DOUBLE STANDARD on Defaults

So in Chapter 11 for the big boys they address reality and treat the value of the property the way it is. But in individual little guy petitions for relief in bankruptcy court, they stick you with the entire amount of the Note even if the security is only worth 20% of the “principal.” And it’s not like the bank comes out any better. They still only get the value of the property. The ONLY thing accomplished by treating the property AS IF it were worth the amount of the principal due on the note is that the homeowner gets to be evicted.

Editor’s Comment: REALITY is not just a concept. Property values went artificially high and finally went into a correction period that is still not over. So the owners of the multibillion dollar residential Stuyvesant Town decided to drop off the keys and walk away. They bought the place for $5.4 billion, didn’t use their own money, and then decided that the place was only worth $2 billion now and would never recover because the price they paid was based upon artificially high appraisals. Sound familiar?
So the banks and investors (mostly the investors) take the hit for the loss and the intermediaries walk away with all the money they made while they owned the deal.
  1. NOTE: THERE IS NOT ONE WORD ABOUT THE MORALITY OF LIVING UP TO THEIR OBLIGATIONS ON $5 BILLION IN PRINCIPAL LEFT ON THE NOTE THAT FUNDED THE PURCHASE OF THIS RESIDENTIAL PIECE OF PROPERTY.
  2. BUT IF A LITTLE GUY DOES IT WITH HIS OWN HOUSE, THEN EVERYONE IS CHATTERING ABOUT MORAL RESPONSIBILITY. WHICH IS IT?
  3. THE “PERSONAL RESPONSIBILITY” CROWD SEEMS TO HAVE NO PROBLEM WITH THE STUYVESANT DEAL SO WE CAN ASSUME THEY HAVE NO PROBLEM WITH YOU TURNING IN THE KEYS AND WALKING ON YOUR INDIVIDUAL HOME. IT’S CALLED STRICTLY BUSINESS, RIGHT?
And while I am on the subject of double standards, the one in bankruptcy court is simply stunning. Any fool knows that if you lend someone $100 and you get a bicycle as security, then you have security up to the value of the bicycle. So if the bike is worth $50, you have $50 worth of security and the other $50 is obviously secured by nothing. Chapter 11 proceedings for the big boys recognize this when they do “lien stripping.”
If property is worth only $1 million and the mortgage note is for $5 million, the creditor’s claim is stripped into two parts — the secured part ($1 million) and the unsecured part ($4 million). The same holds true if you are a land speculator by profession and you have multiple houses. But if you are average Joe or Josephine you can’t strip the lien. Why? Because congress said so, that’s why.Speculators and big boys get the treats.
So in Chapter 11 for the big boys they address reality and treat the value of the property the way it is. But in individual little guy petitions for relief in bankruptcy court, they stick you with the entire amount of the Note even if the security is only worth 20% of the “principal.” And it’s not like the bank comes out any better. They still only get the value of the property. The ONLY thing accomplished by treating the property AS IF it were worth the amount of the principal due on the note is that the homeowner gets to be evicted.
Of course that IS the point. They want the homeowner out. They want the loan in default. Because the defaulted loan is worth far more in insurance dollars than it is in fair market value on sale. And the bonus is they get the house too even though they didn’t put up a nickle for the loan.
January 26, 2010

Wide Fallout in Failed Deal for Stuyvesant Town

In the beginning, investors and lenders could not get enough of the record-breaking $5.4 billion deal to buy the largest apartment complexes in Manhattan: Stuyvesant Town and Peter Cooper Village.

Now, three years later, they cannot get away from it fast enough.

The partnership that bought the 80-acre property on the East River announced on Monday that it was turning the keys over to its lenders after it defaulted on its loans and the value of the property fell below $2 billion.

Yet in walking away, the partners, Tishman Speyer Properties and BlackRock Realty, have left tenants in limbo and other investors with far bigger losses.

Many of the other companies, banks, countries and pension funds — including the government of Singapore, the Church of England, the Manhattan real estate concern SL Green, and Fortress Investment Groups — that invested billions of dollars in the 2006 deal stand to lose their entire stake.

