RISMEDIA, May 4, 2009- It is tough to get everyone to agree to any one thing. The exception is that we all do agree that these are very tough times for many. Who among us does not know of someone who is jobless, financially stressed or both? Richard Abbate, partner in the lawn firm of Abbate and Nohavika, White Plains, NY, speaks with hundreds of people monthly who are in financial trouble. I sat down with Richard to talk about the financial crisis resulting in thousands facing job loss, foreclosure, bankruptcy, etc. With years of experience in insurance litigation, bankruptcy and now foreclosure prevention, Richard shared with me some troubling trends that effect us all.
Marylyn: Much has occurred over the past six months that impact all of our lives. What recent or continuing trends are you seeing in your daily practice?
Richard: There is no question that the fear and reality of foreclosure is on the rise. Clients are coming to me wanting help intervening with their banks to achieve loan modifications or short sales. I am endlessly surprised and angered by what I encounter when I try to help people to avoid foreclosure. My experience is that the persons, particularly at the largest banks holding the most toxic assets, who answer the calls (if you can get through at all), have little to no authority to make decisions. The lag time for even simple answers to move a process forward is absurd. It is apparent that despite what we hear to the contrary, most of these banks are not making the best decisions nor changing their internal workings fast or effectively enough to accommodate the onslaught. Saying that there is a commitment to stop foreclosures whenever possible and to accommodate short sales when appropriate is not the same as clearing the road blocks to make that happen.
MBS: Based on the hundreds of agents I have spoken with who are involved with this segment of the market, I have to agree with your assessment. There is much that could be done to expedite the process and to ‘push down’ levels of authority. Instead of the first contact for the agent, attorney or owner being an entry typist at a call center, why not empower the first-line contact people with process authority to connect with the decision makers? If we want to avoid foreclosures and solidify more short sales, then efficiency is non-negotiable.
RA: In an attempt to lengthen the foreclosure process to allow owners to work through possible solutions, New York has enacted a law that requires an additional ninety-day waiting period, following the common ninety-day delinquent notice period, for banks to be able to proceed with foreclosure. This law applies to sub-prime and non-traditional loans only. While there are limitations on the terms of the law, it certainly helps the seller and his/her advocates navigate through the endless call-wait times, voluminous paperwork and bank requirements. What is happening around the country is that owners are turning to bankruptcy filing to avoid the immediate foreclosure proceedings. While bankruptcy courts are not authorized to ‘cram down’ mortgage loans (until 1993, most bankruptcy courts interpreted the existing law to mean that while interest-rate reduction or term-extension modifications were not allowed, home mortgages could still be crammed down. This happens when the amount of the debt is greater than the value of the collateral securing it; the court reduces the value of the secured debt-to-market value of the collateral) when a bankruptcy is filed, it temporarily stops foreclosures from moving forward.
MBS: It’s a sad statement that our system for dealing with this crisis causes people to have to circumvent the process of working with their lender in order to ‘buy time’ to perhaps work through a solution. Furthermore, persons already in financial trouble must seek legal counsel to proceed with bankruptcy therefore causing further financial strain. This is one trend that is easily corrected were the banks to step up and become invested in the prevention process commensurate at the level of all the bail-out funds they have received to do so.
RA: There is a great deal of misinformation circulating within the industry about what can and cannot be done when homeowners find themselves in trouble. This is due in part to the fact that loan products and government plans are changed frequently. What could not be done last week may indeed be possible today. It is a distressing fact that there are still far too many troubled owners who just simply ignore their delinquency notices. In NY, as many as 90% of all pending foreclosure notices are unanswered, and the foreclosures proceed by default. With no assets available to them, they assume incorrectly that they cannot afford the services of an attorney to assist them. Many attorneys, including myself, who regularly work with short sales negotiations, have payment plans available from no down payment (attorney’s fees recouped by the lender if and when a resolution is agreed upon) and upward. It also happens when the real estate professional does not suggest that the seller immediately get an attorney involved in the situation. Indeed, when there is legal representation, the agent who brings about the short sale has a significantly higher chance of getting paid his/her commission.
MBS: I have read about states that have instituted mandatory settlement conferences between all parties involved in the pending foreclosure. New York is one of those states. What is that process, and how effective is it for moving from pending foreclosure to avoidance?
RA: Settlement conferences, while mandatory in NY as of September 2008 on sub-prime and non-traditional loans, do not produce formal dispositions, they may facilitate loan modifications and stop foreclosures. They are attended by a representative of the presiding judge, an attorney for the lender, the seller(s) and the seller’s attorney. These meetings often take place over several weeks with the first meeting giving the bank an opportunity to provide the seller with payoff and reinstatement amounts. The seller is asked to provide all of their financial documentation at the next meeting, and the judge’s representative is then able to study the facts and make a recommendation as to whether a loan modification is practical. It might surprise readers to know that even when a modification is practical and in the best interest of all parties, the bank’s attorney may be unable to approve it without taking it to a higher level within his/her client’s organization. Once again, there is a lack of proper authorization gumming up the process.
MBS: Not enough has been written about the tragic issue of ‘toxic titles.’ If ever there was a no-man’s land conundrum, this is it. If you are living in Buffalo, NY, Kansas City, MO., South Bend, IN, or many other places in the U.S., you may already be familiar with this trend. What happens when a bank starts a foreclosure procedure, notifies the owner that a date for sheriff’s sale is imminent, the seller vacates and then the bank changes its mind and does not go forward with the foreclosure? The city, neighbors and owner are faced with a terrible reality.
RA: No question about that. The sellers, who for all intents and purposes believe they no longer own the home, may suddenly find themselves being sued by the city for clean up of the abandoned home, delinquent taxes or in many instances tear downs when the property becomes unsafe due to vandalism. The bank walk-aways come about when the bank decides that the value of the home is so little, that they would never be able to sell it. To further complicate the problem, if suddenly the owners find they are still on title and want to get to the bottom of the problem in order to extricate themselves from the mess, they can’t track down the loan servicer. The way mortgages are bundled and resold, often again and again, it is a giant black hole trying to determine what entity holds/services the loan. And, if that company is no longer in business, as often is the case, the seller finds himself/herself at a tragic dead end. In Buffalo, where the problem is catastrophic, the city has successfully sued 37 banks to recoup the costs of tending to abandoned properties. There are thousands of instances where these abandoned homes are being occupied by people who themselves have become homeless due to foreclosure. This is an unsafe situation for these families, but a sign of the breadth and depth of the realty of foreclosures.
MBS: In markets where there are hundreds of these walk-away homes in which people have taken occupancy, the town/city has taken the step of turning on the electricity and water. These homes dot the landscape, and inevitably adversely affect the values of the surrounding properties. It’s a domino collapse.
RA: Our state Senator, Jeff Klein, was successful in passing the Neighborhood Preservation Act. The act allows municipalities to use their discretion in how they choose to clean up these unsightly residential properties and how they choose to get reimbursed for their work, whether by issuing violations or through legal action or by simply billing the bank. Other municipalities are enacting similar legislation to deal with this growing challenge. In some ways, we make it up as we go along.
MBS: It is true that the many complications brought on by the economic and banking crisis have forced us all to find creative ways to solve never-before-seen challenges. Not unlike an onion being peeled, as the many layers are stripped away, the intensity of the tears, by way of getting to the bottom, is inevitable. However, we cannot recover without finding the bottom and beginning the climb upward.
Marylyn B. Schwartz, CSP, is an expert in real estate and corporate sales training/management and team development. She is president of Teamweavers and a trainer for Leader’s Choice.