Foreclosure affects us all because it drags down our economy, depresses local property values and harms our friends and neighbors. Even worse, many foreclosures are actually fraudulent, so none of us can be sure we are safe from it.
- Foreclosure is extensive in Nevada County
- There is a significant cost of foreclosure to the county, and to other homeowners
- Current banking practices and securitization including fraudulent records and the “dual track” have created this foreclosure epidemic and keep it going
- Homeowners do have tools protect themselves
- The state of Nevada has implemented important legislation on foreclosure with positive effects their market
- California’s Attorney General, Kamala Harris has proposed the “Homeowner Bill of Rights”
- Countries like Iceland have taken strong steps to mitigate the foreclosure crisis with positive economic outcomes
- Nevada County should be evaluating options like a public bank, a foreclosure moratorium and mortgage restructuring
Let’s discuss what our community can do to reduce the human and economic costs of foreclosure.
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Information & Resources – See Below
News & Comments – see the Foreclosure Blog
Costs of Foreclosure to Nevada County
Human Cost of Foreclosure
How did we get here?
Rampant foreclosure fraud
The foreclosure process
Dual Track – When banks use an application for loan modification to steal your home
What can we do about foreclosure as a community?
What can individual families do to fight foreclosure?
Foreclosure in the Great Depression vs Nevada County today
Unregulated financial markets are inherently unstable and prone to boom and bust. One of the worst was the panic and crash of 1929, due to a completely unregulated, massively over leveraged stock market, which resulted in the great depression. By the end of 1933 unemployment had hit 27%, with foreclosure of non-farm properties peeking in 1933 and 1934 at 1.4% of housing. While unemployment remained high through 1940, never going below 17% , foreclosures steadily declined, mainly due to the aggressive intervention by the Roosevelt administration to modify and refinance home mortgages with government funds, rather than relying on private sector banks.
Where are we in Nevada County today? Foreclosures from June 2011 through May 2012 totaled 1,017. Total single family housing, including mobile homes is approximately 46,500 (see links to county demographic documents below), so our county’s current foreclosure rate of 2.2% is running 50% higher than the national peak during the Great Depression.
Unlike the depression, there is no effective government brake on the rate of foreclosures. As you can see in this chart, the rate of foreclosures is not going down.
In May 2012, the inventory of foreclosed homes was 972 which represents slightly over 2% of all the single family homes in the county.
Nevada County Population_Housing_and_Employment through 2011
Nevada County Demographics 2010
Costs of Foreclosure to Nevada County
Nevada County’s property tax revenues peaked in 2009 at $34,227,968 and, by 2011, had declined by $2,565,985 or 7.5%. Total tax revenues, which include business-type taxes such as sales, transportation, and franchise taxes, among others, peaked in 2008 at $43,546,018 and, by 2011, had declined by -$4,618,702 or 10.6%. Home Wreckers estimates the cost of foreclosures to Nevada County between 2008 and 2012 to be $1,617,935,229 in home value, $9,869,405 in property taxes and $47,461,018 in costs to the county government.
Of course, foreclosures are not the only cause of declining property tax revenues. Nor are property tax revenue declines the only impact of foreclosure. Median home sales prices have declined by almost 50% from their peak as shown here:
For much of our population, our homes are our major financial asset. The decline in home values has a huge impact on our net worth and future flexibility that net worth provides. The loss of net worth can make it impossible to retire or limit our borrowing ability to finance our children’s education, for example. So, even if you are not facing foreclosure and the loss of your home, the foreclosures are probably impacting you.
Another heavy penalty of the decline in home values is that “underwater” homeowners can be trapped and unable to move to find work or take jobs that provide higher income or better benefits.
