As the Foreclosed Move Out, First-Time Buyers Are Moving In

While her friends ran up credit card debt and bought show homes beyond their means, Taina Goldman saved for a down payment. She moved back in with her parents, sharing a room with her young daughter, ate in and worked two jobs.

"I don't live dangerously," said Ms. Goldman, 42, a nurse. "You can't live on 'what if.' "
Now, she is reaping the rewards. She and her daughter recently moved into a three-bedroom, two-bathroom ranch-style house, with a pool, after putting 20 percent down and persuading the seller to cover most of her closing costs. She paid $187,000 for a house that sold in July 2006 for $370,000.



And there are many more like her. Across Florida and other states with high numbers of foreclosures, severe declines in real estate values are reinvigorating a group of buyers previously priced out: middle-class families with steady jobs, who are often buying a home for the first time.
Figures released last week by the National Association of Realtors show that sales of existing homes across the country rose 5.1 percent in February, with much of the increase concentrated in foreclosed homes bought for less than $300,000. Even with tighter borrowing restrictions, many families used to renting are discovering that they can afford to own.

"They are the most active participants right now because they don't have the burden of having to sell their old homes," said James Diffley, a managing director at IHS Global Insight, a research firm. "You have a bunch of young people who were forced to sit on the sidelines because houses were so darn expensive, and now they're starting to come in."
Real estate agents in Arizona, Florida, Nevada and other states hit hard by the bust say they began to notice rising interest among first-time buyers a few months ago, as prices dropped by more than a third.

The addition of a tax credit of up to $8,000, part of the federal housing rescue plan passed in February, appears to be sweetening the pot for some of those buyers, while banks eager to unload foreclosed properties have also begun to offer incentives, like money for closing costs.

"A lot of the banks have adjusted their thinking," said John Ahlbrand, a real estate agent who with his wife, Ruth, owns ReMax Central in Las Vegas. "If they show they have the ability to repay -- imagine that -- then the bank helps."

In some areas, several families have pooled enough money to pay cash for homes. There are others, like Ms. Goldman, who saved enough to afford a traditional down payment and mortgage.
But in many cases, agents and loan officers say, first-time buyers are receiving loans insured by the Federal Housing Administration, which allow for lower credit scores and a down payment of only 3.5 percent.

Unlike the subprime mortgages doled out a few years ago to nearly anyone who asked, F.H.A. loans include strict income requirements. Buyers must document two years of employment history with pay stubs and W-2 forms that are verified by the underwriter, and they can typically borrow only around 31 percent of their income, or 43 percent when other debt is included.

Andrea Heuson, a finance professor at the University of Miami, said the tighter restrictions should help ensure that people who buy can afford to pay what they owe -- as long as they keep their jobs.

A second risk is that these new buyers will walk away if property values continue to drop.

Jennifer Vaughn's development in Homestead is one of many where prices seem to fall by the day.

A 26-year-old first-time buyer, Ms. Vaughn closed on a three-bedroom, three-bathroom townhouse in November, paying $87,000 for the foreclosed property with an F.H.A. loan. The price was ..... far below the $261,000 the house sold for in October 2006, but a few weeks ago, a townhouse with the same layout and fancier features sold for $75,000. And a third is about to close for $65,000, said Andy Lopez, a real estate agent at Keyes Company Realtors who found Ms. Vaughn her townhouse. So already, she appears to owe more than her home is worth. Not that she minds.

"I'm going to stay for five or six years at least," Ms. Vaughn said, "and I'm sure prices will go up somewhat by then."

She also has one of the recession's safest job: she works for a collection agency. Ms. Vaughn said she could afford her $1,100 monthly payment, which includes taxes and insurance, and had already settled in.

"It's like the best feeling," she said, admiring the arches in her doorways. "I never thought I could own."

Many other buyers are equally giddy.

Julio Cesar Memeses, 45, a construction worker who is about to close on a three-bedroom home in West Phoenix for $50,000, said he and his family were thrilled to own "a piece of the American dream." He said they were not worried about making their mortgage payments because the price was so low.

Ms. Goldman, too, said she felt pleased. "It's like, wow, I accomplished something," she said.

She said she had visited 200 properties before finding her current home late one night and deciding she had to have it. Sliding open the glass door to the pool on a sunny afternoon, she said: "I love the light. That's what captured me."

Her daughter, Tiffany Munro, 14, stood beside her. "I'm, like, this is my house," Tiffany said, looking skyward, and smiling. "I get to live here."

