Insurers Pay Pretender Lenders and Then Pursue Homeowner for the “Loss”

For further information please call 954-495-9867 or 520-405-1688

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see http://features.necir.org/pmi Insurers pay “losses” on mortgages and then pursue borrowers for recovery of payment

A big area of confusion in the foreclosure cases is the impact of insurance claims and payments with respect to insured mortgages and insured mortgage bonds. So let’s start with the fact that there are many types of insurance contracts that affect the balance to be proven in a foreclosure case. The simplest rule to follow which has been stated in a number of cases, is that if the party seeking foreclosure has already received payments ON THAT LOAN then the balance should be correspondingly reduced. But that reduction is between the pretender lender and the borrower. That doesn’t mean that whoever paid the money to the pretender lender can’t pursue the homeowner for the amount paid. But it does affect the foreclosure because the insurance or third party payment (FDIC loss sharing, for example or Fannie or Freddie buyout or guarantee) affects the claimed liability of the borrower.

If you ask the banks about these payments you get stonewalled. And depending upon the timing of the payment it might invalidate the claim of a default, a notice of default and notice of sale. It could also negate the right to foreclose — again depending upon the timing of the payment.

There have been only 2,000 cases in which the insurers have paid the pretender lender and then fled a lawsuit against the homeowner/borrower. They are claiming they paid for a loss incurred by the pretender lender and that the borrower was essentially unjustly enriched and also claiming subrogation (whatever rights the pretender lender had against the borrower goes to the party making the payment to the pretender lender). The problem here of course is that while only 2,000 cases have been field against borrowers by insurers, there are hundreds of thousands of payments received by the pretender lenders.

And the fact that the insurer paid does NOT mean (but will often be presumed anyway) that the loss was actually incurred by the pretender lender. It is one thing to mistakenly apply presumptions under the UCC in which the pretender lender gets to foreclose. It is quite another when the insurer is making a claim that it paid a loss on your mortgage. They must prove the loss. And that means they not only must prove that they paid the claim, but that the claim was real.

For that reason, I am suggesting to foreclosure defense lawyers that they include, in discovery, the insurers and other third parties who appear to have some connection to the subject loan. This might present an opportunity to determine whether any real loss was present and could open the door to argue the reality: that the foreclosing parties neither owned nor had any risk of loss on the subject loans and that they did not represent any owner or other party entitled to enforce.

The take away here is that in a huge number of cases there are or were third party payments that reduced the alleged loss of the creditor or alleged creditor AND depending upon when those payments were made if might have the effect of rendering a notice of default void or even a foreclosure judgment where the redemption rights of the homeowner were affected by an incorrect statement of the loss. In actions for deficiency, the insurers are essentially cherry picking cases in which they think the borrower can pay the alleged loss. It also might represent an overpayment. For example if the third party payment was on a GSE guaranteed loan, did the pretender lender submit claims for both the insurance payment AND the guarantee payment? Under the terms of the note, the borrower might well be entitled to disgorgement of the overpayment, especially if it totals more than the claimed balance due on the alleged loan.

Insurance on the mortgage bonds is the same but more complicated and harder to present in court. The mortgage bond derives its value from the loan. That is why it is called a derivative. In nearly all cases the payment received by the banks (supposedly on behalf of the investors) is received long before a default on any specific loans and there is NO SUBROGATION. The insurers cannot step into the shoes of the pretender lender under those contracts. The “loss” is a claimed reduction in value called a “credit event” that is declared by the Master Servicer in sole discretion. The payment might be all or less than all of the par value of the mortgage bond.

Whatever the amount, it reduces the alleged loss as between the homeowner and any party making a claim for foreclosure based upon an alleged loss incurred from their default. This is true because the balance due to the investors under the mortgage bond has been covered already by the “credit event” which includes many things other than default on any specific loans, so the payment might include a claimed loss from default on a specific group of loans and other factors. In any event, the investors’ books if they were available would show a lower balance due than what any servicer would show. And that would mean that the default notice might be incorrect especially in terms of the reinstatement amount in the paragraph 22 letter.

