Eminent domain property siezures increasing.

Local governments are more often resorting to eminent domain as a method to obtain property for projects. In New Jersey, two towns ended a dispute over a private citizens property, allowing the city of Cliffside Park to permanently take a parking garage from a business owner. The owner had been temporarily leasing the garage to the city, and is stunned to find out she will be losing the property. “I thought I was doing a good, civic-minded thing [by renting to Cliffside Park] and, lo and behold, they are going to take it permanently,” said Bridget Tapkas. “Now, we are going to end up losing a piece of property that is very important to our business,” she said. “That is not replaceable. You can give me the money for it, but I can’t get another piece that attaches to my property.”

In California, 4 parcels were taken which will be used for an elevated train system, connecting a 4 mile section between city centers.

A home-builder in Nevada has requested that the government start using eminent domain powers to buy out foreclosed homes. Richard Plaster said that the federal government should pay a price equal to the fair market value of the home at the time the request is received. There would be a fixed $40,000 charge, which is the average foreclosure cost.

The lender would get cash to use as new investment capital and that will get rid of toxic assets of its books, Plaster says. The government would then make a 30-year fixed-rate loan to the homeowner at the current interest rates. A portion of the loan would be forgiven, he says.

In the Napa Valley area of California, the City of American Canyon voted to take property from two property owners to build a facility which would house a 1 million gallon recycled water tank. City Manager Rich Ramirez said the city hopes to get money from President Barack Obama’s economic stimulus package to build the tanks within nine months. At the hearing, City Councilman Ed West was admonished by Mayor Leon Garcia, and asked to be respectul towards an attorney representing one of the homeowners after refusing to answer his questions.

In Santa Ana CA, several acres were taken and purchased using $22 million of city money, with the intention of providing affordable housing. Some landowners made huge profits in their dealings with the city. Others signed away their homes only after the city warned that it could condemn their properties and force them out if they didn’t cooperate. Carol Blair cried when the city announced its intention to buy her house – the same house her grandmother lived in. She left a note in the mailbox before she drove away: “Goodbye, my little house.” That was in 2005, and all that has become of the property now is abandoned buildings and a chain link fence surrounding a patchwork of vacant land littered with empty bottles and crumpled food wrappers

A contractor questioned the intentions of the state of West Virginia, which condemmed land he owned only after bids he submitted for a state project came in higher than the state expected. “It nearly destroyed all the confidence of contractors in West Virginia,” he said.

Fortunately, the state supreme court ruled in his favor, overturning the condemnation. “The dangers of abusing government power to take private property cannot be overestimated or overstated,” wrote one justice.

County recorders offices not immune to budget cuts and layoffs

Consistent operation of the county recording clerks office is critical to the public’s access to accurate information. Budget deficits at the state and local levels are resulting in cutbacks in municipal services. Until now, most of the services being cut were not critical to everyday commerce. We are just now starting to see cutbacks in departments which could result in serious problems for residents.

In Colorado Springs CO, the county clerks office has been instructed to stop answering the phones, as they are understaffed. County clerk Bob Balink was forced to lay off 19 staffers late last year.

The recorders and assessors offices in Fresno CA have two weeks to dispute why they cannot make further cutbacks in their departments. Riverside County CA is planning on layoffs of 250 people, including 50 in departments such as assessor-clerk-recorder’s. The county is facing a $60 million budget deficit.

Ada County Idaho is cutting back its development services department to a “skeleton crew”, as a result of the real estate downturn. The county recorder’s office will cut two full-time clerk positions in response to the fewer real estate transactions needing to be recorded.

Lorain County OH Clerk of Courts Ron Nabakowski had to close a title office and lay off 11 employees there and in the legal divisions. In that county, only five sheriff’s deputies patrolling the roads the night of Dec. 28 when a burglar managed to break into a Carlisle Township development and steal two toilets and a bedroom set because there weren’t deputies available to respond to a call about suspicious circumstances.

Fifty employees in the Snohomish County WA clerks office will be taking a 10-day unpaid furlough this year, to help reduce the county budget deficit. The County Council voted 5-0 on Monday in favor of furloughs for the clerks’ association.

As these layoffs and cutbacks become more severe over the next year, it is likely that abstractors will notice deficiencies in the currency of recorded documents. In 2006 Wayne County Michigan made national headlines when it built up a backlog of deeds yet to be recorded. The lag was reported at one time to have been 4 to 6 months behind.

Church property ownership disputes

There has been an increasing trend of property ownership disputes between local churches and their national organizations. As an individual congregation decides to break away from the national church or regional diocese, it often prefers to keep its current location and facility because of equity or location.

