Assessing the Risks of a New Foreclosure Crisis

The foreclosure crisis that began in 2007 has now been over for a number of years, yet we have continued to discuss commentators’ concerns that the foreclosure crisis might not, in fact, be over entirely. Many homeowners in the Chicago area remain at risk of losing their homes due to their inability to make monthly mortgage payments on time, and many of those homeowners are dealing with complicated home loans that contain confusing terms. According to a recent article in Forbes Magazine, we may be at risk of another foreclosure crisis. Are the underlying reasons the same this time around? What can we do to prevent another consumer crisis?

Recalling the Reasons for the Housing Bubble Burst in 2007

As the Forbes article explains, most of us directly connect the foreclosure crisis that began about 10 years ago to the housing bubble burst and the subsequent “Great Recession.” What caused the foreclosure crisis the bursting of the housing bubble? In short, “for years beforehand, lenders had been giving out riskier and riskier mortgages, including waiving or lowering down payment requirements.” In addition, subprime mortgage resulted in numerous homeowners finding themselves underwater, or owing more money on their mortgages than their houses were actually worth on the market, meaning that even if they were to sell their properties, they would owe more money to the bank than they could afford.

Are we looking at similar conditions now, in 2017? The article suggests that “low- or no-down-payment mortgages may be making a comeback.” In other words, more homeowners that cannot actually afford to make monthly mortgage payments may be getting home loans that they could be at risk of defaulting on months or years down the road. Indeed, “several banks are now offering various zero-down mortgage programs or down payment assistance to higher-risk borrowers.” But the problem is not exactly the same as it was in the early 2000s. In large part, adjustable-rate mortgages have been linked to the first foreclosure crisis. Now, a different kind of loan may be responsible for consumer difficulties.

Down Payments Taxed as Income

One of the types of down payment assistance that is gaining popularity is a type of home loan that involves the bank providing for a 3% down payment and, in some cases, closing costs. While this deal might sound good to struggling families who want to buy a house, this kind of down payment assistance has hidden costs that many borrowers might not fully grasp. Specifically, “the down payment and closing costs can be taxed as income by the IRS.” What does this mean for the average low-income or moderate-income borrower?

If a 3% down payment and up to $3,500 are taxed as income, that could mean homebuyers could end up in a higher tax bracket, owing significant taxes as a result of making the decision to buy a home. For example, imagine that a borrower wants to buy a $200,000 home. A 3% down payment would total $6,000, and add the $3,500 closing costs to that amount for a total of $9,500. Now, the borrower would be taxed on that amount, adding thousands of dollars in the total tax owed for the year. For many low-income and moderate-income borrowers, this kind of tax bill could be debilitating, adding to additional debt issues.

Contact a Foreclosure Defense Lawyer in Oak Park

Do you have questions about current mortgage offers and foreclosure risks? An Oak Park foreclosure defense attorney can assist you. Contact the Emerson Law Firm for more information.

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Could Illinois Benefit from Fast-Track Foreclosure Laws?

Did Banks Undermine Federal Foreclosure Assistance?

Could Illinois Benefit from Fast-Track Foreclosure Laws?

Despite the fact that the foreclosure crisis is largely over, many homes remain in foreclosure in the Chicago area, and many families are still at risk of losing their homes due to the inability to make monthly mortgage payments. An article in Chicago Now indicates that Chicago foreclosures have reached a record low—including homes that are newly entering foreclosure as well as those that are part of the shadow inventory. However, the total number of homes in the Chicago area at some stage of the foreclosure process was already higher than in many other major urban areas.

While foreclosure numbers appear to be declining, is it time for Illinois to consider foreclosure fast-tracking laws? According to a recent article in DSNews.com, a fast-track foreclosure law could be a “much-needed remedy” for Chicago and for Illinois more generally.

What are Fast-Track Foreclosure Laws?

Currently, according to the article, only two states have what are known as fast-track foreclosure laws: Ohio and Maryland. However, a handful of additional states, including Illinois, are considering implementing similar laws to speed up the foreclosure process. So, what are fast-track foreclosure laws? In short, they are designed to speed up the foreclosure process and to prevent a growing number of homes from making up a shadow inventory. Yet fast-track laws can vary from state to state.

In Ohio, for instance, the fast-track foreclosure law “authorizes an expedited foreclosure action against vacant and abandoned single-family residential properties, allows the bank or servicer to enter and secure such properties, and criminalizes the damaging or diminishing of property in any way by a homeowner from the time they are notified of an impending foreclosure action.” In addition, the Ohio law prevents an owner from reacquiring a mortgage for a vacant or abandoned residential property once the property has been sold.

