Banks have been allowing delinquent mortgage holders to squat while prices rebound because rising prices allows them to recover more on their bad loans. In many cases, the delinquent borrower moves on with their lives and leaves the property vacant with the assumption that the bank will finally foreclose and resell the property. However, banks are under no obligation to foreclose; it’s merely a contractual right. 
In cases where the house is in a bad neighborhood or in need of extensive repair, it is more cost effective for banks to write the loan down to zero and leave the property alone. When that happens, title remains with the delinquent owner, and even though they may have long since moved away, they are still on title, and the property won’t let them go.
‘Zombie titles’ haunt victims of home foreclosure
By Michelle Conlin
COLUMBUS, Ohio - Joseph Keller doesn’t expect he’ll live to see the end of 2013. He blames the house at 190 Avondale Avenue.
Five years ago, Keller, 10 months behind on his mortgage payments, received notice of a foreclosure judgment from JP Morgan Chase. In a few weeks, the bank said, his three-story house with gray vinyl siding in Columbus, Ohio, would be put up for auction at a sheriff’s sale.
The 58-year-old former social worker and his wife, Jennifer, packed up their home of 13 years and moved in with their daughter. Joseph thought he would never have anything to do with the house again. And for about a year, he didn’t.
Then it started to stalk him.
First, in 2010, the county sued Keller because the house, already picked clean by scavengers, was in a shambles, its hanging gutters and collapsed garage in violation of local housing code. Then the tax collector started sending Keller notices about mounting back taxes, sewer fees and bills for weed and waste removal. And last year, Chase’s debt collector began pressing Keller to pay his mortgage, which had swollen, with penalties and fees, from $62,100.27 to $84,194.69.
The worst news came last January, when the Social Security Administration rejected Keller’s application for disability benefits; the “asset” on Avondale Avenue rendered him ineligible. Keller’s medical problems include advanced liver disease, hepatitis C and inactive tuberculosis. Without disability coverage, he can’t get the liver transplant he needs to stay alive.
“I can’t make it end,” says Keller. “This house, I can’t get out.”
This is the worst kind of agony because there is nothing he can do about it. There is no way to remove himself from title. He could try to deed the property to a charity, but then they would be liable for back taxes and demolition costs. Nobody will be willing to take this heap off his hands.
Keller continues to bear responsibility for the house because on December 23, 2008 – about two months after he received Chase’s notice of sale – the bank filed to dismiss the foreclosure judgment and the order of sale. Chase said it sent Keller a copy of its court filing on December 9, 2008. Keller says he never received any notification. Either way, his name remained on the property title. …
The Kellers are caught up in a little-known horror of the U.S. housing bust: the zombie title. Six years in, thousands of homeowners are finding themselves legally liable for houses they didn’t know they still owned after banks decided it wasn’t worth their while to complete foreclosures on them. With impunity, banks have been walking away from foreclosures much the way some homeowners walked away from their mortgages when the housing market first crashed.
“The banks are just deciding not to foreclose, even though the homeowners never caught up with their payments,” says Daren Blomquist, vice president at RealtyTrac, a real-estate information company in Irvine, California.
The banks are under no obligation to foreclose, and when the property is worthless, they don’t. This isn’t going to change.
Since 2006, 10 million homes have fallen into foreclosure, according to RealtyTrac, a number that in earlier, more stable times would have taken nearly two decades to reach.
High foreclosure rates have been with us for so long that people forget that the foreclosure rate is about ten times normal.
Of those foreclosures, more than 2 million have never come out. Some may be occupied by owners who have been living gratis. …
This does not include the delinquent borrowers in shadow inventory that aren’t paying but haven’t been foreclosed on yet. Pent up supply, anyone?
And then there are cases like the Kellers, in which homeowners moved out after receiving notice of a foreclosure sale, thinking they were leaving the house in bank hands. No national databases track zombie titles. But dozens of housing court judges, code enforcement officials, lawyers and other professionals involved in foreclosures across the country tell Reuters that these titles number in the many thousands, and that the problem is worsening. …
These houses are concentrated in the worst neighborhoods in beaten down markets. Cleveland and Detroit are full of them.