The parent religious organization does not always agree to this, and a dispute over who is the owner specified on the deed ensues. A ruling last month regarding one specific case in California brought some clarification to similar cases.

Frequently, the dispute is more contentious because the underlying reason for the church to withdraw from the national organization is a bitter philosophical or religious issue.

A Baptist church in Pennsylvania is facing a challenge by its governing body in Delaware who is looking to void a prior deed. The pastor of the church is claiming the Delaware group is looking to steal its property. In this case the pastor was told of matters “both spiritual and secular that displeased the church,” and fired.

The common issue which makes these conflicts unclear is the vesting of the deed. The deed to a church property is normally vested in the name of the church. However, the underlying ownership of the organization is claimed by both the local pastor and congregation, as well as the governing body.

In Colorado, a new trial started last week over the disputed ownership of Grace Church & St. Stephen’s. Previous to these measures the Bishop and Diocese of Colorado had made efforts to remove the vestry (the parish’s governing board), dismiss the Rev. Donald Armstrong as rector, and take possession of the church’s real property. Subsequent actions by the Episcopal Diocese against Grace Church & St. Stephen’s have been to initiate civil lawsuits against 18 separate individuals in the congregation including vestry members, staff, and volunteers.

It is likely that local churches will look to clarify ownership of church property more clearly in future agreements.

Banks halting foreclosures in advance of new law

Most national mortgage lenders have temporarily stopped pursuing foreclosures, as provisions in the new stimulus package will allow for modifications of existing loans. Citigroup stopped foreclosures last month, and JPMorgan Chase, Morgan Stanley and Bank of America announced Friday that they were doing the same.

Fannie Mae and Freddie Mac have stopped foreclosures on owner-occupied properties, except that FHLMC will still foreclose on vacant properties.

The latest stimulus package bill has provisions to allow and/or require lenders to reduce homeowners payments by lowering interest rates and writing off principal. The details of who would qualify and how the reductions will be made are still unclear. In fact, the White House cautioned against making assumptions based on rumors in the meantime. Press secretary Robert Gibbs said that he did not want to see “an unreasonable series of expectations based on leaks from God knows where.”

Florida based BankAtlantic is one of a number of local and regional banks joining the moratorium. The actions taken by these banks make it clear that there is an expection of some serious loan modification program being enacted. The fact that banks are making these announcements ahead of the details being released make it logical to assume that the lenders will receive government compensation for the losses and write-downs.

Foreclosure data resource for investors

This morning we have a guest post from Zack Preble at Foreclosure.com. For over 10 years, Foreclosure.com has been the largest provider of foreclosure records and investor training in the US. They currently have over 2 million foreclosure listings available, and provides data to most of the foreclousre list vendors. The mainstream media gets foreclosure data for its reporting from Foreclosure.com.

Here is their outlook on foreclosures:

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The word “foreclosure” just oozes perceived savings — people hear it and automatically think a home is an instant bargain.

More often than not this assumption is usually accurate, but there are exceptions.

Let’s be clear: Foreclosures can be purchased for pennies on the dollar. In fact, it’s common for buyers to score homes up to 50 percent or more off the original price.

That’s because lenders are in the money — not the real estate marketing — business. Often, the only goal for them is to just break even and recoup as much money as possible on the loans that fall into default. These repossessed homes are typically featured in public auctions, which are then sold to the highest bidders for considerably less than their market values.

But, as we already mentioned, there are risks to purchasing a home at a foreclosure auction.

First, each state has different laws and procedures that govern the process, which you must be mindful of before submitting a non-refundable down payment. Be careful not to get burned on a property because of a quirky loophole. Ignorance is not an excuse.

Second, you need to have access to cash and be able to close fast — sometimes 30 days or less. Therefore, you have to have financing (and cash) in place before placing bids to purchase a home. What’s more, a non-refundable cash (earnest money) deposit is usually required on the spot.

Third, competition can be fierce and intimidating . especially if it is your first experience. Local investors sometimes feel a sense of entitlement at
these auctions and don’t welcome newcomers with open arms. They can even conspire to run up the bid price to try and get you to overspend.

Therefore, do yourself a favor and attend a few auctions first before getting in on the action.

Last but not least, always remember that you buy the property strictly “as is” at an auction. That means it’s critical that you view and inspect the property (if possible) before making an offer. There are no money-back guarantees in this business . it’s “buyer beware.”

With risks, of course, there are also rewards. And with foreclosures the rewards are traditionally rather significant. If you do your homework and come prepared it should be smooth sailing.