“At the time, it looked like a sound investment,” said Clark McKinley, a spokesman for Calpers, the giant California public employees’ pension fund, which bought a $500 million stake in the property. “When the market tanked, we got caught.”

Calpers, he added, has written off its investment. So has Calsters, a California pension fund that invested $100 million, as has a Florida pension fund that put $250 million into the deal.

Even though nearly all of the attention and blame surrounding the default has been directed toward Tishman Speyer, it will lose only its original investment of $112 million. (BlackRock will also lose $112 million.)

Any collateral damage to Tishman Speyer, which manages a $33.5 billion portfolio of 72 million square feet of property in the United States, Europe, Asia and Latin America, was expected to be minimal; real estate experts said that Tishman’s reputation might suffer, but that the firm would still be able to put together deals and raise capital.

“This is a big black eye for them,” said John McIlwain, a senior fellow for housing at the Urban Land Institute. “But it’s not the end of Tishman. They own a lot of property. It’s a dent, but not the end.”

For decades, Stuyvesant Town and Peter Cooper Village were an oasis for middle-class New Yorkers; they were built in the 1940s by Metropolitan Life, which received tax breaks and other incentives in exchange for keeping rents low, initially for the World War II veterans who were the first tenants.

With rents and condominium prices skyrocketing in 2006, MetLife put developments on the auction block. A partnership formed by Tishman Speyer and BlackRock paid $5.4 billion. The acquisition cost was actually $6.3 billion, because the partnership had to raise $900 million for reserve funds to cover interest payments, apartment renovations and capital improvements.

The rental income did not cover the monthly debt service. But the two partners were betting that they could turn a healthy profit over time as they replaced rent-regulated residents with tenants willing to pay higher market-rate rents. But their plan fell apart when they could not convert enough apartments to the higher rents as quickly as they had planned. And in the past two years, average rents in New York have fallen sharply, along with property values.

Last year, analysts predicted that Tishman Speyer and BlackRock would default. That prediction intensified when New York State’s highest court ruled in the fall that the partnership had improperly deregulated and raised the rents on 4,400 apartments. The partners were forced to roll back rents and they have been in negotiations on rebates owed to tenants. (The eventual owners, not Tishman Speyer and BlackRock, are expected to inherit liability for the $215 million in rent rebates.)

On Jan. 8, the owners defaulted on $4.4 billion in loans ($3 billion in senior mortgages and $1.4 billion in secondary loans). They had also raised $1.9 billion in equity. The problem was that the latest appraisal put the value of the complexes at about $1.9 billion.

“It’s the poster child for the entire housing bubble,” said Daniel Alpert, managing partner of Westwood Capital. “There’ll be some other spectacular blowups, but this will be at the top of the pecking order.”

Mr. McIlwain said it may take a decade or more for the prices to reach the levels they did in 2006.

“You’re talking about a prime deal at the top of the market when money was fast and free,” he said. “You’re not going to see money that is fast and free until bankers’ memories fade, which typically takes 10 years.”

In the meantime, real estate analysts said the collapse of the Stuyvesant Town deal would send ripples throughout the real estate investment community.

“The fact that they have given the keys back is going to have a chilling effect,” said Keven Lindemann, director of real estate for the research firm SNL Financial, which covers publicly traded real estate. “This was such an enormous transaction that it looks like most, if not all, of the equity is going to be wiped out.”

The Government of Singapore Investment Corporation, which made a $575 million secondary loan, and invested as much as $200 million in equity, stands to lose all of that.

CWCapital, the company that is negotiating with Tishman Speyer and BlackRock on behalf of the mortgage holders, declined to comment. With Tishman Speyer stepping down as manager of the 11,227 apartments, CWCapital has talked to both the LeFrak Organization, which owns and manages thousands of apartments in Queens and elsewhere, and Rose Associates, the Manhattan company that had managed the two complexes before Tishman Speyer took over.

This month, several of the secondary lenders sent letters to Tishman Speyer and BlackRock threatening foreclosure because of the default. The partners tried unsuccessfully to craft a new deal that would have involved them putting up “several hundred million dollars,” in return for restructuring the loans, according to one real estate executive briefed on the negotiations.

