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BOSTON — Jane Petion lived in her home for 15 years and saw its value rise slowly, rise rapidly and, when the housing bubble burst, plunge at a sickening pace that left her owing $400,000 on a house worth closer to $250,000. Last June, her lender foreclosed on the property. The family received notices of eviction and appeared in housing court.
Then they discovered a surprising paradox within the nation’s housing crisis: Their power to negotiate began after foreclosure, rather than ending there.
In December Ms. Petion signed a new mortgage on her house for $250,000, with monthly payments of less than half the previous level. She and her husband now have a mortgage they can afford in a neighborhood that benefits from the stability they provide. A nonprofit lender made the deal possible by buying the house from her original mortgage company and selling it to her for 25 percent more than its purchase price — a gain to hedge against future defaults.
“It was exactly what we needed to get back on our feet,” said Ms. Petion, who works for a state agency. “We have income. But another bank, it would have been easy to look at our foreclosure and say, ‘I’m sorry, we have nothing for you now.’ ”
This counterintuitive solution — intervening after foreclosure rather than before — is the brainchild of Boston Community Capital, a nonprofit community development financial institution, and a housing advocacy group called City Life/Vida Urbana, working with law students and professors at Harvard Law School.
Though the program, which started last fall, is small so far, there is no reason it cannot be replicated around the country, especially in areas that have had huge spikes in housing prices, said Patricia Hanratty of Boston Community Capital. “If what you’ve got is a real estate market that went nuts and a mortgage market that went nuts, what you’ve got is an opportunity.”
Two years into the nation’s housing meltdown, and after hundreds of billions of dollars of federal rescue programs, government officials and housing advocates denounce the unwillingness of lenders to adjust the balances on homes that are worth less than the mortgage owed on them.
Research suggests that such disparity, rather than exotic interest rates, is the main driver of foreclosures, in tandem with a job loss or another financial setback. The financial industry lobbied aggressively to defeat legislation that would empower bankruptcy judges to adjust mortgage balances to properties’ market value.
That reluctance, however, eases after foreclosure, when lenders find themselves holding properties they need to unload, Ms. Hanratty said.
“We found, frankly, the industry wasn’t ready to do much pre-foreclosure,” she said. “But once it was either on the cusp of foreclosure or had been taken into the bank portfolio, banks really do not want to hold on to these properties because they don’t know how to manage them, don’t know what to do with them.”
Working with borrowed money, Boston Community Capital buys homes after foreclosure and sells or rents them to their previous owners, providing new mortgages and counseling to the owners, who typically have ruined credit. During the process the families remain in their homes. Since late fall it has completed or nearly completed deals on 50 homes, with an additional 20 in progress, Ms. Hanratty said. The organization is now trying to raise $50 million to expand the program.
Steve Meacham, an organizer at City Life/Vida Urbana, is one reason banks may be willing to sell their foreclosed properties to Boston Community Capital. When families receive eviction notices, his group holds demonstrations or blockades outside the properties, calling on lenders to sell at market value. It also connects the residents with the Harvard Legal Aid Bureau, whose students work to pressure lenders to sell rather than evict by prolonging eviction and “driving up litigation costs,” said Dave Grossman, the clinic’s director.
“So they’re being defended legally, and we’re ramping up the pressure publicity-wise,” Mr. Meacham said. “And B.C.C. came in; they had a part that buys properties and a part that writes mortgages. It wouldn’t work without all three.”
A focus of the program has been the working-class neighborhood of Dorchester, where home prices dropped 40 percent between 2005 and 2007, compared with a 20 percent drop statewide, according to research by the Federal Reserve Bank of Boston. Foreclosures and delinquencies there are more than twice the state average, the bank found.
In such neighborhoods, lenders and residents are hurt by evictions, which often leave vacant properties that invite crime and drive down values of neighboring houses, Ms. Hanratty said. “So it’s in the lenders’ interest to get fair market value as quickly as possible, and in the interest of the community to have as little displacement as possible.”
The program is not a solution for all lenders or distressed homeowners. After months of post-foreclosure negotiations with her bank, Ursula Humes, a transit police detective, is waiting for her final 48-hour eviction notice. Her belongings are in boxes.
Mrs. Humes owed $440,000 on her home; her lender offered to sell it to Boston Community Capital for $260,000. But after assessing Mrs. Hume’s finances, the nonprofit asked for a lower selling price, and the lender refused.
On a recent evening, Mr. Grossman of the Harvard law clinic counseled Mrs. Humes on her options. “This is a case that doesn’t have a happy ending,” Mr. Grossman said.
Mrs. Humes said, “I depleted my retirement account and everything I owned, but I’m still going to lose it.”
Many commercial lenders, similarly, would shy away from such a program because it involves writing mortgages for borrowers who have already defaulted once — a high risk for a small reward.
For other homeowners, though, the program is a rescue at the last possible second. Roberto Velasquez, a building contractor, lost his home to foreclosure last November, owing the lender $550,000. After extensive wrangling, during which his family stayed in the house, he bought it again in March for $280,000, a price he can afford.
On the night after he closed, he joined other members of City Life/Vida Urbana at a foreclosed four-unit building in Dorchester from which most of the tenants had been evicted. A group of artists projected videos on sheets in the windows, showing silhouettes of families re-enacting their last 72 hours before eviction. Garbage filled one of the units. Mr. Velasquez said it hurt to stand amid such loss, but he was jubilant at his own perseverance.
