Do they make non-owner-occupied loans intentionally and with full disclosure, or are most of these loans based on a borrower's false claim of intended owner-occupancy?
Do they make non-owner-occupied loans intentionally and with full disclosure, or are most of these loans based on a borrower's false claim of intended owner-occupancy?
Both.
I am saying that I have as much of a problem with the intentional ones as the fraudulent ones. And also that the reason there are so many fraudulent ones is that a resi lender gives you better terms than a small business capital/commercial RE lender would, so there's incentive for an investor to lie even when the loan is processed as non-owner-occupied.
This is where the speculator vs. investor thing comes in: flippers are claiming that they intend to hold these properties and rent them, when in fact they intend to flip them for a quick profit. So they never actually have any intention of making sure that the property cash-flows and that the local rents are reasonable and so on.
First of all, all of the flippers lied and said they were going to occupy, or that it was a "second home" in Buckeye, when their primary residence was in Phoenix-and someone approved their loan because it went through CLUES... Second, the ones who already had so many "second homes" that they had to declare the property would be an investment property, were still able to be approved, even when the OIS from the appraiser showed market rent for the subject property would not even cover the option arm payment- because it went through CLUES. Shame on the lender, and the borrower.
I do hope it opens up some discussion of the whole issue of the GSEs and FHA and depository lenders, specifically, being allowed to buy/insure/originate investment loans in the single-family residential programs. Insofar as there are always some kind of taxpayer subsidies involved here--either in the insurance of these loans or the tax breaks for the investor or both--you have programs supposed to stimulate or provide capital for homeownership being used to goose the profits of RE investors. If there is some social or economic benefit to doing that, then I think those loans should run through something like the Small Business Administration or another kind of program explicitly designed to support entrepreneurship.
This is where the speculator vs. investor thing comes in: flippers are claiming that they intend to hold these properties and rent them, when in fact they intend to flip them for a quick profit. So they never actually have any intention of making sure that the property cash-flows and that the local rents are reasonable and so on.
The originators didn't look too hard at it either 'cause they planned to flip the mortgage into a security.
So the question becomes, how do you remove the incentives for this shameful behavior?
I see legislation like this as similar to cram-downs. Is it always "fair" to the lender? Not necessarily.
Do I care? Not in the slightest. If I know ahead of time that I might face an "unfair" penalty if this loan goes bad, I might just be a more judicious underwriter and processor of loans up front.
...I do hope it opens up some discussion of the whole issue of the GSEs and FHA and depository lenders, specifically, being allowed to buy/insure/originate investment loans in the single-family residential programs...
Oh boy newbie landlords! wait til they find out the tenants decided to start breeding pitbulls in the garage,hey they needed pits to guard the hydroponic crop now growing in what used to be the bedrooms...where the walls are now covered with black mold due to humidity.Oh,and your eviction attorney demands $6 k up front and tells you they will be out in 6 months if things go well.No exaggeration in much of california...The Joys of being a landlord!
With government incentives, flippers and speculators only made the housing shortage worse. They further fuled prices, ultimately denying Joe Sixpack the ability to buy.
This is an problem for "THOUSANDZ of American families"?
That's precious few folks in the broader context of current mortgage woes. After all, if a unit is rented, the investment has some cash-flow, and was less likely to have been bought strictly to be flipped.
Even if the investor does default despite their cash-flow, I have a hard time believing these occupants have NO NOTICE WHATSOEVER until "the sheriff is at the door changing the locks".
Finally, the reporter includes a quote from the HOMELESS SHELTER representative - despite her failure to offer corroborrative anedotes. No surprise there - if you a renter who is ordered to vacate for ANY REASON - do you think ya might simply sign a new lease for some other apartment instead of moving your family to the nearest overpass?
Interesting that they didn't bother to ask any mortgage servicer how they might handle such a situation.
Stinging comments, Tanta, but I think they go to the heart of this mess.
I agree again.
I have a question for both MOM & Tanta: How much do you think this mess is a result of 'Peter Principle'?
Meaning we've had such a long credit boom (from the early 90s really with a short blip around Y2K)... that a whole generation of managers have come into the system and been 'raised up' without ever knowing there was defense let alone learning how to play it?
So now these folks run into cram downs & messy liquidations and counter party risk... and they've only heard about it in passing during a sleepy MBA lecture some weekend or after work some Tuesday night years ago...
I mean the more I read of these 'who could have known' issues the more I'm amazed they didn't have the things already modeled with contingencies (even if less than ideal) already in place.
I see no indication that it wouldn't. If it's about FC rights as such, it affects anyone who uses the legal remedy of FC to deal with a bad debt.
That gets into the question of how we're ending up with federal law controlling what has always been state law. I'll let the Legal Beagles(tm) weigh in on that one.
That gets into the question of how we're ending up with federal law controlling what has always been state law. I'll let the Legal Beagles(tm) weigh in on that one.
Good old commerce clause, one size fits all - poorly. My guess is it will ultimately only be applicable to loans in FC via out of state interests or through 'national banks'. Locals need not apply.
But in today's slice and dice and throw risk to the wind doesn't that just about include everyone?
that a whole generation of managers have come into the system and been 'raised up' without ever knowing there was defense let alone learning how to play it?
Oh, trust me. They've had MOM and Tanta and our sistren and brethren of the middle-aged grizzled veteran hand-wringing society bitching at them as loudly as we could for years.
If I had a dollar for every time someone told me that conservative risk management doesn't make money, it's risk-taking that makes money, I'd own these little puppies and the kennel to lock them up in.
I think it's hard for people outside the industry to understand just how routine and basic and simple some of the protections that we blew through really were. Refusing to fund a loan sale until you have an original executed properly drafted assignment in your hands? Um. There are really and truly thousands of people employed in the mortgage business whose actual job descriptions explicitly involve this review. I myself have trained literally hundreds of people to review assignments, and I have reviewed countless thousands of them (hell, I've executed thousands of them as an officer of the seller of the loan).
"Assignment risk" was never some black swan thing or some kind of rocket science that nobody fully understood. We aren't talking LTCM's quant model. We're talking about some $40,000 a year employee saying "hey, we can't fund this loan because the assignment is wrong or missing" and some well-paid prick overruling that because "we don't want to piss off mega-client." Or laying off the $40K employee and hiring Tempz R Us to review collateral documents.
I looked at a big pile of "collateral files" several years ago for a securitization deal where the file contained copies of the homeowner's insurance policy (which doesn't belong in that file) instead of the title insurance policy (which does). This is an incredibly amateur mistake. Further probing revealed that the lender "outsourced" its collateral file preparation work to a bunch of nimrods who were told to find "insurance policies" and stick them in folders. They did not know the difference between one policy or another, because they didn't even know what "title insurance" is! They were told to find a piece of paper with the word "insurance" on it and move it from file folder A to file folder B, and then check off a box on a list.
We are living with the results of that kind of business practice.
My family looked at a ton of income properties in the last couple of years. Things we noticed...
Tons of no/low down offers,think 5% or less.
Larger buildings that even with 20% down would be lucky to cash flow positive the first year.
Condo conversion was a big point in selling(LOL!!!).
All i know as a current owner of apartments...Occupancy in S.W. Flordida sucks ass right now(less than 80%). I have the ability to kick SFR rental prices into the basement,which is happening right now. I just rented a fulley remodeled 2/2 for 550.00 month in Cape Coral,Fl. yesterday. This is down from a peak of 750-800.
Oh,yea,itsa gonna get really fugly. Honestly all the idiots that had no clue about rental properties can freaking crash and burn...
That's precious few folks in the broader context of current mortgage woes. After all, if a unit is rented, the investment has some cash-flow, and was less likely to have been bought strictly to be flipped.
When I read this, shnaps, I thought, let me guess. Those loans were originated as "owner occupied" or "second homes," so nobody put a 1-4 Family Rider on the mortgage. Having failed to do that, the servicer can't collect the rents directly. So the owner is pocketing the rent and letting the house go to FC.
But I still don't know how the tenant didn't get some mail from the servicer, if the property was originally declared to be owner-occupied. Usually this results in a billing address being the same as the property address.
So I hypthesize that this is one of those things where a servicer processes a change of billing address without questioning why it is doing that.
In my view every notice of breach should go to the property address.
Oh yeah. Is there any better education on how wildly different some people think?
It had become a Flipper Nation.
Reminds me of the sixties TV show:
"They call him Flipper, Flipper,
faster than lighting-
No one you see-
Is smarter than he,.."
Set in Florida, too!
"I have a hard time believing these occupants have NO NOTICE WHATSOEVER until "the sheriff is at the door changing the locks"."
I was on the loosing end of this in 2000 in my first place out of school here in DC. We lucked out to some degree because the bank wanted us out, and was willing to make it worth while financially for us to go quickly. But notice I got where from a neighbor who knew the family. In hindsight, there were signs but I didn't know enough to piece them together. While ignorance is no defense in the eyes of the law, I paid my rent, kept the yard up, actually shoveled when it did snow, and generally took care of the place, so it seems like a harsh way to learn the lesson.
I guess there's nothing they can't do under the commerce clause, but imo this is an unconsitutional taking of property.
No no no... there is no 'unconstitutional taking' only 'delaying'... and the constitutional protections for 'taking' are that property can't be taken without due process of law first. What you are looking at is due process.
Realize the renter has 'property' in this too, a lease is 'property' the which is a claim to live there for a specified period of time compensated by paying of rent. The 'owners' of the actual real estate property - both the defaulting and foreclosing parties in transition also have competing claims (sort of passing from one to another).
There is no clear cut 'taking' here at all - rather a sorting out. A due process time-out will be held up by courts with no problem.
Commerce clause argument will apply however if all parties are local & under state regulation.
I still don't know how the tenant didn't get some mail from the servicer, if the property was originally declared to be owner-occupied.
Our tenants still get our mail, even without being owner-occupied. After closing we never got the first communication from the lender at the mailing address, it always was sent to one of the rental units (don't know how they decided which one.) Mostly WaMu and CW.
The only people I have known who made a living as landlords worked d*****d (family values you know) hard at it.
After checking references, credit reports, etc., they charged enough rent to cover all costs, answered the 3AM calls about clogged plumbing themselves, did their own painting, carpets, etc., when tenants moved out.
Oh, they put a line in the rental agreement that required the tenant to immediately vacate if caught doing anything illegal. Then they did periodic inspections to catch the pot growing and pit bull breeding problems.
Flippers looking for an easy buck get what they deserve.
I guess what really cheeses me off is that this legislation is not really going to result in anything meaningful. To suggest this is 'needed' is kind of a stretch to me...my experience is that once actual humanoids begin loss mit efforts and they realize what the situation is (unaware non-owner occupants), they'd normally work with those occupants so that they agree to simply vacate voluntarily within a reasonable timeframe.
The article did mention one occupant who was given a cash offer to GTFO.
After closing we never got the first communication from the lender at the mailing address, it always was sent to one of the rental units (don't know how they decided which one.)
It's because your mortgage and your note both have sections about "giving notices" that indicate where the lender is going to send important stuff (including notification of transfer of servicing as well as nasty things like NOD).
For owner-occupied properties it isn't generally a problem, since the default assumption is that the subject property address is the mailing address.
For any non-owner-occupied property, it is the owner's responsibility to make sure that the lender adds the owner's mailing address to the list of places notice must be given. You really want to make sure that issue is squared away at the loan closing, not afterwards.
A while ago we were looking at some website where there were all kinds of complaints about Litton servicing. One of my faves was this dude who claimed Litton never told him his payments were past due. He says he called them and told them to send statements to a different address, and also to give him his account number, and they wouldn't do that over the phone.
Well, no. Score one for Litton.
Dude claims that Litton is intentionally trying to make sure he doesn't get notices. I suspect Litton is trying to protect itself from potential rent-skimming or some other fraud.
But as our Shnaps notes, the press doen't generally delve into some of these stories to figure out what's really going on.
I have a hard time believing these occupants have NO NOTICE WHATSOEVER until "the sheriff is at the door changing the locks".
California law says you have to notify occupants, (usually John Doe 1-10 to cover all bases)either by mail and/or posting on the door, that the sheriff is coming on such and such a date, and the sheriff doesn't change the locks for you.
Most of the time, you can tell when your landlord is a flipper. When my wife and I started to look for a house to rent, we made sure that (a) it was run by a property manager with strong ties to the community and (b) had served as a rental property for many, many years.
Plus, the homes that have both "For Sale" and "For Rent" signs out at the same time (there is one on my way to work) are usually a red flag.
Well, for an investor in a property with almost no down payment, and defaulting tenants, it can make sense to walk away and let the foreclosure artists move the tenant out.
On the other hand, as Tanta has said, this problem arose because of the casino mentality from Wall Street that invaded a very sedate business that depended on investment participation inviting oversight.
With every step of disintermediation, the problem of responsibility for the investment also was diffused, or even sold before problems were ever manifest. One can hope we have learned our lessons, but I doubt it until this market returns to nominal profitability. That may take years, now commercial is next.
Walker, I looked for exactly the opposite. A new owner with multiple properties and a mortgage with a company known for 100% LTV option arms. Reason being is that I will have to move but by that time, will have also recieved 5 months of free rent. Now I need to see if this new renters protection will help me stay even longer.
"The House bill calls for new owners usually lenders to give tenants a 90-day notice before foreclosure, then continue leases for up to six months after. Renters without leases would have 90 days to leave the property. "
Sounds like a fair judgment in favor of the renters. My question is though, who gets the rent payment--lender or borrower? The original owner is probably in bankruptcy. If I were a renter and told to leave in 90 days I would consider not paying the rent and use that money instead to put toward a new lease.
I'm no landlord, but doesn't it seem logical that if you increase potential liability to the homeowner that the owner will increase the cost to the renter...or are renters immune from any risk. Any business that has increased risk WILL have increase costs passed on. Either security deposits will drastically increase or rents will, but I guarantee you, it won't be the property owner.
When I issued the loan there was no six month delay, now there is a six month delay, that makes the loan worth less money and is therefore a taking.
No it is not a taking - it is a cost.
The renter has a contract and that is 'property' also and costs associated with having it abrogated. Kicking him/her out without any recourse could also be construed as a taking (cost associated with a rapid move they though they were protected from by signing a lease contract and every bit as legitimate a claim of 'taking' as is being delayed from pursuing a rapid eviction).
The changing of hands can require a legal sorting out that can take some time & incur costs to any or all parties - this what the due process is about. The courts will not find a six month delay as being a constitutional injustice - sorry.
People think they can do any old shit they want and any impediment to that is a 'taking' - not so if their actions affect other parties with claim - that's what the due process clause is about. Courts have upheld that from the get go.
Commerce clause on the other hand says that if it doesn't have anything to do with parties from different states or nationally regulated parties then go fish - kick it back to state law.
This is Biz Law 101 stuff, things people are supposed to have known like from undergrad daze... even non-lawyers.
"Oh boy newbie landlords! wait til they find out the tenants decided to start breeding pitbulls in the garage,hey they needed pits to guard the hydroponic crop now growing in what used to be the bedrooms...where the walls are now covered with black mold due to humidity.Oh,and your eviction attorney demands $6 k up front and tells you they will be out in 6 months if things go well.No exaggeration in much of california...The Joys of being a landlord!"
That's why you get a pitbull of a property management agency. It's worth the X percent, even if you do some of the work yourself. I also found that if I bought the property through the real estate arm of the management agency, they'd reduce their rates by a third for, like, forever.
Next time around, I probably will do more of the management myself. But if you don't have the time, an agency is a must, even if it puts you in the negative. They protect your property.
Well, for an investor in a property with almost no down payment, and defaulting tenants, it can make sense to walk away and let the foreclosure artists move the tenant out.
Right. But the NYT article says this is about tenants who are NOT defaulting.
So rent is being paid. Either it is not enough to cover PITI on the mortgage (probably bad cash-flow analysis when the loan was made) or it is but the owner is pocketing it and not making the nut.
Prudent lenders put a document called a 1-4 Family Rider (Assignment of Rents) on the mortgage for an investment property that gives it the legal right to collect the rents directly. I know conservative midwestern community bank belt & suspenders lenders who put a 1-4 rider on every loan they close, even when there's no reason to think it will go rental. They eat the few dollars in additional recording fees and doc prep because they think it's cost-effective in the long run.
But in the go-go lending world that's exactly the kind of "red tape" cost big lenders cut.
--
"I do hope it opens up some discussion of the whole issue of the GSEs and FHA and depository lenders, specifically, being allowed to buy/insure/originate investment loans in the single-family residential programs. Insofar as there are always some kind of taxpayer subsidies involved here--either in the insurance of these loans or the tax breaks for the investor or both--you have programs supposed to stimulate or provide capital for homeownership being used to goose the profits of RE investors. If there is some social or economic benefit to doing that, then I think those loans should run through something like the Small Business Administration or another kind of program explicitly designed to support entrepreneurship. Including them in programs that are supposed to be about owner-occupied housing distorts incentives and creates the kind of servicing problems we see here: it is, after all, true that residential mortgage servicers aren't exactly set up to be emergency substitute landlords."
I agree with your sentiments above, Tanta.
Only in a financial system controlled by crooks would we have govt. programs that involve pushing LARGE amount of debt on households in the mane of helping them, even so-called lower-income people. Raising Fannie/Freddie limit to $1M, as Bernanke supports, is helping anyone? There is a reason why blacks, Hispanics and single women were the targets of the sub-prime mortgages. Crooks always look for easy targets first.
The denial about the true nature of our economic system must end some day.
dryfly don't get snotty with me, I was practicing law when you were still just a gleam in your daddy's eye.
the renter has a contract with the OWNER. if state law says the lender is not subject to the terms of that contract, the fed government has no business overruling local law.
the owner has a contract with the lender which says if the loan is defaulted, lender can foreclose. there is no provision in the contract stating "unless you happen to have a tenant living on the property at the time."
they can get away with it because the constitution has been totally emasculated, but that doesn't make it right.
Seminole,
Just because regualtion may make the collateral for your loan less valuable do not make the regualtion a taking. You might want to read the Penn Central case or if you want to see the absolute farthest the court is willing to go, try Lucas v. South Carolina Coastal Council, which only found a taking where there was a complete expropriation of all uses of a property on a permanent basis (a previous case from Nevada had upheld temporary restrcitions as not violating the takings clause).
I'm no landlord, but doesn't it seem logical that if you increase potential liability to the homeowner that the owner will increase the cost to the renter...
This is increasing the potential liability of the lender to the landlord, not to the landlord.
It would mean that the lender adds some potential extra costs in, no doubt. That would make it more expensive, possibly, for people to finance rental properties.
But if it's the "true cost" of an investment property, why not? Sure, rents can only go so high to cover this additional cost, but that's the point. The deals will stop making sense, so the lenders stop making the loans, until those RE prices go down or the overbuilding of single-family residences goes down or what have you.
Seminole,
Oddly enough having a tenant paying rent for the premises increases the value anyway. I for one would contemplate buying an occupied property over an empty one if the tenant was qualified. I would think that investor would pay more for such a deal, and that mortgage servicers should contemplate the mechanics of having the pool pickup the insurance and have a property maintenance company deal with any issues. That might be cheaper than selling a property that is trashed by someone who played fair and still got treated like sh*t by a typical foreclosure outfit. But then, it ain't my money on the line right now.
Every single property I have owned in the last decade has had a 1-4 rider on it. My lenders seem to expect it- but then I have always been honest about owning property for investment.
Generally speaking, unless the tenant recorded its lease prior to recordation of the mortgage (doubtful), the mortgage claim is superior and can wipe out the subordinate lease. Of course, local laws and political reality may render this irrelevant.
If I have a lease and the property is sold to a new owner, typically the lease is still legally binding on that new owner. Why should it be any different in the case of a bank becoming the new owner through foreclosure?
SBA is not the way to go for NOO properties. Anyone in the biz knows there are adequate underwriting rules for investment properties - all we need to do is start following them instead of ignoring them.
Notices delivered to the home will not be in the renter's name and I doubt any renter will open mail that is addressed to his/her landlord. A sheriff's notice tacked to the door is usually the first indication the renter may have a problem.
Servicers collecting rents - I am not sure it is that difficult. (But I will defer to Tanta on that - her servicing knowledge is much deeper than mine.) It seems to me that servicers might want to make a note in the system that renter is making payments per the lease. Keeps them from having to dump another property on the market, generates cash flow while it is in FC process......IMHO, lots of advantages to that.
Oddly enough having a tenant paying rent for the premises increases the value anyway.
Right. But they're not just marketing this REO to investors. Since it's SFD, they want to list it and get an offer from an owner-occupant. O-Os won't look at or bid on a tenant-occupied property. They want a pretty empty vacant decorated move-in condition house.
I return to my original point: treating SFD/resi loans and investment loans in the same way is asking for bad karma.
We Georgists/geo-libertarians say raise property taxes to capture the site value of the property.
People renting out single-family homes are the true bloodsucking social parasites in our present system. - Troy
Landlords do not pay property taxes, renters do. I recall an incident about a dozen years ago when a renter called in December asking why rent was going up by something like $30 in January. I told her that in November a property tax increment in the county had been approved. A moment of stuttering confusion and then it was like a light bulb could be seen going on over her head.
Probably not much. As Shnaps notes, the whole article is based on an insinuation that this is a widespread problem, but in fact no particularly compelling evidence that it is.
The dilemma for servicers is that if a tenant is paying rent, then you have to find out why the owner isn't paying you.
Either the rent is just not enough to cover PITI--which means there's no advantage to collecting it for the long haul, you're just reducing your losses--or it is, but the owner isn't paying you.
If it's the latter case, you have to FC. You can't just become a rent-collecting service for an irresponsible landlord.
Tanta thus spake truly: I return to my original point: treating SFD/resi loans and investment loans in the same way is asking for bad karma.
Absolutely. The problem is that too many "rules of thumb" get in the way of properly pricing and granting different classes of loans. Why shouldn't a lender give the lowest interest rates to an investor with good track record, cash flow and reserves? Instead there are an extra 75 bps and such. This encouraged lying which introduced a moral hazard which brought us to a situation where too many amateurs peed in the pool.
I live next to a house in LA with an owner/tenant/mortgage situation like the one Tanta and Shnaps describe in their exchanges on this thread. Any advice on how to pull the rug out from under the fraudster owners, e.g. by reporting the fraud?
Here's a quick synopsis. The ugly over-built house next door sold for $1,325,000 in January 2007 after a 7 month escrow. The buyer had trouble getting a lone and was known to local agents as a conniver and impossible to dela with. The house was on the market for a year, received no other offers, sold for $50,000 over the listed asking price, and the old owner once told me the sales contract included money back to the buyer (kickback, lender fraud, enter your favorite term here).
On close on escrow the owner rented the house immediately, to a group of 3 to 5 folks in their 20s, Hollywood wannabees from Nebraskas, yahoo cracker pea-brains, and loud (Stereo blasting at 3AM loud), obnoxious, rude (although I usually describe them in more expletive terms when talking to friends, and to the LAPD officers whom I've gotten to know well).
I predicted a coming foreclosure as soon as the tenants showed up. Don't know what the tenant pay, but covering PITI must be about $5000 to $7000 a month (lower end a guess if some idiot gave the buyer an interest only loan). The house has now been listed for sale for a month, first for $1,499,000, then shifted to a new broker and reduced to $1,449,000 and listed as a "short sale" (either a lie or could thye possibly have taken out an even larger loan than the already inflated purcahse price?).
Oh, the title registered with the county assessor's office lists the house itself as the owner's address, so county property tax bills will be sent to the house . . . don't know about the mortgage.
Spelling fraud is easy enough (F.R.A.U.D.).
But what about any actions to sink this sucker more quickly . . . i.e., get the nasty tenants out, have the lender keep the pool in back chlorinated, and maybe make the swindling purchaser repay a little debt to society.
Any advice? Is there nothing to do but sit back and watch the show over 6 to 12 months?
Got popcorn? Got earplugs? Got any eager beaver Feds who want to make a bust?
I am not, by the way, suggesting that the SBA is some bastion of great risk management. Not hardly.
I am suggesting that we should have another GSE or government agency called something like the "Federal Investment Property Administration" to deal with these loans. Or that Fannie and Freddie should handle them in multifamily division, not single-family division. Or that depositories should do them on the commercial side, not the resi side.
They are small business loans. Treat them as such. That's my argument.
Joe Schmoe, as far as I know (lots of things depend on state laws in which I'm not an expert), no mortgage servicer can evict tenants because they're jerks. Not until the servicer is the owner. That doesn't happen until FC.
Why shouldn't a lender give the lowest interest rates to an investor with good track record, cash flow and reserves?
Exactly. You are asking that lenders make loans to businesses, on the basis of an analysis of the business. Not just the property. Not just some appraiser's comment about likely market rents.
So fine. That's a business loan. Send it to the business loan people.
Usually this results in a billing address being the same as the property address.
Some places still do not have physical mail delivery to street addresses. These are few and far between, but they do exist. Even in places that do, why can't the original borrower have mail sent to a PO Box ? That would circumnavigate the renter getting ahold of the mail (much less seeing it).
If I had a dollar for every time someone told me that conservative risk management doesn't make money, it's risk-taking that makes money, I'd own these little puppies and the kennel to lock them up in.
I want that quote on the back of the CR/Tanta black t-shirts
So fine. That's a business loan. Send it to the business loan people.
Sounds reasonable to me. But I do not see what it has to do with Congress defecating all over contract law and property rights by forcing owners to extend their leases...
Private contract + consenting adults + no fraud = none of your business. Kind of the whole point of a free society.
the owner has a contract with the lender which says if the loan is defaulted, lender can foreclose. there is no provision in the contract stating "unless you happen to have a tenant living on the property at the time."
Forgive me for my 'rudeness'. My Sis did tax law with constitutional 'takings' implications at DOJ for two decades. Her husband still does that though she now teaches... I grew up with this stuff then had to navigate contract issues in my own business. I see no takings conflict.
Just in case, congress is passing statute saying the renter has an interest that needs to be addressed and mandating the time out. They can do that provided it falls under 'Commerce' so states have to butt out AND there is a property interest on the part of the renter and congress can pretty much can say there is one whether the individual lease contract says there isn't.
No court - not even a crazy Bush packed court - will overturn congress on this provided the delay is short & coupled to 'due process' and that it falls under current interpretation of Commerce Clause jurisdiction - which it will in most all cases due to securitization & involvement of federally regulated institutions.
Everything can be considered a taking to somebody - get over it.
I say go directly to jail, since you belong there for Mopery With Intent To Implode.
and to make matters worse, you have to be cell mates with the thimble (he gets beat up all the time by the top hat, who is the ruthless kingpin of the prison drug ring)...your best bet is to beat up the wheelbarrow in the showers, it's the only way to win their respect...either that or hope you roll doubles.
You're probably right, but I was hoping someone would suggest waterboarding the fraudster owners or the lender who issued the obviously fraudulent loan. . . shouldn't there be a hotline somewhere?
By the way, apologies to the good people of Nebraska.
Joe, I draw the line at waterboarding, but I have no objection to making the lenders who wrote these fraudulent loans suffer consequences--public humiliation at the least--for their actions.
What you are talking about, it seems to me, is the "collateral damage." You didn't make the loan, take the loan, rent the property, etc, but there you are, dealing with the effects of it.
But Nemo will tell you it's none of your business, I suspect. You're just the next-door neighbor, not one of the "consenting adults."
Just in case, congress is passing statute saying the renter has an interest that needs to be addressed and mandating the time out. They can do that provided it falls under 'Commerce' so states have to butt out AND there is a property interest on the part of the renter and congress can pretty much can say there is one whether the individual lease contract says there isn't.
I'm still confused about one point in this... If the renter has a contract (or lease if you will) with the borrower/investor... how does the lender/noteholder get the rights to the rent payments after the FC ? Even if the "time out" isn't a taking, I see a renter who no longer has a valid lease with anyone. Does the lender/noteholder now get to FC (or obtain rights to) on the rental lease as well ?
I'm sure I'm picking a nit here, but this goes back to crossing the tees and doting the eyes.
But Nemo will tell you it's none of your business, I suspect. You're just the next-door neighbor, not one of the "consenting adults."
Yes, if you do not like what your neighbors are doing, I suggest you think about something else. This is called "freedom". I realize it is an unfamiliar and unpopular concept, especially with busybodies.
If they are playing their music too loud, we might need laws against "disturbing the peace". Oh, no, wait, we already have those.
Prosecute fraud aggressively. Enforce all other contracts as written. Everything else will attend to itself. It already is...
how does the lender/noteholder get the rights to the rent payments after the FC ?
The idea is that the lender becomes the owner in the FC. (Presumably, if the property went to a third party at the auction, this would also apply to the third party.)
Lenders, once they become owners of RE, now own the other side of that lease. They always have. That is what gives them the right to go to court to have tenants evicted. Nothing has ever stopped a lender from hanging on to the REO and collecting rents just like any other investment property owner, except for the fact that they don't want to because they're not in the business of landlording, they're in the business of mortgage lending.
So this legislation would basically limit eviction rights, as far as I can tell, not FC rights. You just can't evict a paying tenant for six months after you take ownership of the property in FC, as long as there was a valid lease before the FC.
If there was no lease, then the assumption is there's no real harm to the tenant: the tenant accepted the risk of the lack of a lease.
But if the tenant entered into the lease in good faith, the argument goes, then that tenant has some rights not to be put on the street without sufficient protections due to the lessor's breach of contract with the lender.
The obligations would be based on privity of estate as opposed to privity of contract. basically the renter has a leasehold interest in the property while the forcloser would have a freehold estate.
The renter's interest is based not just on the contract, but the lease is itself a property interest that the government is no longer willing to completely extinguish in the foreclosure proceeding. This is not all that strange and I do not see why this is bringing out the hacks who think Lochner is still good law when it has not been for generations.
I have some personal experience with this topic. In our last place I could not for the life of me figure out why the idiot landlord / former occupant wouldn't do a change of address with their mortgage bank. After several weeks with at least 1-2 letters from good old Downey Savings and Loan per week I got the sense that maybe things weren't going quite so well.
Once I accidentally opened a letter not realizing it wasn't for me, and verified that they were way behind on payments, and that the rent that I paid only covered about 2/3 of the PITI. They were eventually able to refi, but I decided I'd seen enough and found a different rental.
But if the tenant entered into the lease in good faith, the argument goes, then that tenant has some rights not to be put on the street without sufficient protections due to the lessor's breach of contract with the lender.
Except that cannot happen. If you have a lease, you cannot be kicked out just because the ownership changes.
This legislation is about forcing lease renewals. Your occupation rights end when your lease expires. How exactly is that so different from not having a lease in the first place?
Lenders, once they become owners of RE, now own the other side of that lease. They always have. That is what gives them the right to go to court to have tenants evicted.
Thats what bugs me about this whole scenario. That the lender now 'owns the other side of the lease', but could conceivably evict the tenant without any default on the part of the tenant. If the lender really 'owns' the lease, why are they not required to abide by the terms of the lease ?
If the remaining term of the lease is/was less than 6 months (at the FC) then the tenant knew that they had a point in time rapidly approaching (and the whole 6-months with Congress is a moot point). If the lease was just signed last month, then its a different situation.
Contracts include the law and public policies such as these proposed reforms. The Agreement between the original parties has never been held to be the entire contract in the entire history of the common law. As a matter of sheer logic, it is obvious that the commands of the sovereign (in our case the people acting through their elected representatives) must be able to control the private legal regimes of contract any sort of public order is to be maintained at all.
Furthermore, since a contract is merely an agreement that the government will in some way enforce, the government has the right to decide to stop enforcing agreements that are illegal and against public policy as it has been doing since before the time of Henry II.
Sorry, Nemo but I think you are confused here. A foreclsoure has historically extinguished all interests in land held by the mortgagor as well as all leases and other interests conveyed by said mortgagor. This bill would limit that. It is not compelling lease renewals as far as I can tell.
I know some people who were renting a house several years ago when it was foreclosed upon.
Their first notice that anything was happening was the future owner showing up at the door offering them $50 for an invitation to look around the place for half an hour. It was already listed for auction.
It happened that he was happy to continue renting to them, though the bankrupt previous owner did steal their deposit and they decided not to bother going to court over it given the very low chances of getting enough back to make it worthwhile after hiring a lawyer.
Seminole, dryfly has it exactly right (and I do have the sheepskin to back it up). It is not a "taking" unless it absolutely and permanently cuts off a right. Heck, even reducing the economic value of a property (such as by the changing of zoning laws so that they no longer allow you to build on the property) is not "taking" as long as you still have the property in the end. Anything else is "regulation" and subject to a due process requirements.
I'm always amazed at all these folks that seem to think constitutional fairness and a rigorous reading thereof allows them to set up their own private country and remain unaffected by society at large. As Oliver Wendell Holmes said, "the right to swing my fist ends where the other man's nose begins."
Landlords do not pay property taxes, renters do. I recall an incident about a dozen years ago when a renter called in December asking why rent was going up by something like $30 in January. I told her that in November a property tax increment in the county had been approved. A moment of stuttering confusion and then it was like a light bulb could be seen going on over her head.
Ahahahahaaa...I have had this exact experience...although my tenants and I ultimately parted company over it. They had campaigned for the hike.
I think you are SOL on the tenants - the current owner simply doesn't care, and any legal moves will take time.
