A former unite of Morgan Stanley has been ordered by Federal Reserve to review foreclosures numbering thousands that it had operated; it has been threatened with fines.

The unit, Saxon Mortgage Services was sold this current year. The order mandates Morgan Stanley to engage a review by a third party of foreclosures that had been handled by Saxon Mortgage Services from 2009 to 2010.

The regulators have asked other mortgage servicers to revamp their operations and compensate those who have been harmed. In October Morgan Stanley arranged to sell to Ocwen Financial Corp. its unit of Saxon bringing down shutters on its operations in servicing sub-prime mortgages. The deal was finalized recently on 2nd April.

Saxon collected payments from over 225,000 residential loans – it ranked 34th among the mega loan servicers. During the two years it has dealt with over 60,000 foreclosures. Morgan Stanley did not make any comments on this.

According to the Federal Reserve the employees of Saxon submitted innumerable foreclosure papers sans any personal verification of the contents; the documents were not notarized properly and enough efforts were not made to respond positively to the requests of homeowners to resolve foreclosure problems.

The Federal Reserve stated that the review by Morgan Stanley is aiming to “provide remediation to borrowers who suffered financial injury as a result of wrongful foreclosures or other deficiencies identified in a review of the foreclosure process”. However Morgan Stanley has stated that it is willing to pay for any penalties relating to violation of civil laws by its Saxon unit. The Feds has not said how much that penalty will amount to.

A similar agreement had been reached by the Federal Reserve with Goldman Sachs Group. The latter had sold one of its units, Litton Loan Servicing to Ocwen.

In April last year the Federal Reserve together with Comptroller of the Currency had mandated fourteen companies dealing with mortgage-servicing to engage consultants for reviewing foreclosures; they were also asked to revamp their foreclosure processing methods. The homeowners who were wronged could be getting compensation after completion of the reviewing.

Since the time of the surfacing of the robo-signing scandal the firms dealing with mortgage servicing have come under the scrutiny of the state and federal governments. Earlier in February an agreement was reached with five mega banks to the tune of $25 billion for their foreclosure abuses.

Photo by Renjith Krishnan.

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A bill winding through will soon become law in Florida. It will hasten the foreclosure process but opponents contend it will trample on property rights, give little chance to homeowners to plead their cause – all in the name of clearing the stockpile of pending foreclosure cases.

The supporters of the bill point to 368,000 foreclosure cases choking the courts. The sponsor of the bill is Senator Jack Latvala (Republican) and the cosponsor of the bill is Rep. Greg Stube (Republican).

Home Owners Associations would now be able to expedite their cases. More effort through private servers would now be able to spot the abandoned houses and judges would have more elbow room to dismiss cases with inadequate defense quickly.

The supporters of the bill pointed to the clause about locating vacant units being of great importance to the neighbourhood as these have become drug producing farms. But the opponents say that the bill reaches out to issues beyond that of vacant houses.

Senator Oscar Braynon (Democrat) said that homeowners trying to defend their homes would find things more difficult. Braynon said, “The reason the foreclosure process is long is it should be a long process to take someone’s property. That’s a constitutional right”.

One of the homeowners, Ronald Gillis, residing in Port Charlotte has called the legislators supporting the bill a “disgrace”.  Thrasher rebuked Gallis for calling the behaviour of legislators pushing through with rapid foreclosures as disgraceful.

But Gillis refused to back track. Gillis, aged 47, has been struggling to be current with his housing payments when his business declined during the recession. He has been battling foreclosure for the last four years.

He alleged that the papers submitted by the bank were forged and added that there was nothing in the new law being proposed to address the comprehensive charges about fraud in foreclosure processing. Gillis said, “You have an obligation to represent the people and not the banks”.

Recently activists numbering hundreds converged on Tallahassee to protest against wrong foreclosure activities of banks. Some of them were dealing with dubious documentation and others were part of rights groups representing homeowner; these have popped up during the past couple of years keeping pace with the spiking of foreclosure rates in Florida– the highest in the country.

Most of the law makers however were concentrating on the time taken by a foreclosure case to run its course; it is 676 days in Florida as compared with the national figure of 318 days.

