Wednesday, February 18, 2009

Curious twists in traditional law issues.

I read this in the Florida Business Review - February 13, 2009

Today's economy may produce a house divided

No one knows the disruptive force of a bad economy better than a divorcing couple facing foreclosure.

Take the case of Joaquin A and Indra B, who have been married for almost nine years. They bought their Biscayne Park home near the height of the housing boom for $231,000 in 2005. It fell into foreclosure with them owing $222,000 last year, and the house went on the market.

B hadn't worked in a year, and the couple fell about $8,000 in arrears on the mortgage with Wells Fargo Bank. Her lawyer, Miami attorney Peter Abraham, filed an emergency motion for contempt for nonpayment of the mortgage and child support shortly after the foreclosure filing, stating, "Petitioner and the parties' minor child resides in the marital home and will be rendered homeless upon foreclosure."

Miami-Dade Circuit Judge Bernard Shapiro held A in contempt in July but held off on jailing him so he could square the mortgage. A divorce settlement agreement is awaiting B's signature. B and A' attorney declined to comment. Calls to A and B's attorney were not returned.

The predicament of what to do about family homes in divorce during a recession is rippling through the field of family law. What traditionally was a couple's biggest asset to be divided in a divorce has quickly transformed into the biggest debt and a major headache. "Initially, we were fighting over the equity in the house," said Linda Jaffe, a Fort Lauderdale solo practitioner who specializes in family law. Now "we're being faced with questions that I don't know that we're necessarily equipped as divorce lawyers to answer."

Should clients try renegotiating the mortgage? Go along with foreclosure? Abandon the property? Try a short sale? In the past year, Jaffe said she has been saddled with this new set of questions repeatedly. "It's an absolute catastrophe we're dealing with right now," she said. Stephen Butter, who has practiced divorce law for 44 years in Miami, said his role has changed with the financial tides. He has helped clients fend off foreclosure just long enough to salt away a deposit and first month's rent. A client who was a married homeowner a year earlier ends up being a divorced tenant with the bank taking the house.

"Now, it's rampant. Now when somebody comes in for divorce, their house is either in foreclosure, or they're already three or four months behind," he said.

For homeowners who owe more than the value of their home, the new question is how to equitably divide the value of a house — when it's negative. "Is that a marital liability?" he asked.

Butter worked on a case that ended with something of a biblical solution that left ownership of the home untouched. One of Butter's clients — a mother of five — was afraid to unload the family home in an ice-cold real estate market. He brokered a deal allowing her to alternate weeks in the family home and weeks away with her family or friends. The children remain in the home while the parents alternate. He would not identify the clients.

For better or worse, more couples are staying together. Divorce filings dropped to 14,250 from 16,508 in Miami-Dade Circuit Court; to 8,729 from 9,651 in the Broward Circuit Court; and to 5,554 from 5,927 in Palm Beach Circuit Court in the year ended last June compared with the year before.

Davie appraiser Don Sarley of Advanced Research and Appraisals, said plummeting home values have affected divorces in other unforeseen ways — like not being able to tap a home's value to pay attorney fees. "People can't pay lawyers," he said. "You can't even look at the house to lien anymore."

In the past year, the median sale price of a single-family home dropped 27 percent in Miami-Dade County, 23 percent in Broward County and 18 percent in Palm Beach County, according to the Florida Association of Realtors. And while the median sales price of Miami-Dade condos fell 12 percent during the same period, it shot down 29 percent in Fort Lauderdale and 27 percent in Palm Beach County, according to association figures. With home values in broad decline, the strategy for dealing with homes in divorce has been turned on its head. "Two years ago, they'd be fighting tooth and nail to get the house," Sarley said. "Now they don't want it."

But not everyone has noticed the pinch. Collaborative divorce lawyer Rosemary Roth in Miami, for instance, hasn't seen her practice affected much, but she readily admits the parties are generally conciliatory in her area of the law. Pinched finances may be working to keep families unwillingly together. "People are holding onto an otherwise bad situation because of economics," said Alison Taylor, executive director of the Oregon Family Institute, a think tank that examines the relationships between households and the courts.