While the Ohio law has specific elements that would not need to be adopted by every state implementing fast-track laws, it sets similar goals to other states (even if those states do not yet have fast-track laws in place) to prevent the foreclosure process from lingering, sometimes for years, and leading to blighted neighborhoods and decreasing home values. With fast-track laws, the goal is for homes that enter the foreclosure process to become occupied against as quickly as possible, and for those homes to be maintained—such that they can be readily sold—during the foreclosure process.

Will Illinois Adopt a Fast-Track Foreclosure Law?

According to some commentators, Illinois is close to having a fast-track foreclosure law of its own. Not only could such a law help to keep home values up, but it could also improve the mental health of those affected by foreclosure. Whether your home has entered the foreclosure process or you are living in a community that has been saliently impacted by foreclosures (and now, vacant homes), the National Institutes of Health notes that “foreclosures adversely affect health and mental health on both the individual and community levels.”

If you have questions about foreclosure laws in Illinois, or if you need help avoiding foreclosure, an experienced Oak Park foreclosure defense lawyer can assist you. Contact the Emerson Law Firm to learn more about how we can help.

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Did Banks Undermine Federal Foreclosure Assistance?

Foreclosure, Reverse Mortgages, and Chicago Seniors

Did Banks Undermine Federal Foreclosure Assistance?

Could federal foreclosure assistance programs have helped more consumers in Illinois and throughout the country if banks had been more organized? According to a recent study conducted by researchers at the Stanford Graduate School of Business, the Home Affordable Modification Program (HAMP) did prevent many homeowners from losing their homes to foreclosure, but it could have been significantly more effective if banks had made internal changes that would have allowed them to better serve struggling consumers.

What does this study teach us about foreclosure prevention and the role banks play in this process?

HAMP Did a Lot of Good, But it Could Have Helped More Homeowners

The first thing to know about the study is that HAMP, the federal foreclosure assistance program launched by then-President Barack Obama in 2009, did have a significant impact on struggling homeowners who were at risk of foreclosure. As the study explains, HAMP “aimed to help families keep their homes by offering incentives to banks and loan-serving companies that modified mortgages of troubled borrowers.” In many ways, it did work—to an extent. According to Amit Seru, one of the co-authors of the study, HAMP resulted in “1 million additional permanent loan modifications and prevented about 600,000 foreclosures that otherwise would have occurred.”

At the same time, HAMP could have done even more. To better understand what the limitations were, it is important to understand precisely how HAMP did help some homeowners. As the authors of the study explain, the federal foreclosure assistance program gave “modest financial incentives” to banks and mortgage services if they were willing to provide loan modification for homeowners at risk of foreclosure. For each modified home loan, through HAMP the federal government gave banks and mortgage servicers $1,000. In addition, if those homeowners remained current on their loans for the following three years, the banks or mortgage servicers would receive an additional annual payment of $1,000.

HAMP aimed to help millions of consumers avoid foreclosure. If banks had been willing to deal with organizational issues, the study estimates that HAMP could have helped 70% more homeowners who were facing foreclosure.

Banks and Servicers Lacked the Organizational Capacity to Renegotiate High Volumes of Mortgages

How did the banks fail so many struggling homeowners with regard to HAMP? In short, they “lacked the organizational capacity to renegotiate large numbers of loans and opted not to make internal changes that would have enabled them to take advantage of the program.” To put that another way, banks and mortgage-servicing companies could have made changes so that they could help more struggling homeowners with modifications—perhaps as many as 70% more—yet the banks and mortgage-servicing companies did not make those changes.

The good news is that, for those homeowners who had their mortgages modified through HAMP and avoided foreclosure, many remain on track with mortgage payments.

For the millions of Americans who did not receive help through HAMP, the authors of the study suggest that, in the event of another foreclosure crisis, federal programs like HAMP could be developed in such a way that bank organizational issues are less likely to affect the program’s ultimate success. In other words, some of the blame is on the banks, but it is also possible that policymakers could have dealt with the pressing matter that “some banks just don’t have the organization design conducive for such activity” as renegotiating thousands of mortgages.

Contact an Oak Park Foreclosure Defense Lawyer

If you have questions about foreclosure and Oak Park real estate issues, a foreclosure defense attorney in Oak Park can speak with you today. Contact the Emerson Law Firm for more information.

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Foreclosure, Reverse Mortgages, and Chicago Seniors

Recent Case Addresses Illinois Single Filing Rule for Foreclosure

Foreclosure, Reverse Mortgages, and Chicago Seniors

Are elderly adults who still live at home in Oak Park and throughout Chicagoland at risk of foreclosure? According to a recent article in the Chicago Tribune, more and more seniors who have taken out reverse mortgages end up facing foreclosure. Reverse mortgages are designed to provide seniors with income from the equity in their homes so that they do not have to worry about having money to live on during retirement. However, reverse mortgages do not account for the taxes and insurance that remain due on the property, and this is why many older adults with reverse mortgages are now at risk of foreclosure.