Whether you’re a first-time homebuyer or experienced investor, a foreclosure auction is a great way to save – or make – money in today’s sizzling real
estate market. If you are looking to capitalize on foreclosure properties being sold at these public auctions, Foreclosure.com is a tremendous resource that will get you on the path to success.

http://www.Foreclosure.com

Celebrity liens

The real estate and economic downturn is hitting the rich and famous. Just this week, a builder placed a lien on the 12,000 square foot mansion of Jack Nicklaus. The builder, Malcolm Jones claims that the project is complete, but the last construction draw of over $1,000,000 is being held by Nicklaus.

Lindsey Lohans mom Dina had a $12,000 tax lien on her home in Nassau County, NY. The lien was scheduled for auction last week, it is unclear who paid it.

Entertainer Tyler Perry had over $200,000 in liens placed on his Atlanta home and studio by construction companies who claim the work is not paid for. The actor and producer says he is being targeted for his celebrity.

Bounty hunter Duane “Dog” Chapman owes a couple of million in back income taxes. The liens from several years total over $2,000,000.

Britney Spears former boyfriend Sam Lufti did not pay the association dues on his condo. Now he has a lien on it for $18,000.

If he wins his 7-figure lawsuit against the singer, it should help cover some of that.

Title, attorney, and broker fraud cases

In Alaska, an employee of Alyeska Title Guaranty Inc. issued a worthless title policy to a lender. The borrower defaulted and undisclosed prior liens on the property took out the lenders equity position. The agency and underwriter are disputing responsibility for the policy, taking the position that the employee was not authorized to write the policy. The agency has been fined $400,000 in the meantime. The lender is out $750,000 for the loan and is suing both the agency and the employee. No criminal charges have been filed.

In New Jersey,  escrow agencies are being sued for marking up recording fees.  It is alleged that title agencies charged more on the HUD statements for document recording than the actual land records office fees. The suit names several national underwriters, and their settlement agencies. The class-action lawsuit is described at http://www.njtitlelawsuit.com/.

Christopher Warren, from Sacramento was arrested crossing the Canadian border with $70,000 cash and precious metal stashed in his shoes. He had been the target of an investigation into mortgage and real estate fraud, and fled the US in his private jet two weeks ago. He was also carrying $1 million in bank certificates. A partner in the enterprise is still a fugitive.

A real estate agent in Utah admitted to helping to inflate property valuations for mortgage fraud. In once instance, the property value was artificially raised over $1,000,000. “On January 11, 2006, I changed the list price from $1,750,000 to $2,900,000 knowing this new figure was false and overstate the fair market value of 4311 by over $1,000,000,” Ron Clarke admitted in relation to one of several homes. “I entered this false information because I desired to close the sale from the owner of 4311 and collect my sales commission.” He was fined $22,000 and forfeited his real estate license.

A deed theft ring in Philadelphia was charged this week, after it was discovered they illegally transferred at least 82 properties, and possibly hundreds. The group would scout out vacant properties, and record fraudulent deeds into themselves using  complicit notaries. They would then resell the properties to unwitting buyers or investors. D.A. Lynne Abraham said “These 82 individuals or couples thought they were paying for the title to a home. They never knew until it was too late that what they bought was nothing.”

Abraham said a state law requires deeds to be filed immediately in the county courthouse and accepted at face value. Although officials are supposed to verify the information later, Abraham said large counties such as Philadelphia – with 250 property sales recorded daily – do not have the staff to do the verifications.

The US Attorney’s office in Miami announced the sentencing of Evelyn Rivera, title agent and owner of Asset Title, LLC. Rivera had previously pled guilty to participating in a scheme intended to result in the issuance of $18,500,000 in fraudulent mortgages on 55 condominium units. She was sentenced to 5 years in prison.

Want an automated title search?

Sorry, there is no such thing.

A property title search cannot be truly automated, because of the definition of what a title search is. Searching a property title is an analytical process of reading and comprehending documents, and their relationship to each other. Trying to create a system that does automatic title searches would be like automating architectural design.

It is certainly possible to use technology to make the parts of the process simpler, such as access to documents, or index searching. However, the process of interpreting the documents cannot be done by a computer. Each deed, mortgage and lien document is unique, and means different things in the context of that specific property. That is not even taking into account that some records relevant to a title search are not in the land records.

The nature of property records is that they are a collection of contract documents, not electronic data. Lengthy legal descriptions, vesting variations, and contingencies in documents can only be understood by a human reading the pages. An electronic report can be very useful to provide basic information such as sales price numbers, and mortgage amounts, but cannot replace an abstracted title report if line, encumbrance, and easement status of a property is needed. Even mortgage information is ambiguous when collected electronically. If a property has been refinanced several times during its ownership, there will be many mortgage documents and many release documents. How will a machine be able to match up the mortgages with releases, and correctly ascertain which mortgages have been released, and which are still open, and what is the current mortgage priority?

