Turning the Corner on the Housing Market?

JPMorgan Chase & Co. and Wells Fargo & Co. reported double-digit quarterly earnings this past Friday which has some experts declaring that we are finally seeing a turnaround in the housing market according to a recent article in the Los Angeles Times.  JPMorgan Chase and Wells Fargo are the two largest home lenders in the United States.  The “big jump in profits” as reported in the Los Angeles Times was due largely to a surge in both banks’ mortgages businesses.

The increase in mortgage business is due largely to interest rates dropping to historic lows.   Low interest rates are helping with new purchases, but are mostly driving people to refinance their existing properties.  The article pointed out that refinancing existing mortgages is not as helpful to the housing market as new purchases, but the numbers are “eye-catching” none the less.

By The Numbers 
These “eye-catching” numbers are quite remarkable.  JPMorgan and Wells Fargo control nearly half of the nation’s mortgage volume so their numbers are a wide reflection on the housing market.  Between July and September of 2011, Wells Fargo issued $89 billion in mortgages.  During that same period in 2012, Wells Fargo issued $139 billion in mortgages.  JPMorgan went from issuing $37 billion last year to $47 billion this year during that same July through September time period.  Wells Fargo also reported that mortgage business revenue increased to $2.8 billion in the third quarter as compared to last year’s third quarter earnings of $1.8 billion.  JPMorgan’s mortgage business increased from $1.4 billion a year ago to $2.4 billion in the third quarter of 2012.

Both banks beat any expectations or projections from Wall Street on their third quarter profits with JPMorgan posting a $5.7 billion profit and Wells Fargo posting a $3.94 billion profit.

Now that is a lot of numbers to process, but a key number to remember that is driving those numbers is 3.4%; the rate on a 30 year fixed loan.  It was 4.1% in 2011 and over 6% in 2008.  The takeaway from all those statistics is that the two banks who came out of the housing market as the two strongest banks in the country are finally reporting big positive housing numbers.  The refinancing aspect of the statistics puts a little damper on the celebration, but as mentioned earlier, the numbers are still impressive.

Foreclosures and other Rain Clouds
Despite these positive numbers, top executives from both banks acknowledge there is still room for improvement.  Both banks expect to deal with foreclosures and the high costs associated with default related situations for years to come.  Both banks continue to set aside large sums of money strictly earmarked for loan defaults and litigation expenses related to defaults.   Wells Fargo is also facing accusations that it defrauded the Federal Housing Administration out of “hundreds of millions of dollars by wrongly certifying that loans were good enough to be insured by the FHA” reports the article.  JPMorgan also faces legal issues regarding mortgage bonds sold by Bear Stearns, the bank purchased by JPMorgan.   Despite lingering legal issues with both banks, the positive numbers was the big headline.

The Larger Impact   
The article points out that economists predict that “any lift” in the housing market sends positive ripples throughout the economy as a whole.  Home sales are on the rise as are the prices.  Consumer spending increases as people have extra cash on hand due to refinancing at lower rates.  Consumer and builder confidence increases and pulls the rest of the economy with them.

See Our Related Blog Posts:
The Tax Man is Circling the Block
Hardest Hit Program Keeps a Bad Day from Getting Worse

What is Title Insurance?

Closings costs can sometimes make or break a real estate transaction.  Both parties have agreed to a sales price, but then the closing statement is sent to everyone and all of the sudden a conflict arises.  The seller is not walking away with as much money as he or she thought she would.  The buyer is now over budget.  The buyer starts going over the closing statement and sees the bill for Title Insurance.  “I have insurance on the home and I even have additional insurance for my mortgage, so what is title insurance?” an individual might ask.  The short answer is that it is one of the most important items on the closing statement.   A buyer needs title insurance whether he is buying through a regular process, short sale or foreclosure.
Many real estate buyers do not understand completely what title insurance is and why it is important.

What is Title Insurance and What does it do?