And because these insurance contracts provide for no subrogation (no claims can be brought by insurer against the homeowner) the reduction in the balance is a reduction of the balance due from the borrower; and THAT is because if the borrower paid the full amount due on the claims of the pretender lender there would be a windfall or “free ride” to the pretender lender (adding insult to injury).

Comments Welcome

Arizona Supreme Court Gets it Right on Deficiency

Two newly released Opinions have been posted to the Arizona Supreme Court Opinions webpage. Please click on the links below for access. Basically they say that the borrower and guarantor are entitled to credit for the actual fair market value — not the value of the bid or any other formula. This could change 1099 tax forms filed, as well as attempts at collecting improper amounts for deficiencies. But note that many states, including Arizona (last time I heard) say that if the action is nonjudicial, there is no claim for deficiency anyway. If that is true in your jurisdiction, then ANY attempt to collect the deficiency might be an FDCPA violation entitling you to monetary damages.

CV-14-0029-PR CSA 13-101 LOOP v. LOOP 101 LLC et al

http://www.azcourts.gov/Portals/0/OpinionFiles/Supreme/2014/CV-14-0029-PR.pdf

CV-14-0132-PR BIGGS/TOBIN et al v. HON. COOPER/BREWER/BETLACH

http://www.azcourts.gov/Portals/0/OpinionFiles/Supreme/2014/CV-14-0132-PR.pdf

About Those Attorney Fees Awards to Bank Attorneys: Double Dipping+?

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When I was litigating 24/7 I used to say that all the best ideas I ever had for the Courtroom came from my clients. I think the reason is fairly simple: they had to live with the result I didn’t. No matter how passionate I was about their cause, nobody cared more about their case than they did. And that’s a good thing because, as any lawyer who has represented himself knows, getting too close removes your objectivity and tactical advantages. You are more likely to think through the consequences of adopting one strategy over another if you have the longer view.

But sometimes you we miss the simple questions as we speed toward our desired victory. It’s when you lose that you start realizing some things that maybe you should have brought up before. One highly educated pro se litigant asked me a simple question relating to a current case and it stopped me dead in my tracks.

The litigant had brought all the usual claims for quiet title, lack of standing and fabricated documents and, as is the tendency still, especially in Arizona, judges tend not to believe that these claims and defense are anything more than a gimmick to defeat an otherwise valid debt. So the homeowner lost and is now on appeal. The homeowner also lost the eviction (FED) action and now that is up on appeal but not before they were actually evicted. There was an issue about supersedeas bond and the timing of when it could be posted.

Supersedeas bond is meant to provide some measure of protection to the the winning side in the event the appeal fails. So for example if the rental value fo the property is $1,000 per month, the court might estimate the length of the appeal and set supersedeas at the rental value so the other side wouldn’t be prejudiced by a frivolous or losing appeal. The banks have been using supersedeas as a weapon against homeowners knowing that they have limited resources and they have sought to raise the bar on supersedeas as high as it can go.

In their effort to increase the supersedeas bond and thus further demoralize the homeowner they have gone one step too far, I think. But I missed the point until the litigant himself asked me about it. His question was essentially this: “if the mortgage and note state that in the event it becomes necessary to sell the property to satisfy the borrower’s obligation, the proceeds shall be first applied to attorneys fees and costs of foreclosure. Why then does supersedeas include attorneys fees and costs (with some judges)?

His question got my brain moving. The property already has been sold, at least according to pretender lender bank doctrine, and the trustee deed has been issued. The bid is whatever is stated on the Trustee deed, and in some cases, the property is even sold a third party. So the if the bid was $100,000 and the fee award was $50,000, isn’t that already covered? Isn’t that attorney fee award improper as applied against the homeowner — especially in a non-deficiency state like Arizona? In most cases, the “lender” can’t pursue the homeowner for a deficiency judgment if they elect non-judicial procedure. Why are attorneys fees an exception to this rule?

