foreclosures

An uptick in sales of high-end mountain real estate in Colorado has prompted a critical question: Are the rich really returning to the real estate market and buying luxury homes? Or are they still hoarding their wealth after getting burned in the crash?

Mixed signals about what the wealthy are doing with their money are everywhere. One day we hear via Scorpio Partners that the rich might have as much as $26 trillion stashed away that they're not giving to banks and wealth managers. Meanwhile, The New York Times reports that a growing number of homeowners with million-dollar-plus mortgages have simply stopped making payments.

On the other hand comes word that high-net-worth buyers are apparently loosening their wallets a bit to purchase homes in swanky Colorado resorts like Vail and Aspen. It's not a bellwether market like Manhattan, or course, but some say the flicker of activity in this micro-market favored by high fliers could be a signal that the end of the Great Recession is near and a real estate rebound is on the way.

It's more like a blip, as high-end buyers cherry-pick discounted properties while the getting is good.

It's sad but true. Americans are increasingly filing for bankruptcy in order to avoid foreclosure.

Katherine Porter, a bankruptcy expert at Harvard Law School, estimates that 75 percent of Chapter 13 filings fall into this category. "Despite all the government programs, bankruptcy is probably the most commonly used foreclosure prevention technique," Porter tells HousingWatch.

If you'd like to file for bankruptcy but are worried about your credit, Porter says don't worry. "Those who have a foreclosure filing against them, their credit score has already taken such a big hit that the additional blemish of bankruptcy is not particularly significant," she says.

It's sad that we've had to resort to this, but the truth is that bankruptcy filing stops the foreclosure process cold. Lenders aren't even allowed to try collecting debts until a judge gives them the OK.

It's only a short reprieve though, says Porter, lasting a couple of months at the most because by then most court cases have been resolved.

You may not realize it, but there's another major financial bubble ready to burst. Few are talking about it, but Michael David White, a mortgage and real estate professional has graphed the mortgage bubble due to burst.

When the housing bubble burst, it left many with underwater mortgages. Yet nothing was done to deal with the debt levels on these homes. The mortgage values shown on the banks' books are still elevated beyond their true worth.

Right now we're seeing more and more people walk away from this debt. While property values fell from $20 trillion to $13 trillion when the housing bubble burst. Mortgages fell from $11.95 trillion to $11.68 trillion.

John Lounsbury, a financial and investment adviser, says home equity is now over 90 percent mortgaged. Historically our mortgage levels were 50 to 60 percent. He agrees with White that we're in a mortgage bubble that is ready to burst. In order to get back to the normal historic relationship, Lounsbury says "outstanding mortgage values would need to be about $7 trillion, which is $5 trillion below the latest level."

While there was a decrease of 3 percent in the number of foreclosure filings reported in June from the previous month, and a 7 percent decrease from June 2009, the number of filings topped 300,000 for the 16th straight month. Foreclosure filings were reported on 313,841 U.S. properties in June, according to RealtyTrac.

For the first half of 2010, default notices, auction sale notices and bank repossessions were reported on 1,654,634 U.S. properties. That's a 5 percent decrease on the previous six months, but an 8 percent increase over the first six months of 2009. In fact one in 78 U.S. housing units got at least one foreclosure filing in the first half of the year.

But there is some light at the end of the tunnel. Default and auction notices were down on a quarter-over-quarter and year-over-year basis in the second quarter. Yet bank repossessions increased 5 percent from the previous quarter and 38 percent from Q2 2009, to 269,962. So the light is very dim, because this is a new quarterly high for the report.

If you choose to walk away from your mortgage rather than work something out with your servicer, Fannie Mae will block you from getting another mortgage for seven years from the date of the final foreclosure on the house. That's according to new rules that go into effect immediately.

But, if you do work with your servicer to come to some agreement -- whether a loan modification, deed-in-lieu of foreclosure, pre-foreclosure sale or short sale -- your wait time to buy a new house will be much shorter. In fact to encourage people to work with their lenders rather than just walking away, Fannie Mae is shortening the time you'll be eligible for another Fannie Mae mortgage.

"Walking away from a mortgage is bad for borrowers and bad for communities and our approach is meant to deter the disturbing trend toward strategic defaulting," Terence Edwards, Fannie Mae's executive vice president for credit portfolio management, said in making the announcement.

"On the flip side, borrowers facing hardship who make a good faith effort to resolve their situation with their servicer, will preserve the option to be considered for a future Fannie Mae loan in a shorter period of time."

For Americans who lost their home to foreclosure, the real estate nightmare may not be over.

In many states -- such as Florida, Illinois, New York, Texas, and Virginia, to name a few -- lenders have the legal right, known as a deficiency judgment, to go after borrowers who owe money on their foreclosed home. The lender can reclaim the losses on the difference between the selling price of the distressed home and the amount owed on the home, also known as a deficiency.

In Virginia, Maryland and Washington D.C., where deficiency judgments are permitted by law, lenders are aggressively seeking to recover monetary losses from foreclosures and short sales, reports The Washington Post.

But what will this mean for foreclosure victims who still don't have the cash to repay their debt?

Foreclosures dropped again in May -- the second month in a row that the number of foreclosure actions fell, according to research company RealtyTrac.

The news will make for some positive headlines -- but we've seen fluctuations like this before. The rate of foreclosure is still absurdly high.

The genuine good news is buried a little deeper in the RealtyTrac report. Banks are cutting far into the backlog of properties in the foreclosure process, while fewer new properties are getting into trouble as the job market begins to stabilize.

"Lenders appear to be ramping up the pace of completing those forestalled foreclosures even while the inflow of delinquencies into the foreclosure process has slowed," said James J. Saccacio, chief executive officer of RealtyTrac. "Overall foreclosure activity [is] leveling off while lenders work through the backlog of distressed properties that have built up over the past 20 months."

The question is whether this lull is an early sign of upward momentum in the housing market or rather a quick torpor before another round of recessionary catastrophe.

With the average foreclosure now taking 438 days, delinquent borrowers are finding that they can live in their homes without making mortgage payments for at least a year. But there is a catch. That nationwide average may not apply in your state.

The states with the longest wait time before foreclosure are those states that require a judicial foreclosure, which means the bank or investor must take the case to very crowded courtrooms. There are 16 states that require a judicial foreclosure: Connecticut, Delaware, Florida, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Nebraska, New Jersey, New Mexico, North Dakota, Ohio, Pennsylvania and South Carolina.

But even if you don't live in one of those states, your state might be taking action to slow down foreclosures and at least require a mediation before you lose your home.

Imagine coming home one day and finding your home emptied and the locks changed. That's exactly what's been happening across the country. Fortunately, there are ways to prevent it.

So-called trash-outs are supposed to be done by contractors who are hired by loan servicers or banks to clean out a home after it has been abandoned, just before or after a foreclosure. It's a booming business in which, promoters claim, contractors can make as much as $500,000 a year. There's even a book about how to set up a trash-out business on eBay.

These days, however, many homeowners are becoming victims of rogue trash-out crews that have targeted the wrong house.

These trash-outs have happened to cash buyers who bought foreclosed homes from the banks, but the homes stayed on the trash-out list in error. It's happened to those who have bought a home with cash, have no mortgage and the trash-out company went to the wrong address. It's happened most frequently to people who've had trouble paying the mortgage, got their home on the foreclosure train, but acted in time to save it -- yet the bank or servicer neglected to take the house off the trash-out list.

Attorneys for the plaintiffs say it's like the Wild West out there.

Christy Annis, who lives in a condo in the Atlanta area, got her law degree and spent 12 years in corporate America. She lost her job in June 2009 and decided it was time to reinvent her life by starting a business that packages black-eyed peas and makes jewelry. Her decision to make a major life change is not unusual. But her approach, which involved stopping payments on her mortgage, puts her in a small but growing group of homeowners.

Did she do the right thing?

Frustrated by job losses, underwater homes, and unwieldy mortgage modification programs, more and more homeowners are crafting their own mortgage modification programs. These programs, which do not have the approval of lenders, involve paying nothing more and using the time till they get evicted by the bank to create a Plan B.

Annis says she'd like to keep her condo, but just doesn't have the money to pay the mortgage on her unemployment check. Her career in law was her parents' dream, and she was never happy working in that field.

At first, Annis tried to save her home by working with the bank when she first lost her job last June. She entered a loan modification program and the bank lowered the monthly payment on her 6.75 percent mortgage from $1,600 to $1,300 with the promise of a lower interest loan. CitiMortgage gave her time to find a job before doing the full paperwork for a modification. When she still hadn't found a job by September 2009, the bank agreed to another extension at $1,000 per month with a reduction in interest rate by 2 percent.

Annis says each modification took about 50 phone calls.

With foreclosures at record highs, buying a foreclosed home might be a great deal, but the risk of getting a lemon also is greater.

Home inspectors don't always catch all the flaws in foreclosed homes that have remained empty for months, if not a year or longer.

Here are the top areas, from air conditioning to plumbing, that a potential homebuyer should either urge a home inspector to thoroughly check, or bring in a specialist to examine:

Key West may conjure up images of many things, but affordable housing isn't one of them. Now, for the first time in decades, middle-class homebuyers can consider living in the community that erstwhile resident Ernest Hemingway once called "the best place I've ever been anytime, anywhere."

Five years ago, the island was the most expensive community in Florida, with a 2,200-square-foot home selling for $949,000. That has been slowly changing as home prices have dropped 35 to 60 percent since the peak of the housing boom. In those days, even the most dilapidated houses could fetch $700,000. Now come reports that those very same residences are being snapped up for as little as $300,000 to $400,000.

The cheaper prices -- combined with low interest rates -- are heating up the market, and giving teachers, bank tellers and naval officers a once-in-a-lifetime shot at living the Key West dream.

There's more pain ahead for the housing markets, according to a recent report from Morgan Stanley.

How likely is this nightmare, and what can you do with this information?

"We see potential for another 5-10% decline in nominal prices over the next year," said the authors of "U.S. Housing Strategy: The Long Road Home," an analysis out this month from Morgan Stanley.

Even after home prices hit bottom, Morgan Stanley's experts think home prices will stay low "for another three to four years, during which annual appreciation may reach only as high as inflation or income growth."

Only a few economists still expect a big drop to home prices this year, though most expect prices to sag.

Facing foreclosure and the uncertainty it brings is hard enough for people to handle. But what about their pets?

It's natural to focus all the attention on people who are displaced, but pets often are uprooted by foreclosures, too. According to Gail Buchwald, senior vice president of The American Society for the Prevention of Cruelty to Animal's Adoption Center says, "This is a tough subject matter for us because we already have an epidemic homeless-pet problem in this country without the foreclosure problem."

According to the ASPCA, 63 percent of households in the United States have at least one pet and, even still, the number of displaced pets is staggering: 5 million prior to the foreclosure crisis and, since then, at least an additional 550,000 to 1 million. So for pet owners who are facing the possibility of foreclosure, Buchwald says, "I urge people to act quickly and as soon as they foresee a problem."

Buchwald offers some advice and tips on how to best handle the situation and find the most positive solution for the animal: