Black and Buono Blog

By Anthony Buono

If you are in a position where you are underwater on your home, you are not alone in Massachusetts. Unfortunately, 17% of homeowners are underwater in Massachusetts. If you think you need to sell your home, and you believe you will have to sell at a loss, it is important to solicit the help of a real estate attorney. There may be ways to keep you in your home. But, if you think you are in financial trouble, the time to act is now.

Losses Rise as the Boston Housing Market Tumbles

Greater Boston’s housing market has tumbled back to 2002’s pricing levels, and one out of every three homes being sold is resulting in a loss.

The price declines have left approximately 17 percent of the Massachusetts homeowners underwater, that is, holding a mortgage balance that exceeds a home’s value. Greater Boston’s “underwater” rate — essentially one in six homeowners — is up from the 14 percent of Massachusetts homeowners who were underwater at the end of 2010 and is far ahead of the 11.7 percent mark set a year earlier. The national negative-equity rate is 28.4 percent.

The local housing data was included in a national report published Monday by Zillow.com.

According to the Zillow analysis, Boston-area home values were down 5.3 percent on a year-over-year basis as of March 31 and had tumbled 2.6 percent from the end of 2010. The region’s average single-family home value was $305,800 at the end of the quarter, versus the national average of $169,600. Pricing averages are derived from Zillow’s Home Value Index and include all homes, and “not just those that sold in a particular period.”

Boston-area prices have slipped 23.2 percent since their peak in July 2005 and are back to where they were nearly a decade ago in June 2002.

The trends appear to be forcing more homeowners to sell at a loss. According to Zillow, 33.9 percent of all first-quarter sales went for less than their prior purchase prices. That was up roughly 3 percent on both a year-over-year basis as well as a quarter-to-quarter basis. Nationally, 37.7 percent of all home sales were at a loss in the first quarter — a new record.

Original article-Boston Business Journal by Craig M. Douglas

...by Anthony Buono

At Black and Buono, we are often getting the same question. We have clients who are having trouble paying their bills and they want to know if homesteading their property will protect them from creditors in a lawsuit.  We’ve decided to address this in our blog this week.

Massachusetts homestead laws are concerned with protecting a certain portion of the head of household’s property from being confiscated and sold to satisfy debts.

In March of this year, the Homestead Act was changed to allow an automatic homestead of $125,000 without the homeowner doing anything at all, this is an improvement over the past, when no protection was provided automatically. A declaration of Homestead provides for up to $500,000 of protection.

Many homeowners misunderstand the law and think that it provides much more protection than it actually does.  For example, under the Homestead law, $125,000 of the equity in your home is protected. Meaning no forced sale can happen to satisfy "unsecured" creditors.

Notice, we said unsecured creditors. The homestead exemption does NOT protect you from secured creditors such as your mortgage holder.

If you stop making your mortgage payments, the bank can foreclose and sell your house. This can happen regardless of a homestead exemption because the mortgage is a voluntary secured lien, which means that you put up your home as collateral when you took out the loan.

However, the homestead law does protect you from unsecured creditors. Therefore, if your only financial asset was $125,000 equity in your home and you owed were sued for a $100,000 judgment the party suing you could not foreclose on your home to collect.  Remember, the first $125,000 worth of equity in your home is protected by the Homestead law. The same works for Declaration of Homestead of$500,000 worth of protection.

However, in the above scenario, $125,000 of your home’s equity is protected, and you have $225,000 worth of equity in your home, the party suing you actually could force the sale of your home. In this case, you would receive $125,000 of the sale (which is protected) and they would keep the other $100,000 as payment.
 
Through these examples you can see the benefit of a Declaration of Homestead, which protects $500,000 of your homes equity.

Unfortunately, mortgage lenders are not the only secured creditors who are exempt from the homestead protection. Child support debts, condominium association dues, certain debts in bankruptcy filed by your spouse, and a few others.

The most important place that the homestead law has an effect is in bankruptcies. When homeowners are over their head in debt, many homeowners opt to stop paying other bills in order to continue with their mortgage payments.  In other words, they stop paying unsecured debt, which they are protected from, to continue paying their secured debt, i.e mortgage, which they are not protected from.

Bankruptcy judges tend to be fairly lenient with the homestead exemption limit. In a bankruptcy court, the judge will let the homeowner keep their house if their mortgage payments are not delinquent and the equity in their home is $125,000 or less.

If your only asset is the equity in your home of $125,000 or less, the homestead law would most likely discourage someone from suing you.  It may allow you to keep your home if you wind up in bankruptcy court. Declaration of Homestead would give you much more security.However, it will not protect you from all of your creditors.