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The realtor of Prudential America Sam Wagmeister made a study of those people who bought homes in the period between 2004 and 2008. The purpose of the study was to find out who were still living in the same house. And how many of these homes have been foreclosed upon.

The study is not very scientific as the one done by Sales Traq. The selection of communities has been very random, so are ZIP codes. According to the study most homes had been made since1994. These had common features like tile roofs and stucco exteriors.

The homes’ values have now slipped to 50 % of their original values.  It may take five years at least for the home values to go up. Wagmeister said, “The assumption that I have is that, eventually, these homeowners will choose to stop supporting the super banks by making payments on homes that they will probably never realize equity in, and either short-sell the properties or suffer the long-term consequences of foreclosure.”

That means more foreclosures are on the way. Everyone wants to know the answer to this question. Jacksonville based company, Lender Processing Services have come up with the report that 16 % per cent of homeowners in Las Vegas are saddled with mortgage that are delinquent by 30 days.

The situation is indeed very confusing. Many people are lagging behind on home payments. It could be 10% 17% or 27%, and many of them are heading to foreclosure. The situation is bad in regions like Nevada, California, and Arizona.

In Nevada there is a new law that may slow down the foreclosure process. But ultimately it will not stop them. An average of 4,000 notices has been sent in September. Default filings had dropped to 771 last month.

Tim Kelly Kiernan, Re/Max Extreme, said, “Some Realtors feel the world is coming to an end because the foreclosure process will take forever, while others feel it’s just a speed bump and things will be fine in a month or so. I met with my Bank of America contacts and they say it’s also just a speed bump. Who knows? Patience is a virtue, I guess.”

James Saccacio, CEO, RealtyTrac, said the law had indeed caused a drop of 75 % in default notices – the first step in the foreclosure process. In fact, defaults have dipped lowest since the real estate boom in 2006.

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In the last week, lenders from different courts all over of the nation, which are all overrun with foreclosure cases, gathered at a discussion session where they brought up matters of bank honesty and attorney civility in foreclosure issues. They also foresaw estimated a huge number of pending foreclosure cases in Florida. The officials at the meeting believed that there could be around 350,000 cases still to be heard.

Bankruptcy and Foreclosure, a View from the Bench is the forum which invited the judges and attorneys from Broward, Palm Beach and Miami-Dade counties to discuss matters pertaining to foreclosures. Both attorneys and judges got the chance to inform each other about foreclosure matters that were occurring outside the courthouse environment.

The attorneys asked a number of things to the judges, and even the judges also described the nature and behavior of property owners and lenders. In the question-answer session, some replies were met with uncomfortable silence from federa, judges when questions of non-judicial foreclosure cases and dubious mortgage documents holding fake signs arose.

The Circuit Judge of Miami-Dade, Ronald Dresnick, slashed out at the lenders and borrowers for such a slow pace in the foreclosure process, stating that this only making courthouse matters slow. Another foreclosure judge of Broward, Marina Gracia-Wood, said that nearly 7,000 pending foreclosure cases are waiting to be brought to court in her system.

Dresnick said, “The thing nobody gives a fig about is moving these cases. Defendants don’t want the cases moved and I’m scratching my head about why the plaintiffs don’t want to move the cases. It’s pathetic”. He is referring to all the pending foreclosure cases that have been brought to court in the state of Florida.

Former Chief Judge of Broward, Victor Tobin,  controlled a panel which dealt with the state of the foreclosure cases in different courts. However, in May, he submitted his resignation to the bench and joined the Law Offices of Marshall C. Watson. “My job is to oversee the operation as best I can. That was my job in the courthouse also,” he said.

There was only another judge from Palm Beach County who joined the forum for the discussion; his name was Robert Carney. In the forum, this senior judge described how the spike in the foreclosure cases (which came to a head in the courthouses between the years of 2009 and 2010). Foreclosures really slowed down during the end of 2010 due to fraudulent foreclosure cases and the robo-signing scandal.