However
He's trying to sell the property, and that's leverage. A rusty old car on bricks in your driveway, a toilet cistern in your front garden that an angry pitbull is tied to, homeless guys paid to sit out front on Open House days and other such things will make it quite difficult for him to sell.
So maybe things won't get better for you, but you can make them worse for him.........
Landlords do not pay property taxes, renters do. I recall an incident about a dozen years ago when a renter called in December asking why rent was going up by something like $30 in January. I told her that in November a property tax increment in the county had been approved. A moment of stuttering confusion and then it was like a light bulb could be seen going on over her head.
Funny story, but it's still the Georgists that are right. Nothing stopped you from increasing the rent by $30 without the property tax increase; it was just a good excuse to raise rent. When the rent gets too high, the tenant just leaves. The tenant doesn't care what your PITI is (T is just one of four).
Really the way this ought to work out is that the renters should be near the very bottom of the list of people who take any kind of loss. They didn't sign up for a risky financial transaction like the bank. They aren't buying a property in an obviously somewhat difficult legal position like the purchaser of a foreclosed home. They didn't fail to uphold their agreements like their landlord.
I would say that the 'up to six months' is rather more generous to the interests of ownership than it should be. It ought to at least be up to one year for residential property to cover the vast majority of residential leases. If banks or new owners of foreclosed properties really want renters out they will almost always be able to buy them out for two months rent or less.
Unfortunately in reality the banks tend to get first grab at everything, either because the law gives it to them explicitly or because they have superior expertise at claim making, claims big enough to be worth making, and are in position to wait if necessary.
The same sort of thing happens in corporate bankruptcy.
Ray, the day I'd lend money on a home that didn't have mail delivery (through an RFD or a street address) is the day you could feed me to the puppies.
Actually, that describes a chunk of the Delaware Valley, smack between Phila. and New York. In the seventies, the new improved (privatized) Post Office gave communities a choice: You can have mail delivery, or your post office. I don't know the numbers, but I'll say that a lot of us went for the office, complete with the jobs that went with them and community bulletin board. But everyone has a Box number, and that's where the mortage bills come from.
The 'takings' argument is bizarre. The government routinely decides who has senior claims and who has junior claims regardless of contract.
In an economic sense, the best public policy transfers the risk whoever is able to handle it at least cost. Lenders seems much better positioned to me than renters to handle the risks associated with the owners defaulting. They have much better information on the financial situation of the owner and deal with risk management every day.
I don't understand the lender preference for evicting tenants. Yesterday, I saw a duplex in my neighborhood that was an REO. I was walking by and decided to pop in for the open house. Both units were empty and since rental demand is high where I live, I can only assume the lender evicted the tenants.
I computed the cap rate on the property to be 2.8%. This property is not going to sell an time soon without a massive price reduction since the cap rate is below treasury yields and there is little reason to expect much in the way rent increases. Evicting the tenants just means no income coming in while the property sits vacant for months. Seems to me the lender would be better off turning it over to a property management company while they were trying to sell it.
I just cannot believe someone can enter into a contract without effective legal rights to the property...
Yeah so I feel like an idiot. But I kind of figured when I sign on the dotted line, the law would require the person signing the other side to have legal standing to do so. (Seems to me that's a pretty natural expectation for any contract.) If someone else can take over the property and invalidate the lease, I do not think this natural expectation has been met.
Just call me "Emily Litella" while I sit here and eat some humble pie.
I just cannot believe someone can enter into a contract without effective legal rights to the property...
Yeah so I feel like an idiot. But I kind of figured when I sign on the dotted line, the law would require the person signing the other side to have legal standing to do so. (Seems to me that's a pretty natural expectation for any contract.) If someone else can take over the property and invalidate the lease, I do not think this natural expectation has been met.
The contract is not invalidated. The leasehold interest is. You can still sue the original landlord for breach of contract, but good luck, seeing how s/he's already in foreclosure.
Gary, I suspect seminole doesn't know just how old dryfly is. (Sorry there dryfly. However, I know you at least have kids in college, if not soon grad school.) Indicates a lack of discovery and due diligence on his part.
"Sorry Ms. Tanta" he says sheepishly. Just needlessly defending the put-upon and trying to save the world again, as seems to be my wont. Sigh I do need to learn not to feed the trolls, as tempting as it is.
As Shnaps notes, the whole article is based on an insinuation that this is a widespread problem, but in fact no particularly compelling evidence that it is.
OK, true enough ... but remember, we're talking about language that was in a bill that passed the House. This wasn't a phantom problem dreamed up by an NYT reporter; it was a section of HR 3915. Apparently, this language dealing with renters was important to legislators in New York and Massachusetts.
During the debate, Frank said that the bill originally said 12 months. The Republicans agreed to six months.
LOL. For dealing with this batch of "kids" you deserve it Tanta. However, I can recommend trying a little Irish whiskey now and then, all the flavor without the charcoal briquette of some of the stronger Scotches. I find it goes well with my cookie - Fig newton, dunked, not stirred.
Tanta, do you ever feel as though you have a group of precocious, brilliant children competing for your attention? Flaming lawyers, wanna-be economists and one white-knuckle meglomaniac (sorry Jas.)
Joe (as in Shmoe) my sympathies about the renters. We only had one flipper move into the neighborhood (and he actually worked on the house) but it was clear he had no investment in the neighborhood or the people.
OTOH we've been really lucky, house prices in my neighborhood hover around 100K and so far the new buyers have the extra cash to update and improve their properties.
...you have programs supposed to stimulate or provide capital for homeownership being used to goose the profits of RE investors. If there is some social or economic benefit to doing that...
Tanta,
Don't you know that Daddy's new Porsche is subsidized by Wal-Mart clerks is both a social and an economic benefit? Daddy thinks so, anyway. So does his Porsche dealer.
Nice post. We should go further than channeling RE speculation into the Small Business Administration, though. I'm sure you'll agree we should drive it out of existence, as inimical to the common good; there are plenty of ways to do this, starting with your idea and proceeding to the tax codes. Since all of them annoyingly require RE leeches to live within their means, produce labor of value, and act as responsible agents in a social contract, they'll be resisted as fiercely as day-glo thongs at Rapture practice.
Tanta - Interrupting the flame wars amongst bar members (of which I am one as well, sans a flamthrower) for just a second, I just want to point out the version that passed the House would never result in a 6 month period from the FCL sale date to when you could evict the tenant.
It indicates 6 months from the first notice of FCL, or the remaining fixed term on the lease, whichever is shorter. As much as Fidelity or First American, or the servicers who are on their dole (er, I mean who hire them), feel the "need for speed" on their foreclosure timelines, there's still this pesky stuff called laws. In short, foreclosures still take time. NewTrak or VendorScape, for all their self-proclaimed gloriousness, still haven't found a way to rewrite state codes or add new caselaw to Lexis. I'm guessing that 6 month provision adds, on average, 60 or so days of post-foreclosure use and occupancy by a tenant.
Of course, HR 3915 also adds a 90 day notice requirement, too. HR 3915 isn't clear on whether you have to wait for the "occupancy period" to expire before you give said notice, or if it can be given while the balance of those 6 months are winding down. I know, however, how the tenant rights' bar will interpret it; meaning, lenders and servicers best be ready to litigate that one (and all other manner of crunchy, chewy, and flaky goodness).
HR 3915 is, of course, the federal government's latest attorney full-employment act, because Lord knows BAPCPA just didn't generate enough billable hours. Now, thanks to our pal Uncle Sam (and his good friend Chuck Rangel), we all get to litigate over what these new TILA amendments really mean (if and when they actually pass), all while servicers complain that their REO timelines aren't meeting those Fannie or Freddie guidelines, and that these darned legal fees are way above those allowables.
Being completely selfish, at least I can say my tax dollars are working for me. Remember, when there's a problem, you can bet the house (er, bad pun) that the lawyers are the ones who will clean up.
"There are few bigger indictments of the lending practices of the last few years than the apparent fact that people mortgaged investment properties, found a creditworthy renter who never failed to make the monthly rental payment, and still ended up in foreclosure."
Apologies if this has been addressed before, but it's a really long thread.
Unless you assume that people are defaulting on their only investment property, it doesn't say that much about recent lending practices. If you have a portfolio of five or more investment properties, and can't find a renter for several of them, and run up lots of costs, you might well end up defaulting on one of the rented houses. This isn't to say that some people didn't lend on properties that couldn't make back the payments in rent, but the articcle doesn't present evidence of that.
In Canada rights of tenancy are unaffected by any change in ownership, including foreclosure. The new owner assumes all contractual obligations regarding the tenancy. Also month-to-month tenants cannot be evicted without just cause. Wanting to sell the house does not qualify.
A new owner can evict a month-to-month tenant (with proper notice), or a tenant at end of lease, to occupy the house himself however.
It is common for banks to give tenants in foreclosed properties an "incentive" to move out (a couple of months rent usually does it).
Bad Credit History Personal Tenant Loans are monetary assistance provided to those tenants who have neither paid their loans in due time nor do they have any property to stand against the loans that they require. These loans can be used according to the whims and fancies of the borrower that is to say expenditure is entirely the personal domain of borrowers. Whether he wants to meet his educational expenses or wants to buy a new flat or maybe even throw a party to his friends the he can complement the cash shortage by attaining these loans. These loans are usually taken for debt consolidation. If you have any queries about bad credit secured loans, bad credit secured loans UK, bad credit personal secured loans visit Bad Credit History Secured Loans
If I'm first the teacher will point at me and ask me a question!
Do they make non-owner-occupied loans intentionally and with full disclosure, or are most of these loans based on a borrower's false claim of intended owner-occupancy?
Do they make non-owner-occupied loans intentionally and with full disclosure, or are most of these loans based on a borrower's false claim of intended owner-occupancy?
Both.
I am saying that I have as much of a problem with the intentional ones as the fraudulent ones. And also that the reason there are so many fraudulent ones is that a resi lender gives you better terms than a small business capital/commercial RE lender would, so there's incentive for an investor to lie even when the loan is processed as non-owner-occupied.
This is where the speculator vs. investor thing comes in: flippers are claiming that they intend to hold these properties and rent them, when in fact they intend to flip them for a quick profit. So they never actually have any intention of making sure that the property cash-flows and that the local rents are reasonable and so on.
First of all, all of the flippers lied and said they were going to occupy, or that it was a "second home" in Buckeye, when their primary residence was in Phoenix-and someone approved their loan because it went through CLUES... Second, the ones who already had so many "second homes" that they had to declare the property would be an investment property, were still able to be approved, even when the OIS from the appraiser showed market rent for the subject property would not even cover the option arm payment- because it went through CLUES. Shame on the lender, and the borrower.
The Wall Street Journal talked about the renter situation back on October 11:
"Mortgage Turmoil Hits Renters"
Mortgage Turmoil Hits Renters - WSJ.com
I do hope it opens up some discussion of the whole issue of the GSEs and FHA and depository lenders, specifically, being allowed to buy/insure/originate investment loans in the single-family residential programs. Insofar as there are always some kind of taxpayer subsidies involved here--either in the insurance of these loans or the tax breaks for the investor or both--you have programs supposed to stimulate or provide capital for homeownership being used to goose the profits of RE investors. If there is some social or economic benefit to doing that, then I think those loans should run through something like the Small Business Administration or another kind of program explicitly designed to support entrepreneurship.