When people move out after receiving a notice of a planned foreclosure sale and the bank then cancels, municipalities are left to deal with the mess. Some spend public funds on securing, cleaning and stabilizing houses that generate no tax revenue. Others let the houses rot. In at least three states in recent months, houses abandoned by owners and banks alike have exploded because the gas was never shut off.
Can you imagine a house exploding in your neighborhood? Wow!
Unsuspecting homeowners have had their wages garnished, their credit destroyed and their tax refunds seized. They’ve opened their mail to find bills for back taxes, graffiti-scrubbing services, demolition crews, trash removal, gutter repair, exterior cleaning and lawn clipping. At their front doors they’ve encountered bailiffs brandishing summonses to appear in court.
In some cities, people with zombie titles can be sentenced to probation – with the threat of jail if they don’t bring their houses into compliance.
“These people have become like indentured serfs, with all of the responsibilities for the properties but none of the rights,” says retired Cleveland-Marshall College of Law Professor Kermit Lind. …
This really is the worst possible outcome for these people.
By walking away, banks can at least reap the insurance, tax and accounting benefits from documenting the loss — without having to take on any of the costs and responsibilities of ownership, according to a 2010 Federal Reserve paper. A walk-away also enables them to “sell the unpaid debt to debt collectors, sometimes noting to the court that the loan has been charged off,” according to a Case Western Reserve University study released in 2011.
I spoke with an asset manager dealing with large land holdings last year. He told me about a project he foreclosed on in a beaten down market where it was more cost effective for the bank to donate the land to a conservancy rather than sell it because they obtained a substantial write off.
Banks say that because they are not the legal owners of these homes, they aren’t required to maintain them, pay taxes on them, or take any legal responsibility for them. Homeowners legally own their properties until the day of sale. And it’s not until that day, the banks point out, that a homeowner’s name vanishes from the title.
That is the reality of it. Banks have the option to foreclose not a mandate to do so. The owner is not released from responsibility until the property is sold.
Cities are struggling to find ways to cope with growing numbers of blighted properties. Miami, Detroit and Las Vegas have created registries intended to force banks to take more responsibility for vacant houses.
A vacant-property ordinance in Los Angeles requires banks to register a house as soon as they file a default notice. Failure to do so could result in a $1,000-a-day fee. However, “it’s not being enforced,” says Los Angeles Assistant City Attorney Tina Hess. “Part of the problem in L.A. is the building and safety departments have been cut so severely they don’t have the inspection staff to monitor these properties.”
A zombie title in Las Vegas
I came across a property in Las Vegas being offered for $60,000. It would have rented for about $850 per month in good condition, so it piqued my interest. The property was inherited by four children of the former owner who lived there for over 40 years. They had no idea the condition of the property, but they were eager to sell to get their inheritance. After inspecting the property, I was astounded that it was occupied at all. The foundation slab was crumbling so badly that flooring could not be installed on top of it. The interior hadn’t been updated in 40 years, the wiring was bad, the plumbing leaked, the roof was shot, basically everything needed to be replaced. It would cost more to renovate than the property was worth, and with prices below replacement costs in Las Vegas, it would cost more to demolish and rebuild than the property was worth. The people would have to pay me $25,000 for me to take this off their hands.
I don’t know what became of the property. I imagine the absentee inheritors kept it on the market hoping some fool might actually buy it from them. It would never pass an inspection, so the purchase would need to be all cash. Nobody with cash and any understanding of real estate would touch this property. The inheritors are likely going to have to spend $20,000 demolishing the property and hope someone will pay them enough for the vacant lot to recover their costs. If they don’t do something with it, the property will be condemned, and they will face mounting fines. Unfortunately, they can’t just walk away.
The former owner of today’s featured REO probably wishes he extracted more equity when it was available. He only took out about $50,000 — which is still a lot of money — but far less than he could have if he had really gone Ponzi.
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We're sorry, but we couldn't find MLS # OC13011942 in our database. This property may be a new listing or possibly taken off the market. Please check back again.
