Debt Advizor

Maria Lopez is incredibly serious about avoiding debt. The 23-year-old customer-service representative for FedEx in Houston recently cancelled her credit card. Now she gets her entire paycheck deposited onto a prepaid debit card , which she uses for all her purchases. Since she can access only what’s in the account, Garcia no longer worries about breaking her budget: “I’m spending just what I need.”

This option is becoming increasingly popular for consumers reeling from a series of economic body blows. As a result debit cards are becoming the plastic of choice. Some use the cards, which pull money directly from a bank or other account, as a budgeting tool to limit spending. Others are embracing them out of necessity as banks clamp down on credit. All told, debit purchases are expected to climb 13% in 2008, to $1.2 trillion, according to The Nilson Report, an industry newsletter—compared with a 3% rise, to $1.9 trillion, for credit-card transactions. At Visa, the No. 1 card company, debit spending could surpass credit this year.

A mesa on the road side

There’s also a land grab for the so-called under banked, the roughly 80 million people who don’t have a bank or credit-card account. Dallas’ Comerica Bank won the right this year to issue debit cards to the estimated 4 million Social Security recipients who don’t have bank accounts. The government deposits the money onto a prepaid card. Visa and MasterCard offer prepaid debit cards that companies use to pay employees.

The aggressive push is paying off. These days, debit cards are as widespread as credit cards. At the upscale suburban Atlanta restaurant Aqua Blue, waitresses now bring diners a device that lets them swipe their debit card and enter their password to pay for meals. “Debit is becoming the payment card of choice for the American public,” says Red Gillen of consultancy Celent. But for consumers like Lopez who want to break free from the high fees and penalties of credit cards, debit cards may be the panacea.

The Dallas Morning News reports that Texas’ real estate foreclosure numbers are down in September and the third quarter, compared with both the prior month and quarter. According to the September report compiled by Irvine, Calif.-based RealtyTrac, 9,193 homes in Texas entered the foreclosure process in September— a 15.4 percent decline from the volume of filings posted in August 2008.

As part of RealtyTrac’s latest report, the firm ranked the top 100 metro foreclosure markets — based on the percentage of houses in a given city that were in foreclosure during the third quarter of this year. The higher a city’s ranking, the higher the percentage of homeowners who have received foreclosure notices. The greater Dallas area ranked No. 54 on the dubious Top 100 list, with 6,542 properties in foreclosure, which is actually down 20 percent when compared to the area’s foreclosure numbers last year. Even more impressive, the September 2008 numbers mark a 37.4 percent decline from the number of filings posted in Texas in September 2007.

Third-quarter results, however, were a little mixed. For the three months ended Sept. 30, 27,445 homes in Texas entered the foreclosure process — marking a 5.7 percent decline from the number of postings reported during the second quarter of this year. But on a year-over-year basis, third-quarter 2008 filings were up slightly — 2.5 percent — compared to the number of filings reported over the same three months in 2007.

RealtyTrac figures are based on filings for all three phases of foreclosure: default, auction and real estate owned. (Real estate owned, or REO, means that the property has been foreclosed on and is now owned by a lender.)

A few days ago the LA Times took a walk around a Latino neighbourhood in Las Vegas and found a growing level of support for Obama among the multitudinous “homeowners” who have defaulted on their mortgages and are awaiting foreclosure.

This helps explain a minor puzzle of recent history. You may recall that the 2004 exit poll initially reported that Bush had won 44% of the Hispanic vote. This seemed out of whack with real world voting totals, and the exit poll people eventually admitted they’d messed up their methodology and the real number was around 40%.

But even 40% is pretty high for a Republican Presidential candidates. So, how did Bush and Rove get up around 40%?

Bush and Rove bought Latino votes in 2004 with Other People’s Money. Bush’s Housing Bubble was, more than anything else, a Hispanic Housing Bubble, with total mortgage dollars for Hispanic homebuyers going up an incredible 691% from 1999 to 2006. And all that cash flowing for home loans and home equity loans, whether to Hispanics or others, paid for a lot of Hispanic construction and home improvement workers.

Now, the fire hose of money has been turned off because the reserves have been pumped dry, and Hispanics are flooding back to their natural home in the Democratic Party. So it is true to say that George Bush bought the election just not in the way many liberals mean…

So you can no longer pay the mortgage. What happens next?

Here is that process in plain English, from a non-lawyer.

In Florida, the process of the lender regaining possession of the property for non-payment is basically a lawsuit — they sue for possession, and that is foreclosure.

1. Pre-pre foreclosure. A lot of this depend on the lender. Some will wait for 60 days to go by, then send a demand letter, and then wait 30 days for a response to that. Then there will be some lag time before they actually send the file to an attorney for legal action. During this time is usually when the bank might try to work out some sort of a payment plan with the borrower. Again, different for every lender, but as you can see, at least 60 days will go by, and maybe as many as 120, and sometimes much more!
2. The bank sends the file to an attorney. The Real Estate Lawyer is preparing to do all the legal filing to initiate foreclosure proceedings. This can take from 1 week to several weeks.
3. Service. The bank wants to serve the borrower personally with notice of foreclosure (Lis Pendens) … they can serve by placing an advertisement in the newspaper, but they are required to prove that they also made a diligent effort to serve all defendants personally. Also, if they do not personally serve the defendants, they will not be able to get a deficiency judgement. We might have to come back to what that is, just a bit later on. Service will take at least a week, and maybe many times that if the defendants are hard to find!
4. Response. The defendant has 20 days to file a response after being served. The response could be as simple as, “I have the house listed for sale and hope to pay the lender in full.”
5. Motion for default is what the bank will file for if there is no response from the defendant  in 20 days. Assuming the motion is approved, we’re looking at 3-5 days.
6. Motion for summary final judgement. The bank will furnish the court with papers showing the amount owed including attorney fees and whatnot, and a hearing is scheduled. This whole process can take 30-50 days.
7. Judgement of foreclosure is the court’s approval that the foreclosure is proper and a sale date is set. The property is sold to the highest bidder (usually the bank) on the courthouse steps. This will be in about 30 days.

As you can see, foreclosure is not a swift process. In theory, if the foreclosure is uncontested and there are no scheduling backlogs anywhere in the  process, you could get one done in 90 days. But given how busy the banks and the attorneys and the courts are with foreclosures these days, 6 months is typical and much longer isn’t unusual.

And, in Florida, the borrower has the right of redemption, i.e., the right to pay all amounts due and stop the process, right up until the courthouse sale.

More to come soon.

As I’ve mentioned before, one of the weird things about the mortgage meltdown compared to other financial bubbles was how concentrated it was among the non-affluent. Usually, bubbles put a lot of money in the hands of well-to-do people who end up blowing it. The collapse of the oil bubble in 1982, for instance, wiped out a lot of J.R. Ewing-types in ostrich-skin cowboy boots who had gotten rich in the 1970s.

But the more you look at finer-grained data, the more you see that this was all about money going to the, roughly, the second quartile of society: exactly who had to get the mortgages to raise homeownership rate from its traditional 64% to 69%, just as the Clinton and Bush Administrations hoped.

Browsing through 27 screens of Los Angeles County foreclosure data by zip code, I could better grasp why money managers in New York and London and Shanghai gave out so many stupid loans for homes in crummy neighborhoods. How can any outsider remember the difference between Huntington Beach and Huntington Park, Lynwood and Lawnwood? Aren’t they all in LA? Sunshine! Swimming pools! Movie stars!

But, by accident, one of screens compared three zip codes from two places everybody should have heard of:

So, there were 7 foreclosures in Beverly Hills and 252 in Compton in Q3-2008. Now, those places aren’t anymore exactly like you probably think: Compton has been majority Hispanic since the 2000 Census and Beverly Hills is guesstimated to be 30% Iranians.

Beverly Hills has a large number of hustlers trying to put one over on the world (compared to, say, sedate San Marino near Pasadena, with just one foreclosure). But, still, a lot more money has been lost, so far, in Compton.

(Don’t assume prices have dropped more in Beverly Hills — homes sell there so seldom that price change numbers like the -61% in the famous 90210 zip code probably have more to do with a $20 million estate selling in 2007 but not in 2008 rather than a major decline. Prices at the very top of the market had been firm up until the stock crash of the last month.)

In LA County, though, the real wipeout has come in the farthest exurbs, the high desert Antelope Valley, Lancaster and Palmdale, about 65 miles north of downtown LA by highway.

93535 is Lake Los Angeles, west of Palmdale, which ain’t got no lake, ain’t got not Los Angeles, and sure as hell ain’t got not Lake Los Angeles, to paraphrase Wesley Snipes’ wife’s opinion of the Vista View Apartments in which she lived in “White Men Can’t Jump.”

There were 621 foreclosures out of about 14,000 owner-occupied homes in just three months there. Ouch. It’s half white, 30% Latino, maybe 15% black. Very working class. Back in 1999, the poverty rate was 18% compared to 14% statewide, so it, at least then, wasn’t extremely poor, it was just a lot of working class families trying to get by, trying to keep their kids out of the underclass. (Or get rich quick off flipping homes, if somebody would lend them $300,000 with no money down.)

What was everybody thinking? What possible reason was there for thinking that the American working class was suddenly developing the earning power to pay off these giant mortgages?

The statistics are all over the place, but it is clear that not only are mortgage delinquencies and foreclosures skyrocketing, but millions of homeowners are “upside-down” in their mortgages; that is they owe more to the bank than their houses are worth and a report this week predicted that number would be growing exponentially.

More and more the talking heads on television have suggested that these upside-down homeowners should cut their losses and hand the bank the keys to the castle. Some have even suggested that cash-stretched and equity-poor debtors should continue paying the credit card bills even as they stop paying the mortgage. The rationale? The house is already a dead loss and continued credit card access will help the homeowner get back on his or her feet.

The attitude was unheard of in an earlier day. An obligation was an obligation and there was none as important as the one that kept a roof over one’s head. But there is a lot about the current financial crisis that has changed the attitudes of many Americans toward that mortgage payment.

 First of all, many borrowers feel as though they were taken for a ride by their lenders; talked or fooled into mortgages they could not afford. Even though borrowers were often complicit in the misrepresentation involved in their loans, they feel aggrieved by the process and not responsible for the result.

Then there is the mob rule effect. The media is so full of reports on the foreclosure crisis and there are so many anecdotal reports of people mailing keys to their lenders (CNN Money says it is called “jingle mail“) that it has taken on the cover of “everybody is doing it,” and many people are.

Well, it has been said before - there is no situation so dire that someone cannot figure out a way to make a buck off of it.

The newest wrinkle are companies that assist homeowners with the process of walking away from their mortgages. One of them asks visitors to its website “Is foreclosure right for you?” and follows up with five questions to help a homeowner make the decision:

• Are you stressed out about your mortgage payments?
• Do you have little or no equity in your home?
• Have you had trouble trying to sell your house?
• Is your home sinking under the waves of the real estate crash?
• What if you could live payment free for up to 8 months or more and walk away without owing a penny?

Those who self select - “well gosh yes, that bit about living free for 8 months is the clincher” - and who qualify by answering some simple questions about their situation, are offered the opportunity to purchase a plan. For a subscription that costs $995 the company will:

• Send a letter to the lender that promises to stop collection telephone calls.
• Provide subscribers with a free 1/2 hour consultation with an attorney to make sure the foreclosure has been properly filed.
• Inform the homeowner of the exact number of days he can continue to live in the home payment free and update that schedule regularly.
• Enrol the borrower in a credit repair plan which they claim has removed thousands of foreclosures from clients’ credit reports.
• Appoint an experienced attorney available to answer any of the borrower’s questions throughout the process.
• Provide information on state laws that, in select states, will prevent the bank from attempting to collect deficiency money.

It appears that the plan, unlike a Deed in Lieu of Foreclosure, does not stop the foreclosure, just mutes some of the aggravation and uncertainty that usually accompanies it. A Deed in Lieu, if the bank is willing to accept it, may be a more credit history friendly solution and it may be possible to obtain assurances in writing that the bank will not pursue a deficiency.

All of what these companies do is probably legal; possibly it is effective (although the promise of credit repair is always a red flag); but before you plunk down the nearly $1000 fee, please contact a credit counsellor in your area.

