mortgage servicers, mortgages, real estate

Homeowners, banks and second mortgages!

Is there a loophole in the federal settlement with mortgage servicers that could spell trouble for the lenders holding second mortgages in distressed property?

An article from The New York Times titled ‘The Second-Mortgage Shell Game‘ talks about the problem:

“IN January, federal regulators announced an $8.5 billion agreement with 10 mortgage servicers to settle claims of foreclosure abuses, including bungled loan modifications and the wrongful evictions of borrowers who were either current on their payments or making reduced monthly payments.

Under the deal, announced by the Federal Reserve and the Office of the Comptroller of the Currency, the mortgage servicers will pay $3.3 billion to borrowers who went through foreclosure in 2009 and 2010 and an additional $5.2 billion to reduce the principal or the monthly payments of borrowers in danger of losing their homes.

Those numbers might look impressive, but the deal is far too modest to be a credible deterrent to reckless foreclosure practices.

Consider the last big mortgage settlement. Last February, the federal government and 49 state attorneys general reached a $25 billion deal with the country’s five largest mortgage servicers — Bank of America, JPMorgan Chase, Wells Fargo, Citibank and Ally Financial (formerly GMAC). They promised to help save homeowners from unnecessary foreclosure.

A year later, it’s clear that the settlement hasn’t worked as planned. Banks have dragged their feet in modifying first mortgages, much less agreeing to forgive part of the principal on homes that are underwater. In fact, the deal contained a few flaws. It has allowed banks to push homeowners into short sales, an alternative to foreclosure whereby the distressed homeowner sells the property for less than the debt that is owed. Not all short sales are bad — some homeowners are happy to walk away with the debt cleared — but as a matter of social policy, the program has failed to keep people in their homes.

A lesser-known but equally grave problem is that banks have been given a backdoor mechanism to continue foreclosures at the same pace as before.

The problem involves second mortgages, which millions of homeowners took out during the housing bubble. It’s estimated that as much as a quarter of all mortgage debt in the United States is in the form of second mortgages. Some of these loans were taken out to finance home improvements; others were part of a subprime product known as an “80/20 mortgage,” in which 80 percent of the purchase price was covered by a first, adjustable-rate mortgage, and the remainder by a second mortgage, often with a much higher interest rate.

The second mortgages have given the banks a loophole: each dollar a bank forgives goes toward fulfilling its obligation under last year’s settlement. But many lenders have made it a point to almost exclusively modify secondary loans while all but ignoring the troubled, larger primary mortgages.

It’s a real problem: when it comes to keeping your home, it’s the first mortgage that counts.

Take Tiberio Toro, a Queens resident who took out an 80/20 mortgage in 2006 when he purchased his home, and who now owes far more to the bank than his house is currently worth. Recently, Wells Fargo told him that it completely forgave his second loan. But at the same time, it declined to modify his first mortgage — an adjustment Mr. Toro needs to get his monthly payment to a level he can afford.

Why would a bank forgive a second mortgage completely but move forward with foreclosure on the first mortgage?

Surprisingly, such a tactic often makes sense for banks. When a lender forecloses on a first mortgage, the house in question is typically sold at auction. If the house is worth less than the loan amount, the bank gets only part of its money back. But after the sale, of course, there’s no asset left to pay off any of the second loan. The holder of that second loan — which has lower priority than the holder of the first — gets nothing.

So a lender can forgive a second mortgage — which in the event of foreclosure would be worthless anyway — and under the settlement claim credits for “modifying” the mortgage, while at the same time it or another bank forecloses on the first loan. The upshot, of course, is that the people the settlement was designed to protect keep losing their homes.

The five banks covered under last year’s settlement are wiping out second mortgages in record numbers. In New York State, for example, during the first six months of the settlement period, three times as many homeowners received second-mortgage forgiveness(2,933) as received permanent modifications on first mortgages (967).

In New York State, 36.2 percent of the banks’ credits under the settlement have been related to second loans, compared with only 18.2 percent for first mortgages.

In 2011, the five banks that are subject to last year’s settlement sent 230,678 pre-foreclosure notices to New York State homeowners, according to data I obtained from the Finance Department through the Freedom of Information Law.

As is well known, many of those at greatest risk of losing their homes are African-American or Latino. Under the settlement, banks get more credit for forgiving mortgages that they own (“portfolio loans”) than those they sold to Wall Street and currently only service. These portfolio loans are largely conventional loans; those sold to Wall Street were subprime. It was these notorious subprime loans that were marketed, often throughpredatory lending practices, to black and Latino borrowers during the housing bubble.

There is a lesson to be learned from the deficiencies of the National Mortgage Settlement. And the new deal reached by the Fed and the comptroller of the currency provides an opportunity to get right what the 49 attorneys general got wrong. At a Senate Banking Committee hearing on Thursday, Senator Elizabeth Warren, Democrat of Massachusetts, called on regulators to take tough enforcement actions and not settle for negotiated agreements with banks.

To do that, the government must clearly require that relief be given in the form of first-mortgage modifications. In addition, the settlement should direct the banks to provide relief in the ZIP codes hardest hit by predatory lending.

Finally, we need real transparency to monitor the new settlement. That means that the public should easily be able to determine who is getting relief, and how. Until that’s done, as we’ve seen, banks are likely to keep playing the same old shell game.”

Charitable giving, Title Insurance New York

Hallmark Abstract President Fighting for Charity: Personalized T-Shirt!

Long Island Fight for Charity

Long Island Fight for Charity

Help support the Long Island Fight for Charity (LIFFC)!

Hallmark Abstract President Mike Haltman will be training to climb into the ring for a three-round bout against another Long Island businessman later in 2013.

