"The most valuable truths are the ones most people don't believe. They're like undervalued stocks. If you start with them, you'll have the whole field to yourself. So when you find an idea you know is good but most people disagree with, you should not merely ignore their objections, but push aggressively in that direction." Paul Graham
Recent legislation currently in the works in Florida. This could spread to other states.
Bad News: This will make it harder for legitimate foreclosure consultants (shortsale, equity buyers, lease options, rehabbers, etc) to do business and save people from foreclosure. This will not stop “equity skimmers” from continuing business as usual. If the previous penalties of jail time wasn’t enough then what would?
Good News: This will make it harder for legitimate foreclosure consultants to do business, thereby reducing your competition. So if you can overcome the limitations and have the proper systems, contracts and exit strategy, you will be able to continue business as usual.
In instituting this law regulating so called foreclosure-rescue consultants and their related equity purchasers, the Florida Legislature stated certain legislative findings, which are helpful to a judge who has to interpret the law in a specific case. The legislature found that homeowners who are in default on their mortgages, in foreclosure, may be vulnerable to fraud, deception and unfair dealings with foreclosure-rescue consultants or equity purchasers. The intent of this legislation is to help the homeowner make an informed decision regarding the sale or transfer of his or her home to an equity purchaser. The new act will now comprise the newly created FS 501.1377, and repeal the old FS 501.2078. The act is part of Florida Statutes Chapter 501, which sets out the Florida Deception and Unfair Trade Practices Act.
The term “equity purchaser” means any person who acquires legal, equitable or beneficial ownership in residential real property as a result of a foreclosure-rescue transaction. It does not apply to boat repossessions. The act does not apply to anyone who receives title from a court-ordered foreclosure sale, or from a spouse, child, parent, grandparent, sibling, or spouse of one of these. The act also does not apply to a workout between the homeowner and their lender.
The term “foreclosure-rescue consultant” is defined as a person who directly or indirectly makes a solicitation, representation or offer to a homeowner to provide or perform, in return for payment of money or other valuable consideration, foreclosure-related rescue services. It does not include those acting under authority of the federal office of Housing and Urban Development, or a 501(c)3 charity, unless the charity has contracted with a for-profit lender or foreclosure consultant. It also does not apply to a present mortgage holder or bank, or a licensed mortgage broker who only receives a mortgage brokerage fee.
Services covered under this act are any service promising assistance with stopping, avoiding, or delaying foreclosure, or curing or addressing a default in a residential mortgage.
A “foreclosure-rescue transaction” is defined as a transfer of real property to an equity purchaser while the homeowner maintains a legal or equitable interest in the property. This specifically includes a lease-option, an option to repurchase, or an interest as beneficiary or trustee of a land trust, or other interest, which I would presume would include transferring the property to a LLC.
The act requires the consultant to first have the homeowner sign a written agreement before initiating any services. The written agreement must be printed in at least 12-point uppercase type and contain certain provisions. It must be accurately dated and signed by both parties and the homeowner must be given a copy within three hours after signing. The homeowner must be provided with a copy at least the day before signing, allowing the homeowner to have it reviewed by an attorney familiar with this legislation, or to contact their lender who may offer the service for free.
The written agreement must contain the details of a right to cancel within three days and the name, address and phone number of the equity purchaser. The agreement must also contain the specific terms of the repurchase, including specific amounts of any escrow payments, down payment, purchase price, closing costs, commissions, any other fees and costs. Mary and Joe would have wished they had had this type of written agreement prior to signing over their duplex.
The equity lender cannot take the property ’subject to’ any mortgages or liens, but must specifically assume or discharge them. The agreement must also specifically include a 30-day right to cure any default, exercisable up to three times. The act also contains some rebuttable presumptions that will be useful in litigation.
If the homeowner has the right to repurchase, the equity purchaser must verify and be able to demonstrate that the homeowner has the reasonable ability to make the repurchase. There is a rebuttable presumption that the homeowner has the ability to repurchase if the homeowner’s monthly payments for primary housing expenses, plus the principal and interest of other personal debt, does not exceed 60 percent of the homeowner’s monthly gross income. Many lease options negotiated by real estate agents do not contain these safeguards. It may make sense to have the real estate agent obtain a written verification that all mortgages are current and the homeowner is not in danger of foreclosure, so as to not be affected by this legislation.
There is also a rebuttable presumption that the transaction is unconscionable if the homeowner’s repurchase price is greater than 17 percent per annum more than the price the equity purchaser paid to acquire the property. The repurchase agreement must be recorded to have the presumption not apply to subsequent purchasers or creditors. There is also a rebuttable presumption that any lease-option in the foreclosure-rescue transaction is a loan and mortgage, which means that the leasee cannot be put out of the house without going through the full circuit court foreclosure process.
The sad news about this new legislation is that it would not be of any help to Mary and Joe because it restricts applicability to the homeowner’s principal residence. It defines residential property as one-family to four-family, one of which is occupied by the owner as his or her principal place of residence. I can certainly understand why the legislature wanted to not provide this protection for the sophisticated real estate investor, but there are many retired persons who have invested their life savings in rental real estate and are potential victims of foreclosure fraud. Perhaps the law should be amended to also include individuals owning 30 or less residential rental units.
The law authorizes a penalty of $15,000 per violation. Attorneys, financial planners, real estate and mortgage brokers, in addition to those having financial problems with their mortgage, should become familiar with this legislation.
WASHINGTON (AP) — The Bush administration is temporarily suspending a 5-year-old rule intended to deter property flippers, as part of an effort to help speed the sale of foreclosed properties.
For one year, the Federal Housing Administration will no longer impose a 90-day waiting period before foreclosed properties can be sold to receive government-backed loans.
For once, this is good news for the Disaster Investor. While we are clasping our hands for all the money to be made from disasters like Foreclosures, Subprime, and the next Alt-A Crisis, this new FHA rules will open the doors for restricted buyers to purchases homes from Investors who know how to do ShortSales, REO’s or discounted properties.
The bad news: Investors will be flooded with FHA buyers in which the property still will not qualify due to strict FHA guidelines on the property condition. Investors may still spend 90 days rehabbing a property so this new rule would not apply.However, if investors buys “pretty houses” with minimal work, then that investor can sell that house much faster.
We have received contract offers on houses just days after being on the market only to be denied because the homeowner did not tell us the truth about having a FHA approved loan.
So with this news: Go out and get some pre-foreclosures! It’s lucrative if you know how to buy them!
He makes a lot of assumptions in this analysis, but if he’s right about the increasing number of foreclosures and the slim number of non-REO sales taking place, the California housing market will continue to be a scary place for quite some time.
Take a look at the debate going on at his Web site if you want to see other people’s perspectives on his video.
On May 29, the FDIC issued a press release indicating concern that more loan losses are accentuating the credit stress already felt in the market.
Restatements of fourth-quarter 2007 profits by a few institutions, primarily reflecting additional charges for goodwill impairment, reduced industry earnings for that quarter from the $5.8 billion previously reported to $646 million. That is the lowest quarterly net income for the industry since insured institutions posted an aggregate net loss in the fourth quarter of 1990….
Noncurrent loans are still rising sharply. Loans that were noncurrent (90 days or more past due or in nonaccrual status) increased by $26 billion (or 24 percent) to $136 billion during the first quarter. That followed a $27 billion increase in the fourth quarter of 2007. Almost 90 percent of the increase in noncurrent loans in the first quarter consisted of real estate loans, but noncurrent levels increased in all major loan categories. At the end of the first quarter, 1.7 percent of the industry’s loans and leases were noncurrent.
Earnings remain burdened by high provisions for loan losses. Rising levels of troubled loans, particularly in real estate portfolios, led many institutions to increase their provisions for loan losses in the quarter. Loss provisions totaled $37.1 billion, more than four times the $9.2 billion the industry set aside in the first quarter of 2007. Almost a quarter of the industry’s net operating revenue (net interest income plus total noninterest income) went to building up loan-loss reserves.
The industry’s “coverage” ratio — its loss reserves as a percentage of nonperforming loans — continued to erode. Loan-loss reserves increased by $18.5 billion (18.1 percent), the largest quarterly increase in more than 20 years, but the larger increase in noncurrent loans meant that the coverage ratio fell from 93 cents in reserves for every $1.00 of noncurrent loans to 89 cents, the lowest level since 1993. “This is a worrisome trend,” Chairman Bair said. “It’s the kind of thing that gives regulators heartburn.”
The early 1990’s were an optimum time to buy loans and discounted real estate. That time will come again soon.
She added, “The banks and thrifts we’re keeping an eye on most are those with high levels of exposure to subprime and nontraditional mortgages, with concentrations of construction loans in overbuilt markets, and institutions that get a large share of their revenues from market-related activities, such as from securities trading.”
The FDIC’s Deposit Insurance Fund (DIF) reserve ratio fell. The DIF increased by $430 million (0.8 percent) during the first quarter, ending with a balance of $52.8 billion. The growth in the DIF, which was restrained by loss provisions of $525 million, did not keep pace with the quarter’s $140.5 billion (3.3 percent) increase in insured deposits. As a result, the fund’s reserve ratio declined from 1.22 percent to 1.19 percent during the quarter. Total deposits of FDIC-insured institutions increased by $150.4 billion (1.8 percent). Deposits in domestic offices rose by $156.2 billion (2.3 percent), while deposits in foreign offices declined by $5.8 billion (0.4 percent).
In particular:
The FDIC cited higher provisions for loan losses as the primary reason for the drop in industry profits….
Almost a quarter of the industry’s net operating revenue (net interest income plus total noninterest income) went to building up loan-loss reserves.
With banks’ money tied up in this way, the money to refinance poorly performing loans is becoming even less available.
It will be time to buy when there is blood in the streets. The wounds are getting harder and harder to bind.