One of the questions that you need to ask a counsellor is whether, in your state, a lender is able to go after the difference between the value of the house and the balance of the loan. Most of these businesses started in California (it is reported to be expanding quickly into other states), which does have an anti-deficiency law, but not all states do.

We will be writing a recommendation piece on these companies shortly. Please check back

Pre-foreclosure Period

A foreclosure in Florida begins when a lender files court action and records a notice of a pending lawsuit (Lis Pendens) against the borrower. The lender notifies the borrower and any other affected parties in person or in some cases by mail or publication. If the borrower does not respond to the court action within a specified amount of time, the county clerk can find the borrower in default and the lender can ask the court to make a final ruling. If the court rules against the borrower, the ruling will include the total amount owed to the lender and the foreclosure sale date.

The lender is not required by state law to notify the borrower before initiating the foreclosure process, but individual mortgages or deeds of trust might call for this. The borrower can stop the foreclosure up until the date of the sale by paying the total amount owed to the lender.

Notice of Sale / Auction

The sale date is typically 20-35 days after the court ruling, but this may vary depending on the individual court. The clerk of court issues a notice of sale containing the location, date, and time of the sale.  The notice is published once a week for two weeks, with the second notice appearing at least five days before the sale.

The clerk usually oversees the sale, which ordinarily occurs at the county courthouse at 11:00 a.m. on the sale date. The winning bidder must provide a 5-percent deposit and pay the remaining balance by the end of the day or a new sale is scheduled a minimum of 20 days later. After a successful sale, the clerk gives a certificate of sale to the winning bidder

Within 10 days of the sale, the clerk transfers ownership to the winning bidder if no one disputes the sale.  In most instances, a borrower has no right of redemption after the certificate of sale is issued.

If you’re at risk of having your home foreclosed on, you should read our section on foreclosure help. You might still be able to stop foreclosure. You will need to get a Qualified Real Estate Lawyer.

There has been a recent court order in a class action that will help millions of consumers who filed bankruptcy but have been plagued with old debts showing up on their credit reports. These are known by the charming name of Zombie Debt. The old debts, which are typically forgiven by the courts in a bankruptcy filing, are still being reported as active on many consumers’ credit reports.

As reported in the Wall Street Journal , Experian and TransUnion say they have already updated their credit files to be compliant with the court order. TransUnion also sent notices to some customers saying they “may experience a slight change” to their credit scores if any of their accounts are updated because of a bankruptcy.

Consumers with so-called zombie debt — old loans they may have paid off years ago that can resurface when an aggressive debt collector erroneously demands payment — are also likely to get some relief, if those debts also were discharged under, Chapter 7 protection .

In many cases, old debts linger on credit reports if lenders don’t update their records, or if collection agencies ignore the fact that debts were discharged in bankruptcy. The credit bureaus’ new procedures should ensure that anyone who files for bankruptcy in the future will have more-accurate credit reports.

1. How are mortgage liens treated in California?

California is known as a Title Theory (A legal theory that holds that the lender continues to hold title to a particular parcel of property until such time as the underlying loan obligation is paid in full. The operative loan document is the trust deed, which effectively transfers ownership from the seller to the lender as part of the loan transaction involving a purchase money mortgage.) state where the property title remains in trust until payment in full occurs for the underlying loan. The document that secures the title is usually called a Deed of Trust (In a title theory state, the document that transfers legal title to the property to the lender pending full repayment of the loan obligation. The document gives a lender the right to foreclose on the property if the borrower defaults on the loan) but may also be referred to as a mortgage (A recorded legal document indicating that a particular parcel of property is securing a loan. The mortgage is a security instrument that creates a lien on the property, which is foreclosed in the event of a default). California has a complicated set of rules concerning foreclosures and alternate rules for foreclosures; it is generally a consumer friendly state. Mortgages will be listed in your credit report. You can check yours here. Get your Equifax Credit Watch Gold 3-in-1 now.

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2. How are California mortgages foreclosed?