“We’ve been fighting for so long,” he said, “and we win, because we’re still in the house.”
A version of this article appeared in print on March 22, 2010, on page A12 of the New York edition.
By DAVID STREITFELD
Published: March 7, 2010
In an effort to end the foreclosure crisis, the Obama administration has been trying to keep defaulting owners in their homes. Now it will take a new approach: paying some of them to leave.
This latest program, which will allow owners to sell for less than they owe and will give them a little cash to speed them on their way, is one of the administration’s most aggressive attempts to grapple with a problem that has defied solutions.
More than five million households are behind on their mortgages and risk foreclosure. The government’s $75 billion mortgage modification plan has helped only a small slice of them. Consumer advocates, economists and even some banking industry representatives say much more needs to be done.
For the administration, there is also the concern that millions of foreclosures could delay or even reverse the economy’s tentative recovery — the last thing it wants in an election year.
Taking effect on April 5, the program could encourage hundreds of thousands of delinquent borrowers who have not been rescued by the loan modification program to shed their houses through a process known as a short sale, in which property is sold for less than the balance of the mortgage. Lenders will be compelled to accept that arrangement, forgiving the difference between the market price of the property and what they are owed.
“We want to streamline and standardize the short sale process to make it much easier on the borrower and much easier on the lender,” said Seth Wheeler, a Treasury senior adviser.
The problem is highlighted by a routine case in Phoenix. Chris Paul, a real estate agent, has a house he is trying to sell on behalf of its owner, who owes $150,000. Mr. Paul has an offer for $48,000, but the bank holding the mortgage says it wants at least $90,000. The frustrated owner is now contemplating foreclosure.
To bring the various parties to the table — the homeowner, the lender that services the loan, the investor that owns the loan, the bank that owns the second mortgage on the property — the government intends to spread its cash around.
Under the new program, the servicing bank, as with all modifications, will get $1,000. Another $1,000 can go toward a second loan, if there is one. And for the first time the government would give money to the distressed homeowners themselves. They will get $1,500 in “relocation assistance.”
Should the incentives prove successful, the short sales program could have multiple benefits. For the investment pools that own many home loans, there is the prospect of getting more money with a sale than with a foreclosure.
For the borrowers, there is the likelihood of suffering less damage to credit ratings. And as part of the transaction, they will get the lender’s assurance that they will not later be sued for an unpaid mortgage balance.
For communities, the plan will mean fewer empty foreclosed houses waiting to be sold by banks. By some estimates, as many as half of all foreclosed properties are ransacked by either the former owners or vandals, which depresses the value of the property further and pulls down the value of neighboring homes.
If short sales are about to have their moment, it has been a long time coming. At the beginning of the foreclosure crisis, lenders shunned short sales. They were not equipped to deal with the labor-intensive process and were suspicious of it.
The lenders’ thinking, said the economist Thomas Lawler, went like this: “I lend someone $200,000 to buy a house. Then he says, ‘Look, I have someone willing to pay $150,000 for it; otherwise I think I’m going to default.’ Do I really believe the borrower can’t pay it back? And is $150,000 a reasonable offer for the property?”
Short sales are “tailor-made for fraud,” said Mr. Lawler, a former executive at the mortgage finance company Fannie Mae.
Last year, short sales started to increase, although they remain relatively uncommon. Fannie Mae said preforeclosure deals on loans in its portfolio more than tripled in 2009, to 36,968. But real estate agents say many lenders still seem to disapprove of short sales.
Under the new federal program, a lender will use real estate agents to determine the value of a home and thus the minimum to accept. This figure will not be shared with the owner, but if an offer comes in that is equal to or higher than this amount, the lender must take it.
Mr. Paul, the Phoenix agent, was skeptical. “In a perfect world, this would work,” he said. “But because estimates of value are inherently subjective, it won’t. The banks don’t want to sell at a discount.”
There are myriad other potential conflicts over short sales that may not be solved by the program, which was announced on Nov. 30 but whose details are still being fine-tuned. Many would-be short sellers have second and even third mortgages on their houses. Banks that own these loans are in a position to block any sale unless they get a piece of the deal.
“You have one loan, it’s no sweat to get a short sale,” said Howard Chase, a Miami Beach agent who says he does around 20 short sales a month. “But the second mortgage often is the obstacle.”
Major lenders seem to be taking a cautious approach to the new initiative. In many cases, big banks do not actually own the mortgages; they simply administer them and collect payments. J. K. Huey, a Wells Fargo vice president, said a short sale, like a loan modification, would have to meet the requirements of the investor who owns the loan.
“This is not an opportunity for the customer to just walk away,” Ms. Huey said. “If someone doesn’t come to us saying, ‘I’ve done everything I can, I used all my savings, I borrowed money and, by the way, I’m losing my job and moving to another city, and have all the documentation,’ we’re not going to do a short sale.”
But even if lenders want to treat short sales as a last resort for desperate borrowers, in reality the standards seem to be looser.
Sree Reddy, a lawyer and commercial real estate investor who lives in Miami Beach, bought a one-bedroom condominium in 2005, spent about $30,000 on improvements and ended up owing $540,000. Three years later, the value had fallen by 40 percent.
Mr. Reddy wanted to get out from under his crushing monthly payments. He lost a lot of money in the crash but was not in default. Nevertheless, his bank let him sell the place for $360,000 last summer.
