contact us during the past year either because a foreclosure had been filed against them or because there was a foreclosure judgment. 

RECENT EXPLOSION OF LEGALMATCH CUSTOMERS SEEKING ASSISTANCE WITH FORECLOSURES

If you suspect that you’ve been approached by a rescuer, contact your local District Attorney and report the individual(s) to the FTC.  If you’ve been a victim of a loan modification or a foreclosure equity scam, you may either be able to file criminal charges or bring a lawsuit against the rescuer for damages.  LegalMatch has many experienced real estate attorneys who can assist you in determining the best course of legal action.  Whatever you do, don’t sign your property deed over until you’ve consulted your local agency or licensed attorney to ensure that you aren’t a victim of a foreclosure equity scam!

Federal Trade Commission Home Equity Scams

National Consumer Law Center

U.S. Dept. of Housing and Urban Development Guide to Avoiding Foreclosures

LegalMatch data is continuing to shed light on startling facts about the United States Housing Crisis. In the past year thousands of customers from around the country have come to LegalMatch seeking foreclosure attorneys. I decided to look at how much these clients reported owing on their mortgages. Based on analysis of these responses, between now and March 2008, the median amount owed in a foreclosure action was $200,000.

That’s a lot of money to owe on your house. It might also give us a clue at the depth of the current financial crisis.

“Toxic Assets” have become the new buzzword during this financial crunch, just like “weapons of mass destruction” started rolling off everyone’s tongues in 2003. What are these toxic assets? Most of them are convoluted investment packages that represent a hodge-podge of upside down mortgages from around the country. In other words, big mixed-up sacks of worthless investments that no one wants. The total “value” of these toxic assets is unknown, and probably never will be known. (Part of the whole problem was they were never actually worth what everyone thought they were.)

What can be guessed at, however, is how much money mortgagors were owed in 2008, and how much they are now looking at as potential losses before recouping anything in foreclosure sales. (I.e. the loss these toxic assets might represent on balance sheets). To do so we can use two rather modest assumptions: $200,000 median debt-per-household based on LegalMatch data, and the (low-end) estimated total number of foreclosures in the US in 2008, which was 2 million according to CNN. Putting these numbers together, we get a staggering $400 billion in total outstanding debt in the U.S. housing market. That’s quite a lot of money, and that is probably an estimate on the low end.

However, haven’t we spent something like $10 trillion in bailout money so far? Or at least promised that much? Even if my estimate is off by a magnitude of 5, we’ve still spent more than that already. What if we had spent a few trillion simply paying off overdue mortgages? A “trickle-up” economy, as opposed to the old “$@*# rolls down-hill” approach. Almost every day we are bombarded with news about bailout this, bailout that, trillion dollars here, hundreds of billions of dollars there. I haven’t seen any of this money, have you? (Well maybe if you work for AIG).

Now before someone says that is just rewarding people for their own shoddy financial planning, what are we doing for the banks and firms such as AIG? Banks and their enabling financial partners created an artificial market where risky mortgages not worth the paper they were printed on were sold off as if they were written in gold-ink. How is it somehow more appropriate to reward them for their misdeeds and not the taxpayers who are footing the bill anyway? These are the institutions that invested your 401K in your neighbor’s upside-down $1 million McMansion mortgage. If your neighbor stays in his home for the same inflated price he mortgaged it for, at least your home price won’t plummet due to a cramdown or foreclosure sale.

I’m not a financial expert, but I like to play one online. Where am I going wrong with my populist approach?

The collapse of the United States housing market was a crucial part of our recent economic downturn. According to LegalMatch data compiled since 2005, foreclosure rates (compared to the past three years) skyrocketed during 2008. This massive upswing in foreclosures may have been the shock that caused the global economic house of cards to tumble in 2008 and 2009.

According to LegalMatch statistics, foreclosure rates from 2007 to 2008 jumped by over 150%. This staggering increase closely mirrors the precipitous drop off of home prices in the US during 2008, when the median value of an American home dropped by 18% in twelve months.

LegalMatch data correlates with national statistics compiled by industry experts showing a 76% increase in foreclosure rates between 2006 and 2008. Are house prices to blame for this huge downturn? Partially. A number of home owners and home speculators alike took advantage of a lull in interest rates between 2000 and 2005 when introductory interest rates on adjustable rate mortgages dropped to the 4-6% range. During this time housing prices were also artificially high and seemingly rising without end, so buyers saw a potential win-win situation. Sub-Prime Adjustable Rate Mortgages ( ARM) fueled the flames of the bubble and allowed speculators and new home buyers alike to enter the market at cut-rate introductory rates that jumped massively one or two years down the road.

Home owners who saw low rates and rising prices in 2005 and 2006 took the bait, thinking things would continue to get better. When interest rates continued to rise and these so called “exploding” ARM loans almost doubled between 2006 and 2007, owners who failed to sell prior to 2008 saw the value of their homes plummet to prices far below the amount owed on their mortgage. Unable to keep their heads above water, homeowners with upside-down mortgages in 2007 and early 2008 faced foreclosure judgments in mid-2008 and 2009, as shown by the LegalMatch stats above.

This enormous well of unpaid debt coincided with the breaking news of financial collapse of some of the nation’s biggest financial firms such as Bear Sterns, Lehman Brothers, and the now infamous AIG. It is no coincidence that trillions of dollars in investments insured and managed by these firms was inextricably tied into these bad loans and defaulting homeowners. Securities backed by these worthless mortgages are the kinds of things people are referring to when they talk about “toxic assets.”

Although it was not the sole cause, the housing crisis has a tremendous impact on the financial health of this country. When it dramatically explodes like it did in 2008, the shockwaves spread everywhere throughout our economy. As these trends continue to shake out we will be watching the data, so stay tuned for more updates on where the housing market, and our economy, may be headed.

In the past 2 years tens of thousands of clients have come to LegalMatch.com seeking real estate attorneys. I was curious at what stage in the real estate transaction people were seeking the help of an advocate. Listed below are the top reasons people cited, in order of frequency:

1. Give me general advice on how to proceed to protect my interests: 30%
2. Bring a lawsuit against the other party: 25%
3. Act as my agent in the transaction: 14%
4. Assist me in the remaining stages of the transaction: 13%
5. Other: 10%
6. Defend against a lawsuit filed by the other party: 5%

Thankfully, the vast majority of people are securing legal advice at the right time; i.e., before the deal goes down the tubes. Considering the fortune you are about to put down on your investment, it is always a good idea to get a legal assessment of a real estate contract, as well as legal advice concerning your rights and liabilities.

Unfortunately, 30% of people coming to LegalMatch.com have waited until something went terribly wrong to hire an attorney. This predicament is not unique to real estate. In almost every facet of society, lawyers typically do not get involved to prevent bad things from happening. They get involved once the mess has been made.

Now as lawyers we don’t always mind this. After all, we get paid to clean the mess up. And from a client’s perspective, not wanting to hire a lawyer until it is absolutely necessary is understandable. Attorney fees, even for an hour of advice and consultation, are expensive. (Arguably too expensive). It’s no secret there are also unsavory attorneys who will claim this or that needs to be done to try and milk even more of a client’s time.

For clients, however, the old adage that an ounce of prevention is worth a pound of cure rings true. Solid legal advice before a big investment, a major business deal, or any significant endeavor can save lots of money, time, and anxiety down the road. One hour of a good lawyer’s time is a heck of a lot cheaper than one month.