Proprietary OC Housing News home purchase analysis
8111 SAN HELICE Cir Buena Park, CA 90620
$469,900 …….. Asking Price
$355,000 ………. Purchase Price
9/5/2003 ………. Purchase Date
$114,900 ………. Gross Gain (Loss)
($37,592) ………… Commissions and Costs at 8%
============================================
$77,308 ………. Net Gain (Loss)
============================================
32.4% ………. Gross Percent Change
21.8% ………. Net Percent Change
3.0% ………… Annual Appreciation
Cost of Home Ownership
——————————————————————————
$469,900 …….. Asking Price
$16,447 ………… 3.5% Down FHA Financing
3.61% …………. Mortgage Interest Rate
30 ……………… Number of Years
$453,454 …….. Mortgage
$118,499 ………. Income Requirement
$2,064 ………… Monthly Mortgage Payment
$407 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$117 ………… Homeowners Insurance at 0.3%
$472 ………… Private Mortgage Insurance
$0 ………… Homeowners Association Fees
============================================
$3,061 ………. Monthly Cash Outlays
($393) ………. Tax Savings
($700) ………. Equity Hidden in Payment
$19 ………….. Lost Income to Down Payment
$137 ………….. Maintenance and Replacement Reserves
============================================
$2,125 ………. Monthly Cost of Ownership
Cash Acquisition Demands
——————————————————————————
$6,199 ………… Furnishing and Move In at 1% + $1,500
$6,199 ………… Closing Costs at 1% + $1,500
$4,535 ………… Interest Points
$16,447 ………… Down Payment
============================================
$33,379 ………. Total Cash Costs
$32,500 ………. Emergency Cash Reserves
============================================
$65,879 ………. Total Savings Needed
The property above is available for sale on the MLS.
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Nearby Foreclosures
Gain a competitive advantage over other buyers. By locating distressed properties -- before they hit the MLS -- you can discover where tomorrow's REOs and short sales will appear. Most of these properties are not listed on the MLS, but they will be soon. Research properties in advance and get a jump on your competition. Don't miss out on another deal because you couldn't act quickly. Use this tool to your advantage! The red properties are already bank owned. As soon as REO asset managers prepare them for sale, they will be on the MLS. Get ready! The green and blue properties have owners who are not paying their mortgages. They may be offered as short sales, or they may go through foreclosure and become REO. Either way, they will also likely be available on the MLS soon. Find your next home! Be prepared to offer on these properties by researching them in advance or risk losing out to buyers who are have done their homework. Start your research today! To find distressed properties, enter your desired location and press search. Scroll through list by pressing "next."
25 Responses to “Sometimes real estate is a ball and chain”
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My Dad is comes are very small town in Texas not near major and medium sized city. In fact, it had a Walmart for years, but after 10 years of running in the red they shut it down. This is the only county in Texas that never benefited from the 30 year boom out there. If you can’t sell your house in the town, then sometimes they are just abandoned. When the city finally get possession of the house it’s usually burned down to train the fire department. When my Grandmother passed away in 2010 we were lucky to sell her house for $7k.
Many small towns in America face similar challenges. The small town I grew up in hasn’t changed much over the last 40 years. The facades Main Street businesses get refreshed, but there is little new construction, particularly for houses. The out-migration equals the birth rate. It’s like the place is cast in amber, neither growing or dying. Real estate prices have barely budged over the last 40 years. They track wage inflation very closely, and wages haven’t grown much, barely kept up with CPI.
realtors finally figured out that faster foreclosures make for more commissions.
Florida realtors Lobby for faster foreclosures
Realtors in Florida are no stranger to the economic impact of foreclosures. So, it’s no surprise that the Florida Realtors addressed the state’s judicial foreclosure process in its list of five legislative priorities for 2013.
According to recent data from CoreLogic, the state’s foreclosure inventory rate is 10.1 percent, the highest among any other state. And, in a one-year period ending in December, the state has seen about 98,000 properties become lost to the foreclosure process, the second highest in the country. Assisting in the buildup for foreclosures is the state’s lengthy foreclosure timeline.
According to the association, the average length of time between the first foreclosure filing and bank repossession is 676 days, while the national average stands at 318 days.
“Backlogs are especially heavy in circuit courts in South Florida because of a higher volume of foreclosures compared to other parts of the state,” Florida Realtors stated.
Rep. Kathleen Passidomo (R-Naples) reintroduced HB 87 earlier this year in January.
One provision includes more stringent paperwork requirements for banks, requiring them to certify they hold the correct documents to execute a foreclosure.
Another provision gives lienholders, such as condo associations, authority to expedite the foreclosure process.
The bill also includes a protection for consumers by giving lenders less time to pursue a deficiency judgment—one year rather than five.