The secondary lenders, he said, had “overplayed their hand” in the hope that they would get back some of their investment. Instead of being forced into bankruptcy, Tishman Speyer and BlackRock will walk away sometime after a new manager is in place.

Fannie Mae and Freddie Mac may be in the best position of anyone involved in the deal’s financing. They acquired over $2 billion in securities backed, in part, by the $3 billion Stuyvesant Town mortgages. Fannie and Freddi Mac have to be paid before any other debtholders, but they are not parties to the negotiations over the property.

They may well become an integral part of the solution. In a report issued Monday, Deutsche Bank suggested that CWCapital’s most likely action will be to wipe out the existing mortgage and attempt to sell the complexes. “Given the size of the properties and an asking price likely to be well in excess of $1 billion, a sale may necessitate Fannie Mae and Freddie Mac providing financing to a potential buyer,” the report said.

11 Responses

  1. Here’s another “double standard” on DEFAULTs (of a different kind):

    A) In a judicial foreclosure, borrower has DEFAULT entered against him/her by clerk of court – almost impossible to have reversed by an uninterested judge.

    B) In a judicial foreclosure counterclaim, borrower has default entered against pretender lender – almost always reversed by a deeply concerned judge for “excusable neglect” in failure to timely respond.

  2. KyleNYC,

    Scan it in and upload it to Facebook or your blog or something then give us a link. If you don’t have a blog, start one at Word Press or Blogger, even if it’s solely for the purpose of uploading your letter.

  3. I just got my modification letter today. How can I post it up here for public “inspection?”

  4. Geithner lied to the investigation panel today: as he claimed he was reinforcing the value of a dollar for the people by saving AIG. His predecessor also lied when he said one minute he wasn’t involved in the AIG issue, then he said he knew about it & knew it would cause higher than 10% and even 25% unemployment
    yet never told anyone? There’s no proof of his knowing
    AIG subsector closing would hurt the people/economy unless he also knew how the scam had been made.
    So heres a sophomoric lesson for you Timmy Geithner
    … when a dollar no longer buys what it did yesterday, then the value of a dollar changed … period. That’s what present-worth-of-a-dollar means, idiot! Giving
    100-cents on a dollar from our tax base (or created out of air, either way) to AIG & banks has NOT reinforced our Americans’ coffers, savings, worth of stocks 401K retirements.. they are depleted despite your giving them our $100s of Billions. AIG/banks are flush, w/o damage to their credit and coffers, and now we are made to be unable to ‘qualify?’ with same banks to borrow our own money due to their negative reporting on our credit reports. Doesn’t Timmysee the obvious lack of jobs due to their own admitted lack of quality control & oversight? They all need to be replaced with intelligent, honest persons who can speak in straight language so the common man understands & trusts.
    If they can’t speak from the heart & not from nervous backstepping with financial or politico-speak, give the job to someone who will. I give Obama this chance tonight to “get it” and show the USA people he does have a set & will not cow-tow to empty statements of CYA from Geithner et al. AIG could fail, the American people cannot. We had no or few banks in 1776 and started a new country, and we were open in recording transfer & debts … now it seems we’ve been usurped by financial swindlers who keep lying when we all feel (know) our hard work and savings & small business were NOT #1 with those people’s intentions to protect us … if it were then they would gladly borrow at 1-2% at most to any & all borrowers with good business plans & get in the game of assisting US economic recovery by forgiving faulty title first mortgages for proven hardships & reinforce in-kind our equity & credit lines rather than continue to damage them while still profitting from US Gov’t financial/insurance backing on defaults: cheap, easy to do, prudent to American need.
    Banks need us, our money that is, and we don’t need them as they build huge offices & automate & hide behind MERS yet don’t reach out with $millions to feed hungry America or help Haiti. The truth IS self-effacing, and needs no explanation or defense once exposed.

  5. Hi,

    To: Neil, Brad and all livinglies fans

    I’m helping my nephew with his foreclosure lawsuit and I would greatly appreciate all your insightful knowledge.