To better understand this problem, it is important to learn more about reverse mortgages and how they work.

What is a Reverse Mortgage?

According to a fact sheet from the National Reverse Mortgage Lenders Association, a reverse mortgage is a loan that is available to homeowners who are at least 62 years old. The loan allows that older adult to convert some of the equity in his or her home (from years of making mortgage payments) into cash to use for daily living expenses. The idea is that reverse mortgages can help retirees to benefit from the equity in their homes when they need money to pay for daily needs or for costly medical bills. It is important to note that there is no limit as to how this money can be used—that is up to the individual with the reverse mortgage.

Why is it called a reverse mortgage? In short, mortgages involve a borrower making payments to the lender. In the case of a reverse mortgage, the lender makes payments from the equity to the borrower. The borrower can continue to receive payments from the equity in the home as long as she continues to live in the house, and she does not have to make monthly mortgage payments. However, for a reverse mortgage to work, the borrower does have to stay up-to-date on homeowners’ insurance, homeowners’ association (HOA) dues or fees, and property taxes.

The latter piece of information is where the problem arises for many seniors. In short, older adults who decide a reverse mortgage can help them with their bills end up discovering that they cannot afford the property taxes, the homeowners’ insurance, and when applicable the HOA fees.

Older Adults Face Foreclosure Due to Reverse Mortgage Costs

Reverse mortgages are complicated, and many elderly adults do not realize that they can face foreclosure if they do not meet the terms of the agreement. As the article in the Chicago Tribune clarifies, “an increasing number of seniors are facing foreclosure after taking out reverse mortgages, either because they feel behind on property charges or failed to meet other requirements of the complex mortgage loans.” When this happens, seniors are forced out of their homes, and many do not have another place to live.

The U.S. Department of Housing and Urban Development (HUD) insures most of America’s reverse mortgages. Currently, there are about 636,000 active reverse mortgages, according to HUD. How many of those mortgages could be at risk of foreclosure? In fall of 2016, HUD reported that almost 90,000 seniors with reverse mortgages “were at least 12 months behind in payment of taxes and insurance.” To put that figure in other terms, nearly 15% of reverse mortgage holders may be facing foreclosure.

Contact an Oak Park Foreclosure Defense Attorney

If you have questions or concerns about foreclosure and your mortgage, an experienced Oak Park foreclosure defense lawyer can assist with your case. Contact the Emerson Law Firm to learn more about your options.

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Recent Case Addresses Illinois Single Refiling Rule for Foreclosure

To Boost the Chicago Real Estate Market, Complete More Foreclosures

Recent Case Addresses Illinois Single Refiling Rule for Foreclosure

A recent case before the Appellate Court of Illinois clarified how the Illinois single refiling rule (735 ILCS 5/13-217) applies in certain foreclosure actions. In brief, the case of Wells Fargo Bank v. Norris involved a mortgagor who argued that the bank’s third attempt to file a foreclosure action was barred by the Illinois single refiling rule. The facts of the case are long and drawn-out, but we will give you a basic set of facts in order to understand the outcome of the case. In the meantime, it is important to begin by looking at the Illinois single refiling rule and how it functions with regard to foreclosures in the Chicago metropolitan area.

Illinois Single Refiling Rule: How Does it Affect Foreclosure Actions?

What is the Illinois single refiling rule, and how does it affect foreclosure actions? In basic terms, the Illinois single refiling rule exists to prevent a bank or mortgage company from dismissing a foreclosure action and later refilling multiple times. In the 2015 case United Central Bank v. KMWC 845, LLC, the Seventh Circuit Court of Appeals clarified that actions to enforce a mortgage default cannot be refiled more than one time.

That case also clarified that, when a refiling based on a promissory note is not allowed under the Illinois single refiling rule, the bank cannot refile an action based on the mortgage default. In other words, refiling a foreclosure action—based on the promissory note or the mortgage—can only happen once for each case. Now that you have a clearer sense of how the Illinois single refiling rule works, we can take a closer look at the recent case.

Appellate Court of Illinois Permits Third Filing in Recent Case

Under the Illinois single refiling rule, a third filing by a bank should be illegal, right? In the recent case, however, the Appellate Court of Illinois ruled that Wells Fargo’s third attempt to filing a foreclosure action was not barred by the Illinois single refiling rule. How did it come to this conclusion? To better understand, let’s examine the facts of the case.