“A short sale provides peace of mind,” said Mr. Reddy, 32. “If you’re in foreclosure, you don’t know when they’re ultimately going to take the place away from you.”
Mr. Reddy still lives in the apartment complex where he bought that condo, but is now a renter paying about half of his old mortgage payment. Another benefit, he said: “The place I’m in now is nicer and a little bigger.”
By BOB TEDESCHI
Published: February 24, 2010
HOMEOWNERS on the verge of foreclosure will often seek a short sale as a graceful exit from an otherwise calamitous financial situation. Their homes are sold for less than the mortgage amount, and the remaining loan balance is usually forgiven by the lender.
But with short sales beyond the reach of some homeowners — they typically won’t qualify if they have a second mortgage on the home — another foreclosure alternative is emerging: “deeds in lieu of foreclosure.”
In this transaction, a homeowner simply relinquishes the property, turning over the deed to the bank, in exchange for the lender’s promise not to foreclose. In a straight foreclosure, a lender takes legal control of the property and evicts the occupants; in deeds-in-lieu transactions, the homeowner is typically allowed to remain in the home for a short period of time after the agreement.
More borrowers will at least have the chance to consider this strategy in the coming months, as CitiMortgage, one of the nation’s biggest mortgage lenders, tests a new program in New Jersey, Texas, Florida, Illinois, Michigan and Ohio.
Citi recently agreed to give qualified borrowers six months in their homes before it takes them over. It will offer these homeowners $1,000 or more in relocation assistance, provided the property is in good condition. Previously, the bank had no formal process for serving borrowers who failed to qualify for Citi’s other foreclosure-avoidance programs like loan modification.
Citi’s new policy is similar to one announced last fall by Fannie Mae, the government-controlled mortgage company. Fannie is allowing homeowners to return the deed to their properties, then rent them back at market rates.
To qualify for the new program, Citi’s borrowers must be at least 90 days late on their mortgages and must not have a second lien on the home.
That policy may be a significant obstacle for borrowers, since many of the people facing foreclosure originally financed their homes with second mortgages — called “piggyback loans” — or borrowed against the homes’ equity after buying them.
Partly for that reason, Elizabeth Fogarty, a spokeswoman for Citi, said that the bank had only modest expectations for the test. Roughly 20,000 Citi mortgage customers in the pilot states will be eligible for a deed-in-lieu agreement, she said, and of those, about 1,000 will most likely complete the process.
As is often the case with deed-in-lieu settlements, Citi will release the borrower from all legal obligations to repay the loan.
In some states, like New York, New Jersey and Connecticut, banks can legally retain the right to pursue borrowers for the balance of the loan after a foreclosure, a short sale or a deed-in-lieu of foreclosure. That is one reason why housing advocates say borrowers should carefully weigh these transactions with the help of a lawyer or nonprofit housing counselor before proceeding.
Ms. Fogarty said Citi had no specific timetable for rolling out the program nationally.
Among the other major lenders, there is no formalized program for deeds-in-lieu. Bank of America, JPMorgan Chase and Wells Fargo, for instance, generally require borrowers to try a short sale before considering a deed-in-lieu transaction.
A deed-in-lieu is better for banks than a foreclosure because it reduces the company’s legal costs, and it is better for the homeowners because it is less damaging to their credit score.
Banks may also end up with homes in better condition.
J. K. Huey, a senior vice president at Wells Fargo, says her bank usually offers relocation assistance — often $1,000 to $2,500 — as long as the borrower leaves the property in move-in condition after a deed-in-lieu transaction.
“The idea is to help them transition in a way where they can keep their family intact while looking for another place to live,” Ms. Huey said. “This way, they only have to move once, as opposed to getting evicted.”
By DAVID STREITFELD
Published: February 25, 2010
The Obama administration, under intense pressure to help millions of people in danger of losing their homes, is considering a ban on foreclosures unless they have first been examined for potential modification, according to a set of draft proposals.
That would raise the stakes from the current practice, which strongly encourages lenders to evaluate defaulting borrowers for a modification but does not make it mandatory.
Meg Reilly, a Treasury Department spokeswoman, said Thursday that the proposed foreclosure ban was “one of the many ideas under consideration in the administration’s ongoing housing stabilization efforts.” The proposal was first reported by Bloomberg News.
Laurie Goodman, a senior managing director at the Amherst Securities Group who has been highly critical of the government’s modification program, said even if the proposal came to pass, it would not be “a major change. We think there is a large public relations element to this.”
The government could use some favorable public relations for its modification program, which has been deemed disappointing.
Begun a year ago, the program was meant to help as many as four million homeowners but has fallen considerably short of those goals. The Treasury Department has said 116,297 loans have been permanently modified and more than 800,000 more are in trial programs.
The Mortgage Bankers Association said its members were already doing what the administration was considering.
“Lenders generally go to foreclosure as a measure of last resort, after all other options, including loan modification, are exhausted,” said John Mechem, the trade group’s vice president for public affairs.
Any enhancements the government made to the modification program would be unlikely to stem many foreclosures, said Howard Glaser, a prominent housing consultant.
The modification program was designed for people who had subprime loans, he said, not for borrowers with high-quality loans who are unemployed. Tweaking the interest rate for an unemployed family does not provide enough help.
The Mortgage Bankers Association announced this week their own plan for reducing foreclosures: Lenders and loan servicers would reduce unemployed borrowers’ payments for up to nine months while they looked for new jobs.