The house, a foreclosure in the Kendall neighborhood, needed a little work. Some lights had been removed, and the fence had been painted the colors of a rainbow. Tiffany insisted that the fence be repainted white ("like white picket fences in the old movies," she said).

Tiffany also asked permission to paint her bedroom wall with a mural of her own design -- a drawing with dozens of small hearts.

In all, Ms. Goldman said she spent about $6,000 fixing up the house. Like Ms. Vaughn, Ms. Goldman said she did not worry about declining prices because she had no plans to leave.

Asked if she felt vindicated -- rewarded for saving when so many others spent -- she said no. "It's sad that for me to buy a house, the economy had to be like it is," she said.

Sitting on her couch, overlooking the pool, Ms. Goldman said she feared that the drop in prices would draw back the same investors who created the housing bubble in the first place. Real estate agents said this was already happening, even as the wave of foreclosures and evicted families would most likely continue.

"It's not worth it in the end," Ms. Goldman said, adding, "It's unfortunate that I have to build my happiness on top of tears."

Credits: Damien Cave. New York Times. (Late Edition (East Coast)). New York, N.Y.: Apr 3, 2009. pg. A.1

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In Foreclosure Crisis, a Rise in Banks Walking Away

Mercy James thought she had lost her rental property here to foreclosure. A date for a sheriff's sale had been set, and notices about the foreclosure process were piling up in her mailbox.

Ms. James had the tenants move out, and soon her white house at the corner of Thomas and Maple Streets fell into the hands of looters and vandals, and then, into disrepair. Dejected and broke, Ms. James said she salvaged but a lesson from her loss.

So imagine her surprise when the City of South Bend contacted her recently, demanding that she resume maintenance on the property. The sheriff's sale had been canceled at the last minute, leaving the property title -- and a world of trouble -- in her name.

"I thought, 'What kind of game is this?' " Ms. James, 41, said while picking at trash at the house, now so worthless the city plans to demolish it -- another bill for which she will be liable.

City officials and housing advocates here and in cities as varied as Buffalo, Kansas City, Mo., and Jacksonville, Fla., say they are seeing an unsettling development: Banks are quietly declining to take possession of properties at the end of the foreclosure process, most often because the cost of the ordeal -- from legal fees to maintenance -- exceeds the diminishing value of the real estate.

The so-called bank walkaways rarely mean relief for the property owners, caught unaware months after the fact, and often mean additional financial burdens and bureaucratic headaches. Technically, they still owe on the mortgage, but as a practicality, rarely would a mortgage holder receive any more payments on the loan. The way mortgages are bundled and resold, it can be enormously time-consuming just trying to determine what company holds the loan on a property thought to be in foreclosure.

In Ms. James's case, the company that was most recently servicing her loan is now defunct. Its parent company filed for bankruptcy and dissolved. And the original bank that sold her the loan said it could not find a record of it.

"It is what some of us think is the next wave of the crisis," said Kermit Lind, a clinical professor at the Cleveland-Marshall College of Law and an expert on foreclosure law.

For older industrial cities like South Bend, hard times in the mortgage market began before the recent national downturn, as did the problem of bank walkaways. In the case of Ms. James, a home health care administrator, the foreclosure proceedings began in the summer of 2007, when she could not keep up with the adjustable rate on her mortgage.

In Buffalo, where officials said the problem had reached "epidemic" proportions in recent months, the city sued 37 banks last year, claiming they were responsible for the deterioration of at least 57 abandoned homes; the city chose a sampling of houses to include in the lawsuit, even though the banks had walked away from many more foreclosures. So far, five banks have settled.

In Kansas City, Rachel Foley, a lawyer who handles housing cases, said bank walkaways were "a rare occurrence two to three years ago."

"We're seeing them dumped more and more at the moment," she said.

Experts suggest the bank walkaways are most visible in states where foreclosures are processed through the courts and therefore tend to be more transparent. Other states, like Indiana and New York, have court-mandated foreclosures, but roughly half of the states allow foreclosures to proceed without court intervention, making it difficult to accurately count the number of bank walkaways in recent months.

The soft housing market and the vandalism that often occurs when a house sits empty are the two main factors influencing the mortgage holders' decisions to walk away, said Larry Rothenberg, a lawyer for Weltman, Weinberg & Reis, one of the larger creditors' rights firms in the country.

"Oftentimes when the foreclosure starts out, it's a viable property," Mr. Rothenberg said, "but by the time it gets to a sheriff's sale, it might not have enough value to justify further expense. We've always had cases where property was vandalized or lost value, but they were rare compared to these times."

