REOs – Page 2 – Querin Law, LLC | Phil Querin

This is the second installment of my article looking back over the past five years at Portland housing statistics. Part One examined the real reason for the housing crisis which officially commenced in 3Q 2007, and looked at the historic numbers for average and median (i.e. “mean”) sale prices according to the RMLS™. The link to Part One is here.

The Rest of the Story. Besides pricing over the past five years, what about time on the market? Available inventory? Number of listings? Closed sales? Let’s look at each one:

1. Time on the Market. Until 3Q 2007, an overheated real estate market was still burning through inventory. In August 2007, the average time on the market was 56 days – less than two months from listing to “pending sale.”[1] The following month, September, 2007, banks began realizing that the drumbeat of subprime defaults was not going away. They tightened their underwriting requirements almost immediately. Over time, they began to even restrict borrowers from tapping their HELOCs based upon ZIP code. As short sales and REOs began to fill the real estate marketplace, buyers and appraisers began viewing the sales figures as legitimate comps by which to gauge present value. All the while, many potential buyers remained on the sidelines, waiting for prices to hit bottom.[2] Many sellers who were fortunate enough to have equity during the following five years had to decide whether to wait until the market turned, or sell their home and recover far less equity than they had earlier.[3] Continue reading “Portland Metro Housing Prices – The Last Five Years [Part Two]”

Background – 3Q 2007. Looking back, August 2007 was a memorable month, filled with good news and bad. Based upon RMLS™ numbers, it was a statistically impressive month for closed residential transactions in the Portland Metro area. The bad news was that it was the last such month we were to see. From that point forward, in almost every meaningful category, the local housing stats just kept getting worse.

The Credit Crisis – 3Q 2007.[1] Quietly, and with little public fanfare, in the third quarter of 2007, worrisome cracks began to appear in the country’s financial system. They were first noticed by those who monitor these things, such as the Federal Reserve. They were also noticed by some who actually had a hand in causing the cracks to occur.[2]

In short, the credit markets began seizing up; access to short term borrowing engaged in by companies was drying up. Normally, large businesses financed their daily operations through the sale of commercial paper, i.e. secured and unsecured short term loans. The Federal Reserve recognized the crunch, and in September 2007, cut interest rates by 50-basis points, or one-half of one percent. The purpose in so doing was to provide liquidity for financial institutions and investment houses so they could continue to survive. Bloomberg explained it well in its September 27, 2007 article titled “U.S. Commercial Paper Drop Slows After Fed Cuts Rates (Update5)”: Continue reading “Portland Metro Housing Prices – The Last Five Years [Part One]”

There are two types of short sales: (1) The relatively[1] easy ones that, while perhaps prolonged, ultimately will close; and, (2) The hard ones. How can you recognize, in advance, what category yours will fall into? What follows is a short discussion on what to look for.

The first category of short sales consists of two broad categories: (a) Those where there is only a single lender; and, (b) Those where there are two loans, both with the same lender. Continue reading “Recognizing Problem Short Sales Early”

Introduction. For those Realtors® who were in the business in 2005 – 2007, multiple offers occurred fairly frequently. Today, we are seeing them again. However the circumstances are far different from before.

The term “multiple offers” refers to situations in which sellers receive two or more offers to purchase their property. The reason for multiple offers during the boom years of 2005 – 2007 was because prices were rising rapidly, and buyers wanted their offers accepted quickly in order to lock in the price. Consider this: With average prices appreciating, say 18% per year [which was not unheard of], this meant that at 1.5% a month, by the time a buyer closed in 45-60 days, he or she had already realized a sizeable amount of paper equity. On the other side of the coin, sellers who had already committed to sell were often lured by higher offers that came in while their sale was “pending” with another buyer. It is for this reason that there were so many specific performance suits and/or arbitrations filed during this time; sellers didn’t want to close with their buyer, because after they went under contract they found they could get a better price, and looked for reasons to terminate the first transaction. Continue reading “OREGON HOUSING: Multiple Offers – Then and Now”

When we last left this telephone conference in Part One, Damien Faust, chief legal counsel for Belial Bank, was regaling everyone with his brilliance in creating the following legal provision that the Big Banks had quietly inserted into every lender’s trust deed forms:

“Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to releasing and cancelling this Security Instrument.”