“Florida Realtors wants to ensure that any alternative procedures designed to speed up the foreclosure process in uncontested or meritless cases have safeguards that protect all parties,” the group stated.
This a Banks versus Realtor issue and who’s bottom line. The banks have been winning every battle.
FHA: Housing Market Friend or Foe?
As the Federal Housing Administration (FHA) currently holds a negative equity position of $16.3 billion with a capital reserve ratio of -1.44 percent, Congress called on industry experts to discuss FHA’s role in the housing market and possible reforms for the future. The hearing took place Wednesday morning before the House Financial Services Committee.
The overall sentiment from witnesses was that the FHA as it stands is flawed and in need of reform.
When Rep. Lynn Westmoreland (R-Georgia) posed the question of whether FHA would be permitted to function in the private market, Edward Pinto, resident fellow at the American Enterprise Institute, was quick to respond, “Without government guarantee, FHA would be shut down by every state in the country based on capital requirements.”
In his testimony, Pinto argued, “the FHA’s lending practices are inconsistent with its mission and represent a disservice to American working-class families.”
Pinto pointed out about 40 percent of FHA loans harbor at least one subprime characteristic. Either the borrower’s FICO score is below 660 or the loan has a debt ratio of at least 50 percent. “A substantial portion of these loans have an expected failure rate exceeding 10 percent,” Pinto said.
While some argue FHA should reduce its median FICO score from 700 to 660 to assist borrowers who would otherwise not be able to obtain a mortgage, Pinto argues this “higher level of risk-layered loans will result in a substantial increase in expected foreclosure rate.”
Anthony B. Sanders, senior scholar at George Mason University, largely shared Pinto’s views. “The FHA’s book of loans in 2008 has been nothing short of disastrous,” he stated.
Sanders also sees problems in FHA’s current policies. While the GSEs have reduced their conforming loan limits, the FHA increased its conforming loan limit to $729,750.
“When this artificially high conforming loan limit is combined with FHA’s high loan-to-value (LTV) and low credit score policies, we have a recipe for inordinate harm to fragile households,” Sanders said.
Sanders recommended FHA require minimum FICO scores of 660, maximum LTVs of 95 percent, and maximum debt-to-income ratios of 31 percent on all loans it insures.
Loans with lower FICO scores should require a 10 percent down payment, Sanders said.
Some entrepreneurial demolition company should go to the owners of these houses and offer to demolish it if they deed over the lot. If they carefully pick their targets, there will be many properties where the vacant lot has more value than their cost of demolition. At full retail, the demolition costs make the lot worth nothing, but at their true cost, they can make a profit on the deal. They could also acquire a substantial real estate empire and sell out in better times.
Problem is, the point has been reached systemically where the path to ”better times” is less debt.
This is a real why I think in the future banks will only originate Qualified Mortgages, it’s the liability if they don’t.
The Government’s S&P Lawsuit Could Sink McGraw-Hill
By Paul M. Barrett on February 07, 2013
Let’s cut through the esoteric legal theories and comically incriminating e-mails: By seeking $5 billion in penalties from Standard & Poor’s as punishment for inflating credit ratings, the Obama administration turned its fraud suit into a potential corporate death penalty case.
S&P’s parent, McGraw-Hill (MHP), may not survive in its current structure if Attorney General Eric Holder follows through on his draconian civil action. “This alleged conduct is egregious—and goes to the very heart of the recent financial crisis,” Holder said at a press conference on Feb. 5 in Washington. McGraw-Hill, which denies wrongdoing, had net income of $867 million in the past four quarters. It can’t afford to pay $5 billion. McGraw-Hill stock fell more than 20 percent on word of the suit.
The U.S. Department of Justice’s decision to go medieval on the country’s largest credit-ratings company became evident to McGraw-Hill months before the filing of the suit in federal court in Los Angeles. In settlement talks, Holder’s aides had been demanding the company pay $1 billion and admit to committing fraud, according to the New York Times. That could have ignited a fatal firestorm of additional litigation. The company decided to fight back instead.
None of which should trouble anyone except McGraw-Hill employees and shareholders, according to Barry Ritholtz, chief executive officer of the quantitative research firm Fusion IQ. “If Arthur Andersen received the ultimate penalty for their part in the Enron and other fraud,” Ritholtz blogged on Feb. 6, “I see no reason why Moody’s (MCO) and S&P don’t suffer the same fate.”