Gracia-Wood mentioned that 250 cases are handled on a regular basis in her court. She also commented about the sincere way attorneys handled court cases nowadays. She said, “If you’re not happy about the court’s ruling, instead of rolling your eyes or murmuring under your breath, show me why I should rule in your favor. I’m trying to do the best I can.”

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The Supreme Court of Massachusetts has ruled that those who have lost their houses to foreclosure can question the seizure of the property in a housing court. The housing advocates are cheering this decision as a major victory. The ruling on 4th August was unanimous.

The case related to one K.C. Bailey, a resident of Mattapan who had lost his house to the lender through foreclosure in 2007. In 2009, sixty five year old Bailey contested his imminent eviction during a proceeding in the housing court, charging that the foreclosure process was defective and flawed.

Bailey said that he had come to know of the foreclosure only after getting the eviction notice tagged to a fence encircling his colonial type house comprising of three bedrooms. He has been living here with his family from 1979. He is a Vietnam War veteran. He declined to exit because he had not been served with proper sale notice and was still occupying the premises.

The foreclosing bank was Bank of New York. It argued that housing court lacked the authority to think about allowing challenge to any foreclosure that had run its course with the nod from the judge. Bailey appealed. This led to the Supreme Judicial Court to take up the case. It has now been returned to the housing court.

The cheering housing advocates say that now the lenders will be forced to prove that they own legally the property they are foreclosing on; prior to this they would not be able to evict occupants. This will make them agree to negotiations with the troubled houses owners trying to save the roof above their heads.

The officials of Bank of New York Mellon said they had not completed review of the decision; they reiterated as being mere trustees in these matter they had “very limited ministerial role” to play.

Massachusetts a non-judicial state. It is not necessary for the lender to pass the procedure through the courts. Thus it is only at the time of eviction that the borrower will get the first chance to contest the repossession. The ruling will also provide the tenants with a new tool in warding off eviction when their residence is foreclosed upon.

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Homeowners in Hawaii facing foreclosure would now be able to directly meet lenders as a result of wide revamping of the foreclosure laws of the state; the bill is nearing the stage of final approval.

The bill running into 102 pages will set in motion a process that will help modification of loans from next October. The owners who are also occupants would have the alternative to change the non-judicial status of the foreclosure to a court monitored one. The step has been shaped on a similar framework that has been used in Nevada – one of the worst foreclosure ridden states in the country.

Kealii Lopez of Department of Commerce and Consumer Affairs (director) said, “More people will be able to enter into loan modifications and will be allowed to stay in their homes”.

The bill includes clauses for protection of consumers. The target is to stop the servicing firms from forcing foreclosures without giving the borrowers a chance to contest it observed Senator Roz Baker, chairperson of the Commerce and Consumer Protection Committee.

The owners would be allowed to stay on in their houses and lenders will get paid following a successful resolving of the dispute. Baker (Democrat/Honokohau-Makena) said, “It gives them an opportunity for a face-to-face discussion on either modifying their loan or working out some other payment plan. Even if this process only helps a few hundred or a few thousand people, it’s worth it”.

In last year 12,425 estates in Hawaii were in foreclosure but till now the current year has seen a decline according to RealtyTrac. Hawaii ranked 16th in foreclosure numbers in the country.

Those opposing the bill said that the it would cause new purchasers of homes to pay bigger down payments and face stricter conditions for taking loans if the lenders have to wait for longer periods to recover the money they have advanced for house loans.

Gary Fujitani of Hawaii Bankers Association (executive director) said, “The intent is to help a few people, but unfortunately it’s going to be at the expense of future borrowers. It just adds unnecessary time for us to collect loans”. He also cautioned that those who were defaulting will find it difficult to become current once the foreclosure process starts.

But housing advocates are arguing that as per the bill the borrowers would first sit down with a counselor and without showing their income they would not be able to proceed with mediation talks.

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At one time, a condominium was a place a family could retreat to from their busy lives. A condominium was once a source of great joy and recreational opportunities that the whole family could benefit from. A condominium is a piece of real estate property that was bought for investment purposes and went by the wayside through a divorce settlement or failure to make mortgage payments on time. Foreclosed condominiums that are not in use can be found in most resort locations.