"Since we usually see divorces happen when the money situation is no longer advantageous, we're probably going to see fewer and fewer families file for divorce," she said. "Kids are going to be subjected to a lot of conflict."

Nothing new in the domain of Money and Love and their eternal and intricate relationship.

Not your usual romantic story? Why not? Sometimes hardship and adversity in times of need can bond, improve understanding and perhaps the sense of family and mutual responsibility.

I am an eternal optimist.

Henry B. Nathan is a Florida Realtor at United Realty Group Inc.Visit my website: you can search for Aventura Condos, Florida Condos,

Friday, February 13, 2009

Opportunities and market's bottom

For Some, It's Finally Time to Dive Into Housing Market

For years, even as her friends bought huge houses in the expensive Phoenix market, Elizabeth Child remained a renter.

But in January, the airline customer-service agent and her boyfriend closed on their first home. The three-bedroom, two-bath house, complete with granite countertops and a pool, had been listed for $340,000 in late 2007, but the couple bought it for $220,500. "Six months ago I didn't think I would own a home," says Ms. Child, 27 years old. "And now I do. It's so perfect." Elizabeth Child and William McGeary were able to buy their first home after prices in Phoenix dropped sharply.

The housing bust is creating a new group of winners: first-time home buyers. People who sat on the sidelines -- often watching wistfully as their friends became homeowners -- are suddenly in a position to grab some great deals. Indeed, first-time home buyers made up 41% of all buyers at the end of 2008, up from 36% in 2006, according to a recent survey from the National Association of Realtors. The new buyers are being lured in by home prices that are down about 25% from their peak levels in mid-2006, according to the S&P/Case-Schiller Index.

In some markets, prices have dropped even further -- slumping around 40% in Phoenix, Miami and Las Vegas. Lower mortgage rates have also helped make real estate more affordable, and as houses languish on the market longer, more homeowners are willing to negotiate. With Congress considering plans to sweeten a tax credit for first-time home buyers, the picture could get even brighter. "Buyers are now coming back into those hard-hit markets to take advantage," says Lawrence Yun, chief economist for the Realtors' association. "It's a buyer's market."

Ululani and Scott Larson looked for a house in the Seattle area several years ago, but held off from buying, deterred by the high prices. "I felt like we were missing out, because everyone knows it's the American dream to buy a home and build equity," Mrs. Larson says. The couple was shocked to discover recently that they could afford a four-bedroom home in Federal Way, Wash. The assessed value of the home in January was $400,000, Mrs. Larson says. Their offer of $315,000, with a down payment of $15,000 was quickly accepted by the relocation company, which had had the property on the market for six months. "Honestly, I didn't think we'd get as nice of a house as we did," Mrs. Larson says.

Of course, would-be buyers need decent credit scores and the money for a decent down payment. Also, finding the right property can be a challenge for first-time buyers, who tend to be seeking less-expensive homes. The typical first-time buyer purchased a home costing $165,000 last year, according to the National Association of Realtors. Yet some of the best bargains right now are in luxury condos and sprawling single-family houses. "The disproportionate McMansion inventory doesn't work," says Shari Olefson, a real-estate lawyer who works in southern Florida. "Even if you qualify for the loan, there are huge overhead costs to buying a larger home."

Still, real-estate agents and mortgage lenders are banking on first-time buyers to help stimulate the otherwise dreary housing market. Many are holding workshops and information sessions designed specifically for first-time buyers, addressing federal and state tax incentives for homeowners, local prices and ways to take advantage of low mortgage interest rates. Tim Epps, a mortgage adviser in Tulsa, Okla., runs rent-vs.-buying simulations for would-be buyers and recommends that other prospective buyers do the same long-term calculations.

Mr. Epps and many mortgage lenders recommend that buyers come up with as big a down payment as possible, even though Federal Housing Administration loans will allow some first-time buyers to enter the market with as little as 3% down. ( has more information about FHA loan programs designed for first-time buyers.)

"Even if [a home owner] loses some paper equity, in the long run, there are some tax benefits," says Mr. Epps, referring to the deduction for interest paid on mortgages and the credit for first-time home buyers. The $7,500 tax credit for first-time buyers, which Congress passed last year, has had little effect on the market so far. Because the credit has to be repaid, buyers are viewing it as another loan, industry experts say. But the stimulus package that Congress is working on is likely to repeal the provision that requires buyers to pay the credit back and possibly enlarge the tax credit as well.

For many buyers, the biggest question is whether to hold out for even better conditions. Historically, recoveries in the housing market are slow, and most experts expect the prices to stay low for some time. That means people can take their time shopping for the right property, real-estate experts say. John Stratton, an agricultural engineer in Lisle, Ill., was serious about buying last summer but held off from making a bid. Some of the money he planned to use for a down payment suffered losses from mutual-fund investments. He's also waiting for prices in his area to go down further. "I can do better investing in things other than real estate," he says. "Right now, I'm not diving in."

Patience can pay off. Jen and Drew Rocky spent over a year tracking their prey before the price was right. In the summer of 2006, they saw the four-bedroom, 2½-bathroom home of their dreams in Sherman, Conn. The asking price was $565,000, "completely out of our price range," Mrs. Rocky says. But they didn't give up. The Rockys kept driving by the vacant house. They had online alerts to notify them of changes in the property's listings. They went to town hall to research the home's public records. As they suspected, the home was in foreclosure. "There were liens all over the place," Mrs. Rocky says. They bought the home in December 2007 for $410,000. "I felt so vindicated," Mrs. Rocky says. "We got a good deal, but I'm sure there are even better deals out there."

From: The Wall Street Journal; Feb. 11, 2009

Henry B. Nathan is a Florida Realtor at United Realty Group Inc.Visit my website: you can search for Aventura Condos, Florida Condos,

Monday, February 02, 2009

Bail-out blues

We have all read about the billions that our government keeps showering on failing banks, mortgage bankers, and GSE's (such as Fannie Mae).

The official explanation is that they "are too big to fail".

And, meanwhile, it's business as usual. Government "discovering" from time to time that CEO's and high-level executives are still pocketing bonuses and buying Lear Jets, while their troubled bank use the bailout money to buy out other more troubled financial companies and banks.

My opinion is that Federal Government should just let them fail, and take over their assets and liabilities, establish a Federal Trust fund, in the manner of the 1980's famous Resolution Trust, to market the thousands (or may be millions) of these properties, mortgages and securities.

It is a big tangle, for sure, and the F
eds might not be completely up to the task. But it is surely a better solution than bailing out the predators while they continue to feast on the corpse of a broken economy, eventually giving them the power to recover and come back to haunt us with another bubble of a new kind and invention.

A Federal Trust would try to put some order in the massive amount of borrowers' failures, organize and streamline some restructuring of these loans, decide on eventual foreclosures, short sales, and perhaps even the renting of troubled properties to their present bankrupt owners, avoiding unnecessary foreclosures and evictions.

A few months ago, I wrote about an obnoxious case of aborted short sale. I couldn't understand the outcome, and I thought of stupidity, or fraud. I have read an article today that might clarify this case. It might not be fraud or stupidity. It might just be another case of greed.

Let me tell the story one more time:

I had sent an offer to a listing real estate broker, regarding a property that was offered at $ 239,000. My offer was $ 199,000. The broker indicated that the lending bank had previously refused much larger offers. The last one refused was $ 239,000. But that was months ago, and he thought that, in view of the continuous market deterioration, the bank would probably accept it. I so informed my customer and here started the long wait. After a few months of periodically contacting the listing broker who didn't manage to get a response from the Bank, one day something happened. I called the broker and he was very upset. He told me that the bank has canceled his listing, foreclosed on the property, put it up for sale with another broker, and sold it in a couple of days for $ 155,000, a lot less that what my client had offered. The broker was on the brink of crying in desperation and swore not to get involved in any more short sales.

You can imagine my indignation. That's how I started suspecting fraud or plain stupidity.
I even thought of writing to newspapers and agencies. I informed my Realtor association and they told me to write to my congressmen, which I did. There was, of course, no further news, and it was another buried case.

I am reading now in an article from The Bradenton Herald, on February 2nd, 2009, an article, written by a Florida West Coast attorney, that had enlightened me, or at least provoked some thoughts. Here it is:

Why the lender may not OK your short sale

By Cynthia Ridell

At Riddell Law Group, we focus on real estate matters primarily. Thus most of my time is spent negotiating workouts, shorts sales and defending foreclosures. In the course of my practice we have had many success stories. Many short sale transactions are being approved and closed these days in Sarasota and Manatee counties. In fact NAR (the National Association of Realtors) stated that “Pending home sales activity surged as buyers took advantage of low home prices and affordable interest rates.”

Much of these sales are short sales. But what about the short sale offers presented to lenders that do not get approved. Many of these offers are substantially more than what the lender may see a year from now when they receive a property back in foreclosure.

Thus when a short sale approval does not occur, the question posed by many borrowers, real estate agents and the like is: “Are the lenders just crazy?”

Well, it may not be the soundest fiscal response when a lender rejects a short sale offer at first glance. Or it may just be that the offer is an insufficient offer. But what about the offers that are substantial and can be corroborated through comparables? One must look further for the answer to this question; one must look to the Pooling and Servicing Agreement (PSA) that a particular loan is part of.

As many of us know, most mortgages were sold on the secondary market the “day after” closing and pooled with a group of mortgages held in trust as collateral for the issuance of a mortgage-backed security. Some mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae are known as “pools” themselves. These are the simplest form of mortgage-backed security. These assets were pooled together so that Wall Street could package them as Mortgage Backed Securities. Each of the pools of mortgages are governed by this pooling and servicing agreement.

Most of the agreements have provisions for when an asset goes into default. The servicier, must elect to identify the asset as non performing and place it into the foreclosure process. Once this is done the servicer is now entitled to receive two times its servicing fees. It also opens up a multimillion dollar escrow fund that the servicer can reach to for payment of foreclosure attorney fees upfront. This may very well be the reason that borrowers that attempt a workout via short sale or a deed in lieu of foreclosure never get anywhere but foreclosure.

Another reason that the short sale process for approval stagnates is because of competing interests and private mortgage insurance at the investor level. Many of the securities sold have different terms for different beneficial interests or Tranche as they are known. Some are high risk with possible great returns and others are low risk conservative returns.

Investopedia defines a certain type of Tranche by writing: “A special type of bond class in a sequential pay collateralized mortgage obligation. This class of bond does not receive any interest or principal payments until all other Tranches have been completely paid off. In a Z-tranche, the interest that is not paid is accrued and added to the principal for future interest calculation purposes.”

Moreover, many of the more senior beneficial interests, or Tranches, may have mortgage insurance to look to for payment in the event of foreclosure. Thus for them a workout seems a moot point if they can look to insurance to make them whole. Whereas the lesser beneficial interests may not be able to look to insurance but rather a pro rata share of the proceeds from a sale. Thus within the pool there is conflict among the beneficial interests as to how to proceed: workout or foreclosure?

Cynthia A. Riddell, an attorney whose practice primarily focuses on real estate foreclosure, short sale and bankruptcy issues. is a member of the Florida bar and admitted to practice in the U.S. District Court for the Middle District of Florida. She practices in Sarasota, Manatee, Pinellas and Lee counties.

This clarifies somehow my confusion and perplexity. There might be an explanation for my aborted short sale, other than fraud or stupidity. It's all too familar:


It also make me start to believe that the way it's being done, this mess will be absolutely impossible to untangle. Can you imagine the thousands of package loans sold to foreign or American investors, hedge funds, and banks, serviced by multiple affiliated or non affiliated businesses, swapped, fractured and resold ad nauseam? Can anything but a centralized organization try to unravel and disentangle this disaster? And can we qualify the late and present actions of the creators of this catastrophe, other than plain, good-old, cold-blooded GREED?

Henry B. Nathan is a Florida Real Estate Professional. Please visit my website: to search for

Florida Condos, Hallandale Condos, Aventura Condos, Hollywood Condos, Sunny Isles Condos