In its 10th-year, the efforts of LIFFC help raise money for three fantastic and deserving charities that support the needs of fellow Long Islanders.

As part of the fundraising effort 100% of the proceeds from the sale of these professionally made T-Shirts will go to the LIFFC.

While the photography does not do these shirts justice they look great and may become a collectors item after Mike Haltman hangs up his gloves.

So get in the corner of Mike Haltman, president of HAS as he climbs into the ring, by buying this T-shirt in L, XL or XXL. Simply use button below (you do not need to have a PayPal account to use your credit card there)!

Thank you.

Hallmark Abstract Service

Buy at PayPal here.

LIFFC is an approved 501c3

Hallmark Abstract Service LLC
131 Jericho Turnpike, Suite 205
Jericho, New York 11753
516.741.4723 (O)
516.741.6838 (F)
Website:   Hallmark Abstract Service

Real property, Surveying, Title Insurance New York

Why a property survey is so critical!


Why having a survey to the property that you own or may be thinking of buying is so critical!

This is a great article to share with clients or with any individual with an interest in real estate.

‘Setting Boundaries With a Land Survey’

Setting Boundaries: Why a Survey of Your Property is One of the Most Important Pieces of Paper You Should Own

Planning on renovating or adding on? Buying a new property? Hiring a surveyor to create an accurate and complete record of your property can be an essential investment. An accurate and complete survey can save you time, money and a wheelbarrow of grief.

A survey could be the most important piece of paper you may ever own. Ok, maybe that’s a bit of an exaggeration—the deed to your house, passport, driver’s license, marriage certificate—these are all important, but a survey of your property? If you are developing your property, an inaccurate or incomplete survey can cause project delays
and create costly and unwanted surprises.

Think you know where your property line is? Are you sure? A proper survey will show which side of the property line that neighbor’s fence is on, who’s tree it really is, and document easements that can affect your ability to develop your property. An accurate survey will allow you to calculate the area of your lot, which can affect the size of additions and new construction that you may engage in.

All in the details

You may already have what is known as a “plot plan” of your property. This is not the same as a survey. A plot plan typically shows the footprint of the house and its location on the site and often not much else. A survey is far more detailed and contains elements essential to getting through the zoning permit process, usually the first step in a construction project.

A complete survey will show measured property lines (expressed in “metes and bounds”), significant topography, easements, site utilities, additional structures such as garages and sheds, wells, septic fields, stone walls, large trees, and landscape elements such as rock outcroppings.  This requires not only careful study of the property directly at the site, but research into town records to make sure nothing is overlooked, especially elements such as wetlands and easements.

A proper survey can save you time and money

Inaccuracies and missing information can lead to unwanted delays in the design and permitting process.  The zoning approval process is a critical element in a project schedule—having a design rejected because of incomplete site information can add weeks or months to a project.

They can also lead to the need for costly changes in the design. Adam Hoffman of Godfrey-Hoffman & Hodge in North Haven relates the following story illustrating the consequences of a poorly executed survey:

“The original surveyor did an incomplete recording the topography of the site. The house was built and the driveway as designed was found to be much steeper than the code allowed.  In addition, the surveyor neglected to include space for a 4% maximum grade at the garage to prevent cars from “bottoming out.”  Since the house was already constructed, the owner had no choice but to install a serpentine driveway that took up a large and unsightly portion of the front yard.  Could the owner have sued the surveyor?  Yes, but the original surveyor had no insurance.  The owner’s chances of recouping anything were slim and he was left with an unattractive and devalued property.”

In another example Hoffman cites, an inaccurate survey was used to build a house.  It was later found that the property lines were placed incorrectly and a corner of the site was located in the middle of a public roadway.  The owner wanted to take out a mortgage on his property but no bank would accept him as a result.  The owner had the option to wait for 3 years for the boundary lines to qualify as “pre-existing non-conforming” (something usually applicable to older properties), but the long wait wouldn’t guarantee he could still obtain favorable mortgage rates.

“As an architect, I have dealt with homeowners reluctant to spend the money on a survey. One property owner wanted to build a house in the middle of a large piece of land, far from any setbacks.  As a result, he was convinced he could do without a survey until it was time to submit plans for permit. Without a drawing showing the topography of the area for the new house however, we were unable to do more than guess at the relationships of the grade levels to the first floor and walk-out basement. We didn’t obtain accurate topographic information until further down the line, which led to time-consuming changes in the drawings, adding delay to the project. In addition, only by precisely locating the new house in relation to the road were we able to obtain accurate pricing from contractors for the cost of the new driveway.”

A Good Surveyor is Thorough

Some surveyors depend on real estate attorneys to provide title information.  Hoffman tells another story about a major retailer that wanted to build a new store.  When he went to stake out the site, he walked the property and noticed a well-used path traversing the property. This path was not shown on any drawing on file.  Under many local laws, such paths, if old enough can fall under “adverse possession” and disallow development of the site. Wanting to avoid delays and legal fees, the retailer is looking for another location.

On another commercial project, during a thorough title search, Hoffman discovered a previously unnoticed easement in the location for a new addition. The owner had several options: negotiate for the revision of the easement or submit the project to a redesign. Either way, money and time will need to be spent to rectify the situation.

How to Find a Great Surveyor?  

Architects, real estate attorneys, realtors, all can be good resources.  Check with the BBB to check for any complaints.  Ask for references.  Find a well-established firm that isn’t likely to go out of business.  Verify that they have insurance.  Most importantly: don’t necessarily go with the cheapest option.  A proper survey takes time and expertise.

Your property is your investment.  A proper survey is one of the most valuable tools you can have when it comes time to build, add-on or renovate.