    Foreclosure lawsuit is being handled by our lawyer, but my nephew did not pay the property tax.

    The year 2008 tax was paid by the servicer so I assumed they would pay the 2009 property tax, but received a letter
    from the Town’s Borough for the notice of Tax Lien Sale for Delinquent 2009 Taxes.

    After reading about what happens if you don’t pay property tax, and ways you can make money in investing in tax certificates, I was wondering WHAT IF I INVEST IN BIDDING FOR TAX CERTIFICATE FOR HIS PROPERTY AND MY NEPHEW DOESN’T PAY TAX FOR 2 YEARS AND LET IT GO DELINQUENT SO THAT i CAN TAKEOVER THE PROPERTY LEGALLY.

    Since BANK, LENDER, SERVICERS, JUDGES………are all
    corrupted, I really don’t see the point of playing fair or ethical.

    What can you suggest?

    Thank you all for supporting HOMEOWNERS!!!!!!

    lucy

  6. Class action certified (pick a pay loans – Lymburner v. U.S. Financial Funds, Inc., Case No. C-08-00325):

    CLASS ACTION CERTIFIED IN ADJUSTABLE RATE MORTGAGE CASE

    January 26, 2010

    The United States District Court for the Northern District of California just certified a nationwide class of individuals who obtained option ARM loans from U.S. Financial Funding. With an option ARM loan the customer picks what payment he will make among a menu of payment options. In most circumstances, the customer picks the minimum payment. Any interest due which the minimum payment does not cover gets tacked on to the principal.

    The rest of the story is here: X_http://cfslbulletin.com/2010/01/26/class-action-certified-in-adjustable-rate-mortgage-case/

    Dan Edstrom
    dmedstrom@hotmail.com

  7. From Foreclosure Hamlet (foreclosurehamletDOTorg):

    “URGENT S.O.S.! ANGELA NOLAN on your documents? Investigation Underway! Scan & email ForeclosureHamletATgmail.com Help save your home!”

    Also, Miss L at Foreclosure Hamlet is working on a searchable database of the signers of the fraudulent assignments and other documents. You can add to it at the Foreclosure Hamlet site (I believe you have to sign up–not a big deal, though) or you can email the info to me at the following address and I’ll forward it to her:

    mreggs@eggistense.com

    If you choose to email the info, please put it in the following format and complete as much as you can:

    “Signer:

    Document:

    Employer (of signatory):

    Job Title (of signatory):

    Date Notarized:

    Plantiff:

    Plantiff’s Law Firm:

    Witness 1:

    Witness 2:

    Notary:

    State Where Signed:

    County Where Signed: “

  8. […] This post was mentioned on Twitter by Mary Sanders, Shu Lee and Vince Galbraith, Foreclosure Fraud. Foreclosure Fraud said: DOUBLE STANDARD on Defaults « Livinglies’s | Foreclosure Fraud |http://bit.ly/9mv0Kw […]

  9. GEE WHY IS IT THAT INVESTMENT FIRMS DECIDED TO USE THE PENSION FUNDS OF PUBLIC EMPLOYEES FROM THE 2 STATES WITH THE HIGHEST ECONOMY IN THE COUNTRY? I BET JUDGES WON’T BE TAKING THOSE HITS THOUGH

