Good Fences Make Good Neighbors

As a Crimson Tide fan I find this poll hard to believe.

via MarketWatch

Florida Considering Going Digital With Foreclosure Notices

Before a house can be sold at a foreclosure auction, a notice must run in the legal notices section of the local paper (remember newspapers?) announcing the sale.  Some Florida lawmakers are considering revising the law to allow notices to run online instead of in print.  Proponents of the bill say this is just a step towards modernization.  Opponents say this will disfavor populations that don't have access to technology or are generally not tech savvy.

Newspapers: Putting Foreclosure Ads on Web Would Hurt Poor, Elderly via The Ledger

Image: scottchan / FreeDigitalPhotos.net

House Sells Itself 140 Characters At A Time

An interesting marketing idea.  Sample tweet:

"Went on the market last wk. My owners' kids are grown so they say I'm too big for them now. Apparently size does matter."

via Housingwire.com

How Late Is the Average Mortgage Before a Lender Forecloses?

This past September, 611 days.

(Legal disclaimer.  This is a national average.  A lender usually has the right to foreclose after the first missed payment.  Don't take the average to mean you have 1 and 2/3 years to catch up on your mortgage.)

"He probably didn't have this in mind when he signed on to be HUD secretary"

A Politico article highlights the issues facing Shaun Donovan, helming HUD during the current housing downturn, as well as some critics who think the Department should focus less on the foreclosure crisis and more on affordable rental housing.

Image via Wikipedia

Monday Primer: Recourse vs. Non-Recourse Loans

Recourse and non-recourse are terms used to describe types of loans.  They describe the personal liability of the borrower to repay the loan, and becomes most relevant when we talk about default.

In a non-recourse loan, the lender has no recourse.  If you walk away from that loan, the lender may repossess the collateral, but may not come after you for the deficiency (the difference between what you owe and  the value of the collateral).

In a recourse loan, the lender has recourse.  You cannot walk away from this type of loan.  So if, for instance, you own $5,000 on a car that is totaled in an accident, you cannot simply walk away from the debt and allow the lender to repossess the car.  The lender will take the car (or what's left of it), but you will still be legally responsible and may be sued for the $5,000 you owe.

Traditionally, home mortgages for the purchase of a house have been non-recourse.  In the current economy, where so many people are underwater on their mortgages, you start to hear more about strategic default, or walking away from a mortgage.  This can be a strategically sound decision (hence the name).  If the value of the collateral is less than the amount of the financial obligation, walking away makes financial sense (we'll leave the ethics of it for another post).

However, most states, by statute, make home mortgages recourse debt.  In these states, walking away from an underwater mortgage may still lead to a financial judgment against you.  Most banks do not pursue a deficiency judgment, but with so many people defaulting and leaving deficiencies of tens of thousands of dollars or more, the number of deficiency judgments is increasing.

If you are underwater on a mortgage, the remedies a bank may have against you is another factor to consider before you consider strategic default.

A list of recourse and non-recourse states

House Is Gone but the Debt Lives On

Image: vichie81 / FreeDigitalPhotos.net

Good News In August For Alabama Real Estate

Some good news in Alabama.  Alabama Center For Real Estate reports that residential home sales in August are up 20.8% from this time last year.  ACRE cautions that the rise may be attributed partly to an unusually bad August last year when the home buyer tax credit had expired and shifted sales this August accounting for delays due to this summer's tornadoes.  Nonetheless, it's nice to have some optimistic news in the local housing market.

Shadow May Be Lifting

CNNMoney reports that the shadow inventory of houses - the inventory of houses that are not on the market but that are in default and may be foreclosed upon - may be lifting sooner than anticipated.  This inventory puts a strain on the already tepid housing market.  Standard & Poor's estimated earlier this year that it would be 52 months before that inventory was exhausted.  S& P has now revised that timeline to 47 months.

S&P said the decline was helped by stabilizing liquidation rates and by fewer borrowers falling behind on their mortgage payments as the economy slowly recovered during the quarter. The firm also said tightened lending standards over the past several years has helped reduce the likeliehood of defaults among recent homebuyers.

Image: Evgeni Dinev / FreeDigitalPhotos.net

Mortgage Rates Drop

4.15% for the average 30 year fixed and 3.36% average for a 15 year.

This is a 50 year low, but new buyers must still be skittish and the housing market remains stalled.