The problem seems most acute at the bottom of the market -- houses that were inexpensive to begin with -- and with investment properties, where investors and banks want speedy closure by writing off bad loans as losses. Banks and investors typically lose 40 percent to 50 percent of their investment on every foreclosure.

Guy Cecala, publisher of Inside Mortgage Finance, an industry newsletter, said some properties had become such liabilities for investors that it was not even worth holding on to them to strip valuable fixtures, like kitchen appliances, toilets and hardware.

"The whole purpose of foreclosure is to take title of the property, sell it and recoup what money you can," Mr. Cecala said. "It's just a sign of the times that things are so bad no one wants to take possession of the property."

In South Bend, boarded-up houses for whom no one has stepped forward are dotting the landscape, adding a fresh layer of blight to communities that were already scarred from the area's industrial decline.

The city is hoping to create a new type of legal mediation process that would bring together the homeowners and the mortgage holders to settle their disputes while allowing the owners to remain in the home -- considered crucial to any stabilization effort.

"I'd say in the last three or four months, we've seen dozens of these cases," said Chuck Leone, the South Bend city attorney. "We see it one of two ways. One is that the bank will simply dismiss the foreclosure complaint. The other is that the mortgage holder will follow through and take a judgment of foreclosure, but then not schedule the property for sheriff's sale."

In Ms. James's case, it has been impossible to determine who canceled the sheriff's sale, since her last mortgage holder went out of business. Even the city clerk's records did not provide an answer.

"Nobody has any idea who owns what or who's responsible," said Judy Fox, Ms. James's lawyer at the Notre Dame Legal Aid Clinic. "It's a very common story."

Mayor Stephen J. Luecke of South Bend added: "It's just a crime the way it puts people in limbo. They first off have gone through the grief of losing their house, then they move out and find out that they still own it and have responsibility for it."

In Jacksonville, Fla., Sylvester Kimbrough Jr. found himself caught in the limbo between foreclosure and ownership last year, 10 years into his 30-year mortgage on a $42,000 two-bedroom house.

Mr. Kimbrough, 56, a former driver for a car dealership who is now unemployed, had already moved out when he learned that the foreclosure had been stopped.

"That move really almost destroyed us," Mr. Kimbrough said. "It was all for nothing."

Credits: New York Times. (Late Edition (East Coast)). New York, N.Y.: Mar 30, 2009. pg. A.20

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Ire in Foreclosure Crisis Turns to a Home Builder

A major home builder that helped fuel the country's building boom is now under attack for what some homeowners and builders say was its role in the bust that followed.

Several former homeowners spoke here on Thursday about their disenchantment with the builder, KB Home, at its annual shareholders' meeting. The speakers said the company had pushed them into high-risk, high-interest loans for homes they could not afford and eventually lost to foreclosure.

During the meeting, a few dozen construction workers, many of whom had their work dry up when the home-building market imploded in Southern California, protested across the street.
"I tried to communicate to the board members to try to do better for people in the future," one of the former homeowners who addressed the board, Santiago Ramos, said after the meeting.

The meeting was closed to reporters. A KB Home spokeswoman, Heather Reeves, said in an e-mail message, "We want every KB homeowner to know that we stand ready to assist them in any way we can to ensure that they are pleased with their purchase."

KB Home is one of the country's largest builders, accounting for 3.1 percent of new home sales in 2007, the latest year for which data is available, according to the National Association of Home Builders. The company had a joint lending venture with Countrywide Financial -- Countrywide KB -- that issued roughly 70 percent of the loans originated for the builder. The venture ended in 2005, but KB still has lending arrangements with other financial institutions.

The protest on Thursday was the latest effort to draw attention to what critics say was KB's role in the foreclosure crisis.

The Laborers' International Union of North America, which represents construction workers, has filed complaints about the builder with the California attorney general. The union says KB engaged in "deceptive practices" and steered buyers toward its loans to control home prices, pushing interest-only loans to buyers who often did not understand what they were getting into.

A state lawmaker from Southern California, where home values have plummeted and foreclosures have skyrocketed, has introduced a bill that would prohibit builders from lending money to homebuyers. "Builder-originated loans create an inherent conflict of interest," the lawmaker, Assemblyman V. Manuel Perez, a Democrat, said in an e-mail message.

No state has such a law, said Sue Johnson, the executive director of the Real Estate Services Providers Council, a trade group. "It would be disruptive to the home-building industry," Ms. Johnson said, adding that most home builders had loan arrangements with financial institutions.