There are a great number of people involved with foreclosed condominiums. The condominium association is responsible for receiving the rental payments from the owner of the foreclosed condominium during the foreclosure process.  This is generally written into the by-laws of the association, when the property is first purchased.

Foreclosed condominiums typically occur when a mortgage lender has not received payment for the property in over 3 months. At that time, a foreclosure action is initiated and the owner is notified. This action may occur for many reasons and may not be the fault of the owner. There are many reasons why a homeowner is unable to make a payment, such as illness.

Mortgage companies prefer to seize condominium mortgages if they can because they can sell it at auctions quickly. The reason behind why mortgage companies seize properties is because they can make a profit by selling the properties. Foreclosed condominiums generally increase in value over time. Banks tend to focus on that aspect when they decide to pursue foreclosure proceedings.

There may be attachments or liens placed against foreclosed condominiums that take the allure away from the sale of this residential real estate property. Since foreclosed condominiums are generally purchased for a substantial amount of money, mortgage lenders will take into account the number of liens or unmet financial commitments that have been secured with this piece of real estate to determine the purchase price for the foreclosed condominiums.

Along with each of the foreclosed condominiums that a bank might own, there may be several that are placed up for auction to the highest bidder. Potential buyers can review the unit in question only by being granted access to the property through the condominium association and the person who has been designated to receive rental payments during the foreclosure process. Bids are placed into sealed envelopes for the duration of the bidding process. The new owner will be formally notified through the condominium association if their bid won or not.

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Foreclosures respect nothing – they are now knocking on church doors. During the time of the housing boom the church authorities dreamt in a big way – dreams that are turning into nightmares of debt and foreclosures.

Recently a survey is being undertaken about churches and foreclosures. It is not clear as yet how many churches are at present on the brink of foreclosures. The records are scattered across the country. Completion of the foreclosure process sometimes runs into months and this leads to inaccuracies in the records of the company. The clergy of the financially stressed churches are reluctant to discuss their predicament. It is understandable they do not want the congregations to be alarmed. They are also apprehensive that any complaints against the banks might backfire.

Bishop Eugene Reeves (New Life Anointed Ministries International of Woolbridge) aptly said, “Right now, when you’re at the mercy of the lenders, you don’t want to look like you’re coming out against them.” This Pentecostal church close to Washington requires some millions in dollars to complete a project, estimated at $19 million. Last spring, work on it came to a halt when the lender refused to sanction any further loans to the church. Reeves bemoaned, “We now have children who don’t have classrooms to get into, adults who have to go to an overflow room. We have parking issues. We don’t have enough spaces for cars.”

Across America, congregations both large and modest are battling with debts. A company in Atlanta, Reliance Trust, is trustee for about 3/4th of the all the church bonds in the country. It has noticed “some increases in delinquencies” said Tony Greene its spokesperson. He declined to give further details.

Temple Beth Haverim located in Agoura Hills, California is one of its clients that has sought protection by filing Chapter 11 bankruptcy. In July 2008 the religious body owed its lender over $7 million. This was stated by Reliance in its court filings. The value of the property is less than what the synagogue owes to its lender.

Strongtower Financial said that 10% of its $119 million outstanding loans (arm of California Baptist Foundation) were running in default as on 31st March 2008. In its most recent data, Chet Reid, the president of Strongtower said that the specific details were private and could not be disclosed. However he disclosed that the company had to deal with only one foreclosure during the last decade – that was in 2006.

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Despite the various governmental and other measures foreclosures continue to surge in February 2009. It is a spike of 30% from what it was in the same month in 2008.

Lenders too have imposed moratoriums on foreclosures but this does not seem to have reduced the number of foreclosure postings. The number of borrowers facing foreclosure increased by 30% from the levels of the previous year according to RealtyTrac.

Across the country about 291,000 units received at least one notice related to the foreclosure process. It showed an increase of 6% from January this year. Foreclosures are highly concentrated in two states – Florida and California. It is also spreading to other states like Idaho, Illinois as well as Oregon as the economy of USA continues to slide. Rich Sharga of ReatlyTrac said, “It doesn’t bode well. At least for the foreseeable future, it’s going to continue to be pretty ugly.”