There are automatic reports available, which might list liens and mortgages, but those should not be confused with an actual title search. Even if those types of reports are used by some in real estate for title insurance, it does not make the report a true title search. It just means that the title insurer is willing to accept additional unknown risk and may be factoring that in to their expected claims expense.

That is not necessarily a bad thing, as long as it does not place additional burden on the insured. Having a claim, even if it is paid by the insurer can create inconvenience for the property owner, to say the least.

This is not written from the point of view of a buggy-whip manufacturer that is clinging to the idea of horse-drawn carriages. If a truly automated title search was possible, it would be a huge benefit to our company in particular. We would not need to expend the tens of thousands of man-hours manually searching title records and abstracting search reports, and the expenses of my company would be drastically reduced.

However, it is unfair to allow consumers to rely on the misconception that a title search is like  Google search; just punch in the address and the results pop up on the screen. That concept leads to relying on incomplete searches, which can put a property interest in jeopardy.

A demonstration of how impossible automatic title searching is comes in the form of a company called Zenodata. In 2003, it was formed with the business plan of creating a system to perform automatic title searching. It raised $12.3 million in funding for research and development. In July of 2004, it received another $10.4 million in a second round of funding for its operations. Including investments from private investors, angels, and friends and family, it had raised a total of $27.1 million through that date.

With $27 million in development costs, the company claimed that it was able to do searches in just 2 Florida counties. (Keep in mind, that Florida records are among the most electronically accessible records in the county, so that the property data is already available, meaning that the $27 million was only needed to figure out how to interpret the records.) According to their press release, the product would have been “the first completely electronic land record database in the United States.” The system was described as being able to allow users to conduct “one-button” automated title searches. This would have been well received by mortgage companies and title companies, to say the least.

In the spring of 2005, the company was scheduled to exhibit and give seminars at a large ALTA tech conference. At the very last minute, the company was a no-show, and closed for business around the same time. A fully funded tech company with 350 employees and almost $30 million could not figure out how to make title searching automatic. That could indicate that the process of title abstracting is more of an art than a technology.

Commercial property crisis in 2009-2010

The real estate industry will see another crisis and decline begin in 2009, this time in the commercial market. Residential home prices have pulled back since 2005, which lead to a pullback in consumer spending. As consumers purchased less, companies began laying off and closing stores. Closed stores and less revenue also means administrative offices need less space, and manufacturing plants are shutting down.

Obviously, this results in commercial space becoming empty. The effect of this on the actual real estate market has a delay, however. The users of the commercial space are normally not the property owners. Retail and office space is almost always leased, and most manufacturing properties are as well. When a tenant moves out or the store closes, the property is not immediately in jeopardy. A residential home is normally in jeopardy as soon as the owner has financial problems, as the mortgage payments stop immediately.

A commercial property owner is likely to be more capitalized than the individual homeowner. They may have some reserves, and be able to continue paying the mortgage for some time, especially if there are still some other tenants in the building. Regardless, at some point the money runs out, or it becomes obvious that the property is never going to cash flow. At that point the mortgage payments could stop.

Even if a building has a positive cash flow, most commercial mortgages are set up on a 3 or 5 year balloon payment, which means that at some point the entire balance comes due. In the past, refinancing the note was an expected event every few years. The commercial lending market has all but dried up, and valuations would not likely support the needed loan amount. If the typical commercial note matures in 3 – 5 years, this means that in 2009 the mortgages placed in 2004 – 2006 would be coming due. That vintage of commercial loans could be a particularly bad one. Valuations were high, and cash flows were based on the strong consumer retail spending at the time. “Most lenders have withdrawn from the market and there is no secondary market for commercial mortgages,” said NAR President Charles McMillan, a broker with Coldwell Banker Residential Brokerage in Dallas-Fort Worth. “If lenders cannot meet the growing demand for credit to refinance performing commercial real estate loans which are due to mature soon, a wave of defaults could worsen the current credit crisis.”

Trying to redo these mortgages will be difficult. Malls are continuing to empty, and office space vacancy rates are soaring. Lenders might be prohibited from negotiating terms due to regulations requiring them to mark their assets to market values. It is unlikely that many building owners will be able to come up with a cash payment to reduce the loan amount equal to lost equity.

What makes commercial property more vulnerable is the fact that commercial space is not necessