The impoverished foreclosure victims are sans proper legal help. More than 300,000 residential houses are being served with a foreclosure notice per month. The situation has become all the more crushing because of the lack of proper legal help for the hapless foreclosure victims.

As per the findings of a new survey conducted by Brennan Center for Justice this legal impasse has been highlighted. It read, “The nation’s massive foreclosure crisis is also, at its heart, a legal crisis.” The huge majority of the foreclosed borrowers are left to fend for themselves without legal help.

The instance of Nassau County of New York can be cited. 92% of the borrowers who are facing foreclosure because of exotic mortgage loans like sub-prime do not have any lawyer to represent them.

Legal help is vital – it makes the difference between losing and keeping the home. The lawyer can put on hold foreclosure proceeding or pressurize the lenders to make them sit at the negotiating table. The lawyer can intervene in many ways than one like putting into force consumer protection laws or nosing out violations of the law by the lenders.

The report points out two reasons for the homeowners failing to get the right kind of legal support. The first is money. This is not surprising because it is the money problem that has put them in this fix.

The Legal Services Corporation is the main agency that offers legal help for those with low income. In 1996 its budget was reduced by a third. To provide the corporation the level of funds it had got in 1981 would have necessitated an additional $753 million. Washington would not have hesitated if Goldman Sachs or any other jumbo financial body needed that kind of money. Even if it had been ten times more the cash would have been made available. But those with modest income have no influence in the corridors of power. It is little wonder then that Legal Services Corporation has become powerless to move.

The second hurdle is that intentionally the system has been structured in such a way that there are restrictions in getting legal help. There are serious limitations to the ability of homeowners of seeking legal assistance. For instance there is a bar in bringing class-action suits. Moreover they cannot make the plaintiffs pay the fees of the attorney although normally the law permits it.

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The unfolding of the foreclosure drama starting with the taking over of mortgage giants Fannie Mae and Freddie Mac reads like a horror film. It stopped the financial system from totally collapsing. Dave Rovelli of Canaccord Adams of New York commenting on the move said, “It saves Armageddon from happening.”

But within the passage of 24 hours things began to look different. On 8th September 2008 the Federal Government seized the mortgage duo. On 9th September Wall Street became agog with talks about Lehman Brothers. The latter ranked fourth among the investment banks. It was crushed by the weight of its securities that were backed by mortgages and other property assets. The investors began to worry if Lehman had sufficient cash to survive the turmoil. Its talk with Korean bank owned by the state did not bear fruit. The USA government remained conspicuous by its absence. Before the day ended the stocks had fallen by half. Lehman had made its debut even before the Civil War and had come out from the Great Depression. It was now left with its market value being $5.4 billion – it being less than an online broker dealing in discounts like TD Ameritrade. As the week wore on the confidence of investors in Lehman steadily fell.

There was a meeting at the end of the week between officials from the Treasury Department, Federal Reserve and important Wall Street banks. They all gathered at the downtown Manhattan luxurious federal headquarters of New York. Henry Paulson of the Treasury was dead against the government stepping in to save Lehman. No bank was willing to do so either.

But egged on by the Federal Government and the Treasury, the Bank of America took over Merrill Lynch – another troubled house of Wall Street. Meanwhile vultures began to fly around the Manhattan head offices of Lehman – television cameras and people with phones and note pads. Lehman made hot gory news. Lehman had been created to serve the interests of the cotton farmers. It had weather the Civil War, World War II and even the destruction of its headquarters near the World Trade Center. Left with no alternative Lehman filed for bankruptcy.

There were five jumbo investment houses. Of these – Lehman, Merrill and Bear Stearns had been drastically cut down to size. Earlier Bear Stearns had sold itself to JP Morgan Chase.

The financial crisis seemed to have shifted to a high gear.

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One house on Osborne Avenue is suffering this sign for 8 long years. Poring through the records of this house one can trace the pattern of the ups and downs of this dizzy decade. In 2001 it was purchased for $460,000. Two years later the price went up to $850,000. In 2006 after having been renovated the house asked for a price tag of $1.65 million. The present owners of the estate are a couple from Manhattan. They put the house up for sale asking fro $2.2 million.

By that time the bubble had already started to bust but there were no signs of it here – the happy playgrounds of the rich and famous of Wall Street. All that happened in Florida and California. If one could afford a house here then that person was definitely class.

But Southampton did not remain immune to the crisis as one by one heads began to roll – Bear Stearns, Fannie Mae, Freddie Mac, Lehman Brothers and now Madoff. One horrific tale followed another. The fortunes of Wall Street plunged. This area in Southampton began to mirror the happenings played out at Wall Street. Average price has fallen by 10% but that only hints at the gravity of the trouble because nothing is moving.

