Time Running Out on Foreclosure Renters

Posted on December 19, 2012 by Neil Garfield

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Editor’s Comment: It would sound like a joke if it were not so real. First you oversell mortgages, throwing underwriting standards overboard, then comes the inevitable foreclosure and eviction of the homeowner — but not the tenant who WAS protected under Federal law but is no longer going to receive that protection. Millions of people are going to be seeking rental accommodations.

The result? rental prices will go up creating a new tax on those who rent, and housing starts will increase. Think about it, we build a bunch of houses, sell them as exorbitant rates knowing we are going to get thrown back in our lap, we create blighted abandoned neighborhoods and towns and subdivisions, and the solution selected is not to find a way to put people in homes that are unoccupied but to build more houses.

Policy makers like new construction because of the impact on jobs. Investors like renting because they get higher and higher rental income on their properties. But the essential problem of homelessness will remain because the rents will be priced outside the capability of the prospective renters.

Wouldn’t it be a better idea to keep the homes occupied, to prevent blighted neighborhoods where the cities bulldoze the homes away because the banks walked away from their responsibility as “owners?” Wouldn’t it be a better idea to keep getting tax revenue from these homes? Wouldn’t it be better for utilities and local businesses to have the people occupying these homes pay their bills and revive a stagnant economy and unemployment?

Of course we could start with extending the rights of tenants to stay in homes legally rented to them by the homeowners. But amongst the millions soon to be displaced are those homeowners who occupy their homes, who put earnest money into the deal and more money to fix up and furnish the place. Most of them had no idea that the amount demanded in the notice of default, in the foreclosure and in the auction was simply a wild guess without taking into account the money received from insurance, credit default swaps and federal bailouts.

Most had no idea that the party foreclosing on them had not invested one dime into the funding or purchase of their loan. These people were every much a victim of fraud as the investors who bought bogus mortgage bonds. We know the remedy for fraud but in this country it has a twist. If you are big enough and you commit fraud you to keep the money and property obtained through illegal or criminal means. But if you are the little guy then you get prosecuted for numbers on an application form that you never saw, much less filled out until closing along with a 3 inch stack of papers to initial and sign.

PRACTICE HINT: WHETHER YOU ARE REPRESENTING THE HOMEOWNER OR THE RENTER THERE ARE VIABLE, WINNABLE DEFENSES THROUGH DENY AND DISCOVER. WITH RENTERS THE DEFENSE WILL BE RAISED THAT A RENTER CANNOT CHALLENGE TITLE.

But the only reason why the party seeking eviction (forcible detainer) has standing is that title changed. The allegation of a change in title is an essential part of their pleading.

You should argue that if they bring up title then you have the right and obligation to defend it by showing that the title that was recorded was procured through fraudulent means.

The renter still owes the money to the homeowner. The response should be a counterclaim or interpleader in which the homeowner and the “new” owner fight it out over who gets the rent money. Otherwise the renter could be twice liable for the same rent if the unit owner prevails in overturning the foreclosure.

Renters At Risk In Foreclosure Crisis Rely On Short-Term Federal Law

Renters Foreclosure Crisis

A group of homeless people sit around the fire at their homeless encampment near the Mississippi River on Feb. 23, 2012, in St. Louis. (AP Photo/Tom Gannam)

A key law that has prevented millions of low-income tenants from becoming homeless is set to expire at the end of the 113th Congress, kicking off what experts warn could be a new wave of evictions.

Homelessness is up 16 percent among families in major cities since the beginning of the foreclosure crisis, according to a report from the U.S. Conference of Mayors, and the number of renters affected by foreclosure has tripled in the past three years.

While public attention has centered on homeowners, research shows rental properties constitute an estimated 20 percent of all foreclosures, and 40 percent of families facing foreclosure-related evictions are renters. Those numbers translate into millions of Americans at risk of homelessness, many of them children.

What stands between many of those children and the streets is a little-known federal law that, barring congressional intervention, will expire in 2014.

In 2009, the Protecting Tenants at Foreclosure Act (PTFA) granted renters the right to stay in their homes until the end of their lease or, if they have no lease, for a minimum of 90 days. Without that guarantee, renters are dependent on a patchwork system of state and local protections that range from quite good — in California and Connecticut, for instance — to completely inadequate.

“States have not stepped up to ensure protections within their jurisdictions,” said Tristia Bauman, a housing attorney at the National Law Center on Homelessness & Poverty. “And so the PTFA is still the best protection available and we want to make sure that it lasts beyond 2014.”

Bauman is the primary author of the law center’s new report, “Eviction (Without) Notice,” that warns the homelessness problem for renters will only continue to worsen. The total number of renters has increased by 5.1 million nationally since 2000. In 2010, renters made up the majority of households in several of our nation’s most populous cities, and their numbers are expected to grow.

“This report shows how important PTFA’s protections are and the need to make them permanent,” said Maria Foscarinis, executive director of the National Law Center on Homelessness & Poverty in a statement. “But it also shows that, because many people are not aware of the law and oversight is limited, PTFA rights are often violated — leaving families across the country out on the street.”

A survey of 156 renters, many of them unaware of their rights under federal law, found the failure of new owners to determine the occupancy status of residents in foreclosed properties to be among the top PTFA violations cited by respondents.

“We found that new owners may make no effort to determine if the property is occupied,” said Bauman. “The tenant is left in a position where they may not know their properties have changed hands until they come home and their door is locked.”

A survey of 227 legal rights advocates cited lack of communication from new owners (85.9 percent); illegal, misleading or inaccurate written notices (68.1 percent); and harassment from real estate agents, law firms or bank representatives (61.1 percent) as top problems.