If you are facing increasing debt, buying a new home, or have more questions regarding the Homestead Act, please contact Black and Buono in Framingham, MA.

Have you weathered the Great Recession fairly well?  Has your income and credit rating remained untouched?  Are you still paying your mortgage on time just fine?

Has the high rate of business failures or record job losses not affected your household directly?  Has the record number of foreclosures not affected your family directly?        

If you answered “yes” to these questions, you are fortunate in America today.   You may feel you have been smarter than those in trouble or lived within your means unlike them.  This may be true.

You may have little if any compassion for those in foreclosure.  Yet, as the ramifications of a prolonged recession and real estate market meltdown continue, it may also be true that for the grace of God go you.

As we all know, the housing market came crashing down around America in 2008.  It’s still in a smoldering heap of trouble in reality no matter the political spin.  The result is deep pain that will leave lasting scars mainly on the non-political and non-connected class of Americans.  

There is plenty of blame to go around – Congress, Wall Street, banks, mortgage lenders, and even some home buyers.   The sub-prime loans caused the first collapse along with the sub-prime adjustable rate mortgages (ARM).  With 80% of Option ARM, including interest only, loans allowing for homes to be  negatively amortized, top-tier borrowers can also end up in real trouble when the loan resets.

As more ARM loans reset, many homeowners will see their house payments double and even triple.  Add in the continued high unemployment going into 2011, and things could get a whole lot worse again before it gets better with the already record foreclosure reality of 2008-2010

The first cause of record foreclosures may very well be written off with little collective sympathy by many as a result of “those who lived above their means and should never have gotten the mortgages they did.”

The recession is moving into its third year, and the recovery has been the worst since the Great Depression.  The official unemployment rate has remained at or above 9% for a record setting 21 months.  The official rate only counts those that are collecting unemployment benefits.

On December 8, 2010, the Labor Department released its 2009 work report.  In 2009, there was an increase of 2.7M long-term unemployed Americans looking for jobs in 2009 over the 2008 total. There were 5.8M job seeking Americans that had no work at all in 2009.

In 2008 and 2009, there was a net loss of approximately 8 million jobs.  In 2010, it was first estimated 1.1 million jobs were created.  The Labor Department’s January 2011 report revised this figure down to report 950,000 jobs were actually created in 2010.  So far in 2011, the monthly net job growth has not kept up with population growth.

On March 4, 2011, the Labor Department reported the unemployment rate dropped to 8.9% in February 2011.  They reported a loss of 36,000 jobs in February.  Was this lower job creation number really due to “snow storms” as presented by the White House – no.  Is this .01% unemployment rate decrease great news as spun politically – not really.

Did you know the Labor Department’s February payroll employment figures counts people as employed if they receive only one hour of pay for the period?  Do you consider yourself employed if you worked one hour in February?  Can you make your mortgage payment on one hour of pay for the month?  

Most experts agree the estimated reality unemployment rate, which takes into account those that want jobs that do not qualify for unemployment benefits or have exhausted the 2 years of benefit eligibility, is between 15-20%.

The second cause of record foreclosures is a result of prolonged unemployment that has exhausted the assets, savings, and even retirement accounts of many trying to hold on to their home.  Some have just walked away and maybe some who have not should.  Others have become squatters in their homes waiting for the final foreclosure eviction notice.  Some are so cash strapped they simply can’t afford to move.

There is a lot of prolonged pain in America in 2011.  Digging out of the foreclosure mess may take 2-5 more years, but it must be done.  It must be well thought out and socially conscience while maintaining fairness and reality.  It can be done, and it must be done.

Bryan sums up the seriousness of the situation. “The statistics surrounding this crisis are staggering. Since 2007, over 3.2 million Americans have lost their homes to foreclosure, causing housing prices to fall 27%. However, this is just the tip of the iceberg. An additional 2.2 million homeowners are currently in foreclosure.”

He continues, “A further 4.7 million borrowers are at least 90 days delinquent on their mortgage, and it is only a matter of time before foreclosure proceedings are initiated against these homeowners. This means that we are potentially not even one-third of the way through the foreclosure process.”

He concludes, “Moreover, if housing prices stagnate or fall further, we could see many more defaults as more than one-quarter of all homeowners in America, about 15.7 million people, have no equity in their homes. As a result, if we do nothing, as many as 12.5 million more homes could potentially be lost to foreclosure. It is impossible to overestimate the impact this would have on the economy as a whole.”