Title insurance protects buyers from issues that might arise with a piece of property having clear title.  Clear title means that the seller owns the property and no other parties have a valid legal claim of ownership.  This might seem like a simple concept.  The seller has the deed and holds himself out to the public as the owner of the property.  He lives there and has lived there for many years.  No problem right?  Well, maybe.  What if there is an easement across the property?  What if the seller actually owns the property as a partner with another person?  These types of restrictions are found in a title search.  Without the title search and title insurance, a buyer might find himself owning a piece of property that he has only limited access to or that is subject to restrictions on how he uses it.

Title insurance provides assurance that the title company that performed the search and issued the policy will stand behind you if an issue arises with the title.  The title company will provide monetary relief for the policy holder as well as legal defenses if needed.

The short answer; title insurance assures the buyer that they are buying what they think they are buying.

What does a Title Insurance Policy Cover?

A title insurance policy will typically cover title issues such as:
-      Third party interests in the property
-      Third party rights such as leases or options that affect the title
-      Forgery related to the deed or associated documents
-      Errors or omissions in the deed
-      Errors in the examination of records
-      Recorded liens
-      Easements on the land
-      Recorded rights that encumber your usage
There are additional items that are covered depending on the homeowner’s policy.  There are also certain items not covered by a title insurance policy so it is important to review the policy and its guidelines with your closing attorney.

What does a Title Insurance Policy Cost?
Title Insurance is a one-time premium paid at closing.  There are no renewal premiums to pay.  The policy is usually handled by the closing attorney or lender.  The costs vary depending on the local customs and fees of the particular area where you are purchasing property.  It is important to review the policy and its costs with your closing attorney or real estate agent prior to closing.

Title Insurance takes up one line on a closing statement, but it can have a huge impact if a title issue arises.  Our Oak Park real estate attorneys strive to ensure that our clients understand every aspect of the real estate transaction to avoid any mistakes or confusion.  Policies differ in coverage and cost so it is important to discuss your particular policy with your closing attorney.  Title Insurance might not be a catchy topic, but you cannot do without it.

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Hardest Hit Program Keeps a Bad Day from Getting Worse
The Anatomy of a Foreclosure

Illinois Now Leading the Way in Foreclosure Rate

The numbers are in.  Illinois had the highest foreclosure rate in the U.S. last month as reported in a recent article in Businessweek.  RealtyTrac Inc., a California based company that tracks data on foreclosure numbers across the U.S. reported that 17,781 properties in Illinois received a “filing of default, auction or repossession in August.”  This number is “up 42 percent from a year earlier and the eighth straight monthly increase on an annual basis” according to RealtyTrac Inc.

How Does Illinois Compare to Other States and Their Foreclosure Rates?

The U.S. national average rate of foreclosure filings per household was one in every 681 households.  The rate in Illinois was one in every 298.  Other states report that foreclosure filings are decreasing with only a 1% increase in filings in August from the previous month.  Now contrast that with Illinois which saw foreclosure filings climb 29% over the previous month.  Foreclosure filings will most likely increase “each month in 2012 and break the record set in October 2009 as lenders release a backlog or repossessed properties” explains the article.  Buyers understand that since the market has not improved, many lenders are holding off on releasing properties until prices start to rise.  The lenders and sellers do not want to sell at the bottom and buyers do not want to buy if the market is still on the way down.  So the situation is not going to improve until the lenders release the foreclosures and buyers start purchasing homes to flush the distressed properties through the system.  Add to that the fact that property values in the Chicago area have declined every month on a year-over-year basis since May 2007.

Illinois is a judicial foreclosure state meaning the courts must oversee the process and ultimately decide the outcome of the foreclosure proceedings.  The national average length of time it takes a bank to complete the foreclosure process is 378 days.  The Illinois average time is 647 days.  This lag in process time continues to compound the recovery problem.    

Why are Foreclosure Filings Increasing in Illinois?   