Pointing to these violations of the PTFA and the ongoing risk of homelessness as a result of the foreclosure crisis, Bauman said, “All of this speaks to the need for this law to continue to be a protection.”

Filed under: bubble, CDO, CORRUPTION, currency, Eviction, foreclosure, GTC | Honor, Investor, Mortgage, securities fraud | Tagged: , , , , , , , , , , , | 39 Comments »

Mortgage Meltdown: Rules of Engagement

Posted on December 3, 2007 by Neil Garfield

Mortgage Meltdown: Smoke and Mirrors Bailout

It is obvious that the “snooty” U.S. bankers, as the Europeans are openly referring to them, still think the world is stupid. The message is out. A massive fraud has ben perpetrated by creation of complex derivative securities that looked better than they were, were rated better than they were (bought and paid for ratings), the creation of funny money, and the apparent loosening of credit that was fictitious, as the many people who are now distressed borrowers can attest. 

The remedial action proposed is illusory just as the original loans and securitized CDOs were illusory. And the blessing they get from government and rating agencies is just a continuation of the cold, hard, calculating attempt to distract foreign government, local governments and investors all over the world from making a run on banks, investment bankers and clamoring for heads to roll.  

The current plan calls for a division of “qualified” borrowers into classes. The classes that are covered are people who (a) don’t need the help or (b) certain people who are not in default but who would otherwise qualify for a loan now. This leaves the vast majority hanging in the wind — millions of homeowners, millions of renters and tens of millions of people affected by the fraudulent issuance of CDO’s under false pretenses and misleading disclosure. That means government investment funds for cities, states and nations are in peril as well as managed funds and individual investors. 

Even the people who are in the class of “can pay no matter what” are in more peril than they think because of this debacle. They face risks of job loss, massive historical inflation, devaluation of the dollar, loss of pensions, loss of purchasing power from social security and governmental programs, investment losses from lower corporate earnings, decreased purchasing power from dividends denominated in U.S. dollars, higher taxes arising from decreasing revenues received by state and local government, medical emergencies where they find out that the coverage they thought they had is not as broad as they were told, increased sales taxes, and business, investment and property losses from storms aggravated by global climate change, where the insurance companies have either already pulled out or have inserted exceptions that will allow them to either reject claims or settle for pennies on the dollar. 

And then you have the renters who are not even included. They are being tossed out of homes where they are current in their payments but the house is foreclosed. Rents are rising and the number of homeless people and the economic status of homeless people is likely to change demographically in ways that will stun the American citizen.

Completely ignored is the issue of lender liability, securities fraud liability, and a host of anti-trust, FCC, and other violations entitling plaintiffs to recover not only compensatory damages but punitive, treble or exemplary damages. As stated by many central bankers around the world, everyone has a dog in this catastrophe. 

Here are the basic rules of engagement that should apply:

 

  1. All classes or borrowers and homeowners should be included, except those who can’t afford to maintain the property. This will take the heat off everyone even if there are reduced interest payments or deferred payments by extensions of maturity dates. 
  2. Any and every plan should allow for at least 7-10 years for correction of problems that were created.
  3. Disgorgement of profits and equity by investment bankers and other parties who sold the CDOs should be part of every plan relating to every class of investor and borrower.
  4. Focus not only on those who are subject to ARM resets in 2008, but also on those who have already been reset one or more times. A tiered approach would salvage consumer purchasing power and lead to a softer landing for the recession we all know will happen.
  5. Start with the premise that anyone who can afford to maintain this home, even without paying anything on the mortgage in the first phase, should be allowed to do so at least for a short while. 
  6. Focus on plans that allow some return to investors in the CDOs, even if those are reduced from what was expected. 
  7. Remedial federal, state and local legislation requiring cooperation of all parties is protected against the ex post facto prohibition in the constitution under public policy, extreme hardship, and protection of the security of the public from economic disaster and social unrest arising from the dislocation of millions of people from their homes. Change the bankruptcy laws where necessary to protect borrowers from the obvious abuse of power that was leveraged against them. Cap credit card rates, and start reducing them. At the moment they are robbing the economy of vital consumer spending dollars that would benefit the economy as a whole. 
  8. Allow developers, lenders, mortgage service providers etc to participate and get protection but reduce fees for mortgage service.
  9. Prosecute high profile offenders  under securities laws, fair trade laws, truth in lending laws, etc.  Real estate brokers and mortgage brokers who steered people into teaser rate mortgages when they otherwise qualified for better, more secure loans should be required to disgorge their fees. Investment bankers who are a the source of yield spread premiums should finance the disgorgement.
  10. Apply disgorgement of fees and excess profits and damages to both borrowers and investors.
  11. Establish a moratorium on all tenant evictions where the tenant is less than two months in arrears. 
  12. Establish short term rent control to allow people to get on their feet, provided the landlord is not taking an actual loss. 
  13. Cease issuance of extra currency and liquidity into the marketplace as soon as practicable. Every dollar issued, every bond sold represents a potential to come back as five dollars worth of inflation on the U.S. economy. 
  14. Establish a specialized division of the SEC to analyze exotic securities and establish whether the disclosure tends to mislead an investor. Post comments on easily navigated websites so investors can assess the risk they are taking.
  15. Prohibit any credit scoring, bond rating, securities rating where there is any connection, funds transferred, or other relationship between the entity issuing the rating and the issuer of the securities, making the loan, borrowing money or buying anything. 

Filed under: CDO, CORRUPTION, currency, foreign relations, Investor, politics, securities fraud | Tagged: , , , , , , | 2 Comments »

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