Saturday, January 26, 2013

Illinois Land Bank Aims to Revitalize Communities

We all drive by them—properties that have long stood empty with dark windows and deteriorating exteriors. Vacant and abandoned properties are often the result of foreclosure. For those living in areas where the sight of an empty house is more common, or those who have gone through foreclosure themselves, things may seem unlikely to improve. In Illinois, a state with one of the highest numbers of foreclosures in 2012, the recent establishment of a land bank in Cook County offers hope for these communities.

Vacant or abandoned properties are often the result of economic hardships, foreclosures and declining real estate markets which have characterized the past few years. The longer these devalued properties are on the market or remain tax liabilities, the more they adversely impact the neighborhoods around them. To battle this problem that has plagued states like Illinois, the Cook County Board unanimously voted the Land Bank Authority into existence. Its establishment came after over a year of behind-the-scenes work and support from real estate professionals, banks and municipal leaders. The Land Bank Authority aims to become an independent organization devoted to the revitalization of vacant properties, with the long-term impact of mitigating declining property values in Cook County.

Land Bank Authority Organization
According to an article from Progress Illinois, the Authority will obtain vacant or abandoned properties in order to redevelop them into tax-contributing entities to be purchased by new owners. It will consist of 13 appointed board members, each serving three-year terms.

At first, outside groups will fund land bank relief measures the form of grants. Using monies from these grants, the Authority will purchase and develop properties, starting with the communities that have been hit hardest. Over time, the organization strives for self-sufficiency, projecting an eventual annual budget of $5 to $10 million.

What the Land Bank Means for Cook County
The article emphasizes that Cook County has been especially burdened, with over 90,000 foreclosure filings in the past four years and a 3% rise coinciding with an overall national decline in foreclosures. Given the large geographical area under the land bank—the largest in the country—its establishment has the potential to make a positive impact on property values in the Cook County area, which in turn may benefit Illinois overall.

Cook County residents who are already facing foreclosure may wonder if the Land Bank Authority will be able to directly change their situation. As Dean Michael Pagano of the University of Illinois at Chicago College of Urban Planning notes in the article, the land bank “may not halt the foreclosures.” A person in foreclosure could still lose his or her property and would benefit from consulting a foreclosure defense attorney.

In most cases, the revenue a land bank receives through the processes of foreclosure or tax collection is used for further revitalization efforts in the immediate locale. This contrasts with the more common scenario, where the entity that acquires and flips the property profits privately, sometimes outside of the state or municipality. Pagano indicates that the Land Bank Authority may have the potential to “slow the decline of value” by showing the people of Cook County that something is being done to help make vacant properties productive again.

See Our Related Blog Posts:
Foreclosures in Illinois Near Top of Nation in 2012
More Funds Committed to Illinois Foreclosure Victims

Tuesday, January 22, 2013

Reestablish your Credit and a New Loan May be Possible Sooner than you Think

One of the many fears for homeowners facing foreclosure or having to short sell their home is the fear that they will not be able to qualify for a home loan for many years after either of those processes.  However, Lew Sichelman points out in an article on obtaining a mortgage after bankruptcy or foreclosure writing for the United Feature Syndicate that this might not always be the case.

Seven years is a time period that jumps out in many consumers’ minds.  Even if you have not dealt with foreclosure or bankruptcy, you heard at some point in your life that you have to wait 7 years before getting financing for a house purchase after bankruptcy or foreclosure.  The rules have changed and Sichelman points out that the new wait time may only be three years for some consumers and even less time for others depending on the situation.

Sichelman explains that you can qualify for a mortgage just 24 months after bankruptcy or foreclosure if you can show that your financial woes were due to “extenuating circumstances” that you had no control over.  As Matt Kovach, product development manager at Envoy Mortgage in Houston, points out these must be “life-changing events that made it impossible” to continue making your payments.  Job loss, serious illness and death qualify as “extenuating circumstances” but divorce, business failure or simply taking on too much debt do not qualify.

That is the first part of the test in obtaining new credit after the required waiting period.  You have to then re-establish a clean credit report to obtain new financing.  Part of this process is showing potential lenders that you learned from your mistakes or “life-changing event” and are now capable of making payments and handling the responsibilities associated with new debt.  Kovach says it quite accurately and succinctly, “Poor credit is not a good indication you’ve learned from your mistakes.”

You may think that the best thing to do is go to a strict cash only policy.  Although this might help you reign in spending, it does not help reestablish credit.  Some lenders might take into consideration cash payments such as rent, utility bills and cellphone payments in building a credit report, but it will be more difficult to qualify.

