Blog Editor's note: Although this article highlights a situation taking place in California, I thought it prescient, as it does have national significance.
By Jim Wasserman - Sacramento Bee - Published: Sunday February 21st, 2010
Nineteen months after the catastrophic failure of one of Sacramento's top lenders, Pasadena-based IndyMac Bank, a flurry of local lawsuits alleges that the bank's successor – OneWest Bank – is systematically working to push home loan borrowers into foreclosure.
The allegations filed in the Eastern District of U.S. Bankruptcy Court claim that OneWest can make more money by foreclosing than by keeping borrowers in their homes. That's due to its so-called "shared-loss" agreement with the Federal Deposit Insurance Corp., at least 10 local lawsuits allege.
A video made in Fairfield and circulating widely on the Internet also alleges that OneWest stands to earn millions from taxpayers by foreclosing on borrowers as a result of its shared-loss agreement with the FDIC.
OneWest declined to comment on either the lawsuits or the video.
The FDIC, which seized IndyMac in July 2008, sold the failed institution to Pasadena-based OneWest in March 2009.
As part of the deal, the FDIC agreed to absorb some losses from the troubled loan portfolio. That's after OneWest absorbs the first $2.5 billion in losses, the FDIC said.
But Sacramento bankruptcy lawyer Peter Macaluso claims the shared-loss agreement will reward OneWest for foreclosing on homes. Here's how, he said: The company bought IndyMac's troubled portfolio at a 30 percent discount. It can count on the FDIC eventually reimbursing 80 percent or more of its losses – and also can keep proceeds from the foreclosure sales.
"They're deliberately blowing people out in a systematic pattern," said Macaluso.
He has filed eight lawsuits in U.S. Bankruptcy Court on behalf of area IndyMac borrowers who have filed for Chapter 13 bankruptcy protection.
Macaluso alleges that OneWest improperly boosted his clients' monthly loan payments – sometimes by more than $1,000 – by doing a new escrow analysis after they had filed for bankruptcy protection. He said his clients can't afford the increases and are in danger of losing their homes.
On Friday, he said OneWest has since rescinded the extra payments in three cases.
Elk Grove bankruptcy attorney Mark Wolff makes similar allegations in two lawsuits in U.S. Bankruptcy Court.
"We made the allegations that it's a systematic approach they've employed, and it's a violation of bankruptcy code," said Wolff. He said he previously filed similar actions against Bank of America and JPMorgan Chase. His clients also are still in their homes.
A third attorney, Sean Gjerde of Elk Grove, recently filed a civil suit against OneWest in Sacramento Superior Court. It alleges violations of the Truth In Lending Act, claiming that OneWest is unresponsive to attempts to modify an Elk Grove client's IndyMac mortgage.
"As soon as OneWest took over, the communication stopped," Gjerde said. "My client has been in default for a long time and it's been like heck to even get them to talk to me."
The local lawsuits represent another messy aftermath of IndyMac's implosion in July 2008, a development that added to fears of an imminent U.S. financial collapse.
IndyMac was a leading Sacramento lender, ranking 10th in loan volume during the riskiest part of the housing market: mid-2005 to mid-2007. Statistics from researcher MDA DataQuick show IndyMac made 5,312 home loans worth $1.4 billion during this period in Sacramento, Placer, El Dorado, Yolo, Sutter and Yuba counties.
A Treasury Department performance report last week showed that OneWest has temporarily or permanently modified 25 percent of its loans that are 60 days or more late. Twelve lenders reported higher modification rates and nine reported worse rates. The report said OneWest had permanently modified 3,087 of its 112,000 delinquent loans by the end of January.
The video criticizing OneWest and the FDIC has gone viral on the Internet in real estate and lending circles. It was produced by partners in a Web-based real estate and mortgage firm, thinkbigworksmall.com.
The FDIC said the video had "no credibility."
OneWest wouldn't weigh in. "We're not commenting at all," said bank spokeswoman Diane Henry. "I think the FDIC was pretty clear."
The FDIC said the insurance corporation – established in 1933 to protect customers' bank deposits – currently has 94 shared-loss agreements in place with financial institutions that assumed troubled loan portfolios. The agency said OneWest must absorb the first 20 percent of its loan losses – $2.5 billion – before it can receive government funds to cushion the rest. Then, OneWest can be reimbursed for 80 percent or more of its losses.
The FDIC said it hasn't yet paid a penny to OneWest. It also noted that OneWest owns just 7 percent of the loans covered in the shared loss agreement. The rest are owned by investors.
FDIC officials also noted that they can rescind the deal if OneWest isn't complying properly with its agreement to modify loans.