Timothy Lilienthal, a spokesman for PICO National Network, a religious group that has protested and organized around the foreclosure issue, said the criticism of KB reflected a broader unhappiness with banks. "People are getting tired of banks, and bank accountability is a major theme we see coming forward," Mr. Lilienthal said. "And KB was the originator of so many bad loans in California."

Mr. Ramos, a construction worker as well as a former KB homeowner, said company officials pushed him to sign an interest-only loan through Countrywide KB for the home he bought for $430,000 in 2005 in Hesperia, Calif., and threatened to sue him when he resisted.

In her e-mail message, Ms. Reeves, the spokeswoman, said the company recognized that "many Americans have been adversely impacted by current economic conditions."

"That is why we are always working to assist buyers in finding the right home for their budget," she said.

Credits: New York Times. (Late Edition (East Coast)). New York, N.Y.: Apr 3, 2009. pg. A.16 READ MORE!

The Foreclosure Learning Curve

In these days of crisis, a foreclosure takes place every 13 seconds in the U.S. So, doing the math, that means more than 400 foreclosures were initiated somewhere in the nation during the 90-minute program "Foreclosing on the American Dream" at the midyear meeting.

And while there's a sense of urgency to address the problem, a response by policymakers and lawyers practicing in the field remains a work in progress, according to speakers at the program sponsored by the ABA Commission on Homelessness and Poverty.

Meanwhile, the mounting numbers of foreclosures around the country are having a domino effect on other issues.

In Massachusetts, for instance, condominium foreclosures outnumber those of single-family houses, triggering problems for owners of nearby units and condo associations, said Kurt James, director of Rackemann, Sawyer & Brewster in Boston.

Foreclosures also are threatening tenants of rental properties, said Jeremy Rosen, executive director of the National Policy and Advocacy Council on Homelessness, which is headquartered in Washington, D.C.

And in some areas, foreclosures are dragging down entire neighborhoods, said Stephanie M.M. Smith, a community development policy analyst in Garden City, N.Y. "Neighborhoods are being demolished and vacated - not just because one homeowner moves out, but because the neighbors are moving, too," Smith said.

State and federal efforts to help property owners have had limited success. Panelists pointed to the Federal Housing Administration's Hope for Homeowners program, approved by Congress in 2008, as an example of futility.

The program "is a poster child for what not to do," Rosen said. The program, designed to help homeowners at risk of foreclosure to refinance into more favorable mortgages, contains a long list of criteria that make it difficult to qualify. As a result, few homeowners can participate.
Slow Down For New Hurdles

Rosen said the Obama administration is planning a new homeowner assistance program with $50 billion in funding from last year's Troubled Asset Relief Program. Meanwhile, many lawyers are scrambling to adjust on the run to new legislation and assistance programs along with court decisions that are changing the landscape of real estate law.

Still, Jasleen K. Anand, a real estate attorney in Garden City, recommends certain tried-and-true approaches when representing clients who face loss of their homes.
"Consider all sorts of options with your client," said Anand. "No two situations are alike. Look at the lender agreement and try to negotiate a resolution that is short of foreclosure. In the end, it's a business decision being made by the banks."

But as rapidly as real estate law is changing right now, it's also "déjà vu all over again," James cautioned. "It is cyclical," he said. "Eventually, things return to the status quo ante, and you sort of forget what you went through - until the next downturn."

Credits: ABA Journal. Chicago: Mar 2009. Vol. 95, Iss. 3; pg. 66, 1 pgs READ MORE!

State Cracking Down on Mortgages

New mortgage rules have been finalized in Pennsylvania as state officials try to prevent a repeat of some of the risky lending practices that led to the foreclosure crisis.

The rules require mortgage companies to document a borrower's ability to repay a loan and require lenders to make extra efforts to disclose complex loan features that might make loans hard to repay.

The rules are part of a new state banking regulation that became official March 20, and mortgage companies have 90 days to begin complying. Violators will face fines up to $10,000. Department of Banking officials say the fines are among the stiffest in the country.

"These rules will help to ensure that Pennsylvanians get mortgages that they can understand and repay," Secretary of Banking Steven Kaplan said in a news release.

Under the documentation rule, mortgage companies will now have to document a borrower's income, fixed expenses and other relevant financial information that proves they have the ability to repay the loan.

The information must be kept in a loan file so that state banking officials can examine it during their periodic reviews of mortgage companies. Banking officials generally inspect mortgage files every 18 to 24 months, department spokesman Dan Egan said. "So when we go in there, we're going to be looking at the files to see if they're doing this, and if they're not, that's when the fines will kick in," Egan said.

