Housing:

New law has stalled, not stifled, foreclosures

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The number of Nevadans who are underwater on their mortgages is down, but only because many have lost their homes to foreclosure, a report says.

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  • Banks have stopped filing new foreclosure notices in Nevada, but that doesn’t mean the housing crisis has passed.

    In fact, bankers say a new law that took effect in October has put bank foreclosures on hold and is preventing the Las Vegas housing market from finally hitting bottom and “returning to normal,” Bill Uffelman, president of the Nevada Bankers Association, said.

    Assembly Bill 284 requires that before banks start foreclosure, they must first file a signed affidavit in which an individual attests to firsthand knowledge of the documents. Bad actors can face felony charges. Under prior laws, such violations were a misdemeanor.

    The bill was passed by the Legislature and signed by Gov. Brian Sandoval in June.

    The impact has been dramatic.

    Almost 4,000 notices of default were filed in Clark County in September.

    In October, when the new law took effect, foreclosures dropped to about 800, levels not seen since 2006, before the Las Vegas housing bubble burst.

    And foreclosures have remained near that level since, with all of the foreclosures being brought not by banks, but by hard-money lenders or homeowners associations going after people who have stopped paying their dues, Uffelman said.

    But supporters of the new law stand by it, saying the least that banks can do before taking someone’s home is to prove they have that right.

    “Banks are fumbling. In their zeal to earn billions, they had sloppy paperwork,” said Barbara Buckley, executive director of the Legal Aid Center of Southern Nevada and former Democratic speaker of the Assembly.

    “I assume when they put their effort into finding and cleaning up their paperwork mistakes, the actions will proceed once again. The homeowners are not the ones who lost the paperwork. The lenders are,” she said.

    •••

    Nevada — Las Vegas in particular — has been the epicenter for the national housing crisis. Homes were being thrown up as quickly as construction crews could manage. The process was funded and fueled by demand for bundled mortgages sold to large institutional investors. The packaging of hundreds and sometimes thousands of mortgages for resale on Wall Street has made tracking individual mortgages difficult for banks.

    Prosecutors, including Nevada Attorney General Catherine Cortez Masto, have accused lending institutions of forging paperwork to get around that difficulty.

    Proponents of AB284 said it was never their intention to slow or stop foreclosures. But with robo-signing controversies — where legal documents were approved in bulk without proper review — existing homeowners need to be sure the foreclosing lender has the authority to carry it out.

    Also, those who ultimately buy a foreclosure need “clean title” — proof of who owned the mortgage.

    Advocates call the delay in foreclosures temporary, and dispute assertions that the law has slowed the recovery.

    They say banks had already been dragging their feet on foreclosures, creating a “shadow inventory” of pending foreclosures.

    “It’s a red herring,” said Cortez Masto, a Democrat, who has sued Bank of America and other banks, alleging improper foreclosure practices. “We’re not asking for anything other than documents that are true and accurate.”

    She accused banks of holding back on foreclosures in order to “get muscle” to change the law.

    She invited critics to suggest changes to the process.

    Assemblyman Marcus Conklin, D-Las Vegas, who sponsored the bill, said he didn’t expect the bill to stop or slow foreclosures. But he said it is a reasonable consumer protection to ensure that the banks foreclosing actually have the right to repossess someone’s house.

    “People need to have faith that a legal transaction that’s about to take place is legitimate,” Conklin said.

    •••

    Housing experts say the market needs to bottom out before the economy can fully recover. People staying in homes they can’t afford and not paying their mortgages or taxes only prolongs the process. But, they add, banks should also have kept better track of their records.

    “I understand it might cause more work for the banks,” said Nasser Daneshvary, director of UNLV’s Lied Institute for Real Estate Studies. “But I think it was a reasonable bill. All it says is when you’re filing paperwork, you have to sign that it’s accurate. It’s enforcing the law of the land.”

    But Uffelman, with the bankers association, said banks are still trying to navigate the affidavit process and it’s delaying a resolution to the housing crisis.

    “People still aren’t paying their mortgages. That’s not doing anything to resolve the housing collapse in the city of Las Vegas or state of Nevada,” he said. “People are just living there for free.”

    He said mortgages in Nevada may have passed through companies in Arizona, North Carolina and California. Some of those companies have “come and gone in that period of time.”