The lag in process time and reluctance of lenders to release properties may not directly increase the number of filings, but those factors drag out the process and give the impression that there is not an end in sight to the foreclosure crisis in Illinois.  Another huge factor leading to the increase in filings is the increase in job losses over the last couple of months.  The unemployment rate rose to 8.9% in July from 8.7% in June.   The Businessweek article sites the work of Bob Tomarelli, a U.S. economist at IHS Global Insight Inc., an economic forecasting firm.  Tomarelli attributes the increase in unemployment rate to the “shrinking manufacturing base and public-sector job losses.”  The combination of buyer uncertainty over the declining values and an increase in unemployment rate means the market will continue to decline and thus lead to more foreclosure filings. 

Another factor the article points to is the fact that Illinois real estate does not attract the numbers and types of investors that states like Florida or Arizona attract.  Investors looking for second homes or retirement properties are not likely to purchase a foreclosure in Illinois.  However, certain investment groups do see the value in purchasing properties in Illinois to renovate and rent to long term tenants.  This might be a bit of a silver lining to this bad news. 

Opportunities Amidst Foreclosures

Waypoint Real Estate Group, LLC is a real estate investment group that is “bullish” on the Illinois real estate market.  Waypoint and similar companies see the value in buying homes that have lost 50% or more of their value, renovating them, and then leasing them out to long term tenants.  Many of the very people filing for foreclosure end up needing a place to live so the rental market these companies hope will strengthen.            

Our attorneys are skilled in not only foreclosure defense, but real estate law as well.  If you are a homeowner facing possible foreclosure, then we can discuss your options to either contest foreclosure or make it through the process as painless as possible.  Our experience will come in handy to individuals needing advice on how to handle a myriad of questions surrounding every real estate transaction. 

See Our Related Blog Posts:   

Hardest Hit Program Keeps a Bad Day from Getting Worse

Short Sale Popularity Continues to Rise

Bank of America Pays for Short Sales

If you have a mortgage that is owned and serviced by Bank of America, there is a new program where this bank is now paying up to $30,000 in relocation assistance for homeowners who are looking to short sale their homes. This program also includes non-owner occupied properties.

A short sale is where you get approval from your bank to sell your home for less than what you owe on the mortgage while at the same time being forgiven for any deficiency between the sale price and the amount you owe. It has been a very successful and popular solution with homeowners who are seeking to get out of underwater homes and want to do so without a foreclosure on their credit record.

How To Qualify for Relocation Assistance

To qualify for the relocation assistance payments, the seller his or her short sale attorney and/or realtor must work proactively with the bank to obtain a pre-approved sales price prior to submitting a purchase offer to the bank.

This is why it is so important to work with an experienced real estate attorney to make sure you qualify under this and other programs that are currently active to assist homeowners in closing on a short sale. There is also a federal tax break program set to expire on December 31, 2012 that a homeowner should be aware of when moving forward on a short sale. See a full report here: “Time is Running Out on Short Sale Tax Break”.

Timing of the Short Sale

A short sale must be initiated by the end of this year and close by September 26, 2013 to be eligible for payment under the bank of America initiative.  Qualifying short sales already approved but not closed yet may also be eligible for the relocation assistance.

The amount of assistance that you may be entitled to under the new program will be determined on a case by case basis using a calculation that includes the value of the home, amount owed on it as well as other considerations of your particular circumstances.

The Anatomy of a Foreclosure

“So I fall behind on my mortgage payments, the lender says to pay up, I am unable or otherwise unwilling to pay up, the lender takes my home, sells it and kicks me to the curb, right?” asks Fred the delinquent owner.

The concepts outlined in Fred’s statement are somewhat correct, but there are procedures put in place to protect home owners from overzealous lenders along with certain rights implemented to ensure that the process is a just process.  Our foreclosure attorneys will walk you through the different aspects of the foreclosure process in discussing your particular case, but here we will help give you a little information so when you speak with one of our attorneys, you better understand the terminology and the overall process.

Most Used Mortgage/Foreclosure Terms

“Liens, lis pendens, lien theory, security, note?  I thought I just had a house payment?”

