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

When It’s Too Good to Be True: Foreclosure Equity Scams is a post from: LegalMatch Law Blog

         State            Percentage of Total Filings

1. CA               14%
2. FL                8%
3. NY              5%
4. IL                 4%
5. TX               4%
6. VA               4%
7. OH              4%
8. MI               3%
9. AZ               3%
10. NJ              3%

Our top ten was very similar to the results from the American Bankruptcy Institute, with California leading the way in filings for 2008.

A few states are over-represented relative to their population on both lists. Florida, for instance, has significantly more consumer bankruptcy customers coming to LegalMatch.com than New York and Texas, who both outnumber Floridians substantially. Arizona and New Jersey also make the top ten despite being 14^th and 11^th in population.

Why is Florida being hit so hard? Florida is always near the top in every other negative economic indicator, such as foreclosures. Some Florida developments are beginning to resemble ghost towns full of brand new empty houses. Markets such as Florida suffer the most from boom and bust periods, which leads to higher bankruptcy rates as more and more residents run into problems from their radically devalued homes.

California may have suffered from a similar malaise; Bloomberg reported that February 2009 house prices in California dropped an average of 41% from February 2008, compared to only a 16% drop nationally over the same period. 58% of home sales during this time were foreclosure sales, surely a significant reason for the dramatic declines in value.

Looking at stats such as foreclosure rates, bankruptcy rates, and other economic statistics indicates that all these things are related. If one state is suffering in one area it is likely also suffering in another. Stay tuned to LegalMatch for more analysis of economic trends and how your state might be faring during this massive economic downturn.

Top States for Bankruptcy Filings is a post from: LegalMatch Law Blog

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?

Average U.S. Homeowners Facing Foreclosure Owe $200,000, LegalMatch Data Shows is a post from: LegalMatch Law Blog

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.

LegalMatch Data Shows Foreclosure Rates Skyrocketed in 2008 is a post from: LegalMatch Law Blog

Where are most of these cases happening? Not surprisingly, states with the highest populations have the highest numbers of cases: 

Only one state, New Jersey, managed to nudge its way past its rank of 11^th in population to 9^th place on the list. It beat out North Carolina, who does not appear on the list despite having almost 1 million more people.

California and Florida, however, seem to top other lists that are not so dependent on population. California and Florida are ranked 2^nd and 4^th  in the Nation in foreclosure rates, and also top LegalMatch’s list of states with the most disproportionate percentage of total national foreclosures to total national households. California and Florida are not alone in sharing some dubious distinctions, however: Ohio and Georgia make an appearance in another unfortunate top-ten list: top-ten highest bankruptcy rates.

All too often, one financial dilemma leads to another. Although debt consolidation does not consolidate mortgage debt, many debt consolidation programs require the debtor to take out a mortgage on their home. Although lowering monthly payments on credit card debt is important, putting up your home for a mortgage should always be considered a last resort. There is the possibility that the inordinately large number of foreclosures in California and Florida has something to do with their similarly high numbers of debt consolidation clients.

More analysis would be needed to see if a true correlation between foreclosure rates and debt consolidation statistics exist. Generally, where there is one financial dilemma, there are probably others, either in the past or looming on the horizon. The states hit hardest by this financial crisis will show high numbers of bankruptcy rates, foreclosure rates, and people with debt problems. Stay tuned for more information on where these numbers are coming from, and where they may be headed.

Top 10 States for Debt Consolidation is a post from: LegalMatch Law Blog

% of Total U.S. Foreclosures Reported in 2008 to LegalMatch, By State 

% of Total Owner Occupied Households in the U.S. (U.S. Census 2007 Estimates)

Not coincidentally, these states also represent a veritable who’s who of states on the list of Top 10 Worst Foreclosure Rates by State.

For all the states doing poorly, there are also states doing well.  New York, for instance represents 9% of the nation’s owner occupied housing units, but only accounts for 3.4% of LegalMatch customers seeking Foreclosure attorneys. Texas is similarly doing well, accounting for 5% of LegalMatch foreclosure respondents, but over 10% of U.S. owner occupied homes.

More analysis may show why these states were hit particularly hard. Some factors may include demand, differing mortgage and foreclosure policies, and vastly different housing markets. California and Florida, for instance, are always roller coaster rides for housing booms and busts. People frequently flock in and out of the states as markets rise and fall. Stay tuned for more analysis as we watch how these numbers shake out over time.

States Hardest Hit by Foreclosures Have Fewer Owner Occupied Homes is a post from: LegalMatch Law Blog

Recently, government-run mortgage finance company Fannie Mae promised to assist tenants by signing new leases with those living in Fannie-owned properties that have been foreclosed.  Under the proposed plan, renters will be granted the option to lease month-to-month on foreclosed properties until the property is resold.  Fannie’s actions mark the first nationwide attempt to save renters caught in the mortgage crises.

While it’s a little disconcerting to see Fannie effectively become our national landlord, the mortgage behemoth’s actions may encourage private lenders to enact such programs; further, lawmakers may be persuaded into enacting more comprehensive relief measures. 

Still, there are potential problems with Fannie’s plan.  First, because the government lacks incentive to maintain rents at market rate, taxpayers may ultimately subsidize below-market rentals.  Second, government may waste taxpayer dollars because it lacks the necessary experience and/or infrastructure to manage these rental properties efficiently.  Third, Fannie’s action prevents these foreclosed properties from being sold on the open market, perhaps exacerbating the housing downturn and economic recession. 

While some states such as Minnesota have passed stricter laws to protect tenants from foreclosure, other states are dragging their heels.  For now, here’s some advice for prospective and current tenants.  Existing tenants should be wary if they suddenly become inundated by advertisements from local bankruptcy lawyers – this indicates the owner may be facing foreclosure.  Prospective tenants should perform a credit check on a property owner.  Also, look out for default or sheriff sale notices posted on the property (and don’t take the owner’s word, if he says things are “under control”). 

Further, check public records online or in your local county records office to see if the owner is failing to make payments or the property is in foreclosure; and while you’re at it, check to see if the owner owes property taxes or association dues – both clues that he may owe mortgage payments as well.  You can research your local foreclosure laws online too.  If you don’t have the time (or patience) to perform such due diligence, at least make sure to watch for a landlord who asks for an unusually high deposit or a number of advance rent payments. 

Is Fannie Mae the United States’ Landlord? is a post from: LegalMatch Law Blog

Legal aid and private lawyers can often help homeowners avoid foreclosure by negotiating directly with the bank, which most certainly has strong representation.  Legal aid lawyers may also help make the whole process more efficient, as forcibly evicting homeowners is a difficult process. 

Furthermore, the eviction of homeowners causes other problems down the line.  As homes are left vacant and contributing members of a community are banished, neighboring homes fall in value, and local businesses suffer from decreased business.  Therefore, it is in everyone’s interest to make sure homeowners can avoid foreclosure when possible.

States have taken varying approaches to this problem.  Ohio has taken action by implementing free legal aid programs for those facing foreclosure.  While most states offer some sort of resources, homeowners must beware of foreclosure rescue scams.  A new Florida bill intended to protect homeowners from these scams took effect in October, and at least 12 states have enacted similar laws to combat foreclosure scammers.  Only time will tell if these laws accomplish their goals, but in the meantime, homeowners can educate themselves on how to avoid mortgage foreclosure scams.

Foreclosure Scammers Finding it Hard to Scam is a post from: LegalMatch Law Blog