In 2002, Andersen, once a Big Five accounting firm, shut its auditing business after being found guilty in a criminal case related to the collapse of the Houston-based energy firm Enron. The Supreme Court overturned the verdict, but the damage had been done.
Moody’s, which owns the second-largest credit-ratings service, wasn’t named in the Justice Department suit. A central element of S&P’s defense is expected to be that its overly generous evaluations of complicated mortgage-backed securities were no different from those of Moody’s or the No. 3 service, Fitch Ratings. In other words, S&P would insist it was no dumber than its rivals—and certainly not a fraudster. “Claims that we deliberately kept ratings high when we knew they should be lower are simply not true,” Catherine Mathis, a McGraw-Hill spokeswoman, said in a statement. (Until December 2009, McGraw-Hill owned BusinessWeek.)
STORY: In Australia, an Ominous Ruling for Ratings Firms
Criticized for not responding strongly enough to the 2008-09 crisis, the Justice Department would send an unmistakable message and deter dishonest dealings throughout the financial industry by crushing Standard & Poor’s. Why S&P? Well, one reason is the company’s antic culture of e-mail confession. The government’s suit offers a trove of jury-ready quips. “We rate every deal,” one analyst said. “It could be structured by cows, and we would rate it.” Cartoonist Gary Larson must have had a giggle over that one.
Holder has denied that his decision to single out S&P had anything to do with the company’s stripping the U.S. of its AAA credit rating in August 2011. Barry Adler, the Petrie Professor of Law and Business at New York University School of Law, says that even if S&P suffers the full wrath of the federal government, it could still have value: “The company could refinance, reorganize, and move forward with a reformed business, or could just be sold for the benefit of its creditors.”
The bottom line: The government’s demand for $5 billion in penalties from S&P may in effect be a death sentence for its parent, McGraw-Hill.
The real key is who did the filing – it was the Department of Justice in Los Angeles.
http://armstrongeconomics.com/2013/02/06/mcgraw-hill-sp-charged-at-last-but-by-whom/
“The most interesting of all events has just taken place. The U.S. Justice Department filed a civil complaint accusing McGraw-Hill and S&P of mail fraud, wire fraud and financial institutions fraud. Of course, nobody will ever go to jail since it is civil – not criminal. The real key is who did the filing – it was the Department of Justice in Los Angeles.
What you must understand is that each branch of the Department of Justice is INDEPENDENT. McGraw-Hill and S&P are both headquartered in New York City. New York branch of the Department of Justice has been dragging anyone that competes against New York into court there and destroys the firms like Drexel Burnham and REFCO to enable New York firms to take all their business. When I asked a NY lawyer how come no one from NYC is ever prosecuted in NYC, he smiled and said “You don’t shit where you eat!” How do you think MF Global got so big – they took the business created by REFCO of Chicago. Drexel Burnham was the innovator of the entire Junk Bond Market. They were destroyed by NYC costing 50,000 jobs so NYC could steal the junk bank market.”
Here’s the crazy part of the DOJ’s weak case. It stems from a 1989 law that allows the DOJ to seek damages from fraud resulting in losses to federally insured depository institutions. BoA and Citi represent half of the losses in the case. They also represent half of the MBS creations that were rated by S&P. So are half of the victims also complicit in the fraud causing the losses? Yes.
It’s a shakedown. S&P should be penalized, but the figure will likely be much less than their parent’s annual profit ($1b).
This is a shakedown, but it’s long overdue. The ratings agencies were a big part of the problem. Supposedly, Dodd-Frank corrected this problem by forbidding ratings agencies from getting paid by the companies creating the securities. However, nobody has ever been punished for the awful things that went on during that time. I suspect the DOJ will negotiate to a lower number. They will figure out how much they can take to leave the company barely solvent to abscond all the profits they made from their role in the bubble. I would consider that justice.
The entire process reeks. BofA is up to its neck in dirty tricks. The taxpayers, of course, get screwed.
