Home foreclosure filings up 55 percent in July
Source: Yahoo News/Reuters - Thursday, August 14, 2008
Virginia in Top 10 of States with Highest Foreclosure Rates
NEW YORK (Reuters) - U.S. foreclosure activity in July rose 55 percent from a year earlier as a slump in once-sizzling housing markets forced yet more borrowers to default on their mortgages, according to a monthly report.
Foreclosure filings -- default notices, auction sale notices and bank repossessions -- rose 8 percent from June and 55 percent from July 2007 to 272,171, according to RealtyTrac, which records property in various stages of foreclosure.
That means one in every 464 U.S. households received a foreclosure filing in July, the firm said. Bank repossessions (REOs) rose 184 percent year-over-year. Default notices were up 53 percent, and auction notices rose 11 percent.
"The sharp rise in REOs, combined with slow sales, has resulted in a bloated inventory of bank-owned properties for sale," James Saccacio, chief executive of Irvine, California-based RealtyTrac, said in a statement.
RealtyTrac now has more than 750,000 properties in its active REO database, or about 17 percent of the inventory of existing homes for sale reported in June by the National Association of Realtors, RealtyTrac said.
Among 230 metro areas tracked, Cape Coral-Fort Myers, Florida, registered the highest foreclosure rate. One in every 64 households there received a foreclosure filing last month, more than seven times the national average.
By state, Nevada led the country with its foreclosure rate in July, as one in every 106 households received a foreclosure filing. Foreclosure activity in Nevada rose 15 percent from the previous month and 97 percent from July 2007, RealtyTrac said.
REOs in Nevada jumped 384 percent from a year ago, default notices surged 59 percent and auction notices rose 31 percent.
In California, one in every 182 properties received a foreclosure filing. Florida was third, with one in every 186, while Arizona's rate was one in every 195 properties.
Other states with foreclosure rates among the top 10 were Ohio, Georgia, Michigan, Colorado, Utah and Virginia.
California was first by number of foreclosures with 72,285 in July, up 5 percent from June and 85 percent on a year ago. REOs in California rose 427 percent from a year ago, while auction notices rose 67 percent and default notices were up 34 percent. But default notices declined 4 percent from June.
Foreclosures in Florida rose 14 percent from June and 139 percent from a year earlier to claim the second highest number of properties, at 45,884. REOs rose 678 percent, auction notices were up 180 percent, and default notices doubled.
Ohio was third with 13,457 filings, up 2 percent from June and 1 percent from July 2007. Texas, Georgia, Nevada, Illinois and New York also were in the top 10 for foreclosure filings.
(Reporting by Ilaina Jonas; Editing by Braden Reddall)
Difficult Times/Dangerous Deals
Courtesy of the Virginia Agency Council
As you know, the future does not look bright for many sub-prime lenders or their borrowers who took on loans they cannot repay. These problems will only add to the pitfalls the title insurance industry faces in connection with schemes designed to enrich third parties at the expense of homeowners and/or lenders. The variety of these schemes is only limited by the imagination of those who seek to be enriched. These schemes are widespread throughout the country. This Bulletin is intended to advise you of the hazards (which often are not obvious) to closing and insuring these transactions.
Foreclosure Consultants: These schemes often involve the "consultant" taking title to property from a defaulting homeowner, with a promise to make mortgage payments and reconvey to the owner at some time in the future. Inquire into aspects of a residential sale that appear out of the ordinary. Be particularly careful (a) if you know about or suspect a pending or threatened foreclosure or (b) if you receive a payoff showing more than one delinquent or past-due payment or (c) if you suspect a leaseback or repurchase agreement. Question any transaction in which a delinquent or defaulting borrower/seller will remain in possession. Are there written or oral agreements that would constitute a leaseback, lease to own or a reconveyance agreement? In order to insure the transaction, you may need additional representations from your seller and may need to take additional exceptions, for example, to possession and repurchase rights. For those Virginia agents also doing business in other states, be aware that Maryland and other jurisdictions have enacted homeowner protection laws that must be complied with in these cases, so contact each state office for that information.
Short Sales: A short sale occurs when there are not sufficient funds from the sale to pay the existing mortgages in full and is sometimes referred to as a short payoff. A lender may choose to accept less than a full payoff rather than foreclose; this is particularly true of subordinate lenders who could end up with nothing if the senior mortgage is foreclosed. When faced with a short payoff you must be in direct contact with each lender, receive a release in escrow or a binding payoff letter and obtain the approval of all disbursements from each lender (lender(s) being shorted and new lender(s)). When a foreclosure attorney and/or Trustee is/are involved, you must be certain that the short payoff includes all fees and costs.