There are several legal terms that specifically outline how a house loan in Illinois is constructed.  For starters, Illinois is a “lien theory” state.  The Mortgage is the document that states that the property acts as Security for the loan; hence the lien theory meaning the homeowner holds onto to the title to the property subject to the lien placed by the lender.   The Note actually sets forth the terms of the loan, but the mortgage is what is filed to prove the debt exists.  Lis pendens is a term that you hopefully do not encounter.  It is the recorded document giving public notice that the property is the subject of a foreclosure process.  Deed In lieu of Foreclosure or a Deed in Lieu is pretty self explanatory.  The borrower essentially hands the property back to the lender instead of going through the full foreclosure process.  The catch to a Deed in Lieu is that the property must be equal to or greater than the amount owed on the property by the borrower.  If there is a deficiency, a deed in lieu may not be an option.  A Deficiency Judgment is also something to look out for.  If the public sale of a foreclosed property amounts to less than what the homeowner owes, then the homeowner is still responsible for the remaining debt.

Another important term to note is the Right of Redemption or Right of Reinstatement.  This right gives the homeowner the ability to reclaim foreclosed property by paying all of the unpaid payments along with any costs associated.  This is an important right that our attorneys can best explain and we will most likely tackle this in a future blog, but that is the general concept.    

These terms will help you understand the process outlined below.           

How Does a Foreclosure Work?    

For starters, a lender cannot just take your property in Illinois.  Since Illinois is a judicial foreclosure state, the lender must take the matter up in Circuit Court where the court must issue the final foreclosure judgment.   Your note and mortgage will outline what constitutes grounds for foreclosure, but oftentimes the foreclosure process begins after 3 missed payments.  Once the complaint is filed, you have 90 days from the date you receive notice of the foreclosure to exercise your right of reinstatement.   Once in court, if you lose then you receive the judgment of foreclosure and so the property is no longer yours.  At this point, your right of redemption period begins.  

However, you may contest the foreclosure based on a variety of grounds or may be granted additional time to contest the foreclosure based on judicial discretion.   Before the lender can conduct the foreclosure sale of your property, it must publish notice of the sale in a local newspaper at least 3 weeks in a row.  The lender must also determine if you have not already done so whether or not you qualify for a loan modification under the Home Affordable Modification Program.   At this point, unless additional time was granted for any of the reasons above, almost one year has elapsed.  If you have lost your case, then the lender will conduct the sale after proper notice and the court will confirm the sale.  You will be removed from your home if you have not already left.   If you are curious about the specific timeline for these events, please see one of our previous blog posts.

Do not get to this point.  Our attorneys will explain your rights and the steps to take at each phase of the foreclosure process to ensure that you are not unjustly or illegally foreclosed on and kicked out.  You may think that you have no options left, but we may be able to find a better way out for you.

See Our Related Blog Posts:

Foreclosure, Short Sales, & New Federal Guidelines
Hardest Hit Program Keeps a Bad Day from Getting Worse

The Tax Man is Circling the Block

A recent article in the Chicago Tribune highlights what could be damaging news for many homeowners who are currently underwater on their home. A viable option to escape this predicament for someone owing more than their home is worth is the short sale. Although working with an attorney to short sell your home affects your credit, it is much better than the foreclosure alternative.

In 2007, Congress enacted the Mortgage Forgiveness Debt Relief Act that gives homeowners who short sell their homes a tax break. However, the act is set to expire December 31, 2012 so the gist of the bad news for these homeowners considering a short sale; Be careful, the tax man cometh.

The term “short sale” conjures up different feelings amongst different people. Many real estate professionals have never even heard of a “short sale” while others speak “short sale” as a second language. If you are not familiar with a short sale, here is a quick overview. Let’s say you finance the purchase of a home for $300,000. As a result of the real estate bust, your home is now worth $175,000, but you still owe $300,000. You sell your home through the short sale process for $175,000 and the bank forgives the deficiency. For now, that forgiven debt is not taxed. There is obviously much more to the short sale process that our Oak Park real estate attorneys can explain, but the general idea is to allow homeowners to get out from underwater on their homes and help them get back on their feet.