Bank of America Foreclosure Reviews: Whistleblowers Reveal Extensive Borrower Harm and Orchestrated Coverup.
http://goo.gl/mYhkk
The rating agencies were at the core of the problem. Whatever asshole who decided the ratings agencies had to be paid by those who wanted the ratings is the culprit for the current bad shit but odds are they made a lot of money for their decision. That person’s name needs to be named and vigilante justice should ensue…
Anyone care to speculate how much damage to condo values that double-murder has caused to Avenue 1 units?
I just saw a email from my wife about that! Irvine, Corona, and Riverside killing in all three cities.
He has a manifesto out now.
http://hiphopandpolitics.wordpress.com/2013/02/07/uncensored-manifesto-from-retired-lapd-officer-christopher-dorner/
He advocates gun control. Oh the irony.
Perhaps the value will go up.
Does anyone remember The World According to Garp? Robin Williams and his new wife are shopping for a home. As they are standing out front, an airplane crashes into the facade. Robin Williams exclaims that he wants to buy they house, “What are the odds of that happening again?”
The loan, a bank asset, is closed and “written off” when the property is foreclosed on, but the banks then lists the property as an asset. Care to guess as what value the bank is allowed to, and does, list the property at per bank GAAP?
Yup, par on the loan. And the value of the property is not “written down” until the property is sold. Effectively, the loss is not shown until the bank sells the property. That is the real reason banks are not selling properties.
fraud on this level is tantamount to financial treason.
It was my understanding that they had to value REO at fair-market value. If that is changed, then banks will start holding REO. If there is no difference on their books between the loan and REO, then they should foreclose, kick out the squatters, and rent the property until the market improves. Basically, they could execute the same business model as the private equity funds currently buying up all these properties.
Is the end for OCHN near?
Redfin allows real estate brokers to publish micro-blogs
Posted by Jacob Gaffney on February 7, 2013 03:54 PM
Redfin is now allowing its real estate brokers the ability to micro-blog about their experiences on selling a property.
The technology and service provider hopes the added transparancy will aid its brokers in decision making and may even give potential homeowners some insight.
So for example, say a Redfin broker runs up against a builder they think charges to much simply because he’s the only renovation specialist in the neighborhood. That broker can now name and shame the builder for the practice, on a neighborhood level at first. After the property is sold, and the site updated, the comment will be linked to that house.
Redfin said it hopes it will show it’s members “how to win in a competitive-offer situation, or how to price or negotiate a sale.”
Redfin said it is respecting privacy rights in allowing the running commentary.
“Only Redfin employs local agents across hundreds of neighborhood across America who use online tools for crafting an offer that are directly connected to our real estate search website,” Redfin CEO Glenn Kelman. “Our long-term strategy is to combine the expertise of local agents on the ground with powerful technology running in the Internet cloud; the source of all our strength is that we are both a service company and a software company.”
The “Offer Insight” function will be meant to highlight unusual and interesting circumstances surrounding the negotiations, such as the number of competing offers, or whether or not the Redfin client waived financing or inspection contingencies.
Following is an example of an Offer Insight:
“We were up against multiple offers. We presented right away and went in slightly over list price to be competitive. This was a probate sale that did not need court approval. The attorney reviewing the files decided to work with an offer with a substantial down payment. Despite being one of the first offers in, they seemed to have held out for a better offer without giving us any updates until their decision was made.”Redfin Agent, Keith Thomas, Jr. (Trabuco Canyon, Orange County, CA)
What’s really neat, is that at the end of the transaction Redfin sends homebuyers a notification email about the Offer Insight. However, only Redfin agents are able to post Offer Insights.
Won’t work. The agents will only post stories that present themselves as major heroes, and the other agents as at worst coming around to see the wisdom eventually. The really interesting stuff that really would be enlightening won’t come to daylight, because it would interfere with the marketing value. And the only reason a sane agent would put in the substantial time and effort required to maintain a blog is if it pays off in more sales and clients — so it will be marketing, whether it says so or not.
IR is different, because he’s not trying to market his services as a real estate agent. He doesn’t need to worry about maintaining relationships with other agents, and doesn’t need to worry if some low-information 30% of the home-buying or selling crowd doesn’t like his “negativity.”
I have been in business meetings were kewl Web 2.0 ideas like this are floated. If you’re fortunate, wiser heads prevail.
Why is it “moral hazard” when underwater loan-owners walk away but ‘bizness as usual’ when banks fail to complete their declared foreclosure? I’ll never buy another house again, ever.