Utah Foreclosure Rate Down Nearly 50 Percent

(Deseret News)  SALT LAKE CITY — The rate of foreclosures in Utah fell significantly during the first quarter of this year — the fifth straight quarter of year-over-year decrease.

According to a new report, the Beehive State has seen its rate of default filings drop nearly 50 percent in first three months of 2012 compared to the same period last year.

The RealtyTrac U.S. Foreclosure Market Report for the first quarter of 2012 showed that the rate of Utah foreclosure filings — default notices, scheduled auctions and bank repossessions — decreased 49 percent from the first quarter of 2011 and declined 18 percent from February 2012.

Despite the decrease, Utah still had the ninth highest foreclosure rate in the nation with one in every 198 households registering a default filing. Nevada reported the highest rate at one in every 95 households, followed by California at one in 103 households, Arizona was third with one in 106, Georgia at one in 119 and the Sunshine State of Florida ranked fifth with one in 123 households reporting a foreclosure filing. Rounding out the 10 worst foreclosure rates were Illinois at No. 6, Michigan ranked seventh, followed by Colorado at No. 8, Utah and Wisconsin ranked 10th.

The nationwide average foreclosure rate was one in 230 households.

Utah’s relatively streamline foreclosure process has aided in the state’s ability to reduce its overall default rate and foreclosure volume, said Daren Blomquist, RealtyTrac marketing and communications manager.

Foreclosure filings were reported on 572,928 properties during the quarter, down 2 percent from the previous quarter and down 16 percent from the first quarter of 2011, the report stated. The first quarter total was the lowest quarterly total since the fourth quarter of 2007.

“The low foreclosure numbers in the first quarter are not an indication that the massive reservoir of distressed properties built up over the past few years has somehow miraculously evaporated,” said Brandon Moore, chief executive officer of RealtyTrac. “There are hairline cracks in the dam, evident in the sizable foreclosure activity increases in judicial foreclosure states over the past several months, along with an increase in foreclosure starts in many judicial and non-judicial states in March.”

The dam may not burst in the next 30 to 45 days, he said, but it will eventually, and everyone downstream should be prepared — in terms of new foreclosure activity and new short sale activity.

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Latest foreclosure ruling sides with Utah homeowners

(The Salt Lake Tribune)  Contrary to the findings of two other federal judges in Utah, U.S. District Judge Bruce Jenkins has ruled that Bank of America must follow state law when it forecloses on homeowners in this state.

Jenkins’ decision widens the split on the federal bench over legal questions about whether Bank of America’s ReconTrust unit has been illegally foreclosing on Utah homeowners. It also ups the stakes by declaring that a rule issued by the Comptroller of the Currency is contrary to Congress’ intent in passing laws that govern national banks.

U.S. District court judges have ruled on opposite sides of the question over whether Bank of America’s unit ReconTrust has been legally foreclosing on homes in Utah

Federal judges Ted Stewart and David Sam had previously held that under federal laws, ReconTrust could carry out foreclosures in Utah under its own name and that it is governed by the laws of Texas, where it was headquartered, and not Utah law.

Two other judges — Dee Benson and Clark Waddoups — have come to the same conclusion as Jenkins. With the split on the local bench, the 10th Circuit Court of Appeals in Denver probably will be asked to make a definitive ruling.

In a detailed and sharply worded decision, Jenkins labeled as “fantasy” arguments that ReconTrust exercises its duties in a foreclosure at its Texas headquarters and is, therefore, is governed by Texas law.

“The [default] notice is filed in Utah,” Jenkins wrote. “The sale is conducted in Utah, often on the steps of the local county courthouse. Those acts do not occur in Texas.”

Under Utah law, only a local attorney or a title insurance company can carry out foreclosures in the state, but ReconTrust had been doing so under its own name, actions that spawned numerous lawsuits.

Like other states, Utah was hit by a tsunami of foreclosures after the real estate bubble burst in 2007.