FDIC spokesman David Barr offered no comment on the Sacramento lawsuits filed against OneWest.
In Roseville, Emily Touchstone is not among those suing OneWest. But she is soon to leave for the East Coast after losing a house refinanced with a IndyMac adjustable-rate loan in 2006. She said she couldn't get a OneWest modification after starting the process in March 2009. In October she lost her job.
Touchstone told a story familiar in Sacramento: months of phone calls, fielding requests for more information and then still more. Months behind on payments, she recently lost the house to OneWest. She called it a "preventable thing."
In Elk Grove, Tom Cravalho said the Association of Community Organizations for Reform, the housing counseling group known as ACORN, dropped his case in December, saying it got little response from OneWest.
"They said there was no communication from your lender," he said.
Cravalho called his 2005 IndyMac adjustable-rate refinance loan a "mistake." Now, he and his wife fear losing a $200,000 down payment on the house they bought in 2002.
Trouble started in February 2008 when Cravalho lost his job running a Contractors State License Services School branch in Sacramento. Eventually he turned to attorney Gjerde for help with a modification.
Gjerde has tried, but recently filed suit against OneWest, saying the bank didn't respond to him, either.
"They aren't even paying lip service," he said. "At least some lenders pay lip service."
Sunday, February 21, 2010
Wednesday, February 17, 2010
Florida Court Decision Could Impact Builders and Bank Foreclosure Processes
by Peter L. Mosca - Realty Times - Published: February 17, 2010
A ground-breaking South Florida court decision has paved the way to a legal solution for condominium and homeowners associations to address the under-reported but highly commonplace practice of banks stalling their foreclosures. Banks may engage in this tactic in an effort to delay taking title to financially upside down units and avoiding payment of past due assessments and legal fees due to associations. The new legal approach puts an end to this practice and is poised to dramatically strengthen the financial health of communities throughout the state of Florida.
From the firm that innovated "blanket receiverships" last year, now Association Law Group (ALG) has created the "reverse foreclosure" procedure in cases where an association has already acquired title to the property by its own foreclosure, but the bank’s foreclosure action is still pending or stalled. Under ALG’s new reverse foreclosure procedure, the association intentionally admits, in response to the bank’s foreclosure lawsuit, that the bank is entitled to take title to the financially upside down unit immediately. Under such procedure, the association knowingly waives its right of redemption and its right to a foreclosure sale, requests the court to grant a partial summary judgment against the association immediately, and further requests that the court direct the Clerk of Court to issue a certificate of title to the bank immediately, thereby making the bank the owner immediately and responsible for the association dues.
Attorney Ben Solomon of Association Law Group explains, "ALG’s reverse foreclosure procedure will finally help associations force banks to take title to financially upside down units much faster than ever before. This innovative new legal strategy holds banks accountable for paying their fair share of assessments and significantly reduces the amount of bad debt incurred by such associations." ALG’s new reverse foreclosure procedure cuts down on the bank’s opportunity to stall such foreclosure proceedings for an additional six months to a year or more (by intentionally delaying the setting of hearings, taking advantage of prolonged sale dates, etc.) because it forces the bank to take title to the upside down unit much quicker than usual because both parties agree they are immediately entitled to the property. Stalling by the bank typically adds to the amount of bad debt write offs an association eventually incurs when the bank finally does foreclose because by statute the bank is only obligated to pay the lesser of 12 months of past due assessments or 1% of the original mortgage for an HOA or 6 months of assessments or 1% for condos. The balance of past due assessments is then typically written off as bad debt and becomes a common expense to be paid by the rest of the unit owners.
This landmark case, HSBC Bank USA, et al. vs. Keys Gate Community Association, Inc., A Florida Non Profit Corporation, et al., was decided on January 12th in the 11th Judicial Circuit of Miami-Dade County. ALG represented Keys Gate Community Association, Inc. (Keys Gate), a homeowners association in Miami-Dade County with over 3,000 homes. In this precedential case, Keys Gate was awarded a partial final summary judgment of foreclosure against itself and in favor of HSBC Bank USA. As a part of that judgment, Keys Gate waived its right to public sale and requested a certificate of title be issued directly and immediately to the bank. Pursuant to the judgment, the Clerk of Court issued a certificate of title to HSBC the same day making the bank immediately liable for the payment of past due assessments and legal fees.
Based on the issuance of the certificate of title, the bank also was required to pay all current assessments as they become due. This new legal strategy saved Keys Gate a minimum of eight months or more of bad debt write offs because the association did not have to wait for the bank to get a foreclosure judgment, schedule a foreclosure sale, and sell the property at public auction. Importantly, this case sheds light on a little known banking practice that has been paralyzing homeowner and condominium associations across Florida -- namely that banks are significantly stalling their foreclosures to avoid paying the liabilities to the applicable association. This particular bank foreclosure case had been pending since 2007.
Specifically, in this case, Keys Gate filed and foreclosed its own claim of lien on the property and acquired title to the property through its own foreclosure sale back in April of 2007. The bank filed its foreclosure against the property in June of 2007 and through repeated stall tactics has still failed to complete the same for more than two and a half years. As a last resort, in November of 2009, ALG initiated its first reverse foreclosure procedure and moved the bank's foreclosure case forward by setting a hearing for summary judgment against its client Keys Gate. ALG then asked the court to issue a partial summary judgment in favor of the bank and to immediately grant the bank's request to take title to the unit as stated in its foreclosure complaint. As part of such reverse foreclosure, Keys Gate waived its rights to the property and, as the current unit owner, waived its right to public sale. The motion was granted and the Clerk of Court issued a certificate of title the same day transferring ownership of the property to the bank. The certificate of title then triggered HSBC Bank's requirement to pay its share of past due assessments, legal fees, court costs, and all assessments going forward. The bank's claim as to the other defendants is still pending.
The practice of banks delaying in foreclosure proceedings is not uncommon but it has a severe detrimental impact upon associations. Under the current law, a bank is not liable for condominium or homeowners associations' assessments until it takes title. As such, once a foreclosure is filed by a bank, there is little incentive for it to complete such foreclosure and take title to the unit until it has a buyer for the property or is otherwise ready to take responsibility for the liabilities associated with the property. It is this critical step in the process where banks have delayed -- sometimes for years -- to avoid having to pay assessments. Every month of delay equals another month of potential bad debt write off for an association. Until now, associations were left to fall further into debt and were powerless to encourage the banks to complete their foreclosures and collect back assessments. Some judges have tried to make banks liable for assessments if they did not aggressively pursue the foreclosure by granting a motion to compel, but that attempt to hold the banks accountable was recently ruled invalid by the Third District Court of Appeal.
ALG's innovative new legal strategy of reverse foreclosure has been enthusiastically endorsed by the Clerk of Court as another method to reduce their backlog of foreclosure sales. ALG has already been successful in implementing its "reverse foreclosure" procedure in both Miami-Dade and Broward counties and has plans to file dozens more in the upcoming months in multiple other counties.
Note: ALG has experience in representing all types of associations ranging from high rise condominium towers, to large master communities with thousands of homes, to smaller townhome and low-rise condominium projects.]
A ground-breaking South Florida court decision has paved the way to a legal solution for condominium and homeowners associations to address the under-reported but highly commonplace practice of banks stalling their foreclosures. Banks may engage in this tactic in an effort to delay taking title to financially upside down units and avoiding payment of past due assessments and legal fees due to associations. The new legal approach puts an end to this practice and is poised to dramatically strengthen the financial health of communities throughout the state of Florida.
From the firm that innovated "blanket receiverships" last year, now Association Law Group (ALG) has created the "reverse foreclosure" procedure in cases where an association has already acquired title to the property by its own foreclosure, but the bank’s foreclosure action is still pending or stalled. Under ALG’s new reverse foreclosure procedure, the association intentionally admits, in response to the bank’s foreclosure lawsuit, that the bank is entitled to take title to the financially upside down unit immediately. Under such procedure, the association knowingly waives its right of redemption and its right to a foreclosure sale, requests the court to grant a partial summary judgment against the association immediately, and further requests that the court direct the Clerk of Court to issue a certificate of title to the bank immediately, thereby making the bank the owner immediately and responsible for the association dues.
Attorney Ben Solomon of Association Law Group explains, "ALG’s reverse foreclosure procedure will finally help associations force banks to take title to financially upside down units much faster than ever before. This innovative new legal strategy holds banks accountable for paying their fair share of assessments and significantly reduces the amount of bad debt incurred by such associations." ALG’s new reverse foreclosure procedure cuts down on the bank’s opportunity to stall such foreclosure proceedings for an additional six months to a year or more (by intentionally delaying the setting of hearings, taking advantage of prolonged sale dates, etc.) because it forces the bank to take title to the upside down unit much quicker than usual because both parties agree they are immediately entitled to the property. Stalling by the bank typically adds to the amount of bad debt write offs an association eventually incurs when the bank finally does foreclose because by statute the bank is only obligated to pay the lesser of 12 months of past due assessments or 1% of the original mortgage for an HOA or 6 months of assessments or 1% for condos. The balance of past due assessments is then typically written off as bad debt and becomes a common expense to be paid by the rest of the unit owners.