This blog is not meant to give you a green light to go ahead and declare bankruptcy or foreclosure in hopes of speeding up the process of eventually getting a new loan down the road.  These are major financial decisions that must be discussed with experienced bankruptcy or foreclosure attorneys in order to determine the best financial path for your specific situation.  If you cannot point to “extenuating circumstances” then you might be looking at a longer waiting period which might mean you need to reexamine your current situation to determine what to do.

Government backed loans such as VA and FHA loans typically have shorter waiting periods.  The VA’s rules do not address short sales so you could potentially short sell your home and obtain a VA backed loan practically right away.  However as pointed out earlier, you must re-establish favorable credit to qualify.

FHA loans require a three year waiting period for you if you went through a short sale, foreclosure or deed in lieu of foreclosure, but “extenuating circumstances” could help shorten the waiting period.

Various lenders and government backed loan issuers have more detailed guidelines on how to reestablish credit so you can shorten your waiting period.  It is important to keep this in mind and remember that you do not need to give up on the American Dream of owning your own home simply because you experienced a financial hardship that led to a derogatory mark on your credit history.

See Our Related Blog Posts:
What is a Deed in Lieu of Foreclosure?
Underwater Property Owners Step Away from the Cliff

Sunday, January 20, 2013

Huge Flaws in Independent Foreclosure Review Process?

Foreclosure defense attorneys are acutely aware of the myriad of problems with the way that many of the nation’s biggest lenders have handled foreclosures over the past decade.  All of that reached culmination in the housing crisis and subsequent “robo signing” scandal where many of those issues made national headlines.  Countless homeowners had their rights violated in one way or another as a result of the sloppy, confusing ,and downright fraudulent practices by some lenders.

In response to the disaster, an enormous “auditing” process was initiated known as the Independent Foreclosure Review.  It involved thousands of contractors combing through millions of pages of documents to get to the bottom of the many problems with the process--things like mixed up loan modifications, overcharges ,and paperwork errors.  However, according to a new story in the Huffington Post, that auditing process was doomed from the start.

Covering Up Foreclosure Mistakes
The story explains that those charged with spotting the errors were given only minimal training and confusing instructions.  Some of those workers even went so far as to say that they were told by one lender, Bank of America, to ignore some instances where there was obviously bank-caused mistakes. The article quotes one of the contract workers who shared information as saying: “We knew what we were looking at.  But we were told under threat of losing our jobs to not report what we saw."

A big concern was apparently the lack of uniformity and independence in the review.  The former chair of the Federal Deposit Insurance Corporation (FDIC) did not mince words when criticizing the auditing process.  She said, "It was doomed from the beginning.  It was designed to generate fees for consultants, not to help homeowners."

These serious problem with this auditing process is what led to its sudden halting last week.  Instead, a new $8.5 billion settlement was reached with ten large mortgage companies. Virtually all of the homeowners who received a foreclosure notice in the peak of the housing crisis--2009-2010--are expected to receive some compensation, though it may be only a small check in many cases.  In addition, some of the funds will be used to negotiate loan modifications to help keep families in their homes.

Help with Foreclosures
Sadly, these reports of cut corners and disregard for consumer rights is not exactly news to those of us who have worked on these legal issues for years.  It is yet another reminder of the need for all residents in Chicago, Oak Park, River Forest, and other nearby communities to seek out professional help when facing foreclosures.  These big lenders should not be able to get away with violating the law and stepping on the rights of homeowners.  You have options to fight back and defend yourself when facing foreclosure.  Please take a moment to contact our legal team today to see how we can help.

Thursday, January 17, 2013

Foreclosures in Illinois Near Top of Nation in 2012

Most of us probably made a few resolutions for the start of the new year.  Losing weight, learning to meditate, feeling less stressed, and enjoying the simple things in life are always some of the most popular goals around this time of year.  Hopefully you have not yet given up on those goals and, no matter what the bumps in the road, are still working through this first month of the year with a positive spirit.

Of course, things are always made more difficult if you have financial pressures and are in fear of losing a home.  Facing foreclosure obviously comes with significant stress, anxiety and worry.  It is hard to focus on the “simple things” when your mind is overloaded with fear over how you will be able to fight back against a bank’s effort to take your home.

If you live in Illinois you have a greater chance of dealing with this situation.  New data that was recently released suggests that Illinois is near the top of the list in the country for total foreclosures in the last year.

Much Room for Improvement
As reported in a Chicago Tribune article this week, while 2012 saw a slight decrease in foreclosures nationwide, the news was less rosy in Chicago, Oak Park, River Forest, and the rest of Illinois.   All told, 2012 saw a 3%decrease in foreclosure nationwide when compared to 2011.  But half the states, including ours, saw an uptick--  the uneven pace of the housing recovery is a reminder of the local factors that are heavily involved in balancing out the market.

