Large housing inventories to be sold at deep discounts in 2011…and other stories

 

From recent HousingWire news and other sources: (all italics mine)

Foreclosure filings and completed foreclosures will reach record levels this year, after lenders exhaust alternatives such as mortgage modifications (which have been hugely unsuccessful)…Analysts expect increased losses to residential mortgage-backed securities, as a result, because large inventories of foreclosed homes will be sold at deep discounts…

DBRS projects delinquency trends to continue climbing this year, as negative home equity persists, home prices remain down, unemployment stays high, and many borrowers have trouble refinancing due to tightened underwriting standards.

Analysts said the number of REO properties could double over the next 12 months to 4 million from 2 million, and it will take at least one to two years to sell those homes, further hindering recovery.

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Interesting research from PEW Local Trends that goes into great detail about Strategic Defaults..

What will be surprising to many is the dramatic increase in the number of homeowners willing to walk away from their underwater home. Just 3 years ago when we started reporting on this phenomena similar studies were done that resulted in fewer than 10% of those surveyed deemed strategic defaulting as ‘acceptable’. Now, that number is approaching 40%…

What this will mean going forward is that homes that are not even on the banks radar for potential default/foreclosure will be going back to the bank in record numbers, increasing the already lofty numbers of expected bank-owned properties.

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The mortgage interest tax deduction is being lead to the gallows for a little meeting with the guillotine…better known as the Obama Administration.

The National Association of Realtors is the lone voice in the blood thirsty crowd calling for the tax deduction to live on…

Here are the two sides of the argument:
The Off With Its Head…end the deduction argument: Why should non homeowners owners subsidize homeowners? Why are we punishing people for renting? Why create system that motivates people to buy more home than they otherwise would have? Why should the government incentive people taking on a mortgage thus, debt. (Sounds noble, does it not?….).

The ‘Let it live’ crowd’s argument: Owners are more stable, move less..invest more in communities. Owners spend more on home improvements and the like..thus, putting more money back into their communities.

I can tell you this for certain…regardless if you are red or blue…if the mortgage interest tax deduction, that will be quite a few nails in the housing coffin.

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Looming changes for Fannie and Freddie. The White House outlined last Friday its plans to begin shrinking their support of both of the government sponsored entities (GSEs) Fannie Mae and Freddie Mac. While the process could take several years, the effects will be felt in coming months.

Everything about obtaining a mortgage loan is about to change. Vastly fewer people will have the financial ability to obtain a loan.

It seems that the current administration is attempting to move us away from a homeownership society to a generation of renters…however, if the tax benefits of owning a primary residence are removed, do you think that the tax benefits of investor-owned properties will be left intact? If there are greatly reduced incentives (or even restrictive penalties i.e.. rent control) for investors, whom do you think will own all of the properties that people will need to rent?…It will be local/state or federal agencies that become the new landlords…watch out for this!

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I post these stories and opinions not to alarm but to inform…there is so much ‘spin’ out there from the various interest groups that it is hard to know which way is up or down.

For certain individuals and investors, in very specific circumstances…now is a great time to buy. Conversely, with what I think is going to be happening in the next few years to the housing market, now is also a good time to sell…it is hard to see, but will be clear in retrospect.

I'll just let the bank have it...

 Courtesy of our friend and expert real estate attorney, Richard Zaretsky, comes this article that addresses a question that we get from everyone who is upside down or behind on their mortgage...(thanks Richard)

In the series of questions I get when interviewing a potential client who is upside down on his or her mortgage, one question always asked (especially after I quote my fee) is "What if I decide to do nothing?"

It is a legitimate question and with all the press (and misinformation) that abounds, it is hard for those in need of the facts to separate the reality from the imaginary.  For example, The New York Times reported on December 2, 2010 that Florida was a "non-recourse" state (meaning that the lender could not pursue a borrower on the promissory note).  That information was corrected but not until December 19th - and of the over 1 million print edition readers that saw the wrong information - how many saw the "correction"?  To many readers with Florida properties, walking away and doing nothing for their underwater Florida property became a reality - albeit a false reality the fallout from which many a homeowner has yet to realize.

FALSE INFORMATION - The reality is that in all recourse states (Florida being one) and in many non-recourse states to the extent the mortgage and note do not qualify as a non-recourse obligation, doing nothing has essentially the same outcome.

As I pointed out in several of my articles and interviews (see CNN, Banks Begin to Go After Deficiencies, Foreclosure Consequences) unless the borrower has in writing from the lender that they are releasing the borrower from the further liability of the deficiency, there remains a valuable right to collect that deficiency from the borrower.  That "valuable right" is just like a negotiable instrument - it can be sold for consideration (ie: $$$) and the lender does not even have to get a judgment first to be able to sell that right.

IT JUST DOESN'T MAKE SENSE - SO WHY BELIEVE IT?
So many people tell me "the banks are not going after deficiencies - because no one has money to pay them".  Get real!!! First, my office has seen, since the first of this year (just 7 weeks),  more people saying the bank is trying to collect the balance of the loan than ALL of last year! Why?  Let's look at the economics of this deal.  An accountant friend of mine created a sizable side business of buying defaulted credit card debt and uncollectable obligations like these deficiency rights.  He would typically pay 3 to 10 cents on the dollar.  Do you think he just wallpapered his office with these obligations he bought?  No way!  He had a machine of lawyers and collection companies that pursued these debtors and if necessary, sued them to collect.  If he got only 15% of them to pay even a portion of the debt, he was way ahead and made a nice profit.  He also had the luxury of waiting - since he had the statute of limitations to first even sue the debtor and then when he got a judgment, he could ride it out for years (20 in Florida).  He even would sell the judgments he got so he recouped his attorney fees and filing costs and made a profit - and then the new owner of the judgment would do the nasty things to collect the judgment, like garnishment, attachment of bank accounts, and dragging the debtor to a deposition or court to expose and explain his current finances.

FALSE SECURITY
And a word to those that say they are judgment proof.  That may be true, but that won't prevent a lender from being able to file an attachment or garnishment.  What then happens is the bank with the account that may indeed be exempt, must freeze the account until a judge decides that the money in the account is exempt from the attachment, or the pay is exempt from the garnishment.  In the meantime, the defaulted borrower has checks bouncing all over town!  So judgment proof is not aggravation proof.

Now you decide - Is it a good idea to do nothing?

Copyright 2011 Richard P. Zaretsky, Esq.
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Be sure to contact your own attorney for your state laws, and always consult your own attorney on any legal decision you need to make.  This article is for information purposes and is not specific advice to any one reader.
Richard Zaretsky, Esq., RICHARD P. ZARETSKY P.A. ATTORNEYS AT LAW, 1655 PALM BEACH LAKES BLVD, SUITE 900, WEST PALM BEACH, FLORIDA 33401, PHONE 561 689 6660 email: RPZ99@Florida-Counsel.com  - FLORIDA BAR BOARD CERTIFIED IN REAL ESTATE LAW - We assist Brokers and Sellers with Short Sales and Modifications and Consult with Brokers and Sellers Nationwide!  Shortsales@Florida-Counsel.com    Website http://www.florida-counsel.com/.
See our easy to understand articles at:
TABLE OF CONTENTS - SHORT SALE AND LOAN MODIFICATION ARTICLES

We have a better option...Don't let the process be a unilateral one wherin the bank dictates everything...including how much you eventually owe! Call me directly to see how we can make the outcome shift in your favor with a bi-lateral negotiation. My direct line is 561-602-1258

Thanks for reading,

Steve Jackson