Mortgage Forgiveness Debt Relief Act of 2007 and How it Helps
Debt that is forgiven through the short sale process must be reported as income to the Internal Revenue Service. If your debt is forgiven due to a drop in your home’s value or a decline in your financial situation, the Act exempts taxes due on forgiven debt up to $2 million. The Act originally was set to expire in 2012, but was extended because the housing market was still in “free fall” at that time.

The measure is important because the intent behind it was to help homeowners get back on their feet. If you short sell your home and are forgiven tens of thousands of dollars in debt, but are then hit with a tax bill for several thousand dollars, then you are not much better off than before. In some cases, the forgiven debt or “shadow income” would actually push an individual into a higher tax bracket and thus compound the problem to an even greater extent.

Act Now!
A bipartisan group of lawmakers continues to push to extend this provision, but feel that a vote is “unlikely” until after the November election. Representative Jim McDermott, D-Wash went as far as saying that “The expiration of that provision is a hidden time bomb.”

Real estate professionals across the country report signs of improvement in the housing market, and they fear that failing to extend these cuts could damage the recovery. With the elections in November, there is a small window between the election and December 31st to try and extend this provision so there is no guarantee it will get extended in time to save the tax cut.

With this in mind, it is important for homeowners who are considering short selling their home to speak with foreclosure or short sale attorney who can explain the process as well as the ramifications of the sale. There are both legal and financial ramifications that must be explained and assessed by a professional. It is important to address your situation with your home sooner rather than later because later may be too late.    

Hardest Hit Program Keeps a Bad Day from Getting Worse

Different people will argue different points regarding the improvement or lack thereof with the economy.  But many homeowners and renters continue to struggle with the combination of a monthly mortgage or rent and either no job or a job that pays less than what they are qualified for.  Many of these “underemployed” or unemployed individuals just need temporary assistance so they can stave off foreclosure and the foreclosure lawyers here are working with a program that can provide the much needed assistance.   This program, The Illinois Hardest Hit program utilizes federal funds to help support people who need assistance with their monthly mortgage payments due to “unemployment or underemployment.”   The assistance comes through the program bringing the loan and all the past payments and penalties current and by paying monthly mortgage payments for up to 18 months or $20,000.  

A recent article in The State Journal-Register describes the program and gives a few of the guidelines that must be met for someone to utilize the program.  The Hardest Hit program is “a component of the Illinois Foreclosure Prevention Network administered through the Illinois Housing Development Authority.”  Different not-for-profit organizations partner with the Illinois Housing Development Authority to work with this new program and administer aid to the qualified applicants.  The need is apparent as Illinois currently sits at number 8 among states in the number of foreclosures.  Our Oak Park and River Forest foreclosure lawyers know all too well this statistic as they work with clients every day who are either facing foreclosure or are on the verge of it.

A few of the requirements for the Hardest Hit Program include:

-       Property must be a primary and only residence located in Illinois
-       Household must have a documented income reduction of at least 20% due to unemployment  or underemployment through no fault of their own
-       Arrearage caps of $20,000-25,000 depending on the county
-       Principal loan balance of mortgage cannot exceed $500,000
-       Household liquid assets cannot exceed $10,000 or $12,500 depending on the county
-       The current servicer of the mortgage must agree to accept payments from IHDA on the borrowers behalf
-       Borrowers must  not have been convicted of a mortgage related felony in the past 10 years

Additional requirements and details are found at www.illinoishardesthit.org.

The requirements explain a great deal about who the program is designed to help and who it is not designed to help.  It is not for people who are looking to get out of investment properties.  It is strictly for those people who through no fault of their own are in difficult financial situation.  

Our foreclosure lawyers work with these types of people each day who are not in a difficult situation due to greedy real estate deals or large spending sprees, but because the job market has not recovered and the mortgage must be paid or they are on the streets with their families.
This program is more than an ATM for needy homeowners.  It provides a support system that provides counseling and step by step updates to ensure the homeowners have the best chance for success.  This program works to keep families in their homes and have the best chance to stay there while they get back on their feet and move forward with their family.

See Our Related Blog Posts:

How Long Will Your Foreclosure Take?
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