Chicago Foreclosure Lawyer Blog

Have the Reports of the Death of the American Dream Been Greatly Exaggerated?

Mon, 06 Sep 2010 12:26:48 -0600

This NYT Op-Ed piece certainly makes the case. Karl E. Case argues that the current economy, while depressing, is not the death of the American Dream. He feels that it really depends how you define the American Dream.

For some people, it means having a solid and fairly safe long-term investment that is coupled with the satisfaction of owning the house they live in. That dream is still alive.
Others, however, think the American dream is owning property that appreciates by 30 percent a year, making a house into a vehicle for paying bills. But those kinds of dreams have become nightmares for the millions of foreclosed property owners who have found themselves sliding toward bankruptcy.

It is a valid point. Since the American Dream being pushed was more of a pipe dream, it was bound to fail. However, for those willing to buy within their means, the American Dream may be possible. This doesn't mean that recovery is around the corner, but we need to keep things in perspective. For those currently able to buy, now is as good a time as any. In the meantime, let's find ways to improve housing across the board.

Explore Your Options Before Litigating

Fri, 03 Sep 2010 11:17:29 -0600

In many situations, there are remedies available to you that don't involve going directly to court. Most governmental programs have an administrative appeals process. If you don't go through the process, you'll find your case kicked out of court in short order.

Maybe you want to sue someone for breach of contract. It's a good idea to review that contract before running down to the clerk's office to file your complaint. Some contracts have arbitration clauses. The Federal Arbitration Act gives many arbitration clauses full force and effect. This means that failing to follow the procedure described in the contract can end up in a dismissed lawsuit, along with an order telling you to do what you had agreed to do in the first place.

While it is important to zealously represent your client, it is also important to make sure that the path you are following best serves the client's interests. A great post over at Three Geeks and a Law Blog highlights this point with a concurring opinion from the 9th Circuit.

The whole post is worth a read, but if you ever see a judge open an opinion with the following, you may want to re-evaluate your pre-litigation strategies . . .

"I concur in the opinion, which carefully and painstakingly analyzes the claims. I add this concurrence simply to vent my frustration. What have Uhms' counsel accomplished for the Uhms, for justice, or for the law?"

Strategic Foreclosures vs. The Economy

Wed, 01 Sep 2010 14:14:39 -0600

It's no wonder that we've seen Fannie and Freddie examine heavier penalties for simply walking away from a mortgage. The most recent housing statistics indicate that we may be in for a double-dip recession at worst and a very long, painful recovery at best.

The number of newly delinquent home loans has increased for the last two quarters. At the same time, the number of severely delinquent home loans has been on the decline. Some of this may be related to the fact that banks have already successfully foreclosed on those mortgages. Other observers also attribute the decline to the spike in home sales that were linked to the administration's home buyer tax credit. This allowed some people to get out of their mortgages via short sale.

Also interesting is that the number of properties facing foreclosure (4.5 million, nationally) is the same as the number of properties currently available for sale. As loan modification programs continue to under-perform based on expectations, many of those 4.5 million properties will ultimately go into inventory. Unless employment numbers improve, we may see even more mortgages ultimately go into foreclosure.

What this ultimately means is that as more home owners attempt a strategic default, they may have fewer options. Moreover, it may be a long time before they can obtain a mortgage, especially if they simply walk away from the property. The moral here is that borrowers seeking a strategic foreclosure need to focus on the deed in lieu and consent foreclosure options. These options carry smaller penalties and can protect you from a deficiency judgment.

As always, avoid debt workout companies that demand money in advance, and consult with an experienced attorney before taking steps that may put you in a worse position.

The Fed On Securitization of Mortgages

Mon, 30 Aug 2010 13:35:17 -0600

On August 24, Chicago Federal Reserve President Charles Evans said that securitized mortgages, those that were bundled into bonds and sold to investors, create a disincentive to issue loan modifications. "The securitization process appears to have created conflicts between the interests of servicers and lenders," Evans said. This, in turn, kept the number of modifications lower than the Fed had hoped.

This makes sense to someone involved in the industry. It may be impenetrable double-talk to anyone else. Mr. Evans is correct, but perhaps some explanation is useful. Servicers (the people to whom you send your mortgage payments) want you to keep paying on your loan. If they don't collect payments, they don't get paid. If a mortgage forecloses, the servicer loses a long-term income stream.