Foreclosures have spiked although mortgage giants like Fannie Mae and Freddie Mac as well as other jumbo banks like JPMorgan Chase, Morgan Stanley, Citigroup and also Bank of America have temporarily halted foreclosure proceedings. They did so ahead of President Obama’s release of ambitious plans to tackle the foreclosure crisis that was launched recently. In New York and Florida the temporary hold on foreclosures have been lifted and this has caused numbers to rise sharply. Other states like Michigan are enacting legislation to allow for borrowers facing foreclosure to enjoy a grace period of 90 days to get their finances stabilized.

While foreclosures march on, the banks have stopped including their repossessed properties in sales list for the time being. RealtyTrac noted that there were about 700,000 bank-repossessed units across the country resulting in a “shadow inventory.” This could cause the housing crisis to drag on for more time than anticipated. Rick Sharga commented, “It’s going to take us longer than you might anticipate to burn through he inventory of distressed properties.”

The results show up the challenges that Obama and his economic advisors are facing. The Obama plan is targeting help to 9 million homeowners. It is hoped that they will continue to stay in their homes after refinancing or modifying their loans.

But the foreclosure contagion is spreading. About 12% of those with mortgages in America counting to 5.4 million are at least a month behind in their mortgage payments as per the findings of Mortgage Bankers Association.

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This is a good question. The answer is YES, but you are advised against doing so on both ethical and legal grounds.

Foreclosure Laws are different from state to state in the US; each state has different laws regarding how mortgage lenders can conduct a foreclosure process and how they retrieve their money. There are two methods of foreclosure process – judicial and non-judicial procedures. In the first case, it takes a lot of time to complete a foreclosure-it has to go through a whole legal process at a court of law before it is sold. Filing a lawsuit against a homeowner who has defaulted, issuing a legal notice of Lispendens ( a matter pending in a Court), conducting a trial in order to prove a homeowner has defaulted, getting a court order enabling you to dispose of a property and finally selling the property to the highest bidder all are parts of the lengthy foreclosure process. At times, it can take more than a year to finalize the foreclosure and sell of the house.

In a non-judicial foreclosure process, the foreclosure period is relatively less. By a clause in the home loan mortgage deed, the lender can hasten the “Trustee Sale” of public auction to the highest bidder or take re-possession of the property. At best, this can take only a maximum of 4 to 5 months. (Refer ForeclosureListings.com).

In both these cases, it is mandatory for the mortgage lender to send a notice of default  to the home owner. From the moment the notice is served, the foreclosure of the property is deemed to have commenced. So, the only differences between the period of finalization and the public auction are how they governed. There is never any denial when a house is being put through the foreclosure process.

That being said, the right of ownership lies with the home owner until the property is sold at a public auction. A homeowner also has the right to occupy their house for a reasonable period because it is humane to give them this privilege. However, renting out a foreclosed home is an entirely different matter.

Even though a house can still be lived in while it is going though foreclosure, it still must be forfeited by the homeowner once it is sold. Any home owner entering into a rental agreement while a home is going through foreclosure faces two types of violations – ethical and legal. Although there is no law or ethical code that regulates the moral character of a landlord, it is still not right to hide the fact that a house is going through foreclosure from tenants. The tenants will have to face eviction by the mortgage lenders after foreclosure and the attendant ordeals. The moral duty of telling his or her tenants is left to the landlord’s conscience.

However, a malicious landlord who does these things will face punishment. Once the landlord knows that a default notice has already been filed, he will be committing fraud if he rents out the house while knowing his house is going through foreclosure.

However, one can always find calm in a financial tornado. If your house is in a state permitting only judicial foreclosure and you reasonably expect the final eviction of the tenant, it will not materialize at least for a year from now and you will be allowed to rent out your home to tenants, surely placing every detail about the prospect of foreclosure to the tenants before leasing any part of it. There is also a significant amount of risk in renting out rooms on the parts of both the tenants and the homeowner.

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