Only a fraction of those in need file for bankruptcy
Instead, concern exists about a growing number of Americans who need bankruptcy protection but cannot get any benefit from it or simply cannot afford to file. As their financial problems worsen, that hurts everyone because it can hinder the economic turnaround.
“It’s shocking that we are back to the 2005 level,” says Katherine Porter, associate professor of law at the University of Iowa. “And the filing rate doesn’t even begin to count the depth of the financial pain.”
Bankruptcy laws changed in 2005 because filings skyrocketed and credit card companies and banks wanted to weed out deadbeat borrowers. The law made it harder — more expensive and more restrictive — for individuals to file Chapter 7 bankruptcy, which erases most debts.
Instead of seeking protection from bankruptcy, a number of debt-laden Americans have gone into a “shadow economy,” or informal bankruptcy, according to some experts.
This New York Times article is much more significant than it might first appear. This is a clear indication that people are waking up in larger numbers and are realizing their state of servitude, then choosing not to accept it. Instead of beg, borrow, and steal to pay their predatory mortgage to proven criminals and cartels, people are choosing in increasing numbers to take care of themselves and their families first . . . and let the banksters be damned.
Owners Stop Paying Mortgage … And Stop Fretting About It
ST. PETERSBURG, Fla. — For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.
Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.
“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”
A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.
This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.
“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”
Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.
The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.
While there are no firm figures on how many households are following the Pemberton-Reboyras path of passive resistance, real estate agents and other experts say the number of overextended borrowers taking the “free rent” approach is on the rise.
There is no question, though, that for some borrowers in default, foreclosure is only a theoretical threat for a long time.
More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.
In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially.
In Pinellas and Pasco counties, which include St. Petersburg and the suburbs to the north, there are 34,000 open foreclosure cases, said J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Ten years ago, the average was about 4,000. “The volume is killing us,” Judge McGrady said.
Mr. Pemberton and Ms. Reboyras decided to stop paying because their business, which restores attics that have been invaded by pests, was on the verge of failing. Scrambling to get by, their credit already shot, they had little to lose.
“We could pay the mortgage company way more than the house is worth and starve to death,” said Mr. Pemberton, 43. “Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing.”
They used the $1,837 a month that they were not paying their lender to publicize A Plus Restorations, first with print ads, then local television. Word apparently got around, because the business is recovering.
The couple owe $280,000 on the house, where they live with Ms. Reboyras’s two daughters, their two dogs and a very round pet raccoon named Roxanne. The house is worth less than half that amount — which they say would be their starting point in future negotiations with their lender.
“If they took the house from us, that’s all they would end up getting for it anyway,” said Ms. Reboyras, 46.
One reason the house is worth so much less than the debt is because of the real estate crash. But the couple also refinanced at the height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers.
It was a stupid move by their lender, according to Mr. Pemberton. “They went outside their own guidelines on debt to income,” he said. “And when they did, they put themselves in jeopardy.”
His mother, Wendy Pemberton, who has been cutting hair at the same barber shop for 30 years, has been in default since spring 2008. Mrs. Pemberton, 68, refinanced several times during the boom but says she benefited only once, when she got enough money for a new roof. The other times, she said, unscrupulous salesmen promised her lower rates but simply charged her high fees.
Even without the burden of paying $938 a month for her decaying house, Mrs. Pemberton is having a tough time. Most of her customers are senior citizens who pay only $8 for a cut, and they are spacing out their visits.
“The longer I’m in foreclosure, the better,” she said.
In Florida, the average property spends 518 days in foreclosure, second only to New York’s 561 days. Defense attorneys stress they can keep this number high.
Both generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week — to Floridians who have had a foreclosure suit filed against them by a lender.
Even if you have “no defenses,” the form letter says, “you may be able to keep living in your home for weeks, months or even years without paying your mortgage.”
About 10 new clients a week sign up, according to Mr. Stopa, who says he now has 350 clients in foreclosure, each of whom pays $1,500 a year for a maximum of six hours of attorney time. “I just do as much as needs to be done to force the bank to prove its case,” Mr. Stopa said.
Many mortgages were sold by the original lender, a circumstance that homeowners’ lawyers try to exploit by asking them to prove they own the loan. In Mrs. Pemberton’s case, Mr. Stopa filed a motion to dismiss on March 17, 2009, and the case has not moved since then. He filed a similar motion in her son’s case last December.
From the lenders’ standpoint, people who stay in their homes without paying the mortgage or actively trying to work out some other solution, like selling it, are “milking the process,” said Kyle Lundstedt, managing director of Lender Processing Service’s analytics group. LPS provides technology, services and data to the mortgage industry.
These “free riders” are “the unintended and unfortunate consequence” of lenders struggling to work out a solution, Mr. Lundstedt said. “These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure.”
But for borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.
“I stopped paying in August 2008,” said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I can’t afford $2,500. I can only afford $1,300.’ ”
Mr. Tsiogas, who lives on the coast south of St. Petersburg, blames his lenders for being unwilling to help when the crash began and his properties needed shoring up.
Their attitude seems to have changed since he went into foreclosure. Now their letters say things like “we’re willing to work with you.” But Mr. Tsiogas feels little urge to respond.
“I need another year,” he said, “and I’m going to be pretty comfortable.”