This landmark case, HSBC Bank USA, et al. vs. Keys Gate Community Association, Inc., A Florida Non Profit Corporation, et al., was decided on January 12th in the 11th Judicial Circuit of Miami-Dade County. ALG represented Keys Gate Community Association, Inc. (Keys Gate), a homeowners association in Miami-Dade County with over 3,000 homes. In this precedential case, Keys Gate was awarded a partial final summary judgment of foreclosure against itself and in favor of HSBC Bank USA. As a part of that judgment, Keys Gate waived its right to public sale and requested a certificate of title be issued directly and immediately to the bank. Pursuant to the judgment, the Clerk of Court issued a certificate of title to HSBC the same day making the bank immediately liable for the payment of past due assessments and legal fees.
Based on the issuance of the certificate of title, the bank also was required to pay all current assessments as they become due. This new legal strategy saved Keys Gate a minimum of eight months or more of bad debt write offs because the association did not have to wait for the bank to get a foreclosure judgment, schedule a foreclosure sale, and sell the property at public auction. Importantly, this case sheds light on a little known banking practice that has been paralyzing homeowner and condominium associations across Florida -- namely that banks are significantly stalling their foreclosures to avoid paying the liabilities to the applicable association. This particular bank foreclosure case had been pending since 2007.
Specifically, in this case, Keys Gate filed and foreclosed its own claim of lien on the property and acquired title to the property through its own foreclosure sale back in April of 2007. The bank filed its foreclosure against the property in June of 2007 and through repeated stall tactics has still failed to complete the same for more than two and a half years. As a last resort, in November of 2009, ALG initiated its first reverse foreclosure procedure and moved the bank's foreclosure case forward by setting a hearing for summary judgment against its client Keys Gate. ALG then asked the court to issue a partial summary judgment in favor of the bank and to immediately grant the bank's request to take title to the unit as stated in its foreclosure complaint. As part of such reverse foreclosure, Keys Gate waived its rights to the property and, as the current unit owner, waived its right to public sale. The motion was granted and the Clerk of Court issued a certificate of title the same day transferring ownership of the property to the bank. The certificate of title then triggered HSBC Bank's requirement to pay its share of past due assessments, legal fees, court costs, and all assessments going forward. The bank's claim as to the other defendants is still pending.
The practice of banks delaying in foreclosure proceedings is not uncommon but it has a severe detrimental impact upon associations. Under the current law, a bank is not liable for condominium or homeowners associations' assessments until it takes title. As such, once a foreclosure is filed by a bank, there is little incentive for it to complete such foreclosure and take title to the unit until it has a buyer for the property or is otherwise ready to take responsibility for the liabilities associated with the property. It is this critical step in the process where banks have delayed -- sometimes for years -- to avoid having to pay assessments. Every month of delay equals another month of potential bad debt write off for an association. Until now, associations were left to fall further into debt and were powerless to encourage the banks to complete their foreclosures and collect back assessments. Some judges have tried to make banks liable for assessments if they did not aggressively pursue the foreclosure by granting a motion to compel, but that attempt to hold the banks accountable was recently ruled invalid by the Third District Court of Appeal.
ALG's innovative new legal strategy of reverse foreclosure has been enthusiastically endorsed by the Clerk of Court as another method to reduce their backlog of foreclosure sales. ALG has already been successful in implementing its "reverse foreclosure" procedure in both Miami-Dade and Broward counties and has plans to file dozens more in the upcoming months in multiple other counties.
Note: ALG has experience in representing all types of associations ranging from high rise condominium towers, to large master communities with thousands of homes, to smaller townhome and low-rise condominium projects.]
Monday, February 15, 2010
Recent appraisal rules open door to shady middlemen
Blog Editor's Note: The following article is an excellent example of the law of unitended consequences. When the Feds decided to enact the HVCC, it allowed unscrupulous players to enter the appraisal mangagement arena, where some created a new revenue stream for themselves under the guise of managing their mortgage vendor's accounts. Thank you to Susan Taylor Martin for her in depth article.
By Susan Taylor Martin, St. Petersburg Times Senior Correspondent
Sunday, February 7, 2010
Last year, Global Appraisal Solutions of Clearwater hired appraiser John Viscusi to do property evaluations in the New York metro area.
But Viscusi says the company failed to pay him for 20 appraisals. And when he tried to contact the owner, Larry Holzer, he got no response.
