Detroit Foreclosure Mosaic

At least there is something (well really just this one thing) positive resulting from the foreclosure crisis in Detroit - from the NY Times:

This mosaic, created with images from Google Maps Street View, shows one of the many enormous challenges facing Detroit as it tries to climb out of debt. As of January, the owners of these properties collectively owed the county more than $328 million in unpaid taxes and fees. Since then, some have paid their debts, entered in payment plans or qualified for assistance. But 26,038 properties, shown with [many] in jeopardy, and many are headed for public auction.

Here it is -- a mosaic of despair ....

New York's Redlining Race Discrimination Remix

These days the most common claims of lending discrimination have been "reverse redlining" cases.

But the NY Attorney General is hot on the trail of apparently resurgent good-old-fashioned redlining discrimination.  The AG filed a suit for discriminatory redlining practices against the parent company of Hamburg-based Evans Bank -- and has described the alleged redlining as a textbook example of an illegal redlining policy:

“This is classic redlining,” Schneiderman said, tracing his finger around the boundary. “If you had to make up a hypothetical to explain to law students what redlining is, you would use a map like this.”

Schneiderman also cited statistics showing that from 2009 to 2012, Evans received 1,114 applications for residential mortgages in the Buffalo metro area, but only four were from African-American applicants. He also said of those 1,114 applications, only eight came from the East Side and just one of those was from an African-American. Schneiderman said that competing banks were lending at much higher rates." (link)

Here's the relevant map of Evan's lending:

To be blunt, this map does very much look like it could be in a lending discrimination textbook.

Moreover, it looks like there's more good-old-fashioned redlining litigation to come:

“We are looking at other banks in other parts of the state, and if banks do not agree to resolve these really disgraceful practices, then there will be further litigation,” Schneiderman said at a news conference in his Buffalo office." (link)

Stay tuned for some discrimination classic hits!

Overview of Requirements for "Good Faith" Negotiations in NY Foreclosure Settlement Conferences

Since 2008, courts have wrestled with what the requirement of good faith negotiations in NY foreclosure settlement conferences required.  Recently, the appellate division took the first big step in clarifying the standard in U.S. Bank National Association v. Sarmiento:

In summary, the court concluded:

"[L]egislative history did not indicate what lawmakers thought would be a good faith standard; likewise . . . there were no published decisions that defined good faith in the context of settlement conferences.

[The court] surveyed trial-level decisions and found that some had not required demonstrations of intentional misconduct or gross negligence when deciding there was a lack of good faith.  Other courts considered lenders' lost documents, confusing communications, inexcusable delays and baseless HAMP denials as a lack of good faith, he noted.

[The court] acknowledged the common-law bad faith standard had been used in other contexts, such as an insurance carrier's refusal to accept a settlement offer.

But if the court adopted the proposed standard on questions of good faith settlement conference negotiations, [it concluded] ,'we would undermine the remedial purpose of CPLR 3408.'"

* * *

Events such as a lender's failure to expeditiously review financial information or deny modification without sufficient grounds could constitute a failure to negotiate in good faith, as could a borrower's failure to turn over requested information." (link)

While this is an important clarification of the standard for proving a bank operated in bad faith actually showing this failure takes some substantial legwork.  The homeowner will need to collect extensive documentation of papers submitted to and received from the bank. 

As a result, homeowners wishing to advance their right to good faith negotiations should contact an attorney as soon as possible after they learn they are in foreclosure.

Has America's Foreclosure Crisis Immigrated to China?

It appears so:

Foreclosures are starting to be reported in China, home to the most talked about housing market on earth.   According to the 21st Century Business Herald, three cities have reported increases in the number of bank repos of Chinese properties.  Has a foreclosure crisis begun in China? If so, the China housing bears would have been vindicated. (link)

LA's Lawsuit Against Wells Fargo Gains Further Steam

The City of Los Angeles' suit against Wells Fargo (previously covered here) made further progress this week:

"A federal judge has denied Wells Fargo's latest bid to end a lawsuit brought by the Los Angeles city government accusing the bank of discriminatory lending that led to a wave of foreclosures among minority borrowers.

In a ruling made public on Monday, U.S. District Judge Otis Wright denied the San Francisco-based bank's motion to have an appeals court decide whether Los Angeles has legal standing to recover damages under the U.S. Fair Housing Act.

Wells is one of four banks sued by Los Angeles for allegedly giving minorities mortgage loans they could not afford, causing defaults, lower property values and neighborhood blight.

The city is seeking damages for lost tax revenue and increased city expenses in affected neighborhoods."  (continue reading)

NYC City Council Members: Use Eminent Domain to Buy Back Underwater Mortgages

An idea that makes a lot of sense, in a lot of different ways, for a lot of different reasons:

"New York City Council members and housing advocacy groups called on Mayor Bill de Blasio on Wednesday to join them and help homeowners at risk of foreclosure, proposing the use of eminent domain to buy back underwater mortgages.

At a news conference, council members Donovan Richards, Mark Levine and I. Daneek Miller said eminent domain could be used to buy back mortgages from homeowners who owe more than their houses are worth. (continue reading)."

Here is a full-throated defense of the idea from Robert Hockett, a Professor of Law at Cornell Law School, published in the Daily News:

"The last time the U.S. experienced economic calamity and slow-motion recovery — from 1929 into the 1930s — the policy responses it adopted were profoundly innovative yet quintessentially American. This was largely because the President who took office in 1933, Franklin Roosevelt, had led New York — the nation’s center of creative dynamism in business, the arts and governance alike.

New York City should take inspiration from FDR’s ingenuity today by employing a home-foreclosure prevention tool that he pioneered."

* * *

The plan is necessary because the state of the city’s housing market — especially for its African-American and Latino communities — remains dire.

Manhattan fares reasonably well, but the other four boroughs do not. And as a new report issued by the City Council and the Mutual Housing Association of New York demonstrates, some 60,000 New York City homeowner families, disproportionately families of color, are in crisis.

Only the city’s power of eminent domain will help . . ."

The ending is perfect:

"There is what I like to call poetic justice in this plan.  In the recent past, eminent domain has been used to remove communities of color from their homes and their neighborhoods.  By “taking the loans, not the homes,” New York will be flipping that sordid history on its head — and benefitting itself and investors as well in the bargain." (link)

Haunted by The (Standing) Dead?: Zombie Homes Plaugue NYC

Is your neighborhood haunted by the (standing) dead?:

Brooklyn and Queens are plagued with “zombie” properties — homes abandoned by their owners and banks that fail to complete the foreclosure process.

New York currently has 807 of the deserted homes, which can waste away for years as lenders fail to maintain them.

. . . .

State Attorney General Eric Schneiderman pushed a bill that would force mortgage holders to care for the properties. It failed to pass this legislative session.

'Zombie homes are a drain on families and communities and place undue burden on thinly stretched municipal resources,' said Melissa Grace, an AG spokeswoman. 'We look forward to working with the legislature . . . next session.' (link)

Foreclosure Poses Staggering Economic Risk to NYC Communities of Color

Is the foreclosure crisis a racial justice crisis?

A report from the office of State Senator Klein indicates that 80% of homeowners at risk of foreclosure are in communities of color:

"Of the 29,729 homeowners who have missed multiple mortgage payments as of last month, 10,308 are from Brooklyn, the report says.

New York State Senate Of the 29,729 homeowners who have missed multiple mortgage payments as of last month, 10,308 are from Brooklyn, the report says.

Another 10,060 live in Queens, 4,408 in the Bronx, 4,110 on Staten Island and 843 in Manhattan.

Klein’s report also finds that 80%, or almost 24,000, of those in preforeclosure are from minority communities across the city."  (link)

The report also notes the high cost of a foreclosure to surrounding homes nationally:

"This is an average rate of $23,157.89 in home equity lost for each surrounding property. An even higher rate was seen for [m]inority neighborhoods who lose an average of $40,297 of their property’s value." (link)

The report finds the potential lost tax revenue and home equity in NYC communities of color is staggering:

"Should the properties foreclose minority neighborhoods would experience losses of $64 million in property taxes and $13 billion in home equity." (link)

Below is an overview broken down by borough:

While the report somewhat overstates the numbers because its calculations assume that all those at risk of foreclosure will go into foreclosure, at a minimum, it underscores the urgent need to support (i.e. fund) counseling and legal representation for those at risk of foreclosure.

The full report can be found here.

Mandatory Foreclosure Conference Extension Bill Passes NY Legislature

The New York legislature has passed legislation extending important protections for New York homeowners in foreclosure for an additional five years past their February 2015 expiration date.  Many advocates (as covered here) had argued stridently for passage of this bill, which now awaits the signature or veto of Governor Cuomo.

As explained in an email blast from the the Empire Justice Center:

Dear Friends,

Empire Justice Center is thrilled to share the news that the  State Legislature has passed critical legislation that will ensure that New York homeowners have access to settlement conferences for another five years.  The conferences have been invaluable and have prevented thousands of New Yorkers from losing their homes once a foreclosure case is filed against them, as had previously been happening prior to the institution of the settlement conferences.

Since 2010, lenders and homeowners in all residential home loan cases have been required to meet to see if the parties can reach a mutually agreeable resolution, such as a loan modification or other workout, to avoid loss of the home.  Unfortunately, the numbers project record high foreclosures still to come in New York.  The continuation of the settlement conferences, as well as continuation of an early warning notice to homeowners in default and a notice to tenants in buildings being foreclosed upon, are vital consumer protections that will remain in place.  We especially want to thank Senator Jeff Klein and Assemblymember Helene Weinstein, for sponsoring and championing these vital consumer protections five years ago and ensuring their continuation this year.

Kudos to them, to the NYS legislature, and to the many consumer advocacy groups that worked to support the passage of this bill.

In solidarity,

Kirsten E. Keefe, Senior Attorney

Additional coverage by the Daily News here:

"Senate Co-Leader Jeffrey Klein (D-Bronx/Westchester) announced Wednesday that the State Senate voted 56 - 1 in favor of his legislation that would extend vital foreclosure prevention measures and homeowner protections for an additional five years beyond the February 2015 expiration date. These protections include extending the requirement for lenders to provide 90 notice of foreclosure and mandatory settlement conferences for all home loans. An expiration of these protections would have meant that tens of thousands of New York homeowners in pre-foreclosure were in serious danger of losing their homes. The State Assembly passed the legislation on June 2nd. The legislation now awaits New York Governor Andrew Cuomo’s signature to become law."

Mortgage Servicers Placing Non-Disparagement Clauses in Mortgage Loan Modifications

I can understand the use of these provisions in severance agreements that concern the complicated relationship between employer and employee - but a non-disparagement requirement to obtain a mortgage loan modification?  Severance agreements concern a relationship that has ended - not an ongoing relationship like a mortgage loan.

Nonetheless it appears to be so - as reported by the Consumer Law & Policy Blog:

"Mortgage servicers increasingly are including non-disparagement clauses in loan modification agreements, including ordinary loan modifications (i.e., those that are not negotiated in settlement of litigation). In at least one instance, Ocwen, the largest non-bank servicer of mortgages in the U.S. thanks to a number of acquisitions in recent years, sought to impose a non-disparagement provision that would have prevented the homeowners from making "any derogatory and/or disparaging comments about Ocwen." (link)

 This is really happening:

"Mortgage payment collectors at companies including Ocwen, Bank of America Corp and PNC Financial Services Group are agreeing to ease the terms of borrowers' underwater mortgages, but they are increasingly demanding that homeowners promise not to insult them publicly, consumer lawyers say. In many cases, they are demanding that homeowners' lawyers agree to the same terms. Sometimes, they even require borrowers to agree not to sue them again

These clauses can hurt borrowers who later have problems with their mortgage collector by preventing them from complaining publicly about their difficulties or suing, lawyers said. If a collector, known as a servicer, makes an error, getting everything fixed can be a nightmare without litigation or public outcry." (link)

If these provisions had been standard practice before the mortgage crisis it would have severely hampered public advocacy around mortgage issues.  In addition, homeowners who sign these agreements may be barred from speaking out publicly about future servicing or other mortgage issues for the remaining life of the loan - which can be as long as forty years. 

There's a lot that a mortgage servicer can do wrong that is worth disparaging over that period of time.  This development is a real threat to the rights of American homeowners that needs to be addressed immediately.

BREAKING - Ocwen recently promised to halt this practice:

"Ocwen Financial (OCN) reached an agreement with the New York Department of Financial Services, saying that it would stop using gag orders on mortgage modifications.

"'In discussions with our Department, Ocwen has agreed to no longer seek gag rules as part of settlement agreements or loan modifications with borrowers,' Benjamin Lawsky, superintendent of Financial Services, said.

'Additionally, the company has stated it will not enforce gag rule provisions in existing agreements. We are gratified that Ocwen worked constructively with us to resolve this matter, and our Department intends to review this issue at other financial institutions,' Lawsky added."  (link)

That's a good start - but that still leaves at least Bank of America Corp and PNC Financial Services Group.