FR-5271-P-01 SAFE Mortgage Licensing Act: HUD Responsibilities Under the SAFE Act is just one more nail in the coffin of independence: A government-issued license to sell your own property. The proposal could become law as of May 31 and directly violates the 14th Amendment to the Constitution by depriving the right of the homeowner to dispose of their property as they see fit, free of state interference without due process of law. Now that we have nearly zero access to credit through banks, and hardly anyone can qualify for traditional financing, this proposal aims to slam the door on our right to trade with one another. This is a rule which adds insult to the stamp of “bad credit” by further strengthening the provably predatory banks by rewarding them with more guaranteed customers. As stated by Roman Mosqueda, S. J.D. in his article, “Proposed HUD Rule Prohibits Seller Financing Without License Except for Family or Own Residence,” the proposed rule impairs obligations of existing contracts protected by the Constitution in the following ways:
- The contract is the law among the parties. A property owner has the right to sell his or her property, including seller-financing to enable a buyer short on cash to consummate the sale.
- Seller-financing likewise enables a seller to sell his or her properties faster, and earn income during the duration of the promissory note being financed.
- The proposed rule would impair obligations of existing contracts in cases involving contracts to sell with seller-financing, lease with option to buy with seller-financing, and other similar contracts.
This overreach of the SAFE Act has exactly the opposite effect as what the Act was intended to cover. HUD’s own Web site, states that the SAFE act was a major component of HERA (The Housing and Economic Recovery Act of 2008), which “constitutes a major new housing law that is designed to assist with the recovery and the revitalization of America’s residential housing market.” This new rule actually hinders individual homeowners from aiding in their own recovery and gives more power to the very same mortgage industry that has destroyed the housing market in America. By requiring mortgage broker licensing, the individual’s right to the use of his own property is now strictly limited. Furthermore, bank financing simply is not possible in many cases, even beyond the “bad credit” equation, or tight lending policies — homes in flood areas, investment homes, or multiple homes owned but not occupied by the owner or the owner’s family, for example. Even when these homes are owned free and clear the property still is not yours to do with as you wish.
The following statistics posted on ActiveRain by a specialist in owner financing and lease options illustrate the vast limitation that the new rule puts on the real estate landscape across America:
- These rules would prohibit even partial seller financing – i.e. a “seller second.”
- According to HUD’s “Residential Finance Survey” in 2001, roughly 40% of all non-farm residential properties in the US are owned free and clear.
- An estimated 6 million Americans own a property other than their own primary residence.
- An estimated 4.5% of Americans own three or more properties, many purchased solely as investment properties.
- 40% of non-owner occupied residences are mobile homes which are more difficult to sell with bank financing.
- Approximately 5% of homes in US are for sale or for lease… seller financing may be key to liquidating this inventory.
As with all government legislation designed to intimidate those considering non-compliance, here are some of the more tyrannical points sourced from The RescueUS Project:
- You cannot receive a license if you’ve committed any felonies – ever – meaning you’ll never be permitted to self-finance your property under any conditions if you’re a felon of any kind.
- Mandates fingerprinting to finance your own property.
- Threatens a $25,000 penalty for owners who fail to obey HUD’s rules.
- Forces owners to complete 3 hours of Federal Law training.
- Mandates owners complete 2 hours of federally approved “ethics” training.
- Requires that owners complete 2 hours of lending standards training.
- Puts upon all self-financing owners and their prospective buyers dramatically higher costs and decreased opportunities to engage private property transactions.
- Stops you from exercising your own constitutionally protected private property rights until the government approves your conduct – and charges you for it.
- HUD grants itself authority to summon you any time it chooses for a host of reasons.
This is yet another front in the war waged by the oligarchs against an independent America. Our Constitution is our protection against tyranny, and it is being systematically dismantled one Amendment at a time. History has taught us that once personal property rights are violated, everything that follows is exponentially worse. Contact HUD and make your voices heard that this is an unacceptable violation of our very clear rights under the 14th Amendment. It might already be too late as this rule was pushed through at the last minute and the official deadline for comment has passed, but please contact your Senator and contact your Congressman to express your disgust with this blatant assault on the real economy and your individual rights.
Priorities, priorities. The Pentagon budget comes first. I guess the rationale is that if we don’t get those terrorists, then you won’t be safe while living on the street.
The Huffington Post
An Obama administration plan announced in April to help up to half of all struggling homeowners modify their second mortgages has yet to officially launch, the Treasury Department acknowledged Friday.
The program, a component of the administration’s $75 billion Making Home Affordable effort, was supposed to attack second-lien mortgages, which are additional, second mortgages taken out on a home on top of the initial first mortgage. It’s like taking out two loans to pay the same debt.
The Second Lien Program is supposed to automatically reduce the payments on a second mortgage when the first mortgage is modified under the administration’s loan modification effort, the Home Affordable Modification Program. The administration says that by lowering monthly mortgage payments, HAMP will eventually help up to four million homeowners stay in their homes
Some housing experts say the second-mortgage component of the plan is necessary to effectively tackle the foreclosure mess — 3 million foreclosure notices were sent out in 2009; another 3 million are estimated to go out this year — because so many distressed homeowners have second mortgages. When rolling out the program in April, the administration estimated that “up to 50 percent of at-risk mortgages currently have second liens.” Addressing only the first lien is insufficient, experts say, if no changes are made to seconds.