Then Viscusi made an unsettling discovery.
An Internet search for Global immediately linked him to another company, Appraisal Mediation Solutions. Its phone number: The same as Larry Holzer's. Its address: a UPS store in Clearwater close to Holzer's condo.
"I'm down about $6,000,'' Viscusi says. He wonders if he will ever get his money because Global no longer appears to be in business even though Holzer still is.
Critics of recent changes in the way home appraisals are handled say Viscusi's situation illustrates a major problem with companies like Holzer's: They are totally unregulated in Florida and most other states.
The changes, which took effect in May, were designed to prevent the appraisal-related fraud that helped drive housing prices to unsustainable heights. The new Home Valuation Code of Conduct forbids banks, mortgage brokers and Realtors from working directly with appraisers.
Instead, they now go through "appraisal management companies'' like Holzer's — middlemen who hire the appraisers.
The code "has created this huge opportunity, and everybody and their brother is trying to take advantage of it, and a lot are unscrupulous,'' says Frank Gregoire, a St. Petersburg appraiser and former chairman of the Florida Real Estate Appraisal Board.
Gregoire and the board are backing a bill by state Rep. Matt Hudson, a Naples Republican, that would require owners of appraisal management companies to disclose criminal histories and license suspensions or revocations.
"My anticipation is that the board would not grant a license (for a management company) to someone who had a disciplinary record,'' Gregoire says.
That would eliminate companies owned by people like Holzer.
In 2007, Florida regulators permanently revoked Holzer's appraisal license because he had approved an error-filled appraisal done by a trainee under his supervision. The report didn't even have photos of the correct house.
The revocation barred Holzer himself from appraising property in Florida. But it didn't keep him from starting an appraisal management company, Global Appraisal Solutions, that could do business in Florida and every other state.
After the code of conduct took effect last spring, Global contracted with Lend America on Long Island to arrange appraisals for the company. Viscusi, who had worked directly with Lend America's loan officers, signed on with Global so he could continue doing appraisals, mostly for homeowners seeking to refinance or get equity lines.
Holzer and Global "would never let me know what they were charging (homeowners), whether it was $400 or $800,'' Viscusi says. But his own payments "were absolutely less'' than they used to be, reflecting a common complaint that injecting a middleman into the appraisal process has meant higher costs for consumers but less money for appraisers.
Viscusi says Global paid him $250 to $300 apiece for five appraisals in June, then stopped paying. He wasn't worried at first because Global boasted on its Web site in July that it was having its best month ever.
But as Viscusi did 20 more appraisals in July and August with no payment, he grew anxious. Holzer, who did not respond to his phone calls, sent out an e-mail in October claiming that lenders owed Global "a large outstanding balance for completed appraisals.''
Viscusi didn't believe the explanation, because the homeowners had paid Global, not the lenders.
Viscusi contacted appraisers in Texas, Chicago and the Washington, D.C., area who claimed they too had been stiffed by Global.
In December, Viscusi received a call from a woman who used to work for Global but had left to start her own appraisal management company.
"I pretty much told her that if she didn't give up information (on Holzer's whereabouts), she'd be held liable in any pending litigation,'' Viscusi says. "She said, 'If you click on his Web site, it will direct you to a new company.' '
That company, Appraisal Mediation Solutions, boasts that it "is one of the most trusted providers of real estate valuations in the nation.'' State records show it was incorporated in October but no officers were listed, which is unusual. The address is 140 Island Way, Clearwater No. 245 — a $15-a-month box at a UPS store near Holzer's waterfront condo.
When a reporter knocked on his door last week, Holzer cursed and ordered her off the property. The condo has been in foreclosure proceedings for two years, but Holzer staved off foreclosure by declaring bankruptcy in 2008 and 2009.
Though Global had appraisers working for it all over the United States, the spokesman for an organization that represents appraisal management companies says its problems were not typical.
"The appraisal management industry does 4 million appraisals a year, and I'll bet that the number done by that company down in Florida that has caused so much consternation is just minuscule,'' says Jeff Sherman of the Pennsylvania-based Title/Appraisal Vendor Management Association.
Any regulation of appraisal management companies should be done on the federal level, not by states with their varying requirements, Sherman says. Several states have passed laws, and a New Mexico bill would, controversially, cap companies' profits.
Viscusi, who has had no luck contacting Holzer and is now considering legal action, says companies like Global need to be regulated, regardless of whether Congress or the states do it.
"There should be a regulatory board that keeps an eye on these companies, because basically what they are is a shakedown middleman,'' he says. "All they do is collect a fee to channel an appraisal to an appraiser.''
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