  10. Two points. First, isn’t Stuyvesant Town a commercial enterprise and holding in title; it’s unverified yet to me.
    Second, I may have found a means of proving whether mortgage loan defaults & sell-offs have already been paid of & if Gov’t-funds were used regardless of MERS’ shell-game .. at least on FHA/HUD loans. FHA does enforce detailed timeframes of exchanges for all their approved lenders, and has rules that prohibit servicers
    or mortagees or agents from doing any loan mod work unless FHA-approved per The Secretary. Thus, QWR Qualified Written Requests should also demand the
    several other items yet unlisted (as far as I’ve seen).
    The appraiser must keep his notes & files for 5-yrs: request them all legibly copied, including engagement letter and correspondence to/from lender(s) & FHA authorization for approved status to do FHA, the dates & confirmation of their State approved courses to so qualify, and also the cancelled check front/back which was used to pay the appraiser from your loan(s) since it is all part of your file & the table-closing can’t occur until a viable (or at least useul, to them) report is made.
    Also ask for any underwriting notes, reviews and all the sales (vacant land + improved) & dated photos (to prove date of inspection/date of valuation) for USPAP violations audit. A request can also be made to HUD for all associated documents to verify authorized and approved authority from HUD for the servicer/agents & subcontractors (who scan documents for servicers) to prove any HUD violations and incorporate into your HUD complaint stating how you are being denied and not processed for loan modifications when the QWR shows 90-day exchanges weren’t reported to HUD and
    possibly that there is a conflict of interest between the
    lender (who likely chose, hired, paid the appraiser with your loan proceeds!) and ask in the QWR if there are other HUD/FHA approved appraisers located more proximate to your property while a more distant and preferred (by the lender et al, thus also ask how often the appraiser is used & of his specific appraisal reports in your area for the recent 1-3 yrs!) since an appraiser in business more locally would better be a truer reflection & done due diligence in market values in his own community. For 5+yrs I had Mpls MN, Texas
    and CA firms demanding appraisal values or they wouldn’t pay, so I’d refuse service & file small claims to make them pay under threat of a mechanics lien on the property settlement, and the unscrupulous garage
    brokers as I call them simply were selling paper #’s w/o interest in keeping their document files since they were neither licensed nor regulated and then closed.
    So, the appraiser is a key player between lender and broker, whose files are available for your perview QWR
    and there are USPAP competency as well as due diligence factors which come into play limiting what kind of activities the appraiser can & cannot do … material breach can be something as simple as not using sales which were more proximate & thus more reflective of local values of property more like yours. Ask yourself, did the sales look similar? Were they very
    far apart and of extreme size variance to your property
    thus receiving many (net and gross) item adjustments on the market sales grid on the URAR appraisal? Did the appraiser have the correct legal description? Did the appraiser simply gleem MLS on-line photos for use in the report, thus proving the appraiser did not physically inspect that or other comparable sales which is a USPAP violation. Things like this give the property owner grounds to file complaint with their State Dept of Regulation & Licensing, the legal board which oversees violations & can sanction or refuse or remove licensure: this is not an easy play for any of these fast-profit appraisers who were claiming to do, and thus profitting from, appraise 3-4 properties/day, as it is physically impossible to do & thus the gleeming
    with copy:paste technology of internet MLS listing/sale
    and that is appraiser fraud. A great lesson to learn from the Stuyvesant Town and 12-2009 Alaska scam which caught brokers/appraisers/bankers for 14+yr sentencing totals is that their records can be gathered
    and they can be used to prove our cases against them.
    No, it’s not immoral. It’s the job they were paid to do…
    so, in fighting back, we must take offense to their acts
    as collusion in the course of brokering, valung, lending
    and then lying in wait s their self-created value & back alley selling w/o public recordings & legal fees paid
    undermine our economic resources & family homes.
    Neil is exactly right. Principal restructure, foregiveness of 1st mortgages empirically found to be in violation is the best option. Quieting invalid title in shoddy deals which have since been multipley paid off by HUD insurance & loan modifying ‘servicers’ not applying the Gov’t-backed-funding programs to readily & quickly help hardship applicants reported to HUD & SEC thru a FOIA Freedom of Information collection of their MERS
    hidings, will all serve to restore damaged homeowner
    equity & credit availability … almost immediately, since negative credit reporting woudl cease & money would be actually able to be lent since most Americans now have had their credit damaged while banks have not had their’s downgraded by us taxpayers who bailed them out … and their damaging our credit is to me the real Double Jeapardy attack against the trust of USA’s citizens. Once MERS is disbanded like Ma Bell was,
    then immediate coffer funds will return to our local courthouses in the form of fees as proper legal open records laws are enforced and courthouses continue the work they’ve done for 200+years, recording deeds.

  11. WHO SAID LIFE WAS FAIR?
    BUT DONT FORGET DAVID BEAT GOLIATH.

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