From 2007 through 2011, 56,863 foreclosure auctions took place in Utah, according to RealtyTrac, a real estate data research company. From 60 percent to 80 percent of those foreclosures were conducted by ReconTrust, depending on the county, according to the estimate of one homeowner activist.

Jenkins reached back to the early 20th century legislative history to conclude that Congress intended national banks to comply with state statutes for actions such as those undertaken by ReconTrust.

But going further, the senior judge declared that the Controller of the Currency, the agency that regulates national banks, had overreached when it promulgated the rules relied on by ReconTrust for its arguments that Texas law governs its foreclosures in Utah.

“There are 50 states. Each has its own Legislature and each its own set of laws relating to state-chartered banks. Texas does not pass Utah banking laws. Utah does not pass Texas banking laws,” Jenkins wrote.

Bank of America representatives and attorneys for ReconTrust did not reply to two emails seeking comment.

But Abraham Bates, one of the attorneys who represents the homeowners involved in the lawsuit, said he would be “highly surprised” if ReconTrust does not appeal. He also said Jenkins’ ruling will echo beyond Utah.

“This is a decision that’s going to have a long-lasting imprint, not just on the way foreclosures are conducted in the state of Utah, but for foreclosure attorneys all across the country,” said Bates.

With Jenkins’ decision, Bates said attorneys pursuing a proposed class-action lawsuit against ReconTrust would ask Stewart to reconsider his recent decision that tossed out that action.

The Utah Attorney General’s Office has sought to intervene in another case involving ReconTrust in which Sam ruled against the homeowners.

Source:  The Salt Lake Tribune

What Happened to the Foreclosure Settlement Money?

(The Salt Lake Tribune)  Utah government is supposed to receive $22 million from a national settlement with five big banks over abuses in the mortgage foreclosure process. Yet the state Legislature has budgeted only about $3.75 million of that money for purposes related to the claims that gave rise to the settlement. The rest it deposited in the state’s general fund.

Advocates for the victims of improper foreclosures are crying foul. They have a point.

It is true that Utah homeowners will receive another $149 million in direct aid from the settlement. That money is supposed to be used to provide modified loans, including reduced principal and refinancing. Those whose loans have already been foreclosed may be eligible for $2,000 payments.

But the Legislature has taken most of the money that will go to the state government and dumped it into the common pot. The exceptions to that are $1.75 million that was appropriated to charities that help the homeless. Another $2 million is going to the Utah Attorney General’s Office to hire more people to investigate and prosecute mortgage fraud and other financial fraud.

At least some of that $22 million should have been used to help people who are still wrestling with banks over foreclosures that the people who owe the banks believe are improper. There have been widespread reports in the past of customers who have been unable to contact the outfits that service their mortgages to get even basic information about their payment status and whether the holder of the loan plans to foreclose or would entertain an offer to modify the loan.

The Utah Housing Coalition asked the Legislature for funds to hire counselors to help people who believe their loans have been foreclosed improperly or who are upside down in their loans. Housing organizations have had to lay off some 19 counselors who were previously funded by economic stimulus money from the federal government. That would have been a logical use for a portion of the state’s $22 million.

The foreclosure rate has tipped downward lately in Utah, but it may not stay that way. Some experts speculate that once the banks have the settlement behind them, they will accelerate the pace of foreclosures once again.

The foreclosure settlement is not free money. It amounts to damages to help right a wrong. The Legislature should have treated it that way, not as free money or a lottery prize to be spent any way the winner decides.

Source:  The Salt Lake Tribune

Bank of America hopes underwater homeowners become renters to avoid foreclosure

(The Salt Lake Tribune) Bank of America has launched a pilot program that will let some homeowners at risk of foreclosure become renters and stay in their homes.

Fewer than 1,000 borrowers in Arizona, Nevada and New York will be enrolled in the test program, which began this week. Those selected will transfer the title of their homes back to BofA and have their mortgage debt forgiven.

The homeowners can rent the homes for up to three years at or below their area’s market rental rate. The rental payments will be less than the borrowers’ mortgage payments, the bank said. And they will not have to pay property taxes or homeowner’s insurance.