Nevada County Annual Financial Reports
Human Cost of Foreclosure
While foreclosure is costing all of us in Nevada County, the families whose homes are being foreclosed suffer the most. When they lose their homes, they can end up homeless. Even if they can afford somewhere to stay, their damaged credit rating means it is hard to even rent. Bankruptcy is common, along with depression, loss of stability, a sense of failure and tremendous stress – even suicide. The children can’t help be traumatized by being yanked away from their community and friends.
They experience much of this even before they are evicted. Many foreclosures are fraudulent but our legal system often protects the criminal and not the victim. Losing your home to fraud only exacerbates the emotional impact.
One big underlying factor leading to our current economic crisis, followed by the foreclosure crisis, is a change in the way home loans are made: Securitization.
Traditionally, when you wanted a loan to purchase a home, you went to your local bank or savings and loan. They reviewed your qualifications and decided if you were a reasonable risk to loan the money to. If so, they would give a loan. Since they were “on the hook” if you failed to make the payments, they would be pretty careful about who they loaned to and/or how much they were willing to loan and what property they would loan against.
Beginning in 1970, the first securities backed by mortgage loans were created. The banks and savings and loans could now sell your mortgage instead of keeping it themselves. They might continue to service the loan (take your payments) but they no longer were “on the hook” if you failed to make the payments and so the criteria for who could receive a loan became less and less stringent. In fact, a mortgage broker industry evolved where loans were issued by what amounted to a sales office representing a financial organization that might never deal with you directly. Once it was issued, the seller of the loan might have no connection to you or to the loan and so had little motivation to insure that there was a low risk of loan default. In fact, the motivation was to sell loans to as many people as possible, regardless of their ability to pay.
In most states, there are strict contract and title laws that govern who owns property and how transfers of ownership are recorded. These made securitization complicated and difficult. In order to make it easier, MERS – the Mortgage Electronic Registration Systems – was developed. When used, MERS is the owner of record of the lender’s side of the mortgage regardless of how the mortgage backed security that the individual mortgage is part of gets shuffled around. This enabled mortgage backed securities to be traded like stocks without the headaches of dealing with proper recording of ownership transfers. By 2007, MERS registered roughly two-thirds of all home loans in the US. The home mortgage market had become a casino with no accountability for the seller of the loan.
Here’s what taking out a mortgage used to look like:
Here’s what it looks like under securitization. MERS is usually the Trustee.
Not surprisingly, a new market, known as the subprime lending market, developed for loans that would never have been made when banks could not sell your loan to someone else – loans to people who very likely would have difficulty keeping up with their payments. The percentage of lower-quality subprime mortgages reached 20% by 2007. Some 90% of the subprime loans were adjustable rate mortgages, whose low starter rates began to go up, causing higher monthly payments for people who couldn’t afford them. The result was the subprime mortgage crisis and the collapse of the real estate and mortgage backed securities market.
Many of the subprime mortgages obviously would go into default and become subject to foreclosure. But, the collapse of real estate prices and rise in unemployment added to the number of homes subject to payment default. Sadly, the huge number of defaults then led to massive foreclosure fraud.
Rampant foreclosure fraud.
On Feburary 15th, 2012, San Francisco Assessor-Recorder Phil Ting held a press conference announcing first audit of foreclosure records in California. The Aequitas report highlights that the foreclosure system in California is, to quote him, “broken”. The report reviewed 382 foreclosures out of 2,405 foreclosures during the period reviewed. 84% of which showed at least one clear violation of law. 99% had suspicious activity that may not have definitely been violations of law, but raised questions.
One example of the type of fraud is “self assignments of the Deed of Trust”, which means that new lender is assigning the Deed of Trust themselves…kind of like saying: “I own this because I say I own it – even if you have no record of anyone selling it to me or record of the previous owner’s authorization”. 27% of the assignments of Deed of Trust evaluated had were self assignments. Curious…and a violation of law.
Another example is that 85% had a substitution of trustee, meaning that the trustee who filed the default was not the trustee on the Deed of Trust. Someone who had no connection on record to the property was trying to take the property away. Curiouser and curioser…and also illegal.
Even the institutions foreclosing knew that there might be legal issues. Buyers of foreclosed homes would find that the sale included contingencies stating essentially that “we might not own this home but if there turns out to be a problem, all you get back is your deposit”.
So, not only has a flawed system crashed our economy, it is being used to steal homes and further depress our economy by sucking wealth out of our citizens.
A foreclosure can be completed in 210 days
- 90 days after the first missed payment the process begins with the receipt of a notice of default (NOD)
- 90 days after the notice of default is issued, the banks may issue a notice of trustee sale (NOS) which will also be printed in the newspaper along with the date of the auction
- The auction can occur 20 days after NOS. In this time period it is likely the bank will no longer accept your payments.
- If the property is sold or returned to the bank, the eviction process can begin with a 3 day notice, then the normal eviction process takes 30-45 days to complete
All this happens without ever getting the chance to defend yourself in court
- California is a non-judicial foreclosure state
- In order to receive due process, you must sue the banks or go into bankruptcy, both of which are costly, and even then there is little oversight
- These cases are rarely heard by the judge, and even more rarely are they won
So your home is underwater or your income has gone down. Interest rates are low and a loan modification sounds like a great solution. Welcome to dual tracking, a common bank tactic. When a borrower in default seeks a loan modification, the bank begins to pursue foreclosure at the same time.
Lenders contend that dual tracking simply protects their investment if the homeowner is unable to qualify for new loan terms. In reality, it is just a way to disguise theft. LA Time dual track article
Here’s how the fraud gets perpetrated:
- Unless you are in one of the Federal loan modification programs, which you must ask for specifically, dual track means your house is being foreclosed on at the same time!
- You will not be considered for a loan modification until after you’ve received a notice of default – this is not a law, it’s just the way banks work.
- It typically takes 2 months for the bank to start looking at application papers… but those papers need to be less than 1 month old
- Papers get “lost” all the time
- Your contact person changes frequently
- Banks frequently approve a loan mod, AND complete a foreclosure at the same time, and you can guess which one sticks!
1) Foreclosure moratoriums – government action to block foreclosures or take over and refinance delinquent loans
States and nations have instituted moratoriums stopping foreclosures quite often. In the Great Depression, by 1934 approximately half of all US urban home mortgages were delinquent. The federal Home Owners’ Loan Corporation, established in 1933, over the course of three years purchased and refinanced more than one million delinquent home loans. Several states enacted temporary foreclosure moratoria that modified foreclosure laws, provided grace periods or gave courts flexibility in providing relief to borrowers. These included Iowa, Kansas, North Dakota, Ohio, New York and Montana. Farm foreclosure moratorium legislation was enacted in twenty five states. The precedent goes back even further, though, to the 1820’s when the New York legislature passed a statute giving debtors a one year grace period before land could be sold.
The courts have upheld such laws, including the U.S. Supreme court upholding Minnesota’s farm foreclosure moratorium in Home Building and Loan Association v. Blaisdell et al. (1934). These laws usually resulted from extensive public demonstrations and pressure, though.
Can a county like Nevada County pass and enforce a foreclosure moratorium? At this point, the legalities aren’t clear to Main Street Forum NC, but it is being explored elsewhere. Wayne County (Detroit, MI) Commissioner Martha Scott has asked for a one year moratorium. Cook County’s (Chicago, IL) sheriff, Tom Dart, announced his own moratorium on foreclosures. In California, there are calls for or movements for county/local foreclosure moratorium actions in San Francisco, whose supervisors passed a resolution calling for a foreclosure moratorium (unfortunately, having no legal effect), Santa Barbara and Sonoma counties.
2) Legal and legislative action at the national level
While it is unlikely to happen here in the U.S., the people of Iceland have shown us one effective way to deal with the crisis: overturn the government, take over he banks, put the scoundrels in jail, and institute mortgage restructuring. Mortgage restructuring, although it calls it “bold, is supported by the International Monetary Fund (IMF).