    Conklin said the bill allows those who sign affidavits to correct mistakes.

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    1. Here is another example of good intentions bringing unintended consequences. When people don't pay their bills, they have to suffer the penalty. If any of you out there have money due from someone else, you expect them to live up to their agreement and repay you. There's no argument there. Why are home "owners" who entered into contracts any different? They aren't, in my opinion. Many of those unable to pay would never have gotten mortgages in the first place had not the feds interfered in the process. Barney Frank and Chris Dodd are the wizards behind the curtain who really should be paying a price for their misdeeds, not homeowners who actually met the criteria and now find the biggest investment in their lives worth less than half what it was before the dangerous duo threatened the financial industry with rules that made no economic sense and led to the housing market meltdown. Wackos such as Dodd & Frank should never have had that power in the first place and we must learn from their ignorance & arrogance & not allow it to happen again!

    2. Banks must prove Ownership to foreclose. They've foreclosed on homes that were fully paid for, they've foreclosed on Acttive Military in War. If you take someones property You should be able to prove that you actually own it. The only way we will hit bottom is if Banks are forced to use Mark to Market accounting. To actually state what the value of their Real Estate Holdings are on their books. Until then they are misrepresenting their value to their investors and their stock value is a scam.

    3. "...bankers say a new law that took effect in October has put bank foreclosures on hold..."

      I'm confused. AB 284 says clearly at the bottom "Sec. 15. This act becomes effective on July 1, 2011." Or maybe I'm not the one who's confused.

      Ms. Buckley is quoted here as saying "The homeowners are not the ones who lost the paperwork. The lenders are..." She nailed the dirty little truth behind not just Nevada foreclosures, but in all other non-judicial foreclosure states.

      I know a local husband and wife who started with a simple "where's our Note, and who's the current Note Holder?" to BofA last July. Six months later they've had to deal with 7 different entities, and not one of them have answered that simple question. Meantime they keep getting "we're here to help you! Attend our workshop/seminar and talk to our friendly and knowledgeable personal counselors!" invitations in the mail from the same entities.

      "Banks must prove Ownership to foreclose."

      newnvres -- that's what the centuries-old law of notes says, and it's still right there in Nevada law, waiting to be used. It was intended to be used by all parties to the notes without courts or government involvement of any kind. Yet it's ignored by everyone, especially the banks and their many parasites. The worst part is our courts' ignorance when moved to declare who's who on the Notes. They defer to the banks far too much instead of staying on track with this rule of law!

      "Why don't the banks want us to see the paperwork on all these mortgages? Because the documents represent a death sentence for them..... in America, it's far more shameful to owe money than it is to steal it." -- an article from the November 25, 2010 issue of Rolling Stone by Matt Taibbi "Courts Helping Banks Screw Over Homeowners"

    4. "They are ignoramouses [sic] who have no idea how market factors work."

      TEA -- stealing Nevada homes with false papers is now a felony. So exactly what "market factors" should the legislature have included?

      "If you're going to take my house away from me, you better own the note." -- Joe Lents (who hasn't made a payment on his $1.5 million mortgage since 2002) in Bloomberg's 2/22/08 "Banks Lose to Deadbeat Homeowners as Loans Sold in Bonds Vanish"

    5. Wow, any homeowner can avoid foreclosure by simply paying their mortgage, so any foreclosure is self inflicted. In fact all those people not paying their mortgage are not paying the taxes, HOA and ins either, so are living "free" and if it takes 2 years to foreclose I think they got most of their money back, IE the down payment of 5%. I do not cry for the banks who were dumb to give the loan nor tears for the people who grabbed the cash to buy something for near nothing down. Where is all this "Free " living money going? It gets spent on crap, new car, eating put, stuff we need to keep the economy going, sort of a stimulus paid for by the banks. The people who really got burned was the retirees and rich people who pay cash for houses/condo when they downsize and retire, they are the ones who really lost value. There should be tax deductions for this loss. Yea, help the rich and retirees who paid cash and got lost substantial value. They have no deduction unless they sell while homeowners who mortgage to the hilt get free cash flow for a few years. Is this fair? I am not in either category so whatever happens does not effect me.

