The Market Ticker - Foreclose Or Lose Your Mortgage!

By Tickerguy - The Market Ticker (Reporter)
Wed 24 Nov 2010 06:50

This is interesting....

    Ben Solomon is a lawyer with the Association Law Group, and practices community association law in Florida. Through his firm's efforts, his association client foreclosed on Otaime Paez, an owner who was delinquent on her condominium fees. Solomon then filed a lawsuit against Citibank, the lender who held the first mortgage on the Paez unit. The lawsuit basically told the bank "foreclose on the unit or abandon the mortgage."

The premise here is "restraint on alienation."  It's a rather important (but somewhat arcane) legal principle that restraining someone's right to sell or otherwise dispose of property is not permitted under the law.  So what Mr. Solomon did was to sue (on behalf of the condo association) to force Citibank to get off the dime - that is, to not sit on the mortgage and refuse to act, as the banks have been doing.

Interestingly enough LPS, one of the "default mills", now says that over 4.3 million loans are now more than 90 days delinquent, and 20% of those loans more than two years delinquent are not in foreclosure!

That's not surprising given my local experience - there are a lot of people around here who have made no mortgage payments in over a year - sometimes two.

This has provided quite a nice "boost" to the economy - a seldom-mentioned fact by the media, and when it is, it's seen as a "positive" to consumer spending.

Well, no.  For the so-called "positive" there are lots of negatives, including those associations in managed communities.  Not that I have much sympathy for the folks who run HOAs and have them - I find the premise of an HOA in most cases (along with their bylaws) to be ridiculous in the extreme.  As with much of what's done in today's world what started as a good idea - the reasonable protection of property values - turns into a nightmare of kafkaesque proportions.

But in the case of townhomes or condos, a HOA is essential, as there is a legitimate community property problem that someone has to take care of, along with the insurance thereupon.  And the problems that a large percentage of non-paying units poses is, in those cases, very real.

Then there are the municipalities.  Those who aren't paying their mortgages are almost all not paying their property taxes either.  Yes, the counties sell tax certificates, but that doesn't get them the money now, which of course is what's used to pay for schools, police and fire protection and other essential services.  While I'm certainly in the camp that says that municipal budgets are bloated and full of waste, it is without question that this sort of "mexican standoff" game does harm to everyone involved - except the homeowner, of course, who "gets a freebie."

The distortions in the economic picture, along with the damage done to other (paying) homeowners and municipal governments, is massive.  And this is one place where the government's so-called "Bank Oversight" is not only negligent, it's criminally corrupt.  These institutions are often holding the notes, including any seconds behind the delinquent first, at or near full "PAR" value.  That's utter BS, and yet we know it's happening because "provisions" for losses have in fact been cut over the last two quarters - while this "shadow delinquency" number is not coming down to any material degree, and these people are not being foreclosed upon.

I like the approach taken by Mr. Solomon, and hope that it spreads.  In addition one has to wonder if the municipal governments could adopt a similar strategy, forcing the banks to disgorge these notes - either crap or get off the pot, so to speak.

But in point of fact the real problem lies with the so-called regulators at the OCC, FDIC and Fed who won't regulate, even though the black-letter of the law (remember that thing called "Prompt Corrective Action"?) requires them to do so.

Fixing that, I suspect, will require the insertion of an "Or Else" into the law by Congress so that civil or even criminal penalties can be applied to these agencies and their employees who act more in conspiracy with the big bank in the cooking of their books than in the enforcement of the law.

After all, our intrepid OTS did conspire with Indymac to falsely state the bank's health by backdating deposits.  And even better, the OTS employee involved did the same thing during the S&L crisis, and not only did he not get indicted and prosecuted for it, he kept his job!

Your government-sponsored and enhanced looting operation at work.

This is something that's crossed my mind several times over the last few years.

We wanted to fix our house up and sell it, but when 2008 rolled around and everything started to get really bad, we decided not to even bother putting our house on the market.

With all these people staying in their houses, and the banks holding their notes, if in one fell swoop, they let all those houses on the market all at once, you'd have property values of those that have been paying their mortgages religiously for all these years, see a huge drop in their property values, to more where they SHOULD HAVE BEEN before the banks created this huge bubble.

So, say, a $75,000 house originally would be, maybe, $15,000. A family who has stayed in their home for 10 years, would have paid down their conventional mortgage to around $58,000, and now, they'd be underwater too and it would create a domino effect like something we've never seen.

All by design, folks, all by design.

Something I have been thinking about... if the value of your home goes down and you are not planning on selling it... does it matter? If you were unfortunate to have bought when the market was over inflated, you are underwater but you still have a steady income to make the mortgage payment, do you just accept that you are going to be stuck in that house for a long time, maybe the rest of your life? I think people do need to look more at making their house a true home and not just something that they live in for a few years and flip to make a profit and buy something bigger and better.