In the report, the IMF analysts have shown a strong pickup in the economy, a drop in the unemployment rate, an increase in home prices, an increase in the value of the their currency and that the government has regained access to capital markets.
We should note that Iceland is not “forgiving” debt as some reports have it. The newly nationalized banks are modifying loans – writing those approved down to 110% loan to value (LTV).
Bloomberg – Icelandic Anger Brings Debt Forgiveness in Best Recovery Story
IMF says targeted debt reduction policies can work
Iceland Dumps Government & Arrests Bankers
Updated: The Story on Iceland’s ‘Mortgage Forgiveness’ includes email exchange with Mr. Steindór Jónsson of the Iceland Ministry of Economic Affairs clarifying what Iceland is doing.
3) Legal and legislative action at the state level
California Attorney General Kamala Harris, Senate President pro Tem Darrell Steinberg and Assembly Speaker John A. Pérez have sponsored six bills designed to:
- Provide basic standards of fairness in the mortgage process, including an end to dual-track foreclosures, preventing the recording of notice of default if a loan modification is pending, and requiring notices be personally served
- Require transparency in the mortgage process, including requiring a single point of contact for homeowners and dedicated email addresses, requiring creditors to document right to foreclose (standing) before they can foreclose
- Provide community tools to prevent blight after banks foreclose upon homes with fines
- Require tenant protections after foreclosures by clearing up conflicts between fed and state laws and solidifying tenant rights
- Provide for enhanced law enforcement to defend homeowner rights – paid for by fees imposed on banks – and extend the statute of limitations for foreclosure fraud
- Allow multi-jurisdictional grand juries to investigate financial and foreclosure crime and authorize court challenges to foreclosure
- Establish a $10,000 penalty for robosigning
You can find additional information on these bills on the Attorney General’s website here
On Wednesday, June 6. 2012 on a strict party line vote Attorney General Kamala Harris’ Homeowners’ Bill of Rights legislation finally made it out of the special conference committee it was assigned to months ago. These bills set for a vote on the Senate and Assembly floors at noon on Monday, July 2nd, 2012.
4) Eminent Domain combined with a county owned bank
The concept here is that foreclosed, unoccupied and uncared for homes represent a blight on the community, including increased fire risk. An interesting proposal is for the county to use Eminent Domain to seize the lenders’ side of a mortgage in default. It is then assigned to the chartered, county owned public bank as part of the bank’s capital base.
The public bank, having paid only foreclosure market value for the properties, can then restructure the loans with the homeowners, dramatically reducing their monthly payments. In most cases this will enable the homeowners to stay in their homes, retain their savings and avoid the emotional and financial impacts of foreclosure.
The bank builds a strong asset base and is able to return much of the interest earned to the county, increasing the county’s revenues. The asset base enables the bank to make additional loans, in participation with local commercial banks, credit unions and savings and loans. Those new loans, focused on the county, will help build the economy, further increasing county tax revenues. The overall impact on property values will less than that of the current foreclosure process since homes remain occupied and cared for. This will result in a higher tax base for the county.
According to some recent legal advice, in order to use Eminent Domain, it may be necessary to seize both the note and the property. While this might initially seem unpalatable for the homeowners, that reservation would certainly be overcome if the homeowner were to receive a new mortgage at a lower cost at the same time as the property seizure.
An Occupy Our Homes style response – public pressure and high visibility/attention can be an effective way to bring stop foreclosure and bring about a fair renegotiation of individual mortgages.
But, the most important thing you can whe facing foreclosure is to educate yourself and get support. This document, the Foreclosure Defense Handbook is an excellent reference to help with that.
You can reach the Occupy Nevada County Foreclosure Defense Team for local support and help by attending their Wednesay meetings which take place at the Peace Center, 216 Main St # B, Nevada City, from 6:30 to 8:30 PM.