When that article about the blog was syndicated, it ran in the newspaper in Bend, Oregon, and we’ve picked up some friends since.
Bob sent this in from the latest edition of the same paper, evidence that looks like Citi is going after those who owe a balance on their mortgage:
Published: July 06. 2009
Civil Suits
Deschutes County Circuit Court Civil Log
Cases involving less than $50,000 are subject to mandatory arbitration
Filed June 22
09CV0640ST: Citibank South Dakota NA v. Todd R. Meredith, complaint, $12,567.15
09CV0641AB: Citibank NA v. Jeffrey D. Evans, complaint, $99,960.50
09CV0642ST: CitiMortgage Inc. v. Lisa M. Solomon, complaint, $42,259.79
09CV0643AB: CitiMortgage Inc. v. Ramon Salcedo Jr., complaint, $71,126.88
09CV0644MA: CitiMortgage Inc. v. Lara Wettig, complaint, $60,054.39
09CV0645MA: CitiMortgage Inc. v. Michele Ann Sprando, complaint, $60,705.39
We don’t know for sure what these are, but the CitiMortgage suits look mortgage-related, and they aren’t the normal foreclosure postings. No surprise that they are trying to collect money owed them – I think we can expect future recourse-loan deficiencies to be pursued.
You can’t squeeze blood from a turnip…
Unless the original borrower/deadbeat really wasn’t in as much hardship as they claimed.
Isnt california a non recourse state?If the 2nd loan was used as part of the home “purchase” the lender cannot get their money back as far as I know.If you took out a 2nd and pissed it away on flat screens and strip clubs they can come after you for the money.
California 1st mortgages are only non-recourse for purchase money loans. If you refinanced your first mortgage, you lose the non-recourse protection.
“If you refinanced your first mortgage, you lose the non-recourse protection.”
I believe a “no cash out” refi still has non-recourse protection.
Theoretically, Recourse protection is given up if refinanced, it has to be an original purchase money loan to be iron clad no recourse.
The nuance is that California has something called the “single action” rule. Which for non-judicial trustee sales means you can have the money or the house, but not both. So if you have one loan on a property and aren’t Michael Jackson or Lenny Dykstra (someone with big enough loans that the lender will pursue the lengthy and expensive judicial foreclosure) then you are effectively still a purchase money loan and are safe.
If you have two loans that were refinanced and the first forecloses (non-judicially).. you are on the hook for the second. If you have the same scenario and the second forecloses, you are free and clear (the second would settle up with the first and the second foreclosed so can’t come after you for the deficiency).
From the stories I have heard with short sales, borrowers didn’t clear up the leftover liability while they still had a bit of leverage with the bank (while they still owned the home) and now are being pursued for deficiency.
shadash,
I know a lot of people that sucked the equity out of their houses. Bought nice cars, jewelry, went gambling, and have a lot of it sitting around still. Good for the banks if they’re trying to get some of that back.
You can figure that there are millions of debtors taking this topic too lightly. How many people in the end will say, “I shoulda just kept my house”?
My focus is on the advising end of it, I don’t see many realtors telling recourse sellers, “This is serious and the banks are going to come after you for the difference.”
BK lawyers are going to make a killing over the next 10 years.
Yep, I completely agree. People who gamed this and thought it was no big deal are probably looking at a rude surprise. Should have stuck it out and kept the house.
“Should have stuck it out and kept the house.”
No, they just should have been smarter about walking away. People being buried under debt need to take steps to get out from under it. They need to be intelligent about the choices they make.
But I would bet the people who “stupidly” walked away still net more than those who stupidly stuck with the house. They just didn’t net as much as the people who did it smarter.
I guess I think that the market will come back, it always does, not this year, but it will. If you need to sit in your house until 2012, so be it. I’m sure most in here disagree.
And, bailing on a loan out of choice is short sighted and morally hazardous. If you can’t afford it, lost your job, then go BK. Strange thing non-recourse.
Standardized recourse loans (using a Danish model) are being introduced into Mexico and Chile. Last March, the American Enterprise Institute held two seminars that discussed in detail prospects for introducing national mortgage standards to make all US mortgage loans recourse. We’ve got transcripts for these seminars up on Doom.
California is not no-recourse, it just works out that way for the first mortgage. *Each* lender gets to *choose*, and the first practically always chooses to take the house. The second might take a small payout of say $3,000, or they might SUE YOU.
Someone who is a tuxedo and top hat wearing millionaire cannot expect the 2nd mortgage to simply twiddle their thumbs in the background as they default. They’ll go after your assets. This applies to people who had a 2nd and did a buy and bail (buys a second house and stops paying on the first) or any other manner of scams where you default and walk away with $100K in your pockets.
sdbri, you are quit incorrect in your first statement. California is absolutely no-recourse for purchase money. ED, summarized it well in there post for non-purchase money.