In East Hampton sales in 2008 dropped by 25%, 39% in Bridgehampton, 47% in Montauk and 45% in Southampton. The real collapse took place last autumn. Investment bankers found themselves unemployed and lawyers doing work with the corporate sector found that their client base had vanished. The situation was pathetic for hedge fund managers. Till now they were hailed as geniuses but now Congressional committees were hauling them up. Herb Phillip a veteran real estate broker said, “Until the market improves or their mental state improves, they’re not buying anything. It’s dead”

Winter has always been a meek season with empty restaurants and streets without cars. A cold wind whips in from the Atlantic. The house on Osborne Avenue with its nautical décor of mermaids and a cottage for guests was begging to be sold for $1.85 million. The following week it is expected to plummet to $50,000!

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An investigation team in Rochester has made note that one landlord owes the city over half a million as taxes. Char Bren Development is the owner of dozens of units that it rents out all through Monroe County. Many of these are now foreclosed upon and the tenants are worried that they will be thrown out.

Shane Brown is unsure about his next address. He and his family have been living in a rented house in Irondquuoit. But it has now been discovered that the landlord is being foreclosed upon, having failed to be regular on mortgage payments. The law firm of the bank told Shane that since the property is in foreclosure he should start looking for alternative accommodation.

The landlord of Shane was CharBren Development that is operated by Chuck Hain and his sister Kimberly Matina. The siblings have been owners of hundreds of units in Monroe County often buying them one after another in swift succession. Now many of these apartments and houses are in foreclosure.

Recently 59 of these properties were auctioned off by a bank. Michael Beyma, attorney representing the bank said, “The properties were rented but the bank received no payments of principal or interest, and then noticed the borrower was not paying taxes, nor insurance. So we had no alternative but to commence foreclosure to get the loan re-paid.”

The units were repossessed by Canadaigua National Bank. It gave the assurance that the tenants would not be throw out. Beyma however was at a loss as to why Hain was defaulting in payments as he had been a borrower for quite a number of years and there is sufficient flow of cash from his other properties. By this time the two should have made their money.

Hain declined to make any comments to the investigating team. The facts noted by the county clerk show that the financial problems of Hain have now engulfed his own residence worth $400,000 located in Penfiled. It too is facing foreclosure.

The investigators reported that Hain was lagging behind in millions of dollars in taxes. Simultaneously he has been issued several notices for not returning the security deposits of previous tenants. One of them is Shane Brown who has paid a security deposit of $1,000. Shane has given up hope of seeing the money again.

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Crime has fallen in only two foreclosure concentrated areas – South Ozone Park and Queens Village. In all of the eight areas with low foreclosure numbers the crime rate dropped. Pat Boone the president of the New York branch of ACORN said that it is common sense knowledge that crime and foreclosure go hand in hand. He said, “Thousands of families across New York have lost their homes to foreclosure. In turn, their communities have lost neighbors who care for their homes and help keep an eye on everyone’s safety.”

The foreclosure numbers are closely linked with figures related to murder, felony, robbery and burglary as well as auto thefts. The foreclosure concentrated localities in Queens had on an average 424 cases more criminal cases than those with low number of foreclosure. In 2008 this showed a spike of 1505 since 2006.

The vacant houses are looted but on top of that the study notes that “the increasing displacement of homeowners leaves neighborhoods without the deterrent presence of concerned neighbors’

watchful eyes that helps to protect adjacent houses from illegal activities. Linda Bowman of ACORN said that the vacant houses are “an invitation for kids to get into trouble.” She said that she had seen many people sleeping in vacant houses in her block. For the safety of the community it is essential that people are not evicted from their houses that are their homes.

The terrible example of two serial rapists can be cited. They had spread terror in southeastern Queens during the summer of 2008 attacking the women over a dozen times in an empty church and other derelict buildings.

It was of little relevance whether the localities were resided in by either those with high or low incomes. The neighbourhoods (Jackson Heights, Kew Gardens, Woodhaven, Jamaica, Hollis, Rockaway and Broad Channel) in Queens that had seen increase in crime had an average income record tallying with those areas with lower number of foreclosed homes.

The survey also linked rise in crime with increase in foreclosures in Astoria, Flushing and Ridgewood. 59-year-old Val Holder of ACORN (executive board member) commented that this link between foreclosure and crime made sense as till now the criminals did not have such easy access to vacant derelict houses.

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Central Islip is a community in Long Island. About 32,000 people reside here. It is modest locality near the highway without any quaint downtown or rolling beachfront. Its renowned landmark was Central Islip Psychiatric Centre. For decades it generated prosperity. Today it is an icon of decay and despair.

The psychiatric centre was for a long time the second largest mental institution in America. All those living in Central Islip were directly or indirectly connected with work with this centre. But when it emptied out from the 60’s to the 90’s the adjacent region became desolate. Rows of neat houses fell into decay as families shifted elsewhere. Drug peddlers and slumlords took over.

Locally operated institutions somehow patched up matters and kept things running. One such endeavour is the Central Islip Civic Council – a modest body operating on a non-profit basis that has for forty years acted as a fixer – constructing houses, offering counseling regarding loan matters, managing rented units, administering a food pantry as well as a newspaper.

Nancy Manfredonia its executive director has seen the ups and downs of the region as master plans have appeared and disappeared. New houses and business centres tried to fill in the hole left behind by the psychiatric centre. Slowly things were beginning to look up. A county court house was built and soon came to be followed by a federal one. Nearby a law school made its debut. The old hospital building was repaired and taken over by the New York Institute of Technology. There came a ballpark for Long Island Ducks, couple of shopping malls and housing development units with ambitious names like Islip Landing and Courthouse Commons. The worst deserted area of CarletonPark became College Woods. Here many houses were sold at low prices to those with moderate to low income. Manfredonia proudly said, “We recycled the neighborhood.”

During the upswing many predatory lenders sneaked in just as they were doing elsewhere. They teased people into accepting unaffordable loans and the inevitable story of foreclosures unfolded itself. Today the bottom has fallen out – only the skeleton remains. Central Islip is dotted with foreclosed houses. The number of abandoned houses has become eyesores.

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Those taxpayers, who did not buy during the housing boom, were not tempted by dubitable deals and those who remained steadfast in paying their mortgage dues are furious for being sidelined. They never spent beyond their means and yet it is their money that is being used to bail out those who did.
Jay Black is a tenant in Queens, New York. He angrily comments, “All these idiots who bought homes they couldn’t really afford are going to be rewarded with loan modifications, but what about those of us who didn’t make stupid decisions? I could have purchased two years ago using an option AM, and now the government would be paying to reduce my balance. But I didn’t. What the hell do I get?”

Alice English lives in Highland Falls, New York. She too is furious. Alice used to annually earn $45,000 but did not purchase a house. She bought a mobile unit because of her budgetary constraints. She never opted for anything she could not afford. But suddenly her financial condition has worsened because of job problems. Now she may lose her home for lenders have no time to talk with borrowers who have no income. English is angry beyond words as her credit ratings are going out. She bemoans that the government is going to bailout big companies and the “idiots who took an ARM who knew they couldn’t make those payments.” But she is left forgotten without a job, or help while “billions are going to help those who created this problem.” The foreclosure victims are being bailed out because of the far-reaching consequences of foreclosures Delinquencies have shot up to astronomical figures causing house prices to tumble. It may be unfair to help some house owners while ignoring others but there is no other alternative before the policymakers and administrators. This is the only way the economy can be prevented from falling further.

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In Melville New York is located Lend America. It makes itself known through infomercials and toll free numbers. Borrowers in foreclosure trouble are encouraged to refinance and take fixed-rate mortgages that are guaranteed by FHA. Lend America had anticipated this foreclosure crash and had changed business tactics from 2005 by shifting over from peddling sub-prime mortgages to those backed by FHA. At the helm of this brilliant move is Michael Ashley. This year the firm will be advancing 7,500 loans amounting to a total worth of $1.5 billion. Ashley confidently said, “FHA is a big part of the future. It’s the major vehicle for the government to bail out the housing industry.”
It is strange and perplexing that the federal government should work in tandem with Lend America. Ashley has an uncomfortable past of legal wrongs. In 1996 he pleaded guilty in court in Uniondale New York on two counts of fraud related to mortgage scam of another company run by his family under the name of Liberty Mortgage. He was fined ($30,000) and sentenced to probation (five years). Kenneth Ashley, his father has the dubious distinction of having served a jail sentence of four years. Younger Ashley, now aged 43, defended himself and said, “ I was just a pawn in a chess game between my father and the government”. The current default rate of Lend America’s FHA insured loans is 5.7% or 53% – much higher than the national average.
Lemar Wooley of FHA was asked about overlooking the transgressions of firms that had formerly dealt with sub-prime loans. He replied, “FHA has taken appropriate actions, where necessary, with these lenders with respect to their participation in FHA programs.” According to him First Magnus, Lend America and Nationstar have all met the conditions laid down by federal rules. He however admitted that since 2000 on two instances, Lend America lost its right to issue FHA backed loans because of increased default numbers. Wooley also said that he did not know about the previous convictions of Ashley. Lend America had not projected Ashley as a major representative of the firm. As per rules the lenders working under FHA are expected to disclose past sanctions and not to employ personnel with criminal history.

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In the second quarter there were 16.025 foreclosures in New York. This figure has gone down to 14,477 in the third quarter that was closed on 30th September. This decline has been attributed to the new law.

However, State Banking Superintendent, Richard Neiman, is cautious about passing judgment too soon. According to Neiman, the figures for the third quarter do not tell the true story. The foreclosures figures for the next quarter are expected to be a better indicator of the true picture. The figures for the fourth quarter ending in December will include foreclosures, which have been filed after the new waiting period of 90 days. Many homeowners are just using this grace period to delay filing for foreclosure. In other states there have been sharp increases in foreclosures immediately after the waiting period. In Massuchusetts, for example, after an initial decline in foreclosure rates after implementation of the new law, there was an increase to 465 percent after the expiry of the initial period.

In California, lenders have to contact borrowers a minimum of 30 days before filing for default. In North Carolina borrowers get an extra 45 days. Whether such laws will effectively stem the tide of foreclosures remains to be seen. In most states, New York included, there are no regulations under which lenders have to restructure the loans.

These new steps are only directed at dealing with the symptoms, and not addressed at the cause of the problem, opine experts such as Sharga and others.

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