The banking group said the servicers would need special loans from the Treasury to pay for the program. The administration has not commented publicly on the proposal.
“The real strategy in Washington now is to pray for an improving economy so these issues will resolve themselves,” Mr. Glaser said. “At the end of the day, a strong jobs market will prevent the generation of new foreclosures.”
There was some positive news in that regard last week, when the mortgage bankers said the number of borrowers entering default unexpectedly declined in the fourth quarter. But on Thursday, the government reported that home prices sank 1.6 percent in December, a fresh sign that the real estate market is nowhere near healed.
As Home Sales Rise, Foreclosure Filings Keep Recovery Elusive
January 18, 2010 By RANDI F. MARSHALL randi.marshall@newsday.com
Quick Summary
A Newsday analysis found that new foreclosures are outpacing new sales in many LI neighborhoods.
Photo credit: Getty Images | Overall, experts say, home sales across the Island are increasing and the steep price declines of the last year are slowing. (April 29, 2008)
For the first nine months of last year, the residential market on Long Island looked like this: For every 10 homeowners who were able to sell their houses, another eight slid into default at the beginning of the foreclosure process.
An example of the region’s deeply troubled housing market is Windsor Parkway in Hempstead, which is like so many dozens of streets and neighborhoods across Long Island, where residential sales appear to be making a modest comeback – but that positive news isn’t really the full story.
On this street, eight homes were sold in the first nine months of 2009. A closer look at these eight sales shows that four were foreclosures – properties sold at auction, where, records show, the banks themselves bought the homes back. That meant a new owner was not moving into an empty house on Windsor Parkway and perhaps spending money to improve the property with repairs and landscaping. And, in addition, there were 10 lis pendens filings – the first step in the foreclosure process – on this street during the same period.
Many communities on Long Island have fared far worse, where the ratio between homeowners heading into foreclosure and those able to sell during the first nine months of 2009 was more than 3 to 1, according to a Newsday analysis of data on home sales and lis pendens filings. Across the Island, the average during the same period was nearly 1 to 1.
“Certain places have just been so hard-hit, that they’ll take much longer to come back,” said Beth Marten, a buyers’ agent and real estate investor in Baldwin.
The data Newsday examined were provided by the Long Island Real Estate Report in West Islip.
No recovery – yet
Overall, experts say, home sales across the Island are increasing and the steep price declines of the last year are slowing. While real estate sources say one of the reasons home sales increased last year was because falling prices made more houses affordable, the numbers of foreclosures in many communities are also a significant factor.
Newsday reported last week that home sales on Long Island fell in 2009 by more than $1 billion, a 9.3 percent drop from 2008, but the number of homes sold from the previous year went up 2.8 percent.
“We’re seeing improvement but let’s not mistake it for a recovery,” said Jonathan Miller, who heads the appraisal firm Miller Samuel in Manhattan. “There’s some good news and we’ll take it, but very little has been resolved.”
Foreclosure sales rise
Even as home sales rose last year, an increasing number of them were foreclosure sales, which take place at auction and, in many cases, simply send the property back to the bank, with virtually no positive economic impact on the street on which the house sits. Across Long Island for the first nine months of last year, 9 percent of all home sales were foreclosure sales. In some communities, that number was 33 percent.
Newsday’s analysis showed that the trends worsened in many of the Island’s low-income and minority communities, making a real estate comeback there – and the dream of home ownership – even more elusive.
“The higher the [lis pendens- to-sales] ratio, the higher probability that housing prices will fall,” Miller said.
While many of those communities always had some foreclosures, home sales used to far outpace them, according to Long Island Real Estate Report president Pat Ammirati.
The number of foreclosures in a community affects far more than just the homeowners in trouble. As foreclosures rise and prices fall, it’s particularly tough for homeowners who are not in default to sell – especially if they bought at high prices.
“There’s someone who has paid for a house and is sitting in that house and has watched it go down in value,” said John Fitzgerald, a foreclosure and bank-owned property specialist with RealtyConnect USA, a new real estate agency in Hauppauge. “Now, they can’t refinance, they can’t sell and they can’t get out.”
And in communities with fast-rising lis pendens notices, the number of eventual foreclosures could rise even more, imperiling more homeowners who are keeping up with their mortgages. For the first nine months of last year, for example, just to name two communities, Brentwood had more than three lis pendens filings for every house sale; East Moriches had nearly two.
Blame it on the recession
To experts, the reasons for the rise sit squarely on the recession.
“The majority of people we’re counseling now have prime mortgages and their primary reason for default was a loss of job or loss of income,” said Eileen Anderson, a senior vice president at the Community Development Corp. of Long Island.
There’s little sign of a letup to come, especially if the two keys to the region’s economic growth – jobs and credit – remain unstable.
“It’s unlikely that we are going to see a significant improvement in unemployment and an easing of credit in 2010,” Miller said.
Indeed, it could take three to five years before foreclosures abate and the market makes a real recovery, said Island Advantage Realty broker Todd Yovino, whose Huntington firm specializes in bank-owned foreclosed properties.
Nonetheless, there are some bright spots. Kisha Wright, an assistant vice president with the Long Island Housing Partnership, said she has had more success in modifying the terms of mortgage loans recently.
“I think the government and the lenders and the banks and the investors are making strides in the hopes of a recovery,” Wright said. “I don’t think we’re quite there yet.”