As we mentioned, this case has a long history. However, we will summarize some of the key facts for you. In this case, the mortgagor (the defendant) had been married back in 2008. At that time, his then-wife signed a promissory note for a mortgage. The defendant did not sign that, but did sign a mortgage agreement. The couple went into default in 2008, and the bank, Wells Fargo, filed a foreclosure action. Shortly thereafter, Wells Fargo voluntarily dismissed the foreclosure action because it learned that the defendant and his wife had obtained a mortgage modification. The defendant and his wife allegedly defaulted on the mortgage modification, and Wells Fargo again filed a foreclosure action. However, the defendant disputed that he had ever agreed to a modification, and thus Wells Fargo again voluntarily dismissed the second foreclosure filing because it presumed the modification was unenforceable.

Now we get to the final foreclosure filing—the third foreclosure filing against the defendant. Wells Fargo filed this third action, but it was a filing for the original default from 2008. The defendant argued that the Illinois single refiling rule prohibited a third filing (or second refiling). The court, however, did not agree.

The court determined that the second foreclosure filing (connected to the mortgage modification default) was a new filing altogether—it was not a refiling of the first foreclosure action. As such, the third filing was in fact the first refiling (of the original foreclosure action for the 2008 default). As such, the court concluded that Wells Fargo was not in violation of the Illinois single refiling rule when it filed its third foreclosure action.

Consult an Oak Park Foreclosure Defense Lawyer

The Illinois single refiling rule can be confusing, and this recent case emphasizes how complicated the law can be. If you have questions, an Oak Park foreclosure defense attorney can help. Contact the Emerson Law Firm for more information.

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To Boost the Chicago Real Estate Market, Complete More Foreclosures

Homeownership Hurdles and Post-Foreclosure Stress Disorder

To Boost the Chicago Real Estate Market, Complete More Foreclosures

Why might it be a good thing for more foreclosures to be completed in Chicagoland? You might be asking yourself: Does this mean more people losing their homes to foreclosure? Generally speaking, the desire to speed up the foreclosure process on properties throughout the Chicago area does not come from a desire for new foreclosure processes to begin. Instead, it is usually a plea to complete the foreclosure process on homes that have long been empty and, as a result of their status as foreclosures, damaging the real estate market. According to a recent article in the Chicago Tribune, “real estate values in Chicago and many of its suburbs have not fully rebounded from the Great Recession of 2008,” especially when you look at Chicago’s statistics in relation to other urban areas.

What is the problem when it comes to Chicago’s real estate market? In short, there are still too many uncompleted foreclosures, and they are harming economic recovery.

Housing Market in Chicago Lagging Behind

As the article explains, a recent story in Crain’s Chicago Business reported that “home prices here over the past decade have lagged the national recovery by about 20%.” In practice, what that means is that Chicago has lost out on about $107 billion total, which “has huge ramifications for the area’s economy.” How is the rest of the economy in the Chicago area impacted by home sales that are, on average, lower than the national rate?

In short, when the real estate market is weak, it has long-term effects. For instance, if a homeowner knows that she cannot put a certain price tag on her house or condo if she plans to sell it, then she is likely to spend less money in general—not just when it comes to her home, but on consumer items, as well. In addition, statistics suggest that homeowner is also going to be “more resistant to paying higher taxes.” The fact that property tax referenda in Chicago have failed, according to the Chicago Tribune article, are indicative of this trend.

Foreclosures May be to Blame for Chicago’s Less-Than-Stellar Real Estate Market

What is leading to the weak Chicago real estate market? While there are no definitive studies that can point to a single factor, some commentators believe that the underlying problem is lingering foreclosures. As the article intimates, the city of Chicago has “yet to come to grips with the enormity of the damage caused by the tsunami of residential foreclosures here in the late 2000s.” Why are foreclosures to blame? The article compares Chicago’s statistics to those of other cities that are also behind the curve in terms of real estate market recovery. For instance, like Chicago, Miami, Tampa, Phoenix, and Las Vegas are also experiencing a relatively weak real estate market. What do all of these cities have in common? They were among the “hardest hit by foreclosures.”

It takes a long time for the foreclosure process to reach completion in Cook County. Although the total number of properties in various stages of foreclosure has declined dramatically since the late 2000s, many properties remain in the system.

Contact a Chicago Foreclosure Defense Lawyer

Do you have questions about avoiding foreclosure or dealing with a property that is already in foreclosure? An experienced foreclosure defense attorney in Oak Park can help you. Contact the Emerson Law Firm to learn more.

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Homeownership Hurdles and Post-Foreclosure Stress Disorder

Foreclosures Down Nationwide, But Not in Illinois