The program, called “Mortgage to Lease,” uses an old but increasingly popular technique for lenders. It’s called a “deed in lieu of foreclosure.” It occurs when homeowners turn over the deed to their house to their lender because they can’t make the monthly payments.

The technique was used during the Great Depression but fell out of favor after the 1930s.

The trick will be to find homeowners who are struggling with bloated mortgage payments but who have enough steady income to safely make smaller rental payments.

Foreclosures can be pricey and time-consuming for lenders, which have been seeking alternative ways to cut costs. The average foreclosure takes nearly two years to complete, according to Florida-based Lender Processing Services, and costs nearly $78,000, according to a congressional estimate.

BofA says it’s targeting homeowners who are at “considerable risk” of foreclosure; have high loan balances relative to their home’s value; have exhausted all loan modification programs; and have been delinquent on their mortgage payments for more than 60 days.

“If this evolves from a pilot into a more broadly based program, we also see potential benefits from helping to stabilize housing prices in the surrounding community and curtail neighborhood blight by keeping a portion of distressed properties off the market,” said Ron Sturzenegger, a Bank of America executive.

BofA, the nation’s second-largest bank and the largest mortgage servicer in Utah, said it will eventually sell the homes to investors. If successful, the program could be expanded to include real-estate investors who buy homes at risk of foreclosure and keep the homeowners as tenants.

Foreclosures surged in February across half of U.S. states, according to RealtyTrac, which follows foreclosure filings. Banks are wrestling with a backlog of homes with mortgages that had gone unpaid yet remained in limbo because of delays involving a government probe into foreclosure abuses.

That investigation ended last month with a landmark $25 billion settlement among states, the federal government and the nation’s five biggest mortgage lenders.

Nevada has the nation’s highest foreclosure rate as of February. One in every 278 households in the state had received a foreclosure-related filing, twice the national average, according to RealtyTrac.

Arizona ranks third, behind California. New York has not been as hard hit, with one in every 4,604 households receiving a foreclosure-related filing.

Source:  The Salt Lake Tribune

Mortgage execs charged with accounting fraud

(CNNMoney) — The Securities and Exchange Commission announced charges Tuesday against three senior executives from the now-defunct Thornburg Mortgage, accusing them of fraudulently overstating the company’s income by over $400 million ahead of its bankruptcy.

Thornburg filed for bankruptcy in May of 2009, felled by heavy losses associated with the subprime mortgage crisis. At the time, it was the seventh-largest bankruptcy in U.S. history, with over $36 billion in assets, and had been the second-largest independent mortgage company in the U.S. after Countrywide.

As the company’s financial situation deteriorated, the SEC alleges that former Thornburg CEO Larry Goldstone, chief financial officer Clarence Simmons, and chief accounting officer Jane Starrett conspired to falsely record a profit in the company’s 2007 annual report.

In reality, the SEC says, the company had been hammered by over $300 million worth of margin calls from trading partners in the weeks leading up to the report, as the value of its mortgage-backed securities plummeted.

“We have purposefully not told [our auditor] about the margins calls,” Starrett said in an email to Goldstone and Simmons, according to the complaint.

By March of 2008, Thornburg had defaulted on additional margin calls and was forced to file an amended report disclosing the extent of its problems.

“The truest test of corporate executives’ commitment to full and accurate shareholder disclosure comes not during times of soaring profits and double-digit growth, but when companies are under financial stress and shareholders have the greatest need for accurate information,” Robert Khuzami, director of the SEC’s enforcement division, said in a statement.

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Auditor Uncovers Failures in Bank Foreclosure Practices

(Bloomberg)  An audit of foreclosure practices at the Federal Housing Administration’s five largest mortgage servicers uncovered widespread failures to ensure the banks had proper legal documents.

According to reports released today by the inspector general of the Department of Housing and Urban Development, banks including Bank of America Corp. and Wells Fargo & Co. violated the federal False Claims Act when they improperly foreclosed on homes insured by the FHA.