Gordon M. Grant for The New York Times
‘A DREAM’ Donna Santoro’s Center Moriches home, which she bought in a short sale.
MARCELLE S. FISCHLER Published: June 5, 2009
TWO years ago, when Donna Santoro first noticed the listing for the two-bedroom carriage house in Center Moriches on a canal with a view of Moriches Bay, the price was above $600,000.
“That was a dream,” said Ms. Santoro, a Teamster official. She couldn’t afford it, and eventually the house was taken off the market.
But last October, she noticed that it was back. At $429,900, it was extremely tempting.
It was now a short sale — which ended up meaning the deal took a very long time, a fact that Ms. Santoro described as “the epitome of an oxymoron.” Yet that is the tendency, when houses are worth less than what their owners owe the bank.
She was able to put more than 20 percent down, was prequalified for a mortgage and had a good credit score. But she still had to wait for the seller’s two mortgage holders to approve the offer and let her close, a process that took until April.
“I hung in there,” she said, drawn by an “absolute great buy” and daunted by the idea that if the deal didn’t go through, the home could be boarded up and go into foreclosure.
“It’s a great opportunity to afford something that you otherwise may not have ventured into” was her summation. Beyond getting a house she loved, she was “taking it off the seller’s hands and giving them the opportunity to repair their credit more quickly and giving something to the bank other than zero.”
Across the Island, short sales are up. Brokers say that banks are increasingly amenable to approving them, though expediting the paperwork is not always a cinch.
From January to April, there were 2,520 lis pendens — or notifications of foreclosure — in Suffolk County and 1,888 in Nassau, according to propertyshark.com. Some carry mortgages as high as $2.8 million, in Southampton, and $1.94 million, in Old Westbury.
Nationwide last month, 45 percent of transactions were distress sales — whether short sales or foreclosures, according to the National Association of Realtors.
Michael Morris, owner of Coldwell Banker M&D Goodlife, whose Moriches-based firm handled Ms. Santoro’s purchase, says short sales represent 11 percent of its transactions. Among its 343 listings, 36 are short sales. Of 120 transactions in contract, 17 are short sales.
Phil Tesoriero, owner of Dynamic Real Estate Services in Garden City, primarily deals with distress sales on properties ranging from $180,000 to $750,000; he sees tremendous growth in the short-sale market.
“A lot of people are over their head and underwater,” Mr. Tesoriero said.
It used to be that short sales became possible only after a mortgage payment had been missed and after the bank had filed a lis pendens. Lately, however, the bar has lowered: homeowners need only prove hardship, or a looming deficit, to proceed with a short sale, Mr. Tesoriero said.
Mr. Morris said hardships include divorce, job loss and family illness. In such situations, he said, owners “have to sell it and they are talking to the bank to try to work it out.” He added: “Nobody wants to foreclose. Foreclosure hits your credit score pretty hard.”
Rick Simon, a spokesman for Bank of America Home Loans, said that even though the bank’s first priority was to help owners keep their homes through loan modifications, short sales had soared in the last year and a half. The bank is now looking to speed up the approval process, which can take up to 90 days, he added.
One pilot program, to be rolled out nationwide in a few months, would preapprove a short-sale price at the start of the process rather than at the time an offer is made. This would knock 30 days off the wait.
The bank assesses whether “the loss to the investor is mitigated by doing the short sale more than it would be mitigated” by foreclosure.
Then the home must be appraised, as a basis for ascertaining that any offers reflect market value. “Low-ball offers are not being accepted,” Mr. Simon said.
Short sales face competition in a market glutted with regular sales and foreclosed homes owned by banks, Mr. Morris said. Yet they tend to find takers more quickly, because their sellers “are more apt to price it at market value and not be in denial.” The difficulty comes later — with the heightened risk that the bank may not approve the sale and the buyer will have lost time.
Wendy Funk, a Merrick-based real estate lawyer, says banks “are so inundated with foreclosures they are agreeing to settle for less money” to avoid the full foreclosure process, which in New York can take years.
But, she said, “the bank may not make a deal if a homeowner was totally irresponsible.”
In March, after a year spent looking at homes upstate, in New Jersey and in Levittown, Sandy Acosta, a bank comptroller, found a short sale in East Meadow, a three-bedroom for $488,000, through Janie Davis, an associate broker with Re/Max Hearthstone in Bellmore.
“I was looking for the house that I liked, not a short sale,” Mr. Acosta said. Still, he figured that the home’s status would ensure a good price, and decided it was worth the three months’ wait for bank approval to close. Besides, his wife, Clara Canio, loved the house.
“If this is the style of the house that you want,” Mr. Acosta said, “you can wait.”
Federal and NY regulators moving to weed out scam operations with tighter rules
- BY RANDI F. MARSHALL | randi.marshall@newsday.com
- 9:37 AM EDT, June 2, 2009
Federal and state regulators say the loan modification industry, which came from nowhere fast to offer help to troubled home owners fearful of losing their homes, needs regulation and oversight to prevent people from losing even more money and ending up without the help they need.
In April, the Federal Trade Commission painted the industry with a broad brush, saying the “proliferation of these mortgage relief scams” should be stopped by increased law enforcement efforts because they “target” vulnerable homeowners desperate for help.
Sign in front of pending sale
In New York State, Gov. David A. Paterson is preparing a new bill that would require loan modification firms to register with the state and tighten guidelines on the upfront fees some charge, which can approach 1 percent of the total mortgage — easily $3,000 or more, according to the governor’s counsel, Gurav Visisht. And the state Banking Department and the attorney general have also raised red flags about the industry.