Les Guile: “That seems kinda sneaky to me. These are standard forms. The banking industry prints them out for consumers to use so they don’t have to go to an attorney every time they get a loan. Of course the consumers don’t read it – they wouldn’t understand it if they did. But, if I were to paraphrase what this clause really says, it would be something like this:

‘Borrower understands and agrees that in order to make MERS legal under state law, it has the right to do anything the lender can do if necessary to comply with the laws and customs of that state.’

Under that rationale, if the lender also sold jelly beans, MERS could do so as well, if it was necessary to make MERS legal in that state. But this isn’t sophistry – you tried that and failed. It’s downright silly. It’s like the old Roadrunner cartoons where he escapes through a tunnel painted on the side of a mountain. The banking industry stuck a portable hole in its trust deeds that only MERS can escape through.” Continue reading “Judicial or Non-Judicial? Belial Bank Debates How to Foreclose Oregon Homeowners – Part Two”

Once again, the best and brightest minds in the banking, servicing, and title industries are on yet another conference call discussing the latest events in the ever-changing legal landscape of Oregon foreclosures. Although Belial Bank’s President and CEO, B.L.Zebub, believes that the sun, moon, and stars are lining up in their favor, he still has nagging doubts about the best way to foreclose Oregon homeowners. These doubts spring not from the conscience, but the pocketbook. Accordingly, he has convened his trusted cronies to decide whether to foreclose Oregon homeowners judicially or non-judicially. In attendance are B.L., his honest but naïve legal intern, Les Guile; title industry hand-wringer Liz Pendens; and her nemesis, Dee “Take No Prisoners” Faulting, of the default servicing industry; Damian Faust, Belial’s lead counsel and hatchet man; and lastly, the Bank’s chief schemer and PR man, Kenneth Y. Slick III (aka “KY”). B.L.’s loyal secretary, Lucy Furr, has dutifully transcribed this conversation. As in the past, I am prohibited from revealing the source of this purloined post. – PCQ

B.L. Zebub: “Hello all! The last time we held a conference call, it was triage time at the bank. We had been staggered by a couple of Oregon court rulings, McCoy and Hooker, that made us think we’d have to re-foreclose Oregon homeowners all over again – not that they don’t deserve to be foreclosed twice as a good lesson for not making their payments! Ha! But lately, we’ve seen our fortunes change. Damien, why don’t you fill us in on some of the details? Are we finally at the bottom of the 9^th inning yet?”

Damien Faust: “Well, maybe. It’s true, we scored a couple of runs for the home team. These were the Beyer decision and the James decision. The Beyer opinion is a good example of what can happen when borrowers represent themselves; the judge drinks the banks’ Kool Aid that is served up in the form of legal arguments that remain largely unopposed. But who’s complaining?! In this case, the judge actually concluded that MERS was a “beneficiary” under Oregon law because it was entitled to “benefits” – i.e. the right to receive the loan payments under the promissory note. Specifically, he said that “One right of the lender is to receive payment of the obligation, so this clause must grant that right to MERS as well.” The amazing thing is that MERS itself has never argued that. If someone sent MERS a mortgage payment, they would toss it back to them like a hand grenade without the pin.”

Les Guile: “Excuse me, Mr. Faust. I’m not sure I understand. How does the court read into the trust deed a right to receive payments under the promissory note, if MERS itself says it doesn’t accept borrower payments?” Continue reading “Judicial or Non-Judicial? Belial Bank Debates How To Foreclose Oregon Homeowners – Part One”

Senior Supervisor, Bank Hardship Letter Department

Have you ever been curious about what “test” the Big Banks apply when deciding to allow short sales? I have. What follows is my analysis only. Readers are free to disagree; but remember, a couple of anecdotal stories overheard at a cocktail party, do not a trend make. There are rules and there are exceptions to those rules. I’m interested in the rules. – PCQ

First, we know that the Big Banks all base their borrower assistance programs on the concept of “deservedness.” Now, with the help of a sleeper agent working “deep cover” at the highest levels of a Big Bank, we have discovered the following purloined paperwork (including this candid staff photo taken at work), describing, in depth, the inner workings at one lender’s Hardship Letter Department:

“You get our help only if you deserve it. To be deserving, you must have a “hardship.” We get to define the meaning of “hardship.” It must relate to something unplanned or beyond your control[1]: Such as illness, death, divorce, job loss, financial inability to pay, mandatory relocation, etc. Pregnancy cannot be “unplanned” or “beyond your control” according to the Planned Parenthood folks, so it won’t get you into our “deservedness” line.