    6. Homeowners are willing to stay in their upside down homes if banks are only willing to work with them. What is the incentive in staying and paying for a house that is worth less than the home value?
      I have tried to work with my Bank to modify my mortgage to the true value of my home but I was told I make enough money to pay for my interest only mortgage.
      When I lost my job and I applied for the home modification with my retirement benefits as my income, I was told I don't have enough income to pay for my loan.
      I asked the bank a mortgage reduction and existing interest rate to reflect the true value of the home.
      I had the house appraised and offered the banks the true appraisal value of the home but that was also rejected.
      After all the effort for me to keep my house, it was foreclosed and guess what?
      It was sold 50% less than what I offered them.
      But wait, the bank couldn't care less. It looks like they lost money in the foreclosure even if they sold it 50% less that what I offered them.
      They actually made money because they can ask the government for a loss subsidy and the government allows and pays for that so where is the bank's incentive to work with homeowners if the government allows that to happen. Nothing. The homeowners and the tax payers are always the loser no matter what.

    7. None of you understand where the real losses are and who they will continue to hit until we have restored a functioning marketplace.

      1. The houses are NOT on the banks' books. The loans were "securitized" into pools and parts of the pools sold as securities to pension plans, insurance companies, and other institutional investors and individuals. Marking to real market will leave the securitizing banks' balance sheets unaffected. It will affect the balance sheets of the regular banks which made good loans (at the time) to customers and kept those loans on their books. The bad actors have cashed out on the junk loans. Marking to market will punish the good banks who made good loans that have put things underwater because of a tsunami of foreclosures/

      2. The securitized loans were insured -- both by regular insurance and by credit default swaps. Regular insurance contracts and/or the insurance laws in most States require the insureds to take reasonable steps to mitigate any loss. But credit default swaps are payable on any loss which is not voluntary. This is an unintended consequence of federal law which carefully excluded any regulation of credit default swaps: it incentivizes foreclosures (and thus further loss of home values) and does not require any attempt at compromise.

      3. Another problem (other than reduced real estate values) which will affect everyone is this: all of the securitization has made it very difficult if not impossible to connect beneficial ownership in securitized real property to existing public land title records which record legal ownership. That means that titles cannot be traced as genuine, and, unless we fix that, properties will become unmarketable except at discounts from market value, and buyers will find it difficult or very expensive to get loans to buy them.

    8. "Wow, any homeowner can avoid foreclosure by simply paying their mortgage, so any foreclosure is self inflicted."

      petef -- really. So if I make a note to Pulte Mortgage (the debt), along with the usual deed of trust (the mortgage), then get a letter in the mail from Bank of America Home Loans informing me I know need to start making my payments to it, by your simple reasoning I just start paying BAHL? Without requiring BAHL to prove its claim? That's why this mess.

      lericgoodman -- you laid out a piece of this mess pretty good. Have a look @ the power point version @ http://www.scribd.com/doc/2190705/CDO-Po...

      MERS is the reason for most of this mess.

      "The regulators got bailed out, the middle class lose their jobs and their houses. All this desire to trust in the government to make sure that big corporations won't hurt them actually is a backfire on them." -- Rep. Ron Paul to Jon Stewart 9/26/11, citing the example of the real estate crash as example of government regulation gone bad

    9. Dear Mr. David McGrath Schwartz,

      Duh.

      Warm regards,
      Purgatory

    10. Another problem the banks are facing is the problem of all the empty houses being vandalized. If the put a homeowner out of their house, nobody is there to watch over the property.

      I am all for the banks re-writing the mortgages to the current value of the houses. If it wasn't for the banks, lenders and brokers running up the prices in the first place, we wouldn't be in this situation.

    11. KillerB, yes the letter would inform you they are now the owners of the loan and where to send payments, look at mortgage docs and see the language of transfer ability, I mean do you really care who owns the note? as long as you get statements showing them money credited .. I have had many mortgages over the years and most were bought and sold a few times, changing the note holder payment address. I always complied and had no trouble and when paid off got my satisfaction of mortgage..

    12. The law is still having horrible conseequences, as more and more houses sit empty. My wife and I bought one in october, and would like to buy more. Who benefits by letting them sit empty? The vandals? Certainly nobody else!

      Paul, you omitted the borrowers who took on way to much credit.