The audits, spurred by revelations in 2010 that mortgage servicers were seizing homes using improper paperwork, were forwarded to the Department of Justice last year. They formed part of the basis for a $25 billion settlement with five banks filed in U.S. court in Washington yesterday.

“I believe the reports we just released will leave the reader asking one question: How could so many people have participated in this conduct?” the inspector general, David Montoya, said in a statement accompanying the reports. “The answer: simple greed.’”

Other banks included in the review were Ally Financial Inc, and JPMorgan Chase & Co.

Ally Financial regrets the deficiencies in the foreclosure process, said Gina Proia, a spokeswoman for the lender. Still, she said, “there was no evidence of someone being foreclosed on without being in significant default of their loan.”

Efforts to Improve

Mark Rodgers, spokesman for Citigroup, said the bank had already improved its procedures and “is making every effort to ensure that no foreclosure goes forward based on an inaccurate or defective affidavit.”

Spokesmen for Bank of America and Wells Fargo noted that the audit focused on activities that took place several years ago. Wells Fargo has made “significant strides” in improving its procedures, said Vickee J. Adams, a spokeswoman for the bank.

“We do all we can to modify loans when possible and to ensure foreclosures are fair when they are unavoidable,” said Bank of America spokesman Richard G. Simon.

Patrick Linehan, a spokesman for JP Morgan, said the bank had no comment.

Servicers failed to ensure that their employees and contractors verified the content of affidavits before signing them as they churned through thousands of foreclosures, the review found. The banks also eliminated quality control departments.

The inspector general will issue recommendations to correct the problems once the settlement agreements are approved by the court, the reports said.

Source:  Bloomberg

Layton mayor shares story of wrongful foreclosure

(KSL.com) LAYTON — More than 32,000 homes in Utah received a foreclosure notice last year.

A lot of those foreclosure notices went to people who thought they were meeting all of the lender’s demands while they were following the procedures to apply for a loan modification. One of those people is Steve Curtis, the mayor of Layton.

Two weeks before Christmas, Curtis came home and found a foreclosure notice taped to his door. It said his home would soon be put up for auction — even though he had never missed a mortgage payment.

This was just one of the many nightmares Curtis encountered by applying for a trial loan modification.

“Naturally our trust was with the bank,” he said. “We saw no reason why not to trust. Call it gullibility or whatever.”

Curtis says he was stunned to see the foreclosure notice on the home he has lived in for 14 years.

“It was very painful,” he said. “Nobody should have to go through that. Nobody.”

The foreclosure process on the Curtis home began when Curtis and his wife applied for a loan modification in March. Curtis had been out of full-time work for nine months and was trying to stay current on all of his bills.

Bank of America agreed to a trial loan modification that lowered their mortgage payment by $350.

“All along they said as long as you were making your payments, a foreclosure would not happen,” Curtis said. “Even when it got to the underwriter everything looked very good. We were told that and that we would have no problem in qualifying.”

So what went wrong? How did a foreclosure notice end up on the Curtis’ door in December?

“The payments that they are making actually don’t go to the servicing department,” said advocate Marco Fields.

According to Fields, it’s because departments within Bank of America are not communicating with each other. As soon as the Curtis family applied for the loan modification, their payments went into an escrow account so they showed up as delinquent in the servicing department.

“I think it is a simple fix. It’s a computer program that needs to be able to talk to one another,” Fields said.

The miscommunication is costing homeowners all over the country a lot of time and money — and in some cases even their homes. Bank of America now faces consumer class-action suits in several states for persistent failure to modify loans.

“Every homeowner needs to be concerned about this issue because we are having the equity in our homes eroded because of these irresponsible actions by these financial institutions,” said Fields.

Fields helped push the Curtis file into the office of Bank of America’s CEO. But the company still hasn’t been able to find all the right paperwork to straighten out their error.

“This is so far beyond advocacy. This is so far beyond a counselor. At the end of the day you are going to need a five-star attorney,” said Fields.

Curtis says it’s easy to lose hope. “Legally, no I don’t have the resources to fight the big bully Bank of America. They’d crush me.”