I agree.
This is where the speculator vs. investor thing comes in: flippers are claiming that they intend to hold these properties and rent them, when in fact they intend to flip them for a quick profit. So they never actually have any intention of making sure that the property cash-flows and that the local rents are reasonable and so on.
The originators didn't look too hard at it either 'cause they planned to flip the mortgage into a security.
It had become a Flipper Nation.
Shame on the lender, and the borrower.
Yep.
So the question becomes, how do you remove the incentives for this shameful behavior?
I see legislation like this as similar to cram-downs. Is it always "fair" to the lender? Not necessarily.
Do I care? Not in the slightest. If I know ahead of time that I might face an "unfair" penalty if this loan goes bad, I might just be a more judicious underwriter and processor of loans up front.
Stinging comments, Tanta, but I think they go to the heart of this mess.
...I do hope it opens up some discussion of the whole issue of the GSEs and FHA and depository lenders, specifically, being allowed to buy/insure/originate investment loans in the single-family residential programs...
Amen!
Bush will veto this. It isn't going to happen.
Oh boy newbie landlords! wait til they find out the tenants decided to start breeding pitbulls in the garage,hey they needed pits to guard the hydroponic crop now growing in what used to be the bedrooms...where the walls are now covered with black mold due to humidity.Oh,and your eviction attorney demands $6 k up front and tells you they will be out in 6 months if things go well.No exaggeration in much of california...The Joys of being a landlord!
Damn, these banks must be taking a big hit just from their increased lobbying costs.
With government incentives, flippers and speculators only made the housing shortage worse. They further fuled prices, ultimately denying Joe Sixpack the ability to buy.
Will this law effect private lenders?
Lee in Santa Rosa.
When did the NYT start to suck so bad?
This is an problem for "THOUSANDZ of American families"?
That's precious few folks in the broader context of current mortgage woes. After all, if a unit is rented, the investment has some cash-flow, and was less likely to have been bought strictly to be flipped.
Even if the investor does default despite their cash-flow, I have a hard time believing these occupants have NO NOTICE WHATSOEVER until "the sheriff is at the door changing the locks".
Finally, the reporter includes a quote from the HOMELESS SHELTER representative - despite her failure to offer corroborrative anedotes. No surprise there - if you a renter who is ordered to vacate for ANY REASON - do you think ya might simply sign a new lease for some other apartment instead of moving your family to the nearest overpass?
Interesting that they didn't bother to ask any mortgage servicer how they might handle such a situation.
Stinging comments, Tanta, but I think they go to the heart of this mess.
I agree again.
I have a question for both MOM & Tanta: How much do you think this mess is a result of 'Peter Principle'?
Meaning we've had such a long credit boom (from the early 90s really with a short blip around Y2K)... that a whole generation of managers have come into the system and been 'raised up' without ever knowing there was defense let alone learning how to play it?
So now these folks run into cram downs & messy liquidations and counter party risk... and they've only heard about it in passing during a sleepy MBA lecture some weekend or after work some Tuesday night years ago...
I mean the more I read of these 'who could have known' issues the more I'm amazed they didn't have the things already modeled with contingencies (even if less than ideal) already in place.
And ya I have some gray hair and scars too.
Thoughts?
Will this law effect private lenders?
I see no indication that it wouldn't. If it's about FC rights as such, it affects anyone who uses the legal remedy of FC to deal with a bad debt.
That gets into the question of how we're ending up with federal law controlling what has always been state law. I'll let the Legal Beagles(tm) weigh in on that one.
That gets into the question of how we're ending up with federal law controlling what has always been state law. I'll let the Legal Beagles(tm) weigh in on that one.
Good old commerce clause, one size fits all - poorly. My guess is it will ultimately only be applicable to loans in FC via out of state interests or through 'national banks'. Locals need not apply.
But in today's slice and dice and throw risk to the wind doesn't that just about include everyone?
asty day for stocks
GS is saying sell Citi
But maybe Citi is saying sell GS
Well basically Wall Street is saying sell myself
that a whole generation of managers have come into the system and been 'raised up' without ever knowing there was defense let alone learning how to play it?
Oh, trust me. They've had MOM and Tanta and our sistren and brethren of the middle-aged grizzled veteran hand-wringing society bitching at them as loudly as we could for years.
If I had a dollar for every time someone told me that conservative risk management doesn't make money, it's risk-taking that makes money, I'd own these little puppies and the kennel to lock them up in.
I think it's hard for people outside the industry to understand just how routine and basic and simple some of the protections that we blew through really were. Refusing to fund a loan sale until you have an original executed properly drafted assignment in your hands? Um. There are really and truly thousands of people employed in the mortgage business whose actual job descriptions explicitly involve this review. I myself have trained literally hundreds of people to review assignments, and I have reviewed countless thousands of them (hell, I've executed thousands of them as an officer of the seller of the loan).
"Assignment risk" was never some black swan thing or some kind of rocket science that nobody fully understood. We aren't talking LTCM's quant model. We're talking about some $40,000 a year employee saying "hey, we can't fund this loan because the assignment is wrong or missing" and some well-paid prick overruling that because "we don't want to piss off mega-client." Or laying off the $40K employee and hiring Tempz R Us to review collateral documents.
I looked at a big pile of "collateral files" several years ago for a securitization deal where the file contained copies of the homeowner's insurance policy (which doesn't belong in that file) instead of the title insurance policy (which does). This is an incredibly amateur mistake. Further probing revealed that the lender "outsourced" its collateral file preparation work to a bunch of nimrods who were told to find "insurance policies" and stick them in folders. They did not know the difference between one policy or another, because they didn't even know what "title insurance" is! They were told to find a piece of paper with the word "insurance" on it and move it from file folder A to file folder B, and then check off a box on a list.
We are living with the results of that kind of business practice.
My family looked at a ton of income properties in the last couple of years. Things we noticed...
Tons of no/low down offers,think 5% or less.
Larger buildings that even with 20% down would be lucky to cash flow positive the first year.
Condo conversion was a big point in selling(LOL!!!).
All i know as a current owner of apartments...Occupancy in S.W. Flordida sucks ass right now(less than 80%). I have the ability to kick SFR rental prices into the basement,which is happening right now. I just rented a fulley remodeled 2/2 for 550.00 month in Cape Coral,Fl. yesterday. This is down from a peak of 750-800.
Oh,yea,itsa gonna get really fugly. Honestly all the idiots that had no clue about rental properties can freaking crash and burn...
Maybe,just maybe,some sanity will return...
Chris
I guess there's nothing they can't do under the commerce clause, but imo this is an unconsitutional taking of property.
Commercial RE is following Residential RE
you know what that means ?
MIT index shows first drop in commercial property value since '03
That's precious few folks in the broader context of current mortgage woes. After all, if a unit is rented, the investment has some cash-flow, and was less likely to have been bought strictly to be flipped.
When I read this, shnaps, I thought, let me guess. Those loans were originated as "owner occupied" or "second homes," so nobody put a 1-4 Family Rider on the mortgage. Having failed to do that, the servicer can't collect the rents directly. So the owner is pocketing the rent and letting the house go to FC.
But I still don't know how the tenant didn't get some mail from the servicer, if the property was originally declared to be owner-occupied. Usually this results in a billing address being the same as the property address.
So I hypthesize that this is one of those things where a servicer processes a change of billing address without questioning why it is doing that.
In my view every notice of breach should go to the property address.
The Joys of being a landlord
Oh yeah. Is there any better education on how wildly different some people think?
It had become a Flipper Nation.
Reminds me of the sixties TV show:
"They call him Flipper, Flipper,
faster than lighting-
No one you see-
Is smarter than he,.."
Set in Florida, too!
"I have a hard time believing these occupants have NO NOTICE WHATSOEVER until "the sheriff is at the door changing the locks"."
I was on the loosing end of this in 2000 in my first place out of school here in DC. We lucked out to some degree because the bank wanted us out, and was willing to make it worth while financially for us to go quickly. But notice I got where from a neighbor who knew the family. In hindsight, there were signs but I didn't know enough to piece them together. While ignorance is no defense in the eyes of the law, I paid my rent, kept the yard up, actually shoveled when it did snow, and generally took care of the place, so it seems like a harsh way to learn the lesson.
I guess there's nothing they can't do under the commerce clause, but imo this is an unconsitutional taking of property.
No no no... there is no 'unconstitutional taking' only 'delaying'... and the constitutional protections for 'taking' are that property can't be taken without due process of law first. What you are looking at is due process.
Realize the renter has 'property' in this too, a lease is 'property' the which is a claim to live there for a specified period of time compensated by paying of rent. The 'owners' of the actual real estate property - both the defaulting and foreclosing parties in transition also have competing claims (sort of passing from one to another).
There is no clear cut 'taking' here at all - rather a sorting out. A due process time-out will be held up by courts with no problem.
Commerce clause argument will apply however if all parties are local & under state regulation.
I still don't know how the tenant didn't get some mail from the servicer, if the property was originally declared to be owner-occupied.
Our tenants still get our mail, even without being owner-occupied. After closing we never got the first communication from the lender at the mailing address, it always was sent to one of the rental units (don't know how they decided which one.) Mostly WaMu and CW.
The only people I have known who made a living as landlords worked d*****d (family values you know) hard at it.
After checking references, credit reports, etc., they charged enough rent to cover all costs, answered the 3AM calls about clogged plumbing themselves, did their own painting, carpets, etc., when tenants moved out.
Oh, they put a line in the rental agreement that required the tenant to immediately vacate if caught doing anything illegal. Then they did periodic inspections to catch the pot growing and pit bull breeding problems.
Flippers looking for an easy buck get what they deserve.
Does this make the market value of the loan higher or lower?
If it makes the value lower, then it is money out of my pocket as the lender.
When I issued the loan there was no six month delay, now there is a six month delay, that makes the loan worth less money and is therefore a taking.
Good point, Tanta.
I guess what really cheeses me off is that this legislation is not really going to result in anything meaningful. To suggest this is 'needed' is kind of a stretch to me...my experience is that once actual humanoids begin loss mit efforts and they realize what the situation is (unaware non-owner occupants), they'd normally work with those occupants so that they agree to simply vacate voluntarily within a reasonable timeframe.
The article did mention one occupant who was given a cash offer to GTFO.
After closing we never got the first communication from the lender at the mailing address, it always was sent to one of the rental units (don't know how they decided which one.)
It's because your mortgage and your note both have sections about "giving notices" that indicate where the lender is going to send important stuff (including notification of transfer of servicing as well as nasty things like NOD).
For owner-occupied properties it isn't generally a problem, since the default assumption is that the subject property address is the mailing address.
For any non-owner-occupied property, it is the owner's responsibility to make sure that the lender adds the owner's mailing address to the list of places notice must be given. You really want to make sure that issue is squared away at the loan closing, not afterwards.
A while ago we were looking at some website where there were all kinds of complaints about Litton servicing. One of my faves was this dude who claimed Litton never told him his payments were past due. He says he called them and told them to send statements to a different address, and also to give him his account number, and they wouldn't do that over the phone.
Well, no. Score one for Litton.
Dude claims that Litton is intentionally trying to make sure he doesn't get notices. I suspect Litton is trying to protect itself from potential rent-skimming or some other fraud.