We have seen the rise of the "loss mitigator" or "mortgage rescue" companies, which may have altruistic purposes, but whose methods create a problem for title companies. In these situations, distressed borrowers or sellers respond to an advertisement or are contacted by someone in the business of negotiating short payoffs. They are often insistent that the title agent not contact the existing lender for a payoff. This is a serious red flag, and the transaction will need to be discussed with and approved by your local agency underwriter. However, distinguish those otherwise standard transactions with judgment liens; you should in those situations obtain permission from the judgment debtor before contacting the lienholder for a payoff.
Proceeds or Disbursements to Third Party: It is always a red flag when buyer's actual purchase price is more than the seller's actual sales price. Often the property has been on the market for a number of months and is listed at a reduced price. The buyer is induced to buy the property for an inflated amount, which might include the property's highest appraised value, yet the seller is paid based on the lower list price. A third party, who arranged the deal (or the purchaser) ultimately receives the difference between the list price and higher price paid. The third party or would be rescuer might promise the buyer to pay a few mortgage payments or other incentives for the buyer's agreement to pay the higher price. This transaction is often documented by unusual, undocumented or unverified disbursements shown on the HUD 1, for example, landscaping, decorating or renovation costs that often, ultimately, are returned or promised to be returned to the purchaser. When the third party fails to perform as promised, the transaction is scrutinized. The duped purchaser and lender may attempt to include you and all other parties involved in a claim of mortgage fraud. Please be mindful of all such unusual requests, do not let yourself be deceived or talked into participating in what could be criminal activity.
Property Flipping: Watch for a large unexplained price increase; review the consideration on prior deeds. Often the parties flipping property will transfer it among their own companies, increasing the consideration with each transfer. If you notice that the same person is an officer of subsequent owners in the chain of title and the consideration is increased on these deeds, please treat this as a red flag, and call your local agency underwriter. Flipping can also be a method of deceiving the seller's lender into agreeing to a short payoff. For example, a seller transfers property to a middleman (perhaps a trust) and the HUD-1 reflects a sales price that is insufficient to payoff the mortgage/deed of trust. The middleman then "sells" the property to the true ultimate buyer for a higher (true) sales price. The seller's lender never sees the second HUD-1, and is duped into believing there is insufficient equity in the property to pay off its loan.
Bankruptcy Concerns: Aside from the significant claims loss potential created when a transaction involves actual fraud, when a financially distressed seller receives less than reasonable consideration for the sale of his real estate, there is always a possibility that the seller will file bankruptcy after the sale is complete. In Virginia, a transaction can be challenged as fraudulent transfer for a period of 5 years. Further, a Bankruptcy Trustee may move to set the transaction aside; the ramifications of such a result can be both serious and expensive. We have incurred recent losses in Virginia based on a mortgage that was set aside by the Bankruptcy Trustee. The 2003 Homeowner's policy does not contain a creditors' rights exclusion. Even with the exclusion, if the deed of trust is not recorded within 30 days (even inadvertently) a Bankruptcy Trustee can avoid the transaction as a preference.
This risk is real. Please be vigilant in compliance with Virginia's Wet Settlement Act and CRESPA; get your documents to record within 48 hours and disburse only after recording.
Other Reports/ Concerns of Fraud We have had reports of a wide variety of forged documents. Be on the lookout for forged payoffs, lender instructions, Bankruptcy orders and of course, identification. Always make sure you are dealing with the lender directly rather than a broker or other representative. Contact the Court directly for confirmation of any Bankruptcy order or dismissal that will affect title. Do not accept documents from the seller without verification. Check and double check id's; verify and compare signatures when appropriate. Do not release checks to anyone other than the payee; make sure the proceeds are made payable to all individuals listed as your seller or payee on your HUD 1. Be cautious of relying on any Power of Attorney that is not signed or notarized in your office. Confirm that you have "good funds" before recording and disbursing. [NOTE: ACH (Automated Clearing House) funds may be reported with wired funds but will be noted "ACH". ACH funds are NOT considered good funds. ACH funds are often originated by a credit card, debit card or intrabank transfers and may be recalled for up to 90 days.] Call your agency underwriter for guidance if you have suspicious documentation or funds.
The bottom line is this: There will be times when we will not want to insure transactions such as the ones described above and will not want our agents to be involved in the closing of such transactions. We have seen agents named in class action suits when the agent had received no financial benefit from the transaction other than standard closing fees and premium. There is always the potential for buyer/seller/lender's remorse when there is a question of honest and equitable treatment of a financially distressed seller, a low-income buyer of distressed property, the pay-off lender or the purchase money lender. Please help in protecting your customers, yourself and this Company. Contact your local agency underwriter before committing to close and insure such transactions. We can help with underwriting guidelines and suggestions that might allow you to close the transaction or, if necessary, help you graciously withdraw or pass on a questionable transaction.
Realtors
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