“The fees I’ve heard quoted I would say would be better served being placed toward the loan that is in distress,” said Banking Department deputy superintendent Rholda Ricketts.
Many want money back
That they will cut through the red tape, negotiate lower mortgage interest and monthly payments and thus help owners keep their homes. The companies say what they do is perfectly reputable. Many experts point out that homeowners, already strapped for cash, do not need to pay for something they can get free help for or even do themselves.
Some loan modification executives said they wouldn’t mind more oversight, but that the whole industry should not be cast in a negative light.
‘Banks don’t make it easy’
There’s plenty of good business out there and there’s plenty of people who legitimately need help and the banks don’t make it easy,” said Steve Richards, who heads ABM Mitigation in Ronkonkoma. ABM charges $2,995 per modification.
Still, experts say there’s more to be done. While there are laws against deceptive advertising practices, for instance, some say some modification companies’ marketing techniques deserve more scrutiny. For example, several firms send out letters that look like they’ve come directly from the borrower’s bank. Others call lists of people in foreclosure, whose names are in the public record.
“Scammers are taking advantage of people in a difficult situation . . .” FTC chairman Jon Leibowitz said in his April announcement.
Nonprofit housing advocates note that state and federal laws also don’t regulate how much companies can charge.
“There’s no reason on earth that you would pay for a loan modification when there are free services,” said Meghan Faux, who heads foreclosure prevention at South Brooklyn Legal Services, which provides free legal assistance to individuals across the region.
After months of trying to get mortgage relief using American Modification Agency, Brooklyn resident Rolett Brown is now working with South Brooklyn Legal Services to try to get back the $5,600 she paid AMA, based in Hauppauge and founded by executive Salvatore Pane. He also owns Amerimod, a separate Uniondale company that’s Long Island‘s largest modification firm.
Brown, who needed help after the monthly payment for her adjustable rate mortgage rose to $3,700 last July, said she paid AMA last summer, using two credit cards and a loan from her retirement fund. Her loan modification application was denied – twice.
AMA wanted to try a third time. Brown said no. Then, she said, she connected with city officials and her bank’s representatives and was able to get the changes she needed on her own.
AMA hasn’t refunded her money, she said. “I feel betrayed,” Brown added.
Pane said Brown may have obtained her modification because of the work AMA had already done. If he finds it’s not, Pane said, “If I didn’t do my job or I can’t prove that we did our job, she’ll get her money back.” He said that the company always makes three attempts before giving a refund, adding that the firm’s successful loan modifications number in the “multiple thousands,”
“The success in this office is superior to most,” he said.
A satisfied customer
Pane points to homeowners like New Jersey resident Jacinta Lopez, who fell behind on her mortgage when her salary was cut and who called Amerimod after hearing a radio advertisement in December. The firm charged her $4,000, which she is borrowing from family members. This month, Lopez got a loan-term change that she said cut her monthly payment in half.
“I feel relieved,” said Lopez. “The way it was going I was going to lose the house.”
But Lopez said she never knew she could do a loan modification herself or get free help. And that, said U.S. Housing and Urban Development spokesman Adam Glantz, is part of the problem. “They’re beating us in this publicity war,” he said.
Many in the for-profit industry, including Pane, said they welcome more regulation or licensing.
“If they pass a law that says I have to go get registered, I’m going to go and get registered,” said Dan Harris, who heads the Manhattan-based Home Retention Group. “I just try to do the right thing.”
Harris, who is working on 160 files right now, charges $995 upfront for a “forensic audit,” to check for fraud in the homeowner’s mortgage, and then charges one month’s mortgage payment after the mortgage relief goes through.
Executives like Harris and Pane said the industry may not survive in the long run, in part because it’s tougher to get banks to reduce loan payments and also because there’s a growing negativity surrounding the business.
“It’s not that everybody in the industry is bad, because they’re not,” said Garden City attorney Adam Kitzen of National Modification Group, a for-profit company that charges up to $4,000 per file, $500 of which is required upfront. “But I don’t think this is the type of industry that’s long-lasting.”
Selling when your house is worth less than your mortgage
Digging out in today’s real estate market.
Rather than go straight to foreclosure on properties where homeowners are behind on their mortgages, banks are entertaining short sales, a settlement in which they agree to take a lesser payment from the homeowner upon sale of the home to satisfy the mortgage due. The homeowner finds a buyer at regular market value and approaches the bank with the offer. Many homeowners qualify because the housing slump has made the value of their homes worth less than their mortgages.
Many Long Islanders are choosing the short sale route because it saves them the embarrassment of a foreclosure, and in many cases they can walk away free and clear from the sale – even if it comes up thousands of dollars less than they owed.
Short sale agreements are “hitting in every area,” including premium properties like “creek fronts and waterfronts in the Hamptons,” says Elizabeth “Missy” Capozzoli, licensed associate broker in the Westhampton Beach office of Town & Country Real Estate.
A short sale can save a homeowner’s good credit because if it is worked out beforehand, the bank agrees the mortgage has been satisfied in the sale, says Dwan Bent-Twyford, co-author of the new book “How to Sell a House When It’s Worth Less Than the Mortgage: Options for ‘Underwater’ Homeowners and Investors” (John Wiley & Sons, Inc., $19.95).