The answer appears to be that attorneys fees and court costs are not an exception to the rule regarding the prohibition against the banks against pursuing a non-deficiency judgment, but hey are doing it anyway through these attorney fees awards. And then they are bootstrapping it into a demand for supersedeas bond that includes attorney fees and costs. This is improper.

In a declining market, such as we have, where the rental values are dubious at best and where the marketability of title and property is dead in the water, supersedeas should be nominal — a few hundred dollars. But lawyers are making the mistake of not raising this issue at the hearing on supersedeas and of course pro se litigants are making all kinds of mistakes because they didn’t go through 3 years of law school and decades worth of practice in the courtroom.

The moral of the story is that when opposing counsel comes in asking for a fee award against the homeowner, the homeowner or counsel should object based upon the the prohibition against pursuing deficiency judgments. That legal bill is for the bank to pay and not for the homeowner to pay. Even if the Judge were somehow inclined to enter an order setting the amount of fees, it would still be for the bank to pay and not the homeowner. And frankly even if it was the homeowner’s bill, the amount would ordinarily be covered by whatever the value is of the property, low though it might be.

So these awards are actually double dipping — because the investors are not getting complete reports. The award is first used against the homeowner illegally and then used against the investor pool so that the house goes to the servicing bank, which was the their goal all along. The reason these pretenders are fighting for homes that were not financed by these pretenders and where the obligation was never purchased by these non-lenders is that they know that the investors have abandoned the claim against the homeowners as hopeless and they are instead demanding that the investment bank pay them back 100 cents on the dollar because of the fraudulent sale of mortgage bonds.

The abandonment by the investors has caused a vacuum which has spawned “moral hazard” as they say on Wall Street and “theft” as they say on Main Street. People and entities who had nothing to do with the loan transaction and who might, in certain cases have served as conduits for a small part of the money that flowed from the borrower, have stepped in with immunity from any liability because the investors who have the claim don’t want any part of the claim.

Why? Because the amount the investors advanced was (a) far less than the amount that was loaned which was (b) far less than the value of the loan which was (c) depreciated further by the appraisal fraud at origination of the loan which was (d) even further depreciated by the fall in property values caused by millions of homes being dumped on the market. Add counterclaims by homeowners for predatory and deceptive lending and you have essentially a negative value for going after homeowners — unless of course you have nothing to lose because you invested nothing, like the pretender lenders.

And if anyone questions my assertion that investors have abandoned their rightful claims against homeowners, just ask them.

Citi to Try New Version of Cash for Keys

Editor’s Note: The decision about flight or fight is deeply personal and there is no right answer. The decision you make ought not be criticized by anyone. For those with the fight knocked out of them the prospect of taking on the giant banks in court is both daunting and dispiriting. So if that is where you are, and this Citi program comes your way, it might be acceptable to you. AT THE MOMENT, CITI IS SAYING YOU NEED TO BE 90 DAYS BEHIND IN YOUR PAYMENTS AND NOT HAVE A SECOND MORTGAGE. (A quick call to the holder of a second mortgage or the party claiming to be that holder could result in a double settlement since they are going to get wiped out anyway in a foreclosure. You can offer them pennies on the dollar or simply the chance to avoid litigation.)
Citi, faced with the prospects of increasing legal fees even if they were to “win” the foreclosure battle in court, along with the rising prospects of losing, is piloting a program where they will give you $1,000 and six months in your current residence — and then they take over your house by way of a deed in lieu of foreclosure, which you sign as part of a settlement. Make sure all terms of the settlement are actually in writing and signed by someone who is authorized to sign for Citi.
The deed is simply a grant of your ownership interest to Citi and frankly does little to “cure” the title defect caused by securitization. HOPEFULLY THAT WILL NEVER BE A PROBLEM TO YOU, EVEN THOUGH IT PROBABLY WILL BE CAUSE FOR LITIGATION OR OTHER CONFRONTATIONS BETWEEN PARTIES OTHER THAN YOU WHEN ALL OF THIS UNRAVELS.
The possibility remains that you will have deeded your house to Citi when in fact the mortgage loan was owed to another party or group (investors/creditors).
The possibility remains that you could still be pursued for the full amount of the loan by the REAL holder of the loan.
Yet in this topsy turvy world where up is down and left is right, the Citi program might just take you out of the madness and give you the new start. They apparently intend to offer to waive any claim they have for deficiency which in states where deficiency judgments are allowed at least gives you the arguable point that you gave the house to some party with “apparent” authority. And the hit on your FICO score is less than foreclosure or bankruptcy, under the proposed Citi plan.
In the six months, which can probably be extended through negotiation or other legal means, you can accumulate some cash from what otherwise would have been a rental or mortgage payment. Taken as a whole, even though I would say that you are probably dealing with a party who neither owns the loan nor has any REAL authority to offer you this plan, it probably fits the needs of many homeowners who are just one step away from walking away from their home anyway.
As always, at least consult a licensed real estate attorney or an attorney otherwise knowledgeable about securitized loans before you make your final decision or sign any documents. BEWARE OF HUCKSTERS WHO MIGHT SEIZE THIS ANNOUNCEMENT AS A MEANS TO GET YOU TO PART WITH YOUR MONEY. THERE IS NO NEED FOR A MIDDLEMAN IN THIS TYPE OF TRANSACTION.
February 24, 2010