But as our Shnaps notes, the press doen't generally delve into some of these stories to figure out what's really going on.
and was willing to make it worth while financially for us to go quickly. But notice I got where from a neighbor who knew the family.
That's what I'm talking 'bout, MOB.
I have a hard time believing these occupants have NO NOTICE WHATSOEVER until "the sheriff is at the door changing the locks".
California law says you have to notify occupants, (usually John Doe 1-10 to cover all bases)either by mail and/or posting on the door, that the sheriff is coming on such and such a date, and the sheriff doesn't change the locks for you.
Most of the time, you can tell when your landlord is a flipper. When my wife and I started to look for a house to rent, we made sure that (a) it was run by a property manager with strong ties to the community and (b) had served as a rental property for many, many years.
Plus, the homes that have both "For Sale" and "For Rent" signs out at the same time (there is one on my way to work) are usually a red flag.
Well, for an investor in a property with almost no down payment, and defaulting tenants, it can make sense to walk away and let the foreclosure artists move the tenant out.
On the other hand, as Tanta has said, this problem arose because of the casino mentality from Wall Street that invaded a very sedate business that depended on investment participation inviting oversight.
With every step of disintermediation, the problem of responsibility for the investment also was diffused, or even sold before problems were ever manifest. One can hope we have learned our lessons, but I doubt it until this market returns to nominal profitability. That may take years, now commercial is next.
Someday this war's gonna end...
Walker, I looked for exactly the opposite. A new owner with multiple properties and a mortgage with a company known for 100% LTV option arms. Reason being is that I will have to move but by that time, will have also recieved 5 months of free rent. Now I need to see if this new renters protection will help me stay even longer.
"The House bill calls for new owners usually lenders to give tenants a 90-day notice before foreclosure, then continue leases for up to six months after. Renters without leases would have 90 days to leave the property. "
Sounds like a fair judgment in favor of the renters. My question is though, who gets the rent payment--lender or borrower? The original owner is probably in bankruptcy. If I were a renter and told to leave in 90 days I would consider not paying the rent and use that money instead to put toward a new lease.
So the question becomes, how do you remove the incentives for this shameful behavior?
We Georgists/geo-libertarians say raise property taxes to capture the site value of the property.
People renting out single-family homes are the true bloodsucking social parasites in our present system.
I'm no landlord, but doesn't it seem logical that if you increase potential liability to the homeowner that the owner will increase the cost to the renter...or are renters immune from any risk. Any business that has increased risk WILL have increase costs passed on. Either security deposits will drastically increase or rents will, but I guarantee you, it won't be the property owner.
When I issued the loan there was no six month delay, now there is a six month delay, that makes the loan worth less money and is therefore a taking.
No it is not a taking - it is a cost.
The renter has a contract and that is 'property' also and costs associated with having it abrogated. Kicking him/her out without any recourse could also be construed as a taking (cost associated with a rapid move they though they were protected from by signing a lease contract and every bit as legitimate a claim of 'taking' as is being delayed from pursuing a rapid eviction).
The changing of hands can require a legal sorting out that can take some time & incur costs to any or all parties - this what the due process is about. The courts will not find a six month delay as being a constitutional injustice - sorry.
People think they can do any old shit they want and any impediment to that is a 'taking' - not so if their actions affect other parties with claim - that's what the due process clause is about. Courts have upheld that from the get go.
Commerce clause on the other hand says that if it doesn't have anything to do with parties from different states or nationally regulated parties then go fish - kick it back to state law.
This is Biz Law 101 stuff, things people are supposed to have known like from undergrad daze... even non-lawyers.
"Oh boy newbie landlords! wait til they find out the tenants decided to start breeding pitbulls in the garage,hey they needed pits to guard the hydroponic crop now growing in what used to be the bedrooms...where the walls are now covered with black mold due to humidity.Oh,and your eviction attorney demands $6 k up front and tells you they will be out in 6 months if things go well.No exaggeration in much of california...The Joys of being a landlord!"
That's why you get a pitbull of a property management agency. It's worth the X percent, even if you do some of the work yourself. I also found that if I bought the property through the real estate arm of the management agency, they'd reduce their rates by a third for, like, forever.
Next time around, I probably will do more of the management myself. But if you don't have the time, an agency is a must, even if it puts you in the negative. They protect your property.
Well, for an investor in a property with almost no down payment, and defaulting tenants, it can make sense to walk away and let the foreclosure artists move the tenant out.
Right. But the NYT article says this is about tenants who are NOT defaulting.
So rent is being paid. Either it is not enough to cover PITI on the mortgage (probably bad cash-flow analysis when the loan was made) or it is but the owner is pocketing it and not making the nut.
Prudent lenders put a document called a 1-4 Family Rider (Assignment of Rents) on the mortgage for an investment property that gives it the legal right to collect the rents directly. I know conservative midwestern community bank belt & suspenders lenders who put a 1-4 rider on every loan they close, even when there's no reason to think it will go rental. They eat the few dollars in additional recording fees and doc prep because they think it's cost-effective in the long run.
But in the go-go lending world that's exactly the kind of "red tape" cost big lenders cut.
--
"I do hope it opens up some discussion of the whole issue of the GSEs and FHA and depository lenders, specifically, being allowed to buy/insure/originate investment loans in the single-family residential programs. Insofar as there are always some kind of taxpayer subsidies involved here--either in the insurance of these loans or the tax breaks for the investor or both--you have programs supposed to stimulate or provide capital for homeownership being used to goose the profits of RE investors. If there is some social or economic benefit to doing that, then I think those loans should run through something like the Small Business Administration or another kind of program explicitly designed to support entrepreneurship. Including them in programs that are supposed to be about owner-occupied housing distorts incentives and creates the kind of servicing problems we see here: it is, after all, true that residential mortgage servicers aren't exactly set up to be emergency substitute landlords."
I agree with your sentiments above, Tanta.
Only in a financial system controlled by crooks would we have govt. programs that involve pushing LARGE amount of debt on households in the mane of helping them, even so-called lower-income people. Raising Fannie/Freddie limit to $1M, as Bernanke supports, is helping anyone? There is a reason why blacks, Hispanics and single women were the targets of the sub-prime mortgages. Crooks always look for easy targets first.
The denial about the true nature of our economic system must end some day.
Jas
dryfly don't get snotty with me, I was practicing law when you were still just a gleam in your daddy's eye.
the renter has a contract with the OWNER. if state law says the lender is not subject to the terms of that contract, the fed government has no business overruling local law.
the owner has a contract with the lender which says if the loan is defaulted, lender can foreclose. there is no provision in the contract stating "unless you happen to have a tenant living on the property at the time."
they can get away with it because the constitution has been totally emasculated, but that doesn't make it right.
Seminole,
Just because regualtion may make the collateral for your loan less valuable do not make the regualtion a taking. You might want to read the Penn Central case or if you want to see the absolute farthest the court is willing to go, try Lucas v. South Carolina Coastal Council, which only found a taking where there was a complete expropriation of all uses of a property on a permanent basis (a previous case from Nevada had upheld temporary restrcitions as not violating the takings clause).
sorry, the above is me.
I'm no landlord, but doesn't it seem logical that if you increase potential liability to the homeowner that the owner will increase the cost to the renter...
This is increasing the potential liability of the lender to the landlord, not to the landlord.
It would mean that the lender adds some potential extra costs in, no doubt. That would make it more expensive, possibly, for people to finance rental properties.
But if it's the "true cost" of an investment property, why not? Sure, rents can only go so high to cover this additional cost, but that's the point. The deals will stop making sense, so the lenders stop making the loans, until those RE prices go down or the overbuilding of single-family residences goes down or what have you.
Seminole,
Oddly enough having a tenant paying rent for the premises increases the value anyway. I for one would contemplate buying an occupied property over an empty one if the tenant was qualified. I would think that investor would pay more for such a deal, and that mortgage servicers should contemplate the mechanics of having the pool pickup the insurance and have a property maintenance company deal with any issues. That might be cheaper than selling a property that is trashed by someone who played fair and still got treated like sh*t by a typical foreclosure outfit. But then, it ain't my money on the line right now.
Every single property I have owned in the last decade has had a 1-4 rider on it. My lenders seem to expect it- but then I have always been honest about owning property for investment.
Someday this war's gonna end...
Generally speaking, unless the tenant recorded its lease prior to recordation of the mortgage (doubtful), the mortgage claim is superior and can wipe out the subordinate lease. Of course, local laws and political reality may render this irrelevant.
If I have a lease and the property is sold to a new owner, typically the lease is still legally binding on that new owner. Why should it be any different in the case of a bank becoming the new owner through foreclosure?
Couple of comments....
SBA is not the way to go for NOO properties. Anyone in the biz knows there are adequate underwriting rules for investment properties - all we need to do is start following them instead of ignoring them.
Notices delivered to the home will not be in the renter's name and I doubt any renter will open mail that is addressed to his/her landlord. A sheriff's notice tacked to the door is usually the first indication the renter may have a problem.
Servicers collecting rents - I am not sure it is that difficult. (But I will defer to Tanta on that - her servicing knowledge is much deeper than mine.) It seems to me that servicers might want to make a note in the system that renter is making payments per the lease. Keeps them from having to dump another property on the market, generates cash flow while it is in FC process......IMHO, lots of advantages to that.
What am I missing, Tanta??
Oddly enough having a tenant paying rent for the premises increases the value anyway.
Right. But they're not just marketing this REO to investors. Since it's SFD, they want to list it and get an offer from an owner-occupant. O-Os won't look at or bid on a tenant-occupied property. They want a pretty empty vacant decorated move-in condition house.
I return to my original point: treating SFD/resi loans and investment loans in the same way is asking for bad karma.
We Georgists/geo-libertarians say raise property taxes to capture the site value of the property.
People renting out single-family homes are the true bloodsucking social parasites in our present system. - Troy
Landlords do not pay property taxes, renters do. I recall an incident about a dozen years ago when a renter called in December asking why rent was going up by something like $30 in January. I told her that in November a property tax increment in the county had been approved. A moment of stuttering confusion and then it was like a light bulb could be seen going on over her head.
What am I missing, Tanta??
Probably not much. As Shnaps notes, the whole article is based on an insinuation that this is a widespread problem, but in fact no particularly compelling evidence that it is.
The dilemma for servicers is that if a tenant is paying rent, then you have to find out why the owner isn't paying you.
Either the rent is just not enough to cover PITI--which means there's no advantage to collecting it for the long haul, you're just reducing your losses--or it is, but the owner isn't paying you.
If it's the latter case, you have to FC. You can't just become a rent-collecting service for an irresponsible landlord.
Tanta thus spake truly: I return to my original point: treating SFD/resi loans and investment loans in the same way is asking for bad karma.
Absolutely. The problem is that too many "rules of thumb" get in the way of properly pricing and granting different classes of loans. Why shouldn't a lender give the lowest interest rates to an investor with good track record, cash flow and reserves? Instead there are an extra 75 bps and such. This encouraged lying which introduced a moral hazard which brought us to a situation where too many amateurs peed in the pool.
Tanta and Clever Readers
I live next to a house in LA with an owner/tenant/mortgage situation like the one Tanta and Shnaps describe in their exchanges on this thread. Any advice on how to pull the rug out from under the fraudster owners, e.g. by reporting the fraud?