In order to save their home, the Curtises will have to pay all reinstatement charges. On top of that, they will also have to foot the bill for the legal fees Bank of America racked up when they foreclosed on the Curtis’ home.

“I’m thinking that never should’ve been done in the first place,” Curtis said. “So why should I be paying legal fees for something that shouldn’t have been in the first place?”

Curtis now has a full-time job and will be able to save his home, but says he will continue to speak.

“I will stand up and fight because my neighborhood matters,” he said.

To further illustrate what a mess the whole process has been for the Curtis family — just two weeks ago they received an e-mail stating that they are not eligible for a loan modification because their loan is in active litigation.

But the only reason the loan is in litigation is because Bank of America wrongly foreclosed.

Source:  KSL.com Utah

Bailout concerns mounting for federal housing agency

(CNNMoney) — Concerns are growing that the Federal Housing Administration will need to be bailed out by taxpayers.

The agency’s latest monthly outlook report revealed a spike in serious delinquencies for FHA-insured loans, posing a further threat to the agency’s already depleted cash reserves.

According to the report, the percentage of loans in the FHA’s portfolio with three missed payments or more rose to 9.3% in November, up from 8.4% in August.

“It’s highly likely that the FHA will need a taxpayer bailout over the next three to five years,” said Joseph Gyourko, a real estate professor at the University of Pennsylvania’s Wharton School and author of a report entitled “Is FHA the Next Big Housing Bailout?.”

In November, an independent audit of the FHA’s finances found that losses from mortgage defaults had depleted the agency’s reserve fund to 0.24%, or $2.6 billion, during fiscal 2011 — well below the Congressionally-mandated 2% level. (The ratio measures the net worth of the reserve fund compared with the value of the loans FHA has insured.) In 2006, the reserve fund stood at 7%.

At the time, the agency’s auditor warned that if home prices continued to drop, FHA could run through the remainder of its reserves, forcing it to either seek a bailout from the Treasury Department or further increase the premiums it charges borrowers. The FHA doesn’t issue mortgages, but instead insures lenders against defaults.

Such a bailout could cost billions: Guyourko argues that the FHA is so undercapitalized that it would need at least $50 billion, even if the housing markets don’t deteriorate further. But even by more conservative measures, the agency would need at least $20 billion to meet the capital requirements mandated by Congress.

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Deficiency Laws in Utah have Changed for Short Sales

The deficiency laws in Utah for Short Sales have changed.  Previously the lender in Utah for a short sale had six years (U.C.A. §78B-2-309) from the sale date to sue for the deficiency.  Effective March 15, 2012, and to be codified as Utah Code Annotated 78B-2-313 limits the time frame in which a bank can sue for the deficiency of a short sale.   An action to recover a deficiency is now barred unless it is commenced within three months after the date the lender records its release of mortgage.  Please be careful and do not confuse this with the closing date.

Generally the bank will records its release within 15-60 days of the closing, but it does not always occur.  It is important that the borrower verify after closing that the release is recorded with the county recorder where the property is located.  The borrower can also be proactive through its title company by ensuring that a release is recorded.  Pursuant to U.C.A. §57-1-40, the title company which conducted the closing and paid off the mortgage can file a release of mortgage on behalf of the lender on the 61st day after payment.

The deficiency means  the balance owed to the lender after completion of the short sale, so in other words, the balance due at the time of sale less the payoff amount received by the lender.

What does this mean for borrowers, realtors, and negotiators?   Previously borrowers would have to wait six years after a short sale to find out if their lender could sue them for the deficiency, if the deficiency had not been waived in writing in their short sale.  Now within approximately 90 to 150 days – depending on when the release of mortgage was recorded – the borrower will know with certainty if the bank is going sue to collect its deficiency.  Borrowers, realtors, and negotiators should work closely with their title company to ensure that the statute of limitations for short sales is cut off if the deficiency was not waived in writing in the short sale.

There does appear to be a limitation to the type of property that this law covers.  The law defines the property as “single-family residential real property.”  The law does not appear to cover multi-family homes like duplex’s, condo’s, or townhouses?