Lenders, on the other hand, may be private investors, not banks. Suddenly owning a foreclosed property may be a worthwhile investment. These people aren't necessarily looking for long-term gain, they are looking for payouts in the next few years, not the next thirty. Their incentive to keep you in your home is very minimal.

This is why litigation can be an effective tool in your overall loss mitigation strategy. Although litigation takes time, that's the point. The longer it takes an investor to get his ROI, the more likely he is to settle -- at least the asset is generating some income as opposed to costing more money in attorney's fees.

For Friday: What Not To Do

Fri, 27 Aug 2010 13:27:28 -0600

On August 24, 2010 a man was arrested at the Richard J. Daley center for attempting to bring a firearm into the courthouse. The weapon was detected when his briefcase was sent through the x-ray scanner. Although he maintained that he had forgotten the gun was in his case, it had seven rounds in the clip and one in the chamber, making it ready to fire once the safety was released.

Allegedly, he was to be attending what seems to be a confirmation of sale hearing. The media has cast it as, "Man facing foreclosure brings gun to court, sheriff says." Regardless of his motivations, his is a cautionary tale. Don't bring contraband to court.

A Trial Loan Modification Does Not Stop Foreclosure

Wed, 25 Aug 2010 12:27:08 -0600

On Tuesday, I spent the day at the Richard J. Daley Center. I had three cases up, and some significant lag time between them, so I had time to observe some rather long foreclosure calls.

Many pro se litigants were surprised that they were being called into court. The most common thing I heard was, "But I'm in a loan modification, why are they trying to foreclose?" The judge can't really say too much without breaching his or her own ethical rules. Judges cannot give legal advice from the bench, they also can't necessarily explain the intricacies of the law when they have 100 cases on their morning call.

Here's the reality of it: the loan modification is not going to stop the foreclosure process until it becomes permanent. The bank can choose whether to proceed with the foreclosure, but will usually hold off until it decides whether it is going to issue a permanent modification.

This means that you could do four consecutive three-month trial modifications, never be approved for a permanent modification, but find yourself facing foreclosure after a year of silence from the courthouse. Many people assume that the lack of correspondence means their case has been dismissed or is no longer active. This isn't the case.

For instance, in Cook County, after the case management date (the date listed on your summons), the case will be "removed from the call." This means that no new hearing dates will be set until a party to the case sets a hearing date, generally on a motion. The case isn't gone, it's just on hold until someone blinks first. If you're working on a loan modification, your lender may hold off doing anything until it determines what it wants to do with your loan.

Many people feel that they have a right to the modification. This is also untrue. Your loan is a contract. That contract contains provisions that govern how it can be modified. Every single one likely contains language stating that both parties must agree modify the contract. If the bank chooses not to modify the contract, it is within its rights to do so. This is why the banks keep the foreclosure cases live -- they don't want to reinstate or refile cases, which increases their costs. They want to hedge their bets.

Is this fair? No, not really. Is it legal? Yep, it sure is. Is it morally right? That's up to you to decide.

If you are seeking a loan modification, and there is an active foreclosure case pending against you, stay on top of the case. There is no substitute for plain old due diligence. If you cannot afford a foreclosure attorney, then make use of any resources available in your county.

"New Normals" and the Housing Market

Mon, 23 Aug 2010 15:26:49 -0600

CNN.com (via Fortune) has an article about "new normals" we may have to accept going forward. Although it provides five, a recent article in the New York Times seems to propose a sixth: the end of real property as a solid investment. Depending on which sources you trust, housing prices will either a) simply keep pace with inflation or b) values will, somehow, magically continue to increase each year.

The majority of the statistics and figures cited in the NYT article tend to lean towards the first option. For instance, the Center for Economic and Policy Research estimates that it will take 20 years to recover the $6 trillion in housing wealth that was lost since 1995. There is a large supply of homes on the market, and more waiting in the wings -- keep in mind that banks are sitting on some foreclosures in the hopes that the market will improve over time. This large supply of homes is likely to increase, causing further competition in the already crowded market. What this all means is that values could continue to decline, or simply remain stagnant.

One thing seems clear to me: we need a new housing policy that prioritizes sustainability,and we need to reward another "new normal" -- the growing renting class.

Back of The Yards -- The Epicenter of Mortgage Fraud

Fri, 20 Aug 2010 13:29:02 -0600

ABC has a great special report about the rampant mortgage fraud in Chicago's Back of the Yards neighborhood. Back of the Yards is part of New City, which is also home to Canaryville.