Here's a quick synopsis. The ugly over-built house next door sold for $1,325,000 in January 2007 after a 7 month escrow. The buyer had trouble getting a lone and was known to local agents as a conniver and impossible to dela with. The house was on the market for a year, received no other offers, sold for $50,000 over the listed asking price, and the old owner once told me the sales contract included money back to the buyer (kickback, lender fraud, enter your favorite term here).
On close on escrow the owner rented the house immediately, to a group of 3 to 5 folks in their 20s, Hollywood wannabees from Nebraskas, yahoo cracker pea-brains, and loud (Stereo blasting at 3AM loud), obnoxious, rude (although I usually describe them in more expletive terms when talking to friends, and to the LAPD officers whom I've gotten to know well).
I predicted a coming foreclosure as soon as the tenants showed up. Don't know what the tenant pay, but covering PITI must be about $5000 to $7000 a month (lower end a guess if some idiot gave the buyer an interest only loan). The house has now been listed for sale for a month, first for $1,499,000, then shifted to a new broker and reduced to $1,449,000 and listed as a "short sale" (either a lie or could thye possibly have taken out an even larger loan than the already inflated purcahse price?).
Oh, the title registered with the county assessor's office lists the house itself as the owner's address, so county property tax bills will be sent to the house . . . don't know about the mortgage.
Spelling fraud is easy enough (F.R.A.U.D.).
But what about any actions to sink this sucker more quickly . . . i.e., get the nasty tenants out, have the lender keep the pool in back chlorinated, and maybe make the swindling purchaser repay a little debt to society.
Any advice? Is there nothing to do but sit back and watch the show over 6 to 12 months?
Got popcorn? Got earplugs? Got any eager beaver Feds who want to make a bust?
Joe
I am not, by the way, suggesting that the SBA is some bastion of great risk management. Not hardly.
I am suggesting that we should have another GSE or government agency called something like the "Federal Investment Property Administration" to deal with these loans. Or that Fannie and Freddie should handle them in multifamily division, not single-family division. Or that depositories should do them on the commercial side, not the resi side.
They are small business loans. Treat them as such. That's my argument.
alone a lone could not get a loan.
D'Oh!
Maybe Homer Simpson was the loan officer who did the underwriting.
Joe
Joe Schmoe, as far as I know (lots of things depend on state laws in which I'm not an expert), no mortgage servicer can evict tenants because they're jerks. Not until the servicer is the owner. That doesn't happen until FC.
Why shouldn't a lender give the lowest interest rates to an investor with good track record, cash flow and reserves?
Exactly. You are asking that lenders make loans to businesses, on the basis of an analysis of the business. Not just the property. Not just some appraiser's comment about likely market rents.
So fine. That's a business loan. Send it to the business loan people.
Usually this results in a billing address being the same as the property address.
Some places still do not have physical mail delivery to street addresses. These are few and far between, but they do exist. Even in places that do, why can't the original borrower have mail sent to a PO Box ? That would circumnavigate the renter getting ahold of the mail (much less seeing it).
If I had a dollar for every time someone told me that conservative risk management doesn't make money, it's risk-taking that makes money, I'd own these little puppies and the kennel to lock them up in.
I want that quote on the back of the CR/Tanta black t-shirts
Ray, the day I'd lend money on a home that didn't have mail delivery (through an RFD or a street address) is the day you could feed me to the puppies.
I grew up in the sticks. I know about legal addresses that are "Box 12 Route 6, Bumblefork."
If anyone made a mortgage on a property with a PO Box address, I say go directly to jail, since you belong there for Mopery With Intent To Implode.
If anyone made a mortgage on a property with a PO Box address, I say go directly to jail, since you belong there for Mopery With Intent To Implode.
What about 23 different properties with the same PO Box address?
J Shmoe -
you know, I used to think that MTV "Real World" show was unrealistic...
good luck. I don't think there anything else you can do.
So fine. That's a business loan. Send it to the business loan people.
Sounds reasonable to me. But I do not see what it has to do with Congress defecating all over contract law and property rights by forcing owners to extend their leases...
Private contract + consenting adults + no fraud = none of your business. Kind of the whole point of a free society.
HB index is out...
the owner has a contract with the lender which says if the loan is defaulted, lender can foreclose. there is no provision in the contract stating "unless you happen to have a tenant living on the property at the time."
Forgive me for my 'rudeness'. My Sis did tax law with constitutional 'takings' implications at DOJ for two decades. Her husband still does that though she now teaches... I grew up with this stuff then had to navigate contract issues in my own business. I see no takings conflict.
Just in case, congress is passing statute saying the renter has an interest that needs to be addressed and mandating the time out. They can do that provided it falls under 'Commerce' so states have to butt out AND there is a property interest on the part of the renter and congress can pretty much can say there is one whether the individual lease contract says there isn't.
No court - not even a crazy Bush packed court - will overturn congress on this provided the delay is short & coupled to 'due process' and that it falls under current interpretation of Commerce Clause jurisdiction - which it will in most all cases due to securitization & involvement of federally regulated institutions.
Everything can be considered a taking to somebody - get over it.
Sounds like they needed some PR help in passing this bill so it isn't just a bailout for the homeowners.
I say go directly to jail, since you belong there for Mopery With Intent To Implode.
and to make matters worse, you have to be cell mates with the thimble (he gets beat up all the time by the top hat, who is the ruthless kingpin of the prison drug ring)...your best bet is to beat up the wheelbarrow in the showers, it's the only way to win their respect...either that or hope you roll doubles.
Classic!
Shnaps and Tanta,
You're probably right, but I was hoping someone would suggest waterboarding the fraudster owners or the lender who issued the obviously fraudulent loan. . . shouldn't there be a hotline somewhere?
By the way, apologies to the good people of Nebraska.
Joe
Joe, I draw the line at waterboarding, but I have no objection to making the lenders who wrote these fraudulent loans suffer consequences--public humiliation at the least--for their actions.
What you are talking about, it seems to me, is the "collateral damage." You didn't make the loan, take the loan, rent the property, etc, but there you are, dealing with the effects of it.
But Nemo will tell you it's none of your business, I suspect. You're just the next-door neighbor, not one of the "consenting adults."
Just in case, congress is passing statute saying the renter has an interest that needs to be addressed and mandating the time out. They can do that provided it falls under 'Commerce' so states have to butt out AND there is a property interest on the part of the renter and congress can pretty much can say there is one whether the individual lease contract says there isn't.
I'm still confused about one point in this... If the renter has a contract (or lease if you will) with the borrower/investor... how does the lender/noteholder get the rights to the rent payments after the FC ? Even if the "time out" isn't a taking, I see a renter who no longer has a valid lease with anyone. Does the lender/noteholder now get to FC (or obtain rights to) on the rental lease as well ?
I'm sure I'm picking a nit here, but this goes back to crossing the tees and doting the eyes.
But Nemo will tell you it's none of your business, I suspect. You're just the next-door neighbor, not one of the "consenting adults."
Yes, if you do not like what your neighbors are doing, I suggest you think about something else. This is called "freedom". I realize it is an unfamiliar and unpopular concept, especially with busybodies.
If they are playing their music too loud, we might need laws against "disturbing the peace". Oh, no, wait, we already have those.
Prosecute fraud aggressively. Enforce all other contracts as written. Everything else will attend to itself. It already is...
how does the lender/noteholder get the rights to the rent payments after the FC ?
The idea is that the lender becomes the owner in the FC. (Presumably, if the property went to a third party at the auction, this would also apply to the third party.)
Lenders, once they become owners of RE, now own the other side of that lease. They always have. That is what gives them the right to go to court to have tenants evicted. Nothing has ever stopped a lender from hanging on to the REO and collecting rents just like any other investment property owner, except for the fact that they don't want to because they're not in the business of landlording, they're in the business of mortgage lending.
So this legislation would basically limit eviction rights, as far as I can tell, not FC rights. You just can't evict a paying tenant for six months after you take ownership of the property in FC, as long as there was a valid lease before the FC.
If there was no lease, then the assumption is there's no real harm to the tenant: the tenant accepted the risk of the lack of a lease.
But if the tenant entered into the lease in good faith, the argument goes, then that tenant has some rights not to be put on the street without sufficient protections due to the lessor's breach of contract with the lender.
Rayonthefarm,
The obligations would be based on privity of estate as opposed to privity of contract. basically the renter has a leasehold interest in the property while the forcloser would have a freehold estate.
The renter's interest is based not just on the contract, but the lease is itself a property interest that the government is no longer willing to completely extinguish in the foreclosure proceeding. This is not all that strange and I do not see why this is bringing out the hacks who think Lochner is still good law when it has not been for generations.
I have some personal experience with this topic. In our last place I could not for the life of me figure out why the idiot landlord / former occupant wouldn't do a change of address with their mortgage bank. After several weeks with at least 1-2 letters from good old Downey Savings and Loan per week I got the sense that maybe things weren't going quite so well.
Once I accidentally opened a letter not realizing it wasn't for me, and verified that they were way behind on payments, and that the rent that I paid only covered about 2/3 of the PITI. They were eventually able to refi, but I decided I'd seen enough and found a different rental.
-Jaso
But if the tenant entered into the lease in good faith, the argument goes, then that tenant has some rights not to be put on the street without sufficient protections due to the lessor's breach of contract with the lender.
Except that cannot happen. If you have a lease, you cannot be kicked out just because the ownership changes.
This legislation is about forcing lease renewals. Your occupation rights end when your lease expires. How exactly is that so different from not having a lease in the first place?
Lenders, once they become owners of RE, now own the other side of that lease. They always have. That is what gives them the right to go to court to have tenants evicted.
Thats what bugs me about this whole scenario. That the lender now 'owns the other side of the lease', but could conceivably evict the tenant without any default on the part of the tenant. If the lender really 'owns' the lease, why are they not required to abide by the terms of the lease ?
If the remaining term of the lease is/was less than 6 months (at the FC) then the tenant knew that they had a point in time rapidly approaching (and the whole 6-months with Congress is a moot point). If the lease was just signed last month, then its a different situation.
Nemo,
Contracts include the law and public policies such as these proposed reforms. The Agreement between the original parties has never been held to be the entire contract in the entire history of the common law. As a matter of sheer logic, it is obvious that the commands of the sovereign (in our case the people acting through their elected representatives) must be able to control the private legal regimes of contract any sort of public order is to be maintained at all.
Furthermore, since a contract is merely an agreement that the government will in some way enforce, the government has the right to decide to stop enforcing agreements that are illegal and against public policy as it has been doing since before the time of Henry II.
Sorry, Nemo but I think you are confused here. A foreclsoure has historically extinguished all interests in land held by the mortgagor as well as all leases and other interests conveyed by said mortgagor. This bill would limit that. It is not compelling lease renewals as far as I can tell.
I'm sorry, maybe I am misunderstanding this.
Does the lease actually become invalidated once the property enters foreclosure?
OK, then I change my position and I agree with y'all.
I know some people who were renting a house several years ago when it was foreclosed upon.
Their first notice that anything was happening was the future owner showing up at the door offering them $50 for an invitation to look around the place for half an hour. It was already listed for auction.
It happened that he was happy to continue renting to them, though the bankrupt previous owner did steal their deposit and they decided not to bother going to court over it given the very low chances of getting enough back to make it worthwhile after hiring a lawyer.