30-Year Mortgage Rates Now Lowest Ever, People Still Aren't Buying [consumerist.com]

HUD Assistance For Tornado Victims

According to a statement released yesterday, the Department of Housing and Urban Development will soon be offering assistance to families displaced by the recent catastrophic storms in Alabama and Missouri.  HUD will be selling nearly 90 of their REO properties at a discount to public housing authorities in affected areas.  Public housing authorities will then make these properties available for lease or sale to people whose own homes were destroyed in the storms.

“After witnessing first-hand the size and scope of the devastation in Alabama, I knew we must do more,” said [Secretary of HUD Shaun] Donovan. “For the first-time, HUD has designed a pilot program that will bring families affected by a significant disaster closer to stability by quickly providing them with an opportunity to purchase or lease a home. We hope to be able to use this draft purchase agreement as a model to assist other families displaced after a disaster.”

If you live in an affected area and are interested in taking advantage of this program, you should contact your local public housing authority.

Monday Primer: Adverse Possession

In my property class, adverse possession was one of the first doctrines we learned about.  Our property professor became frustrated in the following weeks when we suggested clearing all title issues by waiting twenty years for the adverse possessor to become the rightful owner.  Around that same time I was on a plane with a real estate attorney who told me that in thirty years of practice he had never seen a case of adverse possession.  Until recently, this was a legal doctrine known to 1L law students, but not really relevant to practice or known by the general population (like the Rule in Shelley's Case).  This changed last month when a Texas man decided to use this doctrine to his benefit and adversely possess a bank-owned house that was sitting empty.  This story was picked up by various bloggers and left many readers wondering if they too could profit from this law.

So how does adverse possession work?  This doctrine essentially says that if you sit on a piece of land long enough (traditionally twenty years, but it differs state to state) you become the actual, legal owner of the land.  There are traditionally four elements making up adverse possession and states may have their own statutory requirements.  The four common-law elements are actual entry, open and notorious occupation, hostility, and continuity.  This means that:

1. You must actually enter the property.
2. You must make your presence obvious.  (You can't enter secretly or hide in a shed for twenty years unfindable and then claim the land is yours.)
3. You must be there without the permission of the owner.  Your presence must be hostile to the owner's title.
4. You must occupy the land steadily for twenty years (or whatever the statutory period is in your jurisdiction).  This does not mean that you can never leave the land, but rather that you use the land as continuously as any normal owner would.  If the actual owner boots you off the land, the clock stops running and you would have to re-enter and start over.

States have there own additional requirements in addition to these.  In Alabama these requirements are outlined in section 6-5-200 of the Alabama Code.  In Alabama the time for adverse possession is ten years, and in addition to the common law requirements, the adverse possessor must have done one of three things:
1. Recorded a deed to the property ten years ago
2. Paid property taxes for ten years or
3. Inherited the property from an adverse possessor who was in position one or two.

Looking at Alabama's statute (and many other states have similar requirements).  You can see the risk of being an adverse possessor.  An adverse possessor can hold a property for nine years, eleven months, paying property taxes the entire time, be ejected by the actual owner on the last day, and find himself possessing nothing.

Estoppel By Deed

*Note: This legal doctrine is unrelated to my previous post on estoppel letters.  Lawyers love reusing words to indicate different concepts.  It keeps everyone on their toes.

This question just came up while examining a chain of title:
An over-zealous seller transferred property to the buyer BEFORE the seller actually owned it.  The seller acquired the property the next week, and the deed granting ownership to the seller was recorded before the deed granting ownership to the buyer.  So the chain as recorded looked like this:

Owner -> Seller -> Buyer

But in actuality was this:

January 1: Seller->Buyer
January 7: Owner -> Seller

The question is, does the buyer own the property even though the seller had no title to transfer when he transferred title to the buyer.

The answer is yes.  Because of the legal doctrine of Estoppel By Deed.  This is a common sense doctrine (something we should all be pleasantly surprised to see in American property law).  The seller can't claim good title when selling the property and then deny that he had title at the time of transfer and keep the property for himself. Without this doctrine, the law would provide the buyer with the legal remedy of suing the seller to demand a new deed.  Instead, the court saves everyone time and money by treating the seller's good title as if it reaches back to the original deed and stopping him from claiming otherwise.

What Is An Estoppel Letter And Why Does It Matter?