You can have a second (or third or fourth) that was used as a purchase money loan and they would all be no-recourse.
The 80/20 loans used to purchase during the boom are no-recourse.
“I guess I think that the market will come back, it always does, not this year, but it will. If you need to sit in your house until 2012, so be it. I’m sure most in here disagree.”
The market will “come back” to something approaching what it would have been due to inflation had there been no bubble. Just for laughs, take the average home price during whatever you think was the last “normal” (prebubble) year, then increase it by 2-3% a year and chart what you get year-for-year. If you look at a chart of prices during past booms and busts and draw a line that averages them out over time, you’ll probably find that that is pretty much what the market “always does.”
Looking at my own home, its estimated “value” in 2001 was $400k and in 2006 $760k. If there had been no bubbles or busts, it would probably have crept up to somewhere around $500k today, and I think there’s about a 50-50 chance it might actually sell for that now, not that I plan on testing that. I figure the price will be $760k again (in unadjusted dollars) sometime between 2020 and 2025, with some unpredictable peaks and valleys along the way.
Secondary loans may or may not be non-recourse. Demands on the documents. But, you aren’t entitled to non-recourse as a matter of right for the second loans.
There’s a whole host of reasons banks don’t pursue these. 1) Cost. A $65,000 laswuit will cost 10 times that to puruse. 2) If the guy is really poor, he’ll declare BK, and your claim will probably get wiped out. 3) Bad publicity. and 4) given the volitility in the market, the defendant is just as likely to raise as a defense or counter-sue for something like arguing that the bank effectively detroyed the value of the asset and mis-handled the re-sale, or fraud, especially for teaser rate loans, etc., etc.
And, semi-related: Lenny Dykstra will go to jail within 18 months. I would even bet Jim’s Padres tickets (against the Phillies, of course) on it.
I plugged in a case search on CitiMortgage, civil cases – all of SD county. Just for 2009 over 30 came back.
It does, indeed, appear that Citi is going after customers.
http://www.sdcourt.ca.gov/portal/page?_pageid=55,1056871&_dad=portal&_schema=PORTAL
Select party name search
Enter case type CIVIL
the other two fields as unknown/all
Put in 2009-2009
And Citimortgage in the business/last name field.
This whole sorry saga is the mess that won’t end. Ordinary Joes were greedy, and banks were stupid. I expect people to be greedy (I’m either cynical or read The Economist too much), but banks really should have known better. I think that 10 years from now, looking back, our biggest regret will be that the bailouts have told the bankers they can be profoundly stupid and still get fat bonus checks.
“Secondary loans may or may not be non-recourse. Demands on the documents. But, you aren’t entitled to non-recourse as a matter of right for the second loans.”
________________________
2nd mortages or HELOCS used to purchase the home are non-recourse as a matter of law. Doesn’t matter what the loan docs say.
I lived in Bend for over 10 years. Early this decade, it was the fastest growing city in Oregon. Now the unemployment rate hovers around 16%.
From a recent article in the “Oregonian” newspaper:
“Bend, a high-desert hub built on timber and farming, quadrupled its population since 1990 to surpass 80,000…
Developers made fortunes as real estate prices soared. Bend’s median home-sale price shot from $240,000 in February 2005 to a peak of $396,000 in May 2007, according to Bratton Appraisal Group. By April, it had plummeted to $195,000.”
Friends still there say there are subdivisions that are virtual ghost towns. In June, there were 275 NOD’s sent out. And the JLScott real estate site shows 2,514 SFR on the MLS. That’s a lot of houses to sell before school starts again and the snow flies in November…
UCGal,
Thanks for the link. I took a quick look through some of these and quite a few of them are for Unlawful Detainer. I saw one for Quiet Title and there were several for collection actions. It wasn’t possible to determine the cause of the collection actions with the information available, so some of those could have to do with recourse actions.
FYI,
I went back prior to the beginning of 2009 and only looked at cases where Citimortgage was the plaintiff. When I took a second look at just 2009, almost all the cases were collections.
Sorry to keep popping up with additional posts. I should have gotten all the info together before I posted.
I started clicking through the 2009 SD court cases instead of just skimming through the case codes. None of the collection actions in 2009 appear to have been filed against husband and wife. All of them seem to have individual defendants. Maybe I’m just missing something, but that seems a bit odd if they are recourse actions since I think attorneys typically go after anyone whose name is on the contract.
Maybe one of the gurus could explain that one?
Maybe the on-line filing system lists one party only, even when there’s two?