OT -
Anyone catch today's special section in the WSJ - "The 50 Women to Watch - 2007".
Coming in at No. 5 is Sheila Bair, whose "many predicitions have materialized."
/throwing up all over my desk.
Seminole, dryfly has it exactly right (and I do have the sheepskin to back it up). It is not a "taking" unless it absolutely and permanently cuts off a right. Heck, even reducing the economic value of a property (such as by the changing of zoning laws so that they no longer allow you to build on the property) is not "taking" as long as you still have the property in the end. Anything else is "regulation" and subject to a due process requirements.
I'm always amazed at all these folks that seem to think constitutional fairness and a rigorous reading thereof allows them to set up their own private country and remain unaffected by society at large. As Oliver Wendell Holmes said, "the right to swing my fist ends where the other man's nose begins."
Oh, here is the link:
The 50 Women to Watch 2007 - WSJ.com
Robert Cote wrote:
Landlords do not pay property taxes, renters do. I recall an incident about a dozen years ago when a renter called in December asking why rent was going up by something like $30 in January. I told her that in November a property tax increment in the county had been approved. A moment of stuttering confusion and then it was like a light bulb could be seen going on over her head.
Ahahahahaaa...I have had this exact experience...although my tenants and I ultimately parted company over it. They had campaigned for the hike.
Joe
I think you are SOL on the tenants - the current owner simply doesn't care, and any legal moves will take time.
However
He's trying to sell the property, and that's leverage. A rusty old car on bricks in your driveway, a toilet cistern in your front garden that an angry pitbull is tied to, homeless guys paid to sit out front on Open House days and other such things will make it quite difficult for him to sell.
So maybe things won't get better for you, but you can make them worse for him.........
seminole, you haven't the slightest idea of takings jurisprudence.
a little knowledge is a dangerous thing.
Robert Cote wrote:
Landlords do not pay property taxes, renters do. I recall an incident about a dozen years ago when a renter called in December asking why rent was going up by something like $30 in January. I told her that in November a property tax increment in the county had been approved. A moment of stuttering confusion and then it was like a light bulb could be seen going on over her head.
Funny story, but it's still the Georgists that are right. Nothing stopped you from increasing the rent by $30 without the property tax increase; it was just a good excuse to raise rent. When the rent gets too high, the tenant just leaves. The tenant doesn't care what your PITI is (T is just one of four).
Really the way this ought to work out is that the renters should be near the very bottom of the list of people who take any kind of loss. They didn't sign up for a risky financial transaction like the bank. They aren't buying a property in an obviously somewhat difficult legal position like the purchaser of a foreclosed home. They didn't fail to uphold their agreements like their landlord.
I would say that the 'up to six months' is rather more generous to the interests of ownership than it should be. It ought to at least be up to one year for residential property to cover the vast majority of residential leases. If banks or new owners of foreclosed properties really want renters out they will almost always be able to buy them out for two months rent or less.
Unfortunately in reality the banks tend to get first grab at everything, either because the law gives it to them explicitly or because they have superior expertise at claim making, claims big enough to be worth making, and are in position to wait if necessary.
The same sort of thing happens in corporate bankruptcy.
Ray, the day I'd lend money on a home that didn't have mail delivery (through an RFD or a street address) is the day you could feed me to the puppies.
Actually, that describes a chunk of the Delaware Valley, smack between Phila. and New York. In the seventies, the new improved (privatized) Post Office gave communities a choice: You can have mail delivery, or your post office. I don't know the numbers, but I'll say that a lot of us went for the office, complete with the jobs that went with them and community bulletin board. But everyone has a Box number, and that's where the mortage bills come from.
The 'takings' argument is bizarre. The government routinely decides who has senior claims and who has junior claims regardless of contract.
In an economic sense, the best public policy transfers the risk whoever is able to handle it at least cost. Lenders seems much better positioned to me than renters to handle the risks associated with the owners defaulting. They have much better information on the financial situation of the owner and deal with risk management every day.
I don't understand the lender preference for evicting tenants. Yesterday, I saw a duplex in my neighborhood that was an REO. I was walking by and decided to pop in for the open house. Both units were empty and since rental demand is high where I live, I can only assume the lender evicted the tenants.
I computed the cap rate on the property to be 2.8%. This property is not going to sell an time soon without a massive price reduction since the cap rate is below treasury yields and there is little reason to expect much in the way rent increases. Evicting the tenants just means no income coming in while the property sits vacant for months. Seems to me the lender would be better off turning it over to a property management company while they were trying to sell it.
I just cannot believe someone can enter into a contract without effective legal rights to the property...
Yeah so I feel like an idiot. But I kind of figured when I sign on the dotted line, the law would require the person signing the other side to have legal standing to do so. (Seems to me that's a pretty natural expectation for any contract.) If someone else can take over the property and invalidate the lease, I do not think this natural expectation has been met.
Just call me "Emily Litella" while I sit here and eat some humble pie.
and seminole, I call bullshit on your practicing law before dryfly was conceived . . . unless you're that guy from "Catch Me If You Can".
And if, by some miracle, you do have a law degree, it's time to take some CLE courses . . . or get disbarred for incompetence.
Like Andrew, I've also got the sheepskin to back it up (member of the bar in two states).
I just cannot believe someone can enter into a contract without effective legal rights to the property...
Yeah so I feel like an idiot. But I kind of figured when I sign on the dotted line, the law would require the person signing the other side to have legal standing to do so. (Seems to me that's a pretty natural expectation for any contract.) If someone else can take over the property and invalidate the lease, I do not think this natural expectation has been met.
The contract is not invalidated. The leasehold interest is. You can still sue the original landlord for breach of contract, but good luck, seeing how s/he's already in foreclosure.
Gary, I suspect seminole doesn't know just how old dryfly is. (Sorry there dryfly. However, I know you at least have kids in college, if not soon grad school.)
Indicates a lack of discovery and due diligence on his part.
Dryfly isn't old enough to respect those who know better than him.
Apparently he hasn't learned much in life.
Gary is a dangerous thing, even without a little knowledge.
Oh, joy. Just what I wanted out of this post. Lawyer flame wars.
"Sorry Ms. Tanta" he says sheepishly. Just needlessly defending the put-upon and trying to save the world again, as seems to be my wont. Sigh I do need to learn not to feed the trolls, as tempting as it is.
As Shnaps notes, the whole article is based on an insinuation that this is a widespread problem, but in fact no particularly compelling evidence that it is.
OK, true enough ... but remember, we're talking about language that was in a bill that passed the House. This wasn't a phantom problem dreamed up by an NYT reporter; it was a section of HR 3915. Apparently, this language dealing with renters was important to legislators in New York and Massachusetts.
During the debate, Frank said that the bill originally said 12 months. The Republicans agreed to six months.
Miss Tanta compliments you on your apology, accepts it gratefully, and says you can have your cookie and juice just like the other kids now.
I, on the other hand, get Scotch.
LOL. For dealing with this batch of "kids" you deserve it Tanta. However, I can recommend trying a little Irish whiskey now and then, all the flavor without the charcoal briquette of some of the stronger Scotches. I find it goes well with my cookie - Fig newton, dunked, not stirred.
Tanta, do you ever feel as though you have a group of precocious, brilliant children competing for your attention? Flaming lawyers, wanna-be economists and one white-knuckle meglomaniac (sorry Jas.)
Joe (as in Shmoe) my sympathies about the renters. We only had one flipper move into the neighborhood (and he actually worked on the house) but it was clear he had no investment in the neighborhood or the people.
OTOH we've been really lucky, house prices in my neighborhood hover around 100K and so far the new buyers have the extra cash to update and improve their properties.
...you have programs supposed to stimulate or provide capital for homeownership being used to goose the profits of RE investors. If there is some social or economic benefit to doing that...
Tanta,
Don't you know that Daddy's new Porsche is subsidized by Wal-Mart clerks is both a social and an economic benefit? Daddy thinks so, anyway. So does his Porsche dealer.
Nice post. We should go further than channeling RE speculation into the Small Business Administration, though. I'm sure you'll agree we should drive it out of existence, as inimical to the common good; there are plenty of ways to do this, starting with your idea and proceeding to the tax codes. Since all of them annoyingly require RE leeches to live within their means, produce labor of value, and act as responsible agents in a social contract, they'll be resisted as fiercely as day-glo thongs at Rapture practice.
they'll be resisted as fiercely as day-glo thongs at Rapture practice
Well that's the last time I open up one of these comment threads while eating. Now I've got fruit salad all down the front of my sweater.
I guess I should be grateful it didn't hit the monitor this time.
Tanta - Interrupting the flame wars amongst bar members (of which I am one as well, sans a flamthrower) for just a second, I just want to point out the version that passed the House would never result in a 6 month period from the FCL sale date to when you could evict the tenant.
It indicates 6 months from the first notice of FCL, or the remaining fixed term on the lease, whichever is shorter. As much as Fidelity or First American, or the servicers who are on their dole (er, I mean who hire them), feel the "need for speed" on their foreclosure timelines, there's still this pesky stuff called laws. In short, foreclosures still take time. NewTrak or VendorScape, for all their self-proclaimed gloriousness, still haven't found a way to rewrite state codes or add new caselaw to Lexis. I'm guessing that 6 month provision adds, on average, 60 or so days of post-foreclosure use and occupancy by a tenant.
Of course, HR 3915 also adds a 90 day notice requirement, too. HR 3915 isn't clear on whether you have to wait for the "occupancy period" to expire before you give said notice, or if it can be given while the balance of those 6 months are winding down. I know, however, how the tenant rights' bar will interpret it; meaning, lenders and servicers best be ready to litigate that one (and all other manner of crunchy, chewy, and flaky goodness).
HR 3915 is, of course, the federal government's latest attorney full-employment act, because Lord knows BAPCPA just didn't generate enough billable hours. Now, thanks to our pal Uncle Sam (and his good friend Chuck Rangel), we all get to litigate over what these new TILA amendments really mean (if and when they actually pass), all while servicers complain that their REO timelines aren't meeting those Fannie or Freddie guidelines, and that these darned legal fees are way above those allowables.
Being completely selfish, at least I can say my tax dollars are working for me. Remember, when there's a problem, you can bet the house (er, bad pun) that the lawyers are the ones who will clean up.
"There are few bigger indictments of the lending practices of the last few years than the apparent fact that people mortgaged investment properties, found a creditworthy renter who never failed to make the monthly rental payment, and still ended up in foreclosure."
Apologies if this has been addressed before, but it's a really long thread.
Unless you assume that people are defaulting on their only investment property, it doesn't say that much about recent lending practices. If you have a portfolio of five or more investment properties, and can't find a renter for several of them, and run up lots of costs, you might well end up defaulting on one of the rented houses. This isn't to say that some people didn't lend on properties that couldn't make back the payments in rent, but the articcle doesn't present evidence of that.
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In Canada rights of tenancy are unaffected by any change in ownership, including foreclosure. The new owner assumes all contractual obligations regarding the tenancy. Also month-to-month tenants cannot be evicted without just cause. Wanting to sell the house does not qualify.
A new owner can evict a month-to-month tenant (with proper notice), or a tenant at end of lease, to occupy the house himself however.
It is common for banks to give tenants in foreclosed properties an "incentive" to move out (a couple of months rent usually does it).
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