If you are a tenant and your landlord has sold the building or been foreclosed upon, you may have received an estoppel letter asking you to affirm that a lease is in place and all parties are in compliance.  Ira Meislik has a post on his blog Real Estate Law and Ruminations explaining estoppel letters and how they might trump the facts.  He warns recipients who know that their landlords are violating the lease.

What’s the lesson? Don’t jump so fast to assume that an estoppel letter is innocent. It isn’t a pro forma task. It requires investigation. The party giving it has to realize that what is “says” may turn out to be a replacement for the “real facts.” 

If you have been sent an estoppel letter, Meislik's post is a good read before you sign anything.

Watch This Auction

The Sacramento Bee reports on a local real estate agent posting an unsold listing on eBay.

A clever gimmick, but be careful.  Buyers: a quick search of real estate being sold on on-line auction sites shows some less than legitimate looking listings.  Make sure you investigate before you bid.  Agents: this may be a good way to get in touch with potential buyers, but it is unlikely that an eBay auction would meet your state's requirements for a binding real estate contract.

Neighbors of Foreclosed Property Protest Condition

There's a story at the Consumerist blog today relating the protest of San Jose homeowners.  The protesters were angry at the upkeep (or lack thereof) of a foreclosed property in their neighborhood.  They dropped bags of trash from the home in the lobby of a local Wells Fargo branch.  Unfortunately, it turns out the house was owned by Bank of America.  Police were called but no arrests were made.

Consumerist labels this story "Misdirected Anger," and that's certainly what this is.  Even if the property had been owned by Wells Fargo, the local tellers would have had no connection to the mortgage department and the upkeep of the property is surely contracted out to yet another party.

If you find yourself in a similar situation, the proper course of action is to contact the city or county government and alert them to the presence of a nuisance.  The municipal government can investigate, take steps to alleviate the condition, and then bill the (actual) owner of the property.  This process will be slower, and may be less emotionally satisfying, but you can avoid having the police called on you. 

Image: Ian Kahn / FreeDigitalPhotos.net

Decline In Foreclosures

Les Christie at CNNMoney reports that foreclosures are down this year, but explains that may not be the economic good news that it seems:

"These dramatic decreases indicate the foreclosure pipeline continues to be clogged in many local markets across the country," said RealtyTrac CEO, James Saccacio, whose firm reported earlier this month that the national foreclosure rate fell 29% over the past 12 months.

Much of that backlog, he explained, is due to a glut of already-foreclosed properties that the banks are having a hard time selling and to the slowdown in the processing of foreclosures following the "robo-signing scandal" of 2010.

As a result of the scandal, in which the banks were accused of mishandling paperwork and failing to follow proper protocols, banks are being much more careful and many filings have been delayed.

The Morality of Adverse Possession

Over at Concurring Opinions, David Fagundes has an interesting post contemplating the morality of adverse possession.

Adverse possession may be the most counterintuitive doctrine introduced to students during their first year of law school, or even at any time during law school.  The notion that a trespasser can become a valid title holder, eliminating the prior owner’s claim to the property, seems terribly wrong to students at first blush.

And that’s exactly why I enjoy teaching it so much.  Because when examined more closely, there are plausible utilitarian rationales underlying adverse possession.  Adverse possession may reward and incentivize more productive use of land, increasing aggregate social welfare.  Pressed to examine this and other rationales, students may not end up agreeing that adverse possession is a good doctrine, but they learn that the story is a lot more complicated than their initial reaction indicated.

It reminded my of my own property professor, Jim Krier (father of Andrew WK), who delighted in challenging the class on our notions of "fairness" as they related to property law.

Image: graur codrin / FreeDigitalPhotos.net

National Association of Realtors Argues Against Stricter Requirements For Homebuyers

Ilyce Glink reports on recommendations by the National Association of Realtors.  Among them:

2. Regulators should reduce the overcorrection in underwriting standards for mortgages from the Federal Housing Administration (FHA) and government-sponsored enterprises (also known as the GSEs)because the now-too-stringent standards are preventing qualified borrowers from getting loans.

Phipps said more regulations and legislation that tighten access to credit and affordable safe mortgages are not the solution to righting the housing market and economy.

New Home Sales Report For June

New home sales report for June is released.  Numbers are down from May, but up compared to this time last year.  See the full report via Bloomberg.

Image: renjith krishnan / FreeDigitalPhotos.net