The primary method of foreclosure in California involves what is known as Non Judicial Foreclosure (A foreclosure process that does not involve court action. This method is typically used in title theory states in which a trustee or other party effectuates a foreclosure sale). This type of foreclosure does not involve court action. When the deed of trust is initially signed, it will usually contain a provision called a Power of Sale Clause (A clause in a mortgage that permits the mortgagee to sell the property, which secures the mortgage loan in the event that mortgage payments are not made in a timely manner.), which upon default allows a Trustee (the agent for the lender who holds the secured property in trust. In the event of a default, the trustee is usually responsible for the sale of the property through foreclosure.) to sell the property in order to satisfy the underlying defaulted loan. The trustee acts as a representative of the lender to effectuate the sale, which typically occurs in the form of an auction. Unlike many states where trustees are appointed by lenders, title companies primarily serve as trustees managing foreclosure sales in California. California has a requirement known as the One Action Rule (’a legal requirement used primarily in California, which indicates that a lender may only file and pursue one legal action in the event of a loan default. This may be an action on the note or a foreclosure of the property - but not both. This is designed to prevent deficiency actions on a note contemporaneously with the foreclosure of the property. If the foreclosure is the route taken and the property is sold for less than the amount of the loan, there can be no deficiency.). If a foreclosure is completed by non-judicial means, a second action to recover a deficiency judgment is not permitted. Using a judicial foreclosure, a lender may recover a deficiency judgment in certain circumstances. But since this process takes longer than non-judicial foreclosure, it is rarely used. California non-judicial remedies have stringent notice requirements and the mortgage documents are required to contain the power of sale language in order to use this type of foreclosure method. Judicial Foreclosure (a type of foreclosure proceeding that is conducted as a court proceeding, which is typically used to foreclose mortgages on real property that secure the debt of the underlying loan transaction. This process is more prevalent in eastern states. An alternative foreclosure method is non-judicial foreclosure, which involves out of court proceedings typically conducted by a trustee.) are permitted in California and these usually occur when no power of sale language is included in the loan documents.

Power of Sale Notice Requirements:

1. A Notice of Default (a formal written notice to a borrower that a default has occurred and that legal action may be taken.) is recorded after a default occurs in the county in which the property is located. This does not necessarily occur after one or more payments are not met but for logistical reasons may occur after a loan is in substantial default — sometimes six months or more past due. This is known as the redemption period. The foreclosure process does not move forward for a minimum of 60 days. A notice of sale containing the name and address of trustee, certain disclosures (including that the property is about to be lost to foreclosure sale), the name of the beneficiary (in a deed of trust arrangement, the beneficiary refers to the lender in the underlying loan transaction. In a foreclosure under a deed of trust or other instrument, the lender is the beneficiary of any proceeds derived from the foreclosure sale.), and other information must be recorded in the county in which the property is located at least 14 days before any foreclosure sale after that time period. This is known as the publication period.
2. The borrower must receive a twenty (20) day notice before any foreclosure sale, further notice of the foreclosure must: (a) mailed to the defaulting borrower (and other creditors whose liens affect the property) and; (b) be posted at the property being foreclosed upon and in a public place in the county where any sale would occur. The defaulting borrower may prevent the foreclosure sale by paying all arrearages up to five (5) days before the sale. The trustees’ foreclosure sale then occurs at the earliest twenty one (21) days after the first publication.
3. Foreclosure sales must take place on any business day between the hours of 9AM and 5PM and must occur at the location referenced on the Notice of Sale (a notice indicating the time, date and other particulars or a proposed foreclosure sale date. This notice will generally be part of the statutory notice requirements necessary before a foreclosure sale can occur.). The trustee will auction the property to the highest bidder, including the lender. The borrower is permitted to postpone the sale for one (1) day.