Another Foreclosure Alternative

By BOB TEDESCHI

HOMEOWNERS on the verge of foreclosure will often seek a short sale as a graceful exit from an otherwise calamitous financial situation. Their homes are sold for less than the mortgage amount, and the remaining loan balance is usually forgiven by the lender.

But with short sales beyond the reach of some homeowners — they typically won’t qualify if they have a second mortgage on the home — another foreclosure alternative is emerging: “deeds in lieu of foreclosure.”

In this transaction, a homeowner simply relinquishes the property, turning over the deed to the bank, in exchange for the lender’s promise not to foreclose. In a straight foreclosure, a lender takes legal control of the property and evicts the occupants; in deeds-in-lieu transactions, the homeowner is typically allowed to remain in the home for a short period of time after the agreement.

More borrowers will at least have the chance to consider this strategy in the coming months, as CitiMortgage, one of the nation’s biggest mortgage lenders, tests a new program in New Jersey, Texas, Florida, Illinois, Michigan and Ohio.

Citi recently agreed to give qualified borrowers six months in their homes before it takes them over. It will offer these homeowners $1,000 or more in relocation assistance, provided the property is in good condition. Previously, the bank had no formal process for serving borrowers who failed to qualify for Citi’s other foreclosure-avoidance programs like loan modification.

Citi’s new policy is similar to one announced last fall by Fannie Mae, the government-controlled mortgage company. Fannie is allowing homeowners to return the deed to their properties, then rent them back at market rates.

To qualify for the new program, Citi’s borrowers must be at least 90 days late on their mortgages and must not have a second lien on the home.

That policy may be a significant obstacle for borrowers, since many of the people facing foreclosure originally financed their homes with second mortgages — called “piggyback loans” — or borrowed against the homes’ equity after buying them.

Partly for that reason, Elizabeth Fogarty, a spokeswoman for Citi, said that the bank had only modest expectations for the test. Roughly 20,000 Citi mortgage customers in the pilot states will be eligible for a deed-in-lieu agreement, she said, and of those, about 1,000 will most likely complete the process.

As is often the case with deed-in-lieu settlements, Citi will release the borrower from all legal obligations to repay the loan.

In some states, like New York, New Jersey and Connecticut, banks can legally retain the right to pursue borrowers for the balance of the loan after a foreclosure, a short sale or a deed-in-lieu of foreclosure. That is one reason why housing advocates say borrowers should carefully weigh these transactions with the help of a lawyer or nonprofit housing counselor before proceeding.

Ms. Fogarty said Citi had no specific timetable for rolling out the program nationally.

Among the other major lenders, there is no formalized program for deeds-in-lieu. Bank of America, JPMorgan Chase and Wells Fargo, for instance, generally require borrowers to try a short sale before considering a deed-in-lieu transaction.

