Saturday, July 19, 2008
2008 Credit Crisis Update: Trouble Behind, Trouble Ahead
The July 19, 2008 edition of The Wall Street Journal reports that, although Wall Street seemed to be relatively pleased with Citigroup's recent announcement of a $2.5 billion quarterly loss (because it was less of a loss than expected), some forbidding clouds loom on the horizon:
- Credit problems are spreading to a wider array of loans around the world. As a result loan losses are likely to swell for at least another year;
- Loan problems are cascading from mortgages to credit cards to commercial loans;
- Bankers are shifting more of their concern from subprime borrowers with blemished credit to solid customers who as a group are increasingly falling behind or defaulting on their loan payments;
- Rising defaults in credit card loans and prime mortgages will further drain bank profits and capital at a time when many banks are already restraining lending;
- Citigroup's delinquency rates for prime mortgages and credit card debt are rising;
- Citigroup reported a rise in defaults on credit card loans worldwide: in Brazil, Mexico, India, and Japan.
Buying Time For Homeowners In Foreclosure
Foreclosure defense buys homeowners time
By MONICA HATCHER
As foreclosures continue to mount, borrowers who have run out of options are turning to attorneys to fight back -- and they're living mortgage-free for months in the process.
Although the chances of ultimately keeping a foreclosed home are slim, for $1,500 to $3,000 some lawyers are offering to defend borrowers in court, causing the wheels of justice to turn more slowly.
Duking it out can add months and sometimes years to a foreclosure process that in Florida already takes an average of seven months to complete. Homeowners can use the extra time to save for a move, sell the house or mull other options.
Investors can continue collecting rent from tenants, recouping at least some of their losses.
Foreclosure defense is proving popular enough that some South Florida bankruptcy and real estate lawyers said they were refocusing their practices to meet the growing demand.
As with many issues surrounding foreclosures, the practice is not without controversy. Delaying the inevitable is costly for lenders and for taxpayers who fund the court system, according to some lawyers who represent lenders. The process may also be unethical, they claim, and can put delinquent borrowers into a deeper financial hole.
Florida is a ''judicial foreclosure'' state, meaning a lender must sue to force the sale of a property. Yet the majority of cases are tried without the defendant -- the borrower -- even showing up in court, said Timothy Kingcade, a prominent bankruptcy attorney who also defends foreclosures.
'If you are accused of murder and you are guilty, you don't walk into court and say, `I did it!' You make the prosecuting attorney prove their case,'' Kingcade said.
While a foreclosure may seem straightforward -- a borrower doesn't pay and the bank takes back the home -- lawyers say there are numerous ways to fight.
THE PAPER CHASE
One way is forcing the lender to prove it owns the debt behind the mortgage by producing a promissory note. A mortgage is a security instrument pledging property as collateral for a loan if a borrower defaults, but it is not the promissory note itself.
As mortgages were bought, bundled and sold off to investors, notes got lost in the shuffle, landing in vaults or warehouses around the country. Physically retrieving them can be difficult and sometimes impossible.
About 80 percent of the time, lenders fail to attach a copy to the lawsuit, Kingcade and others said.
When lenders can't prove they own the loan, lawyers can get cases dismissed, said Peter Ticktin of the Ticktin Law Group in Deerfield Beach, whose firm has advertised foreclosure defense services on television.
He began taking foreclosure clients about eight months ago. So far, none of his cases have gone to trial. His clients are still in their homes.
Some lawyers also ask lenders to produce all the documents in a loan file, transcripts of phone conversations with the borrower and copies of written correspondence, which can take up to a year or more to compile. Several businesses are involved, and some may have gone out of business.
Kingcade said requesting and reviewing a complete file could turn up fraud or other inconsistencies leading to a successful defense, though ``the bank may be entitled to its money, and 99.9 percent of the time the bank is absolutely right.''
Neither Kingcade nor other attorneys interviewed said seeking out such documents was intended only to stall the process, which could be considered unethical.
''I hold the banks to their burden of proof in court,'' Kingcade said. ''Of course justice isn't doled out in a day. It takes sometimes six, eight to 12 months for that to happen,'' Kingcade said.
Ticktin said many borrowers were duped by dishonest brokers and took on loans they could never afford. They could have their cases successfully mediated. Some borrowers' payments were misdirected and not properly credited to their accounts.
''People think I am dealing with a bunch of con artists,'' Ticktin said. ``I'm talking about families, innocent kids, people who got led into deals that are causing them trouble.''
Angela Bellsanctious, of Lauderhill, is an example. She admits she is careless about opening her mail and said her mortgage was bought by a new servicer without her knowledge.
Because her payments were automatically withdrawn from her bank account, she didn't know her loan wasn't being paid until it was too late. On June 12, the home she had lived in since 1990 was sold. Last week she got notice from the Broward sheriff that she had 48 hours to move.
''I was freaking out. I was praying and praying, and this lawyer came on the TV and said something about foreclosures,'' Bellsanctious, 58, said.
It was Ticktin, who for $360 got a judge to waive the writ of possession while he tries to sort out the problem with the lender.
''I have no idea where I would have gone,'' Bellsanctious said.
ABUSING THE SYSTEM
Yet, for every legitimate miscommunication and misconduct by a mortgage lender, dozens of bogus defenses are filed, clogging up the courts, some lawyers said.
Iris Hernandez, a lawyer who files foreclosures on behalf of lenders, said some local attorneys were known for filing boilerplate defenses without supporting their positions, acting for borrowers seeking to take advantage of the system.
'Some people feel that ` If I don't pay for a year, I'm getting my down payment back,' '' Hernandez said.
Furthermore, not all clients deserve or need a foreclosure defense, Hernandez said. Some lawyers, she noted, appeared to be using it as a way to bilk clients for fees -- once with an unnecessary defense and again after persuading the client to file bankruptcy.
What's more, Hernandez said, a borrower can easily extend the sale date of a home by up to 90 days by showing up at the last hearing and explaining to the judge why more time is needed.
NO FREE RIDE
Marc Ben-Ezra, who also files foreclosures statewide for lenders, said the borrower who seeks to delay the inevitable can face consequences.
Interest rates and other costs continue to pile up as the process drags on. Borrowers could be liable for the difference between what the lender recoups from the eventual home sale and the amount owed on the loan. Plus, homeowner and condo fees aren't being paid, which places hardships on people who are paying their debts.
''With every single day that goes by, they could be helping their clients get into bigger and bigger debt, rather than if they face the problems head on and resolve them as quickly as possible,'' Ben-Ezra said.
Get Free eBooks from the World eBook Fair
This year, the theme of the fair is Own Your Own Library and it promises 1 million-plus books free for the taking. The sheer number and the range and variety of titles make the World eBook Fair a veritable treasure trove for book lovers.
As of midnight CDT July 4, 2008, these were the approximate numbers:
100,000-plus from Project Gutenberg
500,000-plus from the World Public Library
450,000-plus from the Internet Archive
160,000-plus from eBooks About Everything
17,000-plus from International Music Score Library Project (IMSLP—sheet music)