A house can also bring a better yield on a short sale, as these are completed more quickly (excluding time on the market, these close on average in three to four months) than a foreclosure, which can take one to two years, and the property is usually in relatively good shape.
“There’s no mystery,” says Phil Tesoriero, broker-owner of Dynamic Real Estate Services in Garden City, which primarily deals with distress sales. “A regular residential market will yield a higher price than a foreclosure.”
Banks are more willing to negotiate of late, Realtors say. In the past, a short sale agreement with the seller could only be entered into after the bank had filed a lis pendens, or notification of foreclosure; today, the short sale process can be started before the homeowner gets behind on payments but has proof of an impending shortfall.
Yet real estate experts agree, even short sales can financially haunt a homeowner if they aren’t handled correctly contractually. If the mortgage isn’t deemed “satisfied,” short sales can still jeopardize your credit rating. In addition, the bank may be able to sue you for the loss – that is, the difference between what was due on your mortgage and the amount the bank accepted, placing liens on your income until the loss is paid in full. Or it may report the amount not paid as income to the seller, and you will be faced with income taxes in the amount the bank wrote off as a loss.
Delays are common. “Banks are not geared up staff-wise to handle the influx of requests,” says Carolyn Webber, executive vice president with RE/MAX of New York in Garden City, which has been authorized by the Distressed Property Institute to produce training courses for its employees that lead to a certification in this area. She says that lenders are “in a quandary” regarding the price they should settle on in a short sale, so there are holdups. If there’s any doubt about your application, “they put it at the bottom of pile.”
What sellers need to know
While a short sale can be a good choice for the homeowner, there are caveats:
PROVE IT First, for the bank to agree to take a lesser amount than it is owed, a short sale must meet two criteria: The mortgage is greater than the worth of property. This is determined by comparable sales in the area. The homeowner must prove a financial hardship and demonstrate an inability to pay. People who are “upside down in their mortgage have to understand that they must be in financial hardship,” says Robin L. Long, an attorney with offices in Southampton and Ronkonkoma. It might mean “they got pregnant, have negative amortization on the loan, or loss of a job.”
ALL IS NOT FORGIVEN Sellers may still owe a deficiency judgment. “Many think the bank forgives the rest of the loan. But there is no absolute – no such scenario exists,” says Tesoriero, of Dynamic Real Estate Services. They may put a deficiency lien on your salary or a future mortgage may be contingent on it. Therefore, make sure the deficiency is negotiated as part of the short sale agreement with the bank, he says. “More often than not, the bank will waive its right to a deficiency judgment if you can prove a solid hardship,” says author Bent-Twyford. (Paying a small percentage of a judgment deficiency on second mortgages, however, is common, she adds.)
TAX ISSUES Sellers may owe back federal taxes. The bank may report its loss on the sale to the government as income you earned and you will be liable to pay income taxes on the 1099 the following year. The Mortgage Forgiveness Debt Relief Act of 2007 – which applies to short sales in 2007, 2008 and 2009 and relieves owners’ responsibility of paying these income taxes – will be reconsidered at the end of this year and may be reinstated. To overcome any taxes owed, says Bent-Twyford, “Always ask the bank to waive the judgment deficiency and the 1099 in writing.”
HOW LOW Simply losing value does not qualify a home for a short sale. “If there’s equity in the property, it doesn’t qualify as a short sale,” says Tesoriero, who teaches a 15-hour continuing education class for the Long Island Boards of Realtors called The Realtor Short Sale Professional. If the owner has assets and the ability to pay the mortgage, it also doesn’t qualify.
Sale pays fees Some owners forgo the chance to make a short sale because they don’t think they can afford to pay for fees for attorneys, real estate agents and others. This is a fallacy. Money is paid out of the proceeds of the deal, explains Tesoriero.
DOCUMENT IT A lengthy process causes more deals to fall through. To overcome this, before finding a buyer, gather proof of hardship, deeds, notes and surveys so that they can be submitted to bank quickly when a buyer is found, says attorney Long.
BANK ISSUES Banks are not prepared to expedite the overwhelming number of short sale requests, and the time it takes to complete them is increasing. Often mortgages are resold to out-of-state and offshore banks, which are typically difficult to reach and unfamiliar with current local home values and are hesitant to accept deals. “We are getting the royal runaround by banks,” says Joan Bischoff van Heemskerck, associate broker and managing director of North Fork operations for Town & Country Real Estate of the North Fork in Southold.
MORE BANK ISSUES Even when homeowners or their representatives reach the proper bank personnel, “If you don’t fit their script, you go on hold for three hours,” says Long. “They are not geared up to work with us.”
ONE avenue for escaping foreclosure may be getting a little easier to navigate: the so-called short sale, through which distressed owners sell their homes for less than the mortgage amount and are forgiven the remaining loan balance.
As the credit crisis deepened, short sales became harder to complete. Among other things, people who had second mortgages, including home equity lines of credit, found that the second lien holders often balked, fearing they would be left with nothing, or close to nothing, after the holder of the first mortgage was paid off.
Homeowners in these situations would typically stand by while lenders argued about how to divide the proceeds from a sale, and the impasse would frequently result in a foreclosure.
But mortgage executives say they are now working more cooperatively on short sales, and proposed changes in the industry could increase the number of these transactions.