A deed-in-lieu is better for banks than a foreclosure because it reduces the company’s legal costs, and it is better for the homeowners because it is less damaging to their credit score.

Banks may also end up with homes in better condition.

J. K. Huey, a senior vice president at Wells Fargo, says her bank usually offers relocation assistance — often $1,000 to $2,500 — as long as the borrower leaves the property in move-in condition after a deed-in-lieu transaction.

“The idea is to help them transition in a way where they can keep their family intact while looking for another place to live,” Ms. Huey said. “This way, they only have to move once, as opposed to getting evicted.”

Deficiency Judgments on the Rise: NEXT BIG CRISIS

Editor’s Note: You see they have no shame. If they can get money they are going after it only this time the ones going after deficiency judgments and collections are usually not even the original people who foreclosed. This is why you MUST fight it, file motions to set aside for fraud, petition for bankruptcy relief or use other means to even the score and level the playing field. The foreclosure was in all probability a sham, defrauding both the homeowner and the investor, and the collection is just a numbers game.
On the other hand, articles like these are planted to scare people away from strategic defaults. Keep in mind that deficiency judgments are rarely successful in the best of circumstances. Usually the former homeowner had no significant assets other than his home and many states severely limit creditors’ options. So they are basically left with the usual scare tactics.

The moral is do what you need to do, talk to a savvy lawyer, and don’t let the financial service industry be the source of your information.
Lenders Pursue Mortgage Payoffs Long After Homeowners Default

Jan. 28 (Bloomberg) — When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

“The big dogs get a bailout, and the little man gets no mercy,” said King, 39, referring to the U.S. government’s rescue of banks and other financial institutions.

While there are no statistics on the number of deficiency judgments approved by courts, the Federal Deposit Insurance Corp. tracks the amount banks collect after defaulted loans were written off.

These mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period, according to the Washington-based regulator. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows.

The figures don’t include money retrieved by trusts overseeing mortgage-backed securities, such as the one that holds the loan on King’s former home, or efforts by distressed- asset funds and companies that buy bad loans to profit from collection rights. Judgments such as the one levied against King usually tack on court fees, fines and interest.

‘Next Big Crisis’

Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida.

“The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”

Almost 4.5 percent of mortgaged U.S. homes were in foreclosure during the third quarter, the highest rate in the 37 years of tracking the data, the Mortgage Bankers Association said Nov. 19. A record one in every 10 mortgages was at least one payment overdue in the same period, the Washington-based trade group reported.

The Obama administration is seeking to modify as many as 4 million loans by 2012 to prevent foreclosures through the Home Affordable Modification Program, which cuts monthly payments to about a third of borrowers’ income. By the end of December, the program was responsible for more than 850,000 modifications, the Treasury Department said in a Jan. 15 report.

20-Year Window

The federal government spent $230 billion in the year ended in September to support homeowners, according to the Congressional Budget Office in Washington. Those efforts didn’t help people who had already walked away from their houses.

In states such as Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years.

About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.

Depression-Era Protections

The laws in states that protect some borrowers stem from the Great Depression in the 1930s, when a lack of bidders at foreclosure auctions caused deficiencies that, with added fees and interest, sometimes were bigger than the original loan amount, according to a 1934 Virginia Law Review article by Sol Phillips Perlman. Today, many courts measure the shortfall using a property’s market value at the time of foreclosure rather than auction results.

The likeliest candidates for deficiency judgments are so- called rational defaults, said Larry Tolchinsky, a real estate attorney in Hallandale Beach, Florida. In those cases, people who are current on their mortgages decide to walk away from a property because its value has sunk so far below their loan balance they have no hope of recouping the loss.

About 21 percent of American homeowners owe more on their mortgages than their properties are worth, according to Zillow.com, a Seattle-based real estate data firm.

“Walking away from a property comes with a cost, especially for people who otherwise have good credit,” Tolchinsky said in an interview. “The bank is going to pull your credit report, and if you’re current on your other bills they are going to come after you and potentially ruin you.”