When you seek our help, we expect you to prepare and sign, under oath and penalty of perjury, a “Hardship Letter,” describing in detail, your tale of woe, beginning from early childhood and continuing through adulthood. We ask that it be hand written on cheap bond notebook paper (blue lines only – and no fancy yellow legal pad paper!), with a No. 2 pencil and shaky hand.

Before writing your Hardship Letter, we recommend watching one or more of the following sad movies to serve as your cinematic Muse and help conjure up the appropriate melancholy [in no specific order]: Titanic, Schindler’s List, Steel Magnolias, and Ordinary People. For the distressed older Baby Boomers, we suggest Love Story and Old Yeller. Continue reading “Do You Know Who Just Read Your Hardship Letter?”

The Conundrum. In Oregon we have a foreclosure conundrum: ORS 86.735(1) requires lenders to record all successive trust deed assignments when non-judicially foreclosing a trust deed. However, lenders have routinely either lost, never created, or destroyed, their trust deed assignment documents during the securitization frenzy of 2005 – 2007. This means that starting with the subprime loans, and working their way up the food chain, lenders have been non-judicially foreclosing trust deeds without recording the necessary assignment documents. This has resulted in two significant court rulings [McCoy in Oregon’s federal bankruptcy court, and Hooker, in Oregon’s federal district court – PCQ] holding that these defective non-judicial foreclosures are invalid.The upshot has been that title companies have become skittish about insuring marketable title when banks attempt to sell their REO properties following a non-judicial foreclosure. In order to avoid the problem, many banks have decided to take a “poison pill” – that is, even though it benefits no one, they are beginning to judicially file foreclosure lawsuits in court, in order to avoid the McCoy and Hooker problem that was limited to non-judicial foreclosures.

However, the judicial foreclosure alternative carries with it a host of unpleasant side effects for everyone.

It entails costly court filing fees;
It taxes already limited judicial resources;
It requires that borrowers be given a six-month right of redemption following the foreclosure sale, which hampers the lender’s ability to quickly re-sell the property;
It creates a potential public record and credit stigma on borrowers, who now have a court judgment taken against them;
It continues the oppressive psychological impact on borrowers who are served, sued, and then must retain an attorney to figure out their legal options;
It continues the reputational damage of Big Banks, by drawing further attention to the never-ending foreclosure crisis.

The Solution. Is there a better alternative? Yes, and it is in plain sight. I have discussed it in a prior post, here. The answer is to secure a pre-foreclosure result. This is not rocket science. “Is anyone home, McFly?” Here’s a pre-foreclosure solution that banks should embrace, rather than continuing to pile on beleaguered homeowners, just because lenders and servicers can’t seem to comply with Oregon’s non-judicial foreclosure law:

Prior to commencing any foreclosure, judicial or non-judicial, lenders should contact the borrower to see if they would execute a Deed-in-Lieu-of-Foreclosure (“DIL”). It would be “without merger”, which would permit the lender to foreclose a subordinate lienholder, if necessary;
The DIL would contain certain borrower title warranties to the effect that they have not placed or permitted undisclosed liens on the property [this would be confirmed with a lender’s title policy, of course. – PCQ];
The lender and borrower would execute a global settlement of all claims – including any borrower rights of redemption and any lender rights to a deficiency judgment;
The borrower would agree to turn over the subject property to the lender in broom clean condition;
If a foreclosure lawsuit was already filed, the lender would execute a Judgment of Dismissal against the borrower, “with prejudice and without costs or fees”.

Win-Win. It would seem that this DIL solution would result in a win-win for all parties and the Oregon judicial system. Assuming that there are no lienholders on the property that may have priority claims, that puts an end to all the unpleasantness; the borrower gets on with their life.

If a foreclosure suit was already filed, the other co-defendants (e.g. junior lienholders) would likely permit default judgments to be taken without costs and fees. If a priority battle was necessary, and no judicial foreclosure had been filed, the lender could pursue them non-judicially, without having to name the borrower, who has already deeded his/her property back to the lender.

Going forward, title would be marketable to any REO buyer. The McCoy and Hooker problems are entirely avoided. The banks get back the property without the cost and delay of a lawsuit, and everyone’s happy….sort of.