In California, the lenders can also go to court in what is known as a Judicial Foreclosure (a type of foreclosure proceeding that is conducted as a court proceeding, which is typically used to foreclose mortgages on real property that secure the debt of the underlying loan transaction. This process is more prevalent in eastern states. An alternative foreclosure method is non-judicial foreclosure, which involves out of court proceedings typically conducted by a trustee.) proceeding where the court must issue a final judgment of foreclosure. If the Deed of Trust (in a title theory state, the document that transfers legal title to the property to the lender pending full repayment of the loan obligation. The document gives a lender the right to foreclose on the property if the borrower defaults on the loan.) does not contain the Power of Sale (a clause in a mortgage that permits the mortgagee to sell the property, which secures the mortgage loan in the event that mortgage payments are not made in a timely manner.) language, the lender may seek a Judicial Foreclosure. The property is then sold as part of a publicly noticed sale. A complaint is filed in county court along with what is known a Lis Pendens (a Latin phrase meaning "pending legal action." In a judicial foreclosure action a lis pendens is filed with the clerk contemporaneously with the filing of the foreclosure complaint to allow third parties to know that there is a pending legal action which affects the property.). A lis pendens is a recorded document that provides public notice that the property is being foreclosed upon.

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What are the legal instruments that establish a California mortgage?

The documents are known as the Deed of Trust (in a title theory state, the document that transfers legal title to the property to the lender pending full repayment of the loan obligation. The document gives a lender the right to foreclose on the property if the borrower defaults on the loan.), the Note (a legal document that evidences the underlying debt secured by a mortgage or deed of trust, which sets forth the amount of the loan and the terms of repayment), and in a commercial transaction, a Security Agreement (an ancillary loan document that typically provides for a security interest or lien on personal property or fixtures located upon a parcel of real property that is subject to an underlying mortgage. Sometimes security agreements are combined in the same document as the mortgage.). Sometimes the mortgage document is combined with the security agreement. Alternatively, a Mortgage (a recorded legal document indicating that a particular parcel of property is securing a loan. The mortgage is a security instrument that creates a lien on the property, which is foreclosed in the event of a default.) is filed to evidence the underlying debt and terms of repayment, which is set forth in the note. Mortgages will be listed in your credit report. You can check yours here: Equifax Credit Watch Gold 3-in-1 now.

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How long does it take to foreclose a property in California?

Depending on the timing of the various required notices, it usually takes a minimum of 120 days to effectuate an uncontested Non Judicial Foreclosure (a foreclosure process that does not involve court action. This method is typically used in title theory states in which a trustee or other party effectuates a foreclosure sale). This process may be delayed if the borrower contests the action in court, seeks delays and adjournments of sales, or files for Bankruptcy (a legally declared inability or impairment of ability of an individual or organization to pay their creditors).

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Is there a right of redemption in California?

California has a complicated Statutory Right of Redemption (a legal right afforded to foreclosed borrowers that gives them the post-foreclosure right to reclaim foreclosed property after the foreclosure sale upon the payment of all defaulted amounts, costs and fees) after the foreclosure sale has occurred, which would allow a party whose property has been foreclosed to reclaim that property by making payment in full of the sum of the unpaid loan plus costs one (1) year after foreclosure sale unless the original lender made a full price bid then that period is shortened to three (3) months. A borrower does have ninety (90) days after the recording of a Notice of Default (a formal written notice to a borrower that a default has occurred and that legal action may be taken) to cure any default and this is commonly referenced as the redemption period although it is not a true statutory redemption. Junior lien holders cannot redeem. There is no Statutory Right of Redemption if a deficiency judgment is waived or prohibited at the time of which effectively negates any possibility of a redemption occurring in the scenario noted above.

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Are deficiency judgments permitted in California?

Only in certain circumstances. A Deficiency Judgement (imposition of personal liability on a borrower for the unpaid balance of mortgage debt after a foreclosure has failed to yield the full amount of the debt which was due and owing at the time of the foreclosure) may not be obtained when a property in foreclosure is sold through a non-judicial public sale or if the foreclosure relates to a Purchase Money Mortgage (a mortgage that is part of a loan used to purchase a particular parcel of property, which usually establishes a first priority lien. This is opposed to a refinance or home equity mortgage, which is not part of an acquisition transaction). Different rules apply to guarantors of such loans. A deficiency judgement will be listed on your credit report. You can check yours here: Equifax Credit Watch Gold 3-in-1 now.

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What statutes govern California foreclosures?

The laws that govern California foreclosures are found in California Civil Code, Section 2924. To view these statutes on the Web, you can visit:

http://www.leginfo.ca.gov

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