Realty Trac--the company which publishes the data on this issue--noted that foreclosures in Illinois actually rose 33% in 2012 compared with 2011.  Specifically, Cook County saw 70,233 foreclosure filings last year.  Statewide the total number of homes  in foreclosure was at 135, 858. That is quite a bit of difference from the national trends, and a reminder that many local residents are still battling to protect their home. When the total foreclosure are measured against all homeowners in the state, about 2.58% are in foreclosure.  That is a sizeable percentage, placing Illinois fifth in the nation for the percentage of homeowners facing the prospect of losing their home.

One bit of good news is that the data found that the number of homeowners underwater declined in our state in the last year as compared to 2011.  Right now about 29.6 % of homes in the Chicago area are underwater.  Six months ago, in mid-June, that number was at 30.1%.  While not a huge jump, it is a sign that things may, slowly, be evening out.

Summarizing the situation, one Realty Trac professional explained, “We expect to seek continued increases in judicial foreclosure states near the beginning of the year as lenders finish catching up with the backlogs in those states, and another set of increases in some non-judicial states near the end of the year as lenders adjust to the new laws and process some deferred foreclosures in those states."

Friday, January 11, 2013

Lender Initiated Short Sales

Most if not all consumers have now heard the term “short sale.”  The term itself acts as a partial definition.  You are selling something for less than a predetermined amount.  Of course with real estate, you are selling a piece of property for less than you owe on it.

The typical process that distressed property owners, real estate professionals, real estate attorneys and lenders are familiar with involves the property owner taking steps to start the short sale process.  This property owner most likely will speak with a real estate agent, attorney or his lender first about possible options and the possibility of the short sale, but then choose to proceed on his own will.  The lender on the property oftentimes does not get involved until once the home is under contract when at that point it will have to determine whether or not to accept the price and work out a deal on the deficiency with the seller.  The seller, buyer and both parties’ real estate agents may have a general idea of an acceptable price based on recent sales, but no one really knows how the bank will handle the sale.  The price might seem reasonable, but the seller and lender may not be able to work out what to do with the deficiency on the loan.  The lender is always the wild card in a short sale that always has the ability to sweep in and kill the deal at the last minute.

Proactive mortgage servicers are now taking steps to simplify this unknown step in the short sale process.  Enter the Lender Initiated Short Sale.

Lenders are now approaching delinquent borrowers and presenting them with the short sale option.  Before going further, it is important to note that not every delinquent borrower is eligible for the benefits afforded by the short sale process, but many delinquent borrowers are eligible and do not know it.

Lenders will approach a qualified delinquent borrower about the short sale option and then help to connect them with a real estate agent capable of handling the process.  This is a great first step because the borrower and real estate agent are starting down the short sale path with a conditional blessing from the lender on the property.

Sales price is typically a place for a hang up in a short sale because the lender has to accept the price relative to the overall deficiency and current market conditions.  In a lender initiated short sale, the lender may leave the price up to the real estate agent.  The lender essentially hand picks a qualified agent and trusts the agent to come up with an accurate price.  The agent knows that the lender has its own valuation of the property and will generally accept an offer that is within 10% or so of that amount.

In some cases, the lender sets the price of the property and then instructs the borrower and the agent as to what to list the property for.  This situation is optimal for the buyer and the seller.  Instead of waiting months for the lender to approve a sales contract, the buyer and seller may have an answer within 24-48 hours.

This situation is a huge help for the markets.  Short sales continue to plague real estate markets and weigh prices down.  Part of the problem with short sales is the uncertainty associated with the possible time frame and the possibility that the bank may simply reject a contract.  This leads to more borrowers winding up in foreclosure when a short sale would have been much better for both the lender and the borrower.

It is important to note that a lender initiated short sale is not a guaranteed sale.  The borrower’s financial situation may change or the real estate market may experience a change that either increases or decreases the amount the lender is willing to accept.  One of the other land mines to look out for is the possibility of second mortgages or junior liens on the property that the primary lienholder does not realize about at the time of initiating the sale.  These may pop up in a title search and send the whole deal into a tailspin.

Despite the potential issues with this type of short sale, it is an important development.  Lenders continue to see the importance of getting bad loans off the books and helping borrowers to do so with minimal impact on their credit scores.  The real estate market and economy as a whole will continue to improve as fewer distressed properties remain on the books.