Fine Print

It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to Hillard, the attorney in Largo. In a short sale, lenders agree to let borrowers sell a home for less than the mortgage balance.

“Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they are “off the hook.”

That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short- sale agreement.

$20,000 Shock

“We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.”

The money King owes to the Soundview Home Loan asset-backed security that holds the mortgage on his former Coral Gables condominium consists of $38,000 for unpaid principal and almost $6,000 in legal fees and interest accrued prior to the ruling. According to the judgment, the security can charge 8 percent interest until he pays off the debt.

King, who said his default was caused by a reduction in his income, now rents near Fort Lauderdale, Florida, where he teaches ballroom dancing.

“I thought the foreclosure was the worst of a bad situation, but it’s not,” said King. “The people who got sucked into the real estate bubble are still paying for it, even after they’ve taken our homes.”

To contact the reporter on this story: Kathleen M. Howley in Boston at kmhowley@bloomberg.net

Last Updated: January 28, 2010 00:01 EST

Home Sales Stall: Millions of Homes in Real Inventory

Editor’s Comment: Any lawyer who does not think that issues relating to foreclosure will not dominate his or her practice of law is in a state of denial and delusion. The 16% drop in new home-sale contracts (see article below) means a similar or worse drop in sales over the next 30-60 days.

As we have said repeatedly along with the major newspapers, there is no relief in sight without principal reduction on mortgages. It’s not a matter of ideology or even law. It is a matter of pure practicality. The choice is between a total loss and a partial loss.

More and more articles and reports are emerging that clearly show that millions of homes are going to be abandoned and suddenly added to the foreclosure lists simply because the owners choose to take the FICO credit score hit and rent a comparable house for a fraction of the payments demanded under their crazy inflated mortgages.  Really, why continue to pay on a $500,000 note for a property that is worth $300,000? Why? hope you will break even in 5-10 years? Just not a good business decision.

In the anti-deficiency states like Arizona the “lenders” (who incidentally don’t qualify as creditors) can only take the house. In the states that permit pursuit of the deficiency judgment, it is a waste of time and money because nearly everyone is basically cleaned out — no cash, no savings and no available credit. So there is no point in continuing this farce any further. The homes are not worth what is owed and never will be worth that amount even after the market “recovers”.

Now add to the equation that the parties being ordered into mediation, modification or attempting short sales or settlements are mismatched: one of these things is not like the other. On the one side you have people who really own a home and on the other you have people who don’t even know who the creditor is much less possess the authority to approve a short sale or settlement or issue a satisfaction of mortgage.

There is no way out except through principal reduction or letting the entire housing market collapse into chaos. The real crisis is coming over the next few months. The “Great Recession” was just the appetizer and although there is time to avoid the full impact of what was done on Wall Street, it seems unlikely that anyone in office is willing to “call it” like the doctor announcing the time of death.
January 6, 2010

Slowing Pace of Home Sales Raises Fears of New Retreat

The number of houses placed under contract fell sharply in November in the first drop in nearly a year, figures released Tuesday show. It was the clearest sign yet that predictions of another downturn in real estate may become a reality.

The National Association of Realtors said that its index of pending home sales plunged to 96 from a revised level of 114.3 in October. Analysts had predicted a drop, but nothing like that.

“We thought it would drop 2 percent,” said Jennifer Lee of BMO Capital Markets. “When you see 16 percent, the first thing you say is, what the heck happened here?”

Since the majority of pending sales become final in six weeks to two months, the index is considered a reliable indicator of where the market is headed. The index is calculated by comparing the number of pending sales with the level of 2001, when the index was formulated.

The data indicates that the weakest parts of the country are the Northeast and Midwest, both of which fell 26 percent in November from the previous month after adjusting for seasonal variations. The South dropped 15 percent, while the West was off 3 percent.

Ms. Lee called the drop from October to November “unnerving” but said that the index remained well above the level of a year ago. In November 2008, when the financial crisis was at its peak and buying a home required a faith in the future that many did not feel, the index was 83.1.