“Without a doubt, lenders are more willing to work through short sales,” said Andre L. Mitchell, the executive vice president of the Lynx Mortgage Bank in Westbury, N.Y. “In this marketplace if the lenders can negotiate in any way to get rid of a bad loan, they’re going to do it.”
The Treasury Department said last week that it would increase incentives for lenders to work out short sales when borrowers fail to keep pace with their loan payments. The department did not release details about those incentives.
Lenders have been eager for direction from the government, especially when more than one loan is involved. “To be able to systematize the negotiation would be a big plus,” said David Sunlin, Bank of America’s real estate management executive.
In the meantime, Mr. Sunlin said, Bank of America has shifted its own policy to encourage more short sales.
In the past, the bank followed the recommendation of Fannie Mae, the government-sponsored mortgage finance business, and gave second lien holders about 10 percent of the second mortgage balance in a short sale where Bank of America held the first lien. When Bank of America held the second lien, it also required first lien holders to forfeit that amount in a short sale.
Now, when it holds the second lien, Bank of America will accept 5 percent of the net proceeds of the short sale, Mr. Sunlin said. When it is the first lien holder, it will offer the same to holders of the second lien.
Banks encourage short sales because they lose less money on such transactions than they do in foreclosures, where they must sometimes carry the house for months before selling it.
Homeowners who are considering short sales can often make the process smoother by involving the bank early in the process.
For instance, if a home is worth $375,000, but has a first mortgage of $390,000 and a second mortgage of $20,000, the borrower might contact his or her first mortgage holder and raise the possibility of a short sale. If that lender knows it can negotiate successfully with the second lien holder, it can start those negotiations and put the borrower in touch with a real estate agent with experience in short sales.
The borrower would then list the home for its appraised value, and the agent, after conferring with the lender, usually accepts any offer close to that amount. After the house sells, the bank pays the agent’s commission of around 6 percent, and pays the second lien holder a portion of the proceeds. Both lenders then forgive the remaining debt.
The borrower is not off the hook completely, since after the short sale his or her credit score is likely to fall. But even then, the credit score would probably be far better than it would be after a foreclosure.
Mr. Sunlin said that homeowners who are considering short sales do not necessarily need to involve the bank early on. He said they can contact the bank within five days of getting an offer on the house and still expect good results.
That is especially true, he added, if documents are presented showing that the offer is in line with others in the local market, as well as pay stubs and other paperwork demonstrating the borrower’s financial hardship.
Mr. Mitchell of Lynx says short sales are often the best approach, even for homeowners considering a new loan to save the home.
“It’s gotten to the point where people understand that sometimes you have to start over,” he said. “A loan modification might help you in the short term, but sometimes what people need to do is get out completely.”
http://www.newsday.com/business/ny-lihous056058093mar05,0,3361743.story
BY DENISE M. BONILLA
denise.bonilla@newsday.com
March 5, 2009
Trying to jolt a lethargic housing market, the Town of Babylon announced yesterday it will give middle-income families a $15,000 down payment match toward the purchase of their first home.
Those who earn 81 to 120 percent of the area’s median income will qualify for the program. For example, a single buyer can make up to $81,550 and a family of four up to $116,500, Supervisor Steve Bellone said. The home must be purchased within the town, and while the program is open to all of Long Island, priority will be given to those who are already town residents.
“We’re not going to get out of this [economic] crisis without stabilizing and fixing the part that was the source of this crisis and that is our real estate market,” he said. “[This program] is intended for us to do our part in helping to stabilize our housing market here and hopefully help move it into a positive direction.”
The $15,000 payments will come from a revolving fund that uses money from the town’s affordable housing trust fund. Developers who do not set aside 20 percent of their units for affordable housing pay into this fund. The town initially will use $1.05 million to assist 70 families, Bellone said.
The money must be repaid, he said, when the home is either sold or refinanced. Home buyers must also take part in a one-time mortgage counseling session with the Long Island Housing Partnership so they understand home ownership.
“This is not a handout, this is a help up,” Bellone said. “People will not be put into homes if they’re not able to sustain those homes.”
Purchased homes must undergo an energy audit as part of the town’s Green Long Island Homes program, which updates homes’ energy efficiency.
Peter Elkowitz, president of the Long Island Housing Partnership, called the program unique because most HUD-funded programs only provide housing assistance to families who earn 80 percent or less of the area’s median income. Under such guidelines, a family of four could not exceed an income of $77,700. Elkowitz said several families who came into his office in recent months did not meet the HUD income guidelines but would meet Babylon’s new guidelines.
“This is the first down payment assistance program that goes that high,” he said of the town’s cap of 120 percent of median income. “That’s a real number for a family of four.”
Phil Weiden of the Long Island Board of Realtors said there are 1,336 homes for sale in the town and the median selling price is $359,000. He said he hopes Babylon’s program paves the path “for other towns across Long Island to come up with their own version of what they can do.”
Buyer qualifications
Applicants to Babylon’s housing assistance program for middle-income families must:
Be HUD-defined first-time home buyers.
Have a total household income between 81 and 120 percent of area median income – from $77,701 to $116,500 for a family of four. Occupy purchased home as a principal residence.
Not be in contract to purchase before the start of the program (March 2).
Contribute $15,000 toward the down payment.
Buy a home in Babylon town for up to $396,150.
Participate in the Long Island Green Homes Program, which updates homes’ energy efficiency, within six months of purchase.
Attend a one-time mortgage counseling session with the Long Island Housing Partnership.