Bryan and his wife Susan Ganz felt a personal calling to act for their community. "Scudder Bay was formed by me and Susan in late 2009 to help resolve the mortgage crisis in New England in a socially responsible manner.  Scudder Bay purchases nonperforming loans in New England from banks and other financial institutions and works with deserving and cooperative homeowners to make the best out of a bad situation.”

Bryan works with a philosophy to decrease the pain.  “At Scudder Bay we believe working with homeowners in a socially responsible manner, rather than in an adversarial manner, we can reach the best solution for both the homeowner and our investors.  We can shorten the time it takes to come to a resolution and avoid unnecessary legal fees.”

“In addition, by working constructively with the homeowner, in those cases where we have to take title to the home, it is generally in much better condition than it would be if we had to foreclose and evict the homeowner.”

Elliott has seen a divide in attitude toward helping homeowners facing the pain of foreclosure, even within the professional real estate community.  “I was shocked at the split on Active Rain.  Many people were sympathetic, and some were downright angry when I wrote about my failure in being able to assist borrowers in trouble who wanted to climb back on the bus and start paying.”

He explains, “About 75% shared their own stories with me, and they were touching. The other 25% were rude and unfeeling.  They responded I didn’t understand the workings of capitalism.  Some noted I was naïve in understanding the restrictive terms the banks are operating under.”

Elliott also notes, “Some asked why I was defending people who signed a contract and now want to get out of it. These were the timbre of their responses. I admit it was scary for me to hear so much anger.”

Bryan details opinions are mixed in his talking with friends and acquaintances on the subject too.  “Some people believe a contract is a contract and that those in foreclosure should be forcibly removed from their homes as quickly as possible”.

He notes, “Others believe that the lending institutions are to blame, and they should be forced to modify loans to keep homeowners in their homes.  As with most issues, the majority of people seem to be on the extreme ends of the spectrum with few people occupying the middle.”

Bryan concludes, “If our work at Scudder Bay has shown us anything, it is there is plenty of blame to go around.  There are bad actors on both sides of the issue, from shady lending institutions that made outrageous loans with no consideration for the borrower’s ability to pay to unscrupulous borrowers who refinanced their homes and then never made a single payment.”

One thing is for sure.  Not effectively addressing America’s foreclosure mess will only prolong the pain for everyone – people, business, and government.  A recovery plan must be realistic.  It must not create a whole new set of problems to deal with in digging out of the original mess.

Real solutions must also reflect the problem involves real homes, real people, real lives, and real pain.  As a part of the working solution, “shared sacrifice” will have to include true compassion in understanding the tragedy – even if you were spared directly.

Capitalism is not evil.  Not all profit is evil.  Not all politicians understand or care about the benefits only capitalism can bring to a situation.  This situation does call on capitalists to be leaders in creating lasting resolution.

We will explore these truths further in the coming articles in the series with the working insights of experts Elliott Topkins and Bryan Ganz.  Our 5-part series on the “Digging out of America’s Foreclosure Mess” will include:

Part 1 - Prolonged Pain
Part 2 - Failed Government Intervention
Part 3 - New Government Programs
Part 4 – Socially Conscious Private Investment
Part 5 – Working Investor Solution

By Brenda Krueger Huffman-AXcess News

...by Anthony Buono

There are times when a situation you believe will end up in bankruptcy actually ends up as a success story. When you hire the right lawyers who look at the whole situation and are able to assess your needs, what you thought was a bad situation can end up with a happy ending.

We had a couple in their 70’s that had a lot of equity in their home. However their home had a mortgage. They were living on their savings and social security and the wife took a fall. The injury incurred quite a bit of uninsured medical expenses, which essentially completely depleted their savings.  They wanted to stay in their home, however they were not able to take any equity out of the house and they were not eligible for refinance or a reverse mortgage because of their limited amount of savings. They did have some assets but they were not easily available to them.

They came to us thinking that they were going to file bankruptcy. Now even though we are bankruptcy counselors, if we can help clients avoid filing for bankruptcy protection, we encourage them to do so. We were able to connect them to a private lender who was able to give them a competitive rate to allow them to refinance both their mortgage and equity rate. They were able to refinance and for a  period of time they were able to make payments interest. They were able to continue on for two years until such time that they were able to relocate to NC, which had been part of their original plan.

This was terrific because it allowed a situation which could have ended in bankruptcy to be completely avoided. It was a win win situation. The lender was happy and the clients were extremely appreciative. We are always pleased when we can do that for someone.