The most striking thing about the rampant mortgage fraud is that it is self-perpetuating. A few successful fraudulent loans creates abundant "comps" that can fool even experienced loan underwriters, leading to more fraudulent loans. The damage done to the neighborhood is visible on every street -- boarded-up buildings become the domain of squatters and gang members, increasing the crime in the area and putting residents at risk.

Not All Advice Is Useful, Part 2

Wed, 18 Aug 2010 11:44:21 -0600

During my morning blog and news reading, I came across this gem, which is penned by the Illinois State Bar Association. Not being one for unbridled sarcasm, let me be very clear -- while some advice in the linked article is worthwhile, most of it is unlikely to save your home.

Let's start with the best advice: contact an attorney. Obviously, I am a bit biased here. However, if you really want to understand your options when facing foreclosure, a consultation with an attorney can give you a solid overview of your situation.

Other great advice: avoid the mortgage rescue businesses. Many are scams. I have written about these before. Falling prey to these kinds of fraudsters can make your financial situation significantly worse than it was before.

Less-than-great advice:

"The first step should be to call the lender and try to work out the problem. Many lenders are willing to work out a plan that can help you and your family stay put, at least short-term." Yes, trying to work things out with your lender can help. You may discover, however, that the process is Kafka-esque at best. Getting help with your loan modification may be a good option as people with experience can sometimes help you file the best possible application.

"Make sure you respond to any mail from your lender." And say what? Unless you're sent a package to help you apply for a preliminary loan modification, this is vague at best. Certainly, if you are attempting a loan modification and receive mail from your lender, it is likely in your best interest to respond.

"Consider tapping into one of the government-backed programs such as HOPE for Homeowners or one of the deed-to-rent programs where the lender reclaims the home but lets you stay in it with an affordable lease." While the HUD programs are good, many lenders aren't doing their best to make sure that qualified homeowners successfully complete these programs. Also, after some serious Google searches, the best I could find on "deed to rent programs" were other versions of the same ISBA article.

"Think about selling your home, which can be a good alternative if you have equity. Defending a foreclosure is very difficult. Only a small number are actually successful, so realistically assess your chances." With the market flooded with foreclosed and real-estate-owned (REO) properties, selling your home is not as easy as it may sound. People struggle through the short sale process and can end up being foreclosed anyway. Your lender is under no obligation to accept a short sale offer, and they have the final say.

Additionally, "defending a foreclosure" can mean many things. If your goal is to obtain a loan modification, deed in lieu of foreclosure or a consent foreclosure, defending your foreclosure can be successful. If your intent is to "beat the bank" and get your home free and clear, well, sometimes optimism can border on delusion.

"Cut all your expenses except for housing and healthcare; to free up cash, consider selling assets such as a second car or valuable jewelry." This one may be reasonable, but freed up cash only lasts so long. Cutting expenses is always smart, but the ISBA may want to add "food" to the list of expenses you should keep.

At the end of the day, your best defense is to educate yourself about your rights. Consulting with an attorney (ISBA member or not) is one way to get informed. Taking advantage of online resources provided by HUD and your state is another. Formulate a plan that works best for you and execute it. Be prepared for difficult times and frustration. Try to keep some perspective.

Risky Propositions -- Don't Count On Volume To Protect You

Mon, 16 Aug 2010 12:03:17 -0600

This article in the New York Times has me seeing red. On one hand, it is a good piece of reportage. It describes the current level of defaults on home equity loans, contrasts them against other types of debt, and discusses how some homeowners are proceeding in an unsure economic climate.

On the other hand, the article's underlying premise is dangerous, at best. It describes a lending regime where banks are unable to collect the debts that are owed to them. It describes people simply defaulting on their loans and walking away, confident or hopeful that the bank won't pursue them for the difference between the value of the loan and the value of the property.

No matter how many billions of dollars that banks write off as uncollectable, and no matter how many anecdotes the article offers, the personal obligations people face on their equity loans can last up to seven years. This means that just because nothing has happened for 18 months, there are 66 months remaining on the clock. Hoping that there is "safety in numbers" won't prevent someone from attempting to collect the debt.

Many home owners are engaging in strategic defaults. Doing so without a plan can expose you to significant personal liability, not to mention seriously impact your credit score and possibly your tax liability. While many people are simply filing bankruptcy, if you do not qualify for a Chapter 7 discharge, you will be forced to repay that deficiency balance in a Chapter 13.

If you are planning to walk away from a mortgage or home equity loan, you should plan your strategy carefully. Consult with a few qualified attorneys. Some will suggest bankruptcy. Some will suggest various loss mitigation tactics. Consult with an accountant. Build a plan for your future before simply walking away. Articles like this make it seem as if there is a free-for-all afoot. Just remember: the exception is generally NOT the rule.

Attorneys Teaching Attorneys -- Upcoming Seminar

Fri, 13 Aug 2010 16:10:54 -0600

On Thursday, September 16, 2010, we will be presenting a 2.75 MCLE credit course at the Chicago Bar Association. We are responsible for teaching the first segment, "Defending Residential Borrowers In A Mortgage Foreclosure In Illinois."

The program is from 3:00 to 6:00 PM. More information is available at the CBA's website.

Not Another Post About The Housing Market, The Economy, And Foreclosures

Wed, 11 Aug 2010 09:11:13 -0600

It may come as no surprise that this week, like most others, has generated several articles about the economy, the depressed housing market, and the next wave of foreclosures. We're all in the middle of this recession, we can see the signs everywhere we look. As a blogger, I have certainly spent a lot of time reading these articles and writing about them.

It gets a bit depressing at times.

At times like this, we can't always rely on the powers that be to fix things for us. Sure, we can inject money into the economy, fund public works projects, etc. At the end of the day, however, we are still left looking for the light at the end of the tunnel. Recovery from a crash takes a while. This recovery may take quite a long time.

Fortunately, in the meantime, we can act locally to try and improve things for ourselves. Buying from local vendors directly infuses cash into the local economy. Getting involved in our communities allows us to provide services via volunteering that can't be covered by underfunded programs.

You also have people who act locally and anonymously to bring hope and happiness to others. Here is a person who deserves more exposure. Pittsburgh resident Laura Miller has been operating as Secret Agent L for a little over a year. She took a simple idea, random acts of kindness, and turned it into a blog. She now has over 80 affiliated agents across the U.S. and in other countries who are doing the same thing. While leaving a flower on a windshield or a roll of quarters in someone's basket at the laundromat may not seem like much, it's these kinds of efforts that can bring a bit of light to a grey and dismal time.

What are you doing to improve things in your community? Sometimes altruism can be the best medicine.

The Land of Red Tape

Mon, 09 Aug 2010 09:57:34 -0600

The blog ChicagoNow has an interesting post about people's experiences with obtaining loan modifications.

Since I'm not a fan of reposting, I'll simply allow you to follow the link and read the post. It's really quite disturbing and absurd at the same time. From answering a seemingly innocuous question incorrectly to stealth home sales to dirty tricks with checking accounts, there are many ways in which people are denied modifications. The lesson learned? The bank doesn't have your interest at heart, its main goal is to increase shareholder value.

Gov. Quinn Signs New Legislation Aimed At Helping Homeowners

Fri, 06 Aug 2010 09:34:15 -0600

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.

Frequently Asked Questions: How Is That Fair?

Wed, 04 Aug 2010 11:06:41 -0600

When we see potential clients at our initial consultations, many are frustrated for a wide variety of reasons. For some, the red tape and often Byzantine procedures for obtaining a loan modification are the cause. For others, the chaos caused by the mortgage crisis resulted in lost files, escrow account issues, improperly force-placed insurance, or sloppy accounting that caused problems leading to foreclosure.

These problems aren't uncommon, and may provide defenses to a foreclosure action. However, in some cases, they simply cannot. A good general rule is to never ignore a foreclosure lawsuit because you've applied for a loan modification.

When people find themselves in these situations, they often discover that many results seem unfair. Sadly, even though judges are granted some powers to help create equitable results, they must follow the law. Many issues that frustrate home owners simply aren't defenses to foreclosure the way the law is written. Results may vary from state to state.

In the case of the Illinois Mortgage Foreclosure Law, the result is often in bank's favor. Some situations and facts may give a home owner more power than others. Getting a raw deal at the closing is never pleasant. Some remedies exist where banks didn't follow proper lending procedures. Unfortunately, many of those remedies have very short periods before the right to exercise them expires.

This often creates results that seem unfair. These situations seem to defy logic. "If someone would just listen, they'd see I'm right." The law doesn't always promote what is fair and what is right.

This accentuates why it is important to seek competent assistance before it is too late. The earlier you seek the advice of an attorney, the earlier you can make an informed decision about your situation.

The law may not always be fair, but with a bit of help, it is possible to level the playing field.