How Do We Make This Work? My suggestion is to encourage those in the judicial system to embrace this approach. Require that at the time of filing a judicial foreclosure, bank attorneys sign an affidavit under oath, swearing to the fact that they [not their lender-clients who gave us the robo-signers, DocX, and other shenanigans – PCQ] had formally offered the above protocol and the borrower either rejected it or could not be reached.

If anyone can tell me what’s wrong with this approach, I’m willing to listen. But until I’m convinced otherwise, this proposal would seem to give the lender what they want – marketable title, and the borrower what they need – finality.

Introduction. As we know today, there are many bank-owned properties being listed and sold. A term commonly used to refer to these homes are REOs, i.e. “Real Estate Owned.” After a lender forecloses a home, it takes it back into its REO inventory, prepares and lists it for sale. Most of the heavy lifting is done by the Realtor® holding the listing. However, the bank, not the Realtor®, makes the rules. One of these rules frequently is that the earnest money deposit must be sent to an escrow or other entity out of state. While it is important that the out-of-state institution receiving the funds is actually a licensed escrow, there still can be risks. The two main reasons, both inter-related, are that (a) the other entity is regulated by the laws of another state, and (b) accordingly, the Oregon Real Estate Agency has no control over what happens to the trust money held by an escrow beyond its reach.

Most real estate transactions begin with the submission of a buyer’s written offer of purchase. In Oregon, the most common form of offer is the one published by Oregon Real Estate Forms, LLC or “OREF.” It is entitled “Residential Real Estate Sale Agreement” and identified as Form #001 (hereinafter the “Sale Agreement”). The printed portion of the Sale Agreement describes how the buyer’s earnest money deposit will be handled. Early in the transaction, the money will generally be deposited in the buyer’s agent’s trust account or the escrow trust account. However, in most REO sales, the banks have their own form, usually called an “Addendum” that supersedes many of the Sale Agreement provisions – including who will hold the earnest money deposit until closing. [Why the banks use a document entitled “Addendum” rather than “Counteroffer” is a mystery. Their Addendum is intended to replace and supersede all provisions to the contrary that are contained in the buyer’s initial offer. In all respects, that is a counteroffer. – PCQ]

Oregon Real Estate Trust Fund Rules. Addressed below are the general Oregon rules regarding where such trust funds are to be kept: Continue reading “Oregon Realtor® Warning: Sending Trust Money Out Of State”

By now, most Realtors® have heard the rumblings about defective bank foreclosures in Oregon and elsewhere. What you may not have heard is that these flawed foreclosures can result in potential title problems down the road.

Here’s the “Readers Digest” version of the issue: Several recent federal court cases in Oregon have chastised lenders for failing to follow the trust deed foreclosure law. This law, found in ORS 86.735(1), essentially says that before a lender may foreclose, it must record all assignments of the underlying trust deed. This requirement assures that the lender purporting to currently hold the note and trust deed can show the trail of assignments back to the original bank that first made the loan.

Due to poor record keeping, many banks cannot easily locate the several assignments that occurred over the life of the trust deed. Since Oregon’s law only requires assignment as a condition to foreclosing, the reality of the requirement didn’t hit home until the foreclosure crisis was in full swing, i.e. 2008 and after.

Being unable to now comply with the successive recording requirement, the statute was frequently ignored. The result was that most foreclosures in Oregon were potentially based upon a flawed process. One recent federal case held that the failure to record intervening assignments resulted in the foreclosure being “void.” In short, a complete nullity – as if it never occurred.

Aware of this law, the Oregon title industry is considering inserting a limitation on the scope of its policy coverage in certain REO sales. The limitation would apply where the underlying foreclosure did not comply with the assignment recording requirement of ORS 86.735(1). This means that the purchaser of certain bank-owned homes may not get complete coverage under their owner’s title policy. Since many banks have not generally given any warranties in their REO deeds, there is a risk that a buyer will have no recourse (i.e. under their deed or their title insurance policy) should someone later attack the legality of the underlying foreclosure.

Realtors® representing buyers of REO properties should keep this issue in mind. While this is not to suggest that brokers become “title sleuths,” it is to suggest that they be generally aware of the issue, and mention it to their clients, when appropriate. If necessary, clients should be told to consult their own attorney. This is the “value proposition” that a well-informed Realtor® brings to the table in all REO transactions.