Under the disclosure rule, lenders will have to use a one-page, state-approved form that calls attention to features that a borrower might otherwise overlook or be confused by. Those features include balloon payments or pre-payment penalties that can cause payment rates to increase or make it hard to refinance. "We're trying to draw attention to certain features that impact the long-term affordability of the mortgage," Egan said.

Work on the new banking regulation dates back several years to when lawmakers began focusing on "predatory loans" that have hidden costs and often target consumers with below-average credit. The foreclosure crisis created more urgency to establish the new rules. While banking officials finalized the regulation, lawmakers also approved a five-bill package last year aimed at protecting borrowers.

Those new laws include measures that make more information about mortgage companies publicly available, increase the penalty for appraiser misconduct, and give the Pennsylvania Housing and Finance Agency more ability to monitor troubling trends.

Credits: “The Daily News” March 31, 2009 READ MORE!

Renters Blindsided by Apartment Foreclosures: New Law Provides Help to Tenants

A couple of weeks ago, Devanie Jones came home from work and found a notice on the door of the two-bedroom, downstairs unit she's been renting for more than a year in a duplex at N. 11th and W. Burleigh streets.

The notice said she had 24 hours to get out because the property had gone through foreclosure and had been sold at a sheriff's sale.

Jones, 38, was shocked and confused. "I didn't know what was going on. The landlord never said a word. I had been sending my rent to a post office box address. I've never had a problem like this before," said Jones, who works as a certified nursing assistant. "I'm finding out a lot of things that I didn't know."

After making inquiries, she was given until April 1 to move. Otherwise, she said she was told by the sheriff's office, authorities will toss her belongings into the street. Since then, she has been frantically looking for a new place to live. Tuesday, she was still searching and contemplating moving into a hotel if necessary.

While the foreclosure crisis has caused many homeowners to lose their houses, many renters, such as Jones, suddenly find themselves losing the roof over their head when the apartment or duplex they rent goes into foreclosure. Until now, many tenants learn about the foreclosure only when a sheriff's deputy knocks on their door with an eviction notice.

But a new state law passed as part of the recent budget adjustment bill now protects the rights of tenants during foreclosure. The law requires that landlords provide a written notice to tenants or prospective tenants when foreclosure action begins, and again when the deadline expires for the landlord to pay to avoid foreclosure.

The law, which went into effect March 6, affects foreclosures started after that date. It also requires:
--Banks and financial institutions to provide written notice three times to current tenants of the property in foreclosure: when the foreclosure action begins, when the court issues a judgment of foreclosure and when the property is put up for sale. Failure to provide notice carries a $250 fine plus attorney fees.
--Tenants may stay in their rental residence for up to two months following the sale of the foreclosed property.
--If there is a security deposit, the tenants can withhold rent and let the security deposit cover the last month before the foreclosure redemption period expires. That's the time allowed for a property owner to stop the foreclosure from moving forward, a period that generally lasts from six to 12 months.
--Beginning June 6, the electronic Wisconsin Circuit Court records cannot display information regarding a tenant eviction that was prompted by foreclosure.

Milwaukee Mayor Tom Barrett said the law will give residents greater rights to safe and secure rental housing during these tough economic times. "After hearing horror stories of tenants losing money and being evicted because they were living in foreclosed properties, the city requested a change in state law," he said.

The city was joined in seeking the change by others, including Legal Action of Wisconsin, the Winnebago Housing Coalition and the Metropolitan Milwaukee Fair Housing Council.
State Rep. Gordon Hintz (D-Oshkosh) and state Sen. Lena Taylor (D-Milwaukee) were the prime sponsors of the legislation.

"This has been a problem for years," said attorney Bob Anderson of Legal Action's Madison office. But the foreclosure crisis accelerated the problem and has made it much worse, he said.
"The new law makes a big difference for tenants in this situation because they have to be told of the foreclosure and given two months time to start looking for a new place," he said.
Often, tenants are given 30 days to move, but that's not much time, he said.

These situations usually occur in the middle of the month when the tenant has already paid the rent, won't get a security deposit back and must find the money for a new place, he said. They have to find a new landlord and come up with a deposit and the first month's rent, he said.
"It's so hard to find affordable housing anyway, and the 30 days that tenants have been generally given isn't enough time to find a place and for the landlord to do a background check," said Mark Silverman of Legal Action of Milwaukee.

Credit: Milwaukee Journal Sentinel, McClatchy - Tribune Business News.


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