As the overall economy improves and the employment situation grows a little less dire, the question becomes whether real estate can muddle through — or if it will need a new round of government support to ward off another damaging downturn.

There are plenty of reasons for worry. The Obama administration’s effort to compel lenders and servicers to modify loans has not been a success. Many of these owners will eventually lose their homes to foreclosure.

Meanwhile, a quarter of homeowners with mortgages owe more than their houses are worth. If prices start dropping again, some will be induced to walk away, further undermining the market.

“I wouldn’t rule out more stimulus, especially in an election year,” said Ivy Zelman, an analyst.

Last year’s stimulus efforts, however expensive and divisive, calmed a market where prices had plummeted by a third. Even now, the government’s efforts to push down interest rates and entice buyers with a tax credit appear to be having an effect, keeping a weak market from getting weaker.

Walter Martin and Paloma Munoz, artists in Dingmans Ferry, Pa., are a stimulus success story. They are paying $360,000 for a new home 10 miles away without even having an offer for their current home.

“The new home has enough space for us both to have studios,” Ms. Munoz said. “The price is amazing, we are getting a mortgage at a 5.125 rate, and we qualify for a $6,500 credit.”

It is a leap of faith, she acknowledged, but an eminently sensible one. “When houses were expensive, everyone wanted to buy, and now that they’re cheap everyone is scared,” she said.

Buyers like Ms. Munoz and Mr. Martin are outnumbered, however, by people who think the market still has room to fall. While some of these may indeed be scared, others simply see a virtue in patience.

“With two growing boys, we are busting out of our small house,” said Stephen Sencer, deputy general counsel at Emory University in Atlanta. “But I’m still waiting for sellers to capitulate.” His agent is telling Mr. Sencer that may happen in the spring.

Starting from a low of 80.4 last January, pending sales rose for nine consecutive months in 2009. The index proved a harbinger of both completed sales, which began climbing in April, and prices, which started rising over the summer.

As the Nov. 30 expiration of the tax credit drew near, would-be buyers hastened to secure deals. Sales in November roared at a 6.54 million annual pace, the highest since February 2007.

At the last minute, Congress extended and broadened the credit. The urgency immediately dissipated. “We were really, really pushing hard, and I think everyone just wore out,” said Steve Havig, president of Lakes Area Realty of Minneapolis.

Buyers now have until April 30 to qualify for the credit. Many analysts say the effect this time around will be mild.

“It could turn out the second credit has such a small impact it doesn’t show up in the data,” said Patrick Newport of IHS Global Insight.

Nevertheless, he predicts the downturn this time will be gentler. “The economy is improving, and that is what the market needs to get back on a sustainable path,” Mr. Newport said.

Long before the tax credit ends, another stimulus effort is due to disappear. The Federal Reserve has bought more than a trillion dollars of mortgage-backed securities in a successful effort to push down mortgage rates. The Fed is scheduled to wind down the program by March 31.

Rates are already moving higher, exceeding 5 percent in some lender surveys. Perhaps as a result, mortgage applications to buy homes in late December were a third lower than during the corresponding period in 2008, the Mortgage Bankers Association said.

The Fed’s Open Market Committee left itself leeway in its December meeting to start buying again, saying it “will continue to evaluate the timing and overall amounts of its purchases of securities.”

Rising rates could hamper Mr. Martin and Ms. Munoz’s search for a buyer for their old house.

“It’s been on the market for almost three months,” she said. “We have had very few viewings.”

Mortgage Meltdown: Foreclosure Offense or Defense in Trustee or Non-Judicial Sales

People have to be careful in Arizona and other states that use the “Trustee” method of conducting sales of property that are allegedly in default. In fact they should be careful even without being in default. You might be at risk of receiving a claim for payment from two or more sources. each claiming standing to collect and sue.  