See Our Related Blog Posts:
What is a Deed In Lieu of Foreclosure?
Underwater Property Owners Step Away from the Cliff

Saturday, January 5, 2013

More Funds Committed to Illinois Foreclosure Victims

We previously discussed last year’s high-profile national foreclosure settlement with the nation’s largest lenders.  Stemming from wide-ranging illegal and deceptive practices over the years leading up to the housing crisis, the lenders agreed to provide a large sum of money to affected homeowners.  Much of those funds were doled out to individual states and used in various ways to provide relief.

Illinois already received a large chunk of money early last year as part of that settlement arranged by Illinois Attorney General Lisa Madigan.  However, now it looks like even more money is headed this way from the fund.  Shortly before Christmas the Attorney General announced that she secured even more money--about $70 million--to help distressed homeowners.  The money will be used on various relief services and counseling for communities hardest hit by foreclosures and vacant properties.

The Background
Attorney General Madigan’s office played a central role in the original lawsuit filed against the mortgage lenders which ended in February with a $25 billion settlement with the nation’s five largest banks--Bank of America, JPMorgan Chase, Wells Fargo, Citibank, and Ally (GMAC).  The main issue in the lawsuit was the use of “robo-signing” and other processes that violated rules and fairness standards for consumers.

In describing the latest increase in funds to the state as part of the settlement, the Attorney General noted that “This settlement sought to help struggling families to save their homes and rebuild communities devastated by the housing crisis.  This grant funding will do both — help more people stay in their homes and invest in renewing our neighborhoods.”  

Fighting Foreclosure in Oak Park
Our foreclosure defense lawyers know that all funds devoted to help in these ways is encouraging.  Though, while $70 million may seem like a large sum, it is a pittance to the resources at the disposal of the largest banks who often do anything in their power to maximize their bottom line, even if it violates the rights of homeowners.

At the end of the day, the only way for local families to ensure they are treated properly every step of the way by lenders to to have a legal advocate on their side fighting for their rights.  Our experienced team has helped countless families stay in their homes, beating back banks who did not follow the law in securing the mortgage and foreclosing on the home.  If you are facing foreclosure, we encourage you to reach out to our office and see how we can help.

Underwater Property Owners Step Away from the Cliff

Many Americans were chiefly concerned with the tax implications of the “fiscal cliff.”  Would my personal income taxes go up or down?  Another point of concern was what to do about entitlement programs.  What happens to my Medicare or Medicaid?

There was a little something called the Mortgage Debt Forgiveness Act that was set to expire at the end of 2012 absent any government action.  This little something is probably ignored or not even known about by many Americans, but those who know about it and whose financial livelihoods are directly affected by it know it all too well.  Thousands more who are underwater in their homes may not know about it yet, but will in the near future.

For the readers who did not read our previous blog post, the Mortgage Forgiveness Debt Relief Act exempts forgiven debt from being taxed.  If you short sell your home for $200,000 when you owed $300,000, that $100,000 is considered taxable income by the IRS.  It has a double whammy affect on distressed property owners who first of all must take a credit hit for the short sale and then later must pay taxes on an amount that they never really had in their pockets.  It takes a financially distressed person and hands them a life raft with a bank robber sitting in it.

The number of short sales continued to rise throughout 2012 and outnumbered foreclosures in some parts of the country.  Many individuals facing foreclosure took advantage of the provisions of the Mortgage Forgiveness Debt Relief Act and did a short sale.  That way they did not suffer as bad a hit to their credit and they were out from under the loan without additional taxes to pay.   Real estate agents and real estate attorneys who knew how short sales work urged clients and sellers to take advantage of the act before the end of 2012 because it was set to expire.  The term “bank initiated short sale” became a common term among real estate agents and clients.  Even lenders see the advantage to a short sale versus foreclosure.  This led to a flurry of short sales at the end of the year.  Some analysts point to this as another catalyst behind improving real estate numbers in certain parts of the country.

The last minute deal saved this act and in doing so aided many real estate related parties.  Property owners thinking about a short sale can continue on that path and not pay taxes on any forgiven debt.  This helps lenders as well because they continue to get bad loans off the books through short sales.  It is usually financially better for a lender to get rid of a property through the short sale process rather than go through what can sometimes be a lengthy foreclosure process at the end of which they still have to try and sell the property.  Had this provision expired, there was a good chance that many distressed homebuyers wanting to do a short sale would simply throw their hands up and say what is the point, we might as well wait for the bank to foreclose.  Now all of the sudden the banks would be right back where they were with lots of new foreclosure situations to deal with.

We are certainly not going to go into all of the details of the deal cut by congress to avert the “fiscal cliff”, but extending the provisions found in the Mortgage Forgiveness Debt Relief Act certainly help maintain a little stability in what some consider an improving real estate market.

See Our Related Blog Posts:
Bank of America Pays for Short Sales
Short Sale Snafus