Bob from Bend added this:
One of the Court Cases in the Bend Bulletin that Citi is pursuing was a Promissory Note for $60K at 11% that was defaulted. This person had a first mortgage loan and then sometime got a Promissory Note secured by the home property. In the Note, they agreed to pay it back and pay any legal fees incurred by the lender. Sounded pretty ironclad to me. The home property was recently foreclosed on. Now Citi is after the Promissory Note. The public record indicates the defendent intends to contest Citi-Mortgage’s claim for payment. I wonder what the defense will be — some non recourse argument?
@DAcounseler, yes, true in CA. I was thinking more of HELOCs/other loans opened later.
JtR,
That’s possible, but the Unlawful Detainer actions had multiple defendants listed. It is possible that they might just be suing the person whose paycheck they want to attach, but I’m not a lawyer so I’m not sure.
Interesting that they are all for less than $100k. Must be seconds or HELOCs or something not related to housing.
It’s interesting to see that Citi is one of the banks that is going after those whom owe balances on their mortgages so aggressively when they were so aggressive to give loans up to 100% behind neg-ams around here. And all to stated income buyers purchasing $1million plus properties.
One of my old associates at the mortgage company I worked at made a lot of commission from these seconds. He did a lot of work with World Savings and before the ink was dry on the first with Worlds loan docs, Citi would be doing appraisals up to 100% behind the World Savings, Downey Savings and Indy Mac neg ams. Some funding within 2-3 weeks of the close of escrow of the purchase, and these loans were being done up until early 2007.
What Citi is doing is switching the debt from secured debt status to unsecured consumer debt and that is how they are able to file suit.
from NMNOnline:
As the mortgage and banking industries debate whether the PPIP program will work and whether a similar effort over at the FDIC will ever see the light of day, Wells Fargo & Co. recently (and quietly) sold a $600 million portfolio of mostly non-performing subprime loans. Or so we’re told.
Late last week a source close to the transaction identified Arch Bay Capital of Irvine, Calif., as the winning bidder on the portfolio whose loans were originally funded by two mid-sized subprime wholesalers: Accredited Home Loans, and NovaStar Financial.
Arch Bay co-founder Steven Davis declined to comment on the purported sale to his firm, referring calls to his partner Shawn Miller who serves as Arch Bay’s CEO. Mr. Davis didn’t deny that the sale took place but he wouldn’t confirm it either. Mr. Miller could not be reached for comment.
Meanwhile, one question the sale raises is this: How exactly did the publicly traded Wells wind up with so many crummy non-prime loans from these once highflying firms? Answer: I don’t know and Wells isn’t talking. A company spokesman said the bank’s corporate policy is to not discuss its loan auctions.
Perhaps one reason the PPIP (Public-Private Investment Program) and the Federal Deposit Insurance Corp.’s ‘Legacy Loan’ sale initiative (involving whole loans, presumably residential and commercial mortgages) hasn’t caught fire is ‘sunshine,’ that is, the concept of disclosure. If bankers and investment bankers use these government programs that means all the messy details of their crappy investments might see the light of day, which could anger shareholders — and maybe even board members who might lean toward being “activists.”
The nice thing about the private non-performing loan market is that none of these messy details have to see the light of day, including the price paid. One banker told me that the 35 cents on the dollar that Arch Bay reportedly paid was twice what some hedge fund bidders were offering.
No matter how you do the math, Wells is going to take a nice hit on the sale, if it hasn’t done so already. Will the public ever get wind of the NPL sale price (outside this story)? That’s hard to say. The Securities and Exchange Commission requires that publicly traded companies disclose “material events” in their 10-Qs and Ks but when you have a mega bank the likes of Wells a $600 million loan auction might garner a sentence in the next earnings report, at best.
Perhaps, the PPIP program will indeed take off. Someday. And maybe it won’t. Just keep in mind that Wall Street and the banking industry have plenty of dirty subprime laundry they may not want aired. Private sales (by publicly traded banks) will guarantee that the details of those deals stay private. To borrow a marketing phrase from the Nevada’s gaming industry: What happens in the (private) NPL market, stays in the NPL market.
“Maybe the on-line filing system lists one party only, even when there’s two?” JtR
I think you’re correct, Jim–at least for Bend, OR. I checked on the ones listed in your original post, and in some cases there are two names posted on the property records in that county.
.
D E A D B E A T S . . B E W A R E ! ! !
.
Short Sellers Beware
http://www.calculatedriskblog.com/2009/07/short-sellers-beware.html
Often, the troubled home owner assumes the loss will be eaten by the lender. But Bank of America and Chase have quietly added language in their short-sale agreements that require the borrower to sign a promissory note for the shortfall.
A spokesman for the American Bankers Association said this week that he wasn’t aware of the practice, suggesting how little attention has been paid so far to collection of these notes from troubled borrowers.
BofA says its intention is to protect investors holding the mortgages.
****
One real estate agent who specializes in short sales, Chris Mackey of Carmel Valley, said about 50 percent of the short sale contracts he has seen include the language before he requests its removal. Banks generally have removed the language, he said.
Lending Industry Attacks California Homeowner’s Rights to Legal Representation
http://www.prweb.com/releases/loan-modifications/california/prweb2618464.htm
The lending industry and loan servicing lobbyists have successfully pressured Governor Schwarzenegger to demand that language be included in SB 94 that would prohibit attorneys from accepting retainers for loan modification negotiations with their loan servicers. The language, if adopted, will prevent homeowners from seeking legal representation to save their home from foreclosure.
***
The proposed language will effectively cut-off homeowners from legal representation, while banks and loan servicers have a battery of attorneys dictating policies that are in their interests and leaving homeowners to fend for themselves. Attorneys who legitimately represent their client’s interests to gain long-term modifications invest months of work, countless hours and delaying tactics by the loan servicers who only respond to the threat of litigation.
One of the interesting twists on the non-recourse issue is when the 80-20 refis/helocs were done by the same lender. There is some California case law from the 1990’s that holds where the first chooses to complete foreclose non-judicially, and the second is held by the same lender, there is no deficiency on the second anymore because the lender chose to take the property and the anti-deficiency protection under CCP Section 580d applies to the second as well as the first when held by the same lender, even if it was a refi. California’s anti-deficiency legislation has its origin in the depression era and attempts to put the burden on the lender instead of the borrower for declining collateral values.
In the current environment, with these loans mostly collateralized, but the same servicer is handling the first and second, and no one knows who actually owns the paper until the trustee’s deed is recorded or the foreclosed out second actually sues, it is hard to figure out sometimes if the anti-deficiency protection of the same lender owning the first and second rule applies. Is it enough to apply this rule that the foreclosure occurred when the same servicer (who sometimes decides whether to foreclose based on the terms of its servicing agreement) was administering both the first and second, even though the paper was held in different securitized pools? Maybe. Can the rule be raised when the trustee for each of the separate loan pools happens to be the same? In many ways, the current situation is the wild west in terms of some of the law existing in California on anti-deficiency issues.
The “Dutch” thing isn’t in a vaccum. Completely different setup and scheme. Over there you got to show a total of 4 years of solid income to get approved. The taxing is very different as is the society in general.
Soros was touting this idea too, but while the gears seem to be replaceable the machine does not do the same thing.
And for the record our machine is broken and it’s uncertain what is salvageble imho.
My guess is that the court would focus on who owns the paper, not who is servicing it, when analyzing whether the recourse 2nd would be precluded from bringing a claim. In a situation where the same lender holds the 1st and 2nd, and the 2nd is a post-purchase recourse loan, I suppose the lender could sell the 2nd if they planned to foreclose on the 1st. At least then they would receive some value for the 2nd.
The general intent of the statutes is to shift the greater risk onto the more sophisticated lending industry as opposed to the regular Joe purchaser. I think any future interpretations of the anti-deficiency statutes will fall that way. We have already seen a bankruptcy court decision that essentially ignored borrower fraud and instead chastized the lender for its loose lending practice – ie, they should have known better.
Many 1st mortgages are not purchase money. There’s no contradiction. If there were, then you are wrong as well.
Hey, what’s wrong with an in-house lawyer filing against all the deadbeats just to see what turns up? I’d do it just out of principle (not that anyone at Citi has any of those, mind you).
so our TARP money is going to fund lobbyists, PR firms, and now lawyers?
Unintended consequences — once again.
Citi should have been taken out behind the barn and shot.
Carl,
Don’t worry. Us taxpayers will make a profit when we sell the toxic assets we bought from the banks. But seriously, this is getting really ugly very quickly once again…
*****
Sacramento: 70 Percent Distressed Sales in June
http://www.calculatedriskblog.com/2009/07/sacramento-70-percent-distressed-sales.html
This is just a reminder – with 70% distressed sales, there will be few move-up buyers for the higher priced areas.
“If you have two loans that were refinanced and the first forecloses (non-judicially).. you are on the hook for the second. If you have the same scenario and the second forecloses, you are free and clear (the second would settle up with the first and the second foreclosed so can’t come after you for the deficiency).”
Regarding the above statement, what happens in the now common case where a borrower owes more on his first than the property is worth? Given that the first still takes priority, what would be the advantage to the lender on the second to foreclose? Sorry for my ignorance.. but if the borrower simply stops paying on the second… what real options does the lender have on what is considered to be a ‘secured’ loan?