Careful attention must be paid to the procedures in your state as to how to contest the default and prevent the sale. Of course, Bankruptcy is one avenue, and then a challenge to the authority of the trustee by alleging that he is not receiving information, authorization or instructions from the true “‘owner” of the mortgage and note. He is also not receiving payments so he can’t verify within his own knowledge that you ARE in default. And he can’t defend your allegations that you were tricked and defrauded by the lender who used coercion and deceit to get you to think the property was worth more than it was and accordingly charged you more in points, interest, fees, costs, and other damages.  

Whether your property is in foreclosure or not, a letter should be sent, via certified mail, challenging eh right of the trustee to act as trustee, since the original parties have been changed and you have not agreed to the change, nor have you been advised of the change by being given adequate notice of the terms of the transfer of the mortgage and note from one lender to another, or from a lender to a mortgage investment aggregator, or to an investment banker or to an investor. 

ARIZONA FORECLOSURE PROCEDURE

Quick Facts 

–  Judicial Foreclosure Available: Yes

–  Non-Judicial Foreclosure Available: Yes

–  Primary Security Instruments: Deed of Trust, Mortgage

–  Timeline: Typically 90 days

–  Right of Redemption: None

–  Deficiency Judgments Allowed: Varies

In Arizona, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process. 

 

Judicial Foreclosure

The judicial process of foreclosure, which involves filing a lawsuit to obtain a court order to foreclose, is used when no power of sale is present in the mortgage or deed of trust. Generally, after the court declares a foreclosure, your home will be auctioned off to the highest bidder. 

 

Non-Judicial Foreclosure

The non-judicial process of foreclosure is used when a power of sale clause exists in a mortgage or deed of trust. A “power of sale” clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default. In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. Regulations for this type of foreclosure process are outlined below in the “Power of Sale Foreclosure Guidelines”.

Power of Sale Foreclosure Guidelines

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. Otherwise, the non-judicial power of sale foreclosure is carried out as follows:

1. The trustee must record a notice of sale in the office of the recorder of the county where the property is located. Within five (5) days after the notice is recorded, the trustee must mail, by certified mail, a copy of the notice of sale to each of the people who are parties to the trust deed, except for himself. Additionally, the notice must appear in a newspaper in the county where the property is located once a week for four (4) consecutive weeks, with the last notice being published not less than ten (10) days prior to the date of the sale.

Optionally, if it can be done without a breach of the peace, the trustee can post the notice at least twenty (20) days prior to the date of the sale, in some conspicuous place on the property to be sold and/or he or she can post the notice at the courthouse or at a specified place at the place of business of the trustee in the county in which the property is located.

2. The trustee or the trustee’s agent must conduct the sale. The sale is for cash to the highest bidder, except that the lender can make a “credit bid,” which means to cancel out some part (or all) of the money the borrower owed the lender on the lean, instead of paying cash. A successful high bidder must pay the bid price by 5 pm of the day after the bid, other than a Saturday or legal holiday. Every bid is an irrevocable offer until the sale is completed, which happens when the bidder pays the bid price to the trustee’s satisfaction. If the high bidder fails to make the payment by 5:00 pm, the day after being notified of the option to buy, then the trustee may postpone the sale.

The trustee may postpone the sale to another time, or another place, by giving notice of the new date, time and place by public declaration at the last place and time the property was offered for sale. No other notice is required. A trustee may also, by written agreement, extend the time for a buyer to come up with the payment. 

3. Once the sale is complete, the proceeds will go to the payment of the obligations secured by the deed of trust that was foreclosed, then to junior lien holders in order of their priority. The successful bidder gets a trustee’s deed, which provides conclusive evidence that the trustee conducted the foreclosure sale property.

A note regarding Deficiency Suits: A lender may not bring a deficiency suit against a person who lost a property that is 2.5 acres or less at a foreclosure, provided the property was a single one-family or a single two-family dwelling. This is so even if the high bid at foreclosure was less that the balance due on the loan. However, in foreclosures against other types of property, a deficiency suit is allowed, but is limited to the difference between the balance owed and the fair market value of the property, and then only if the suit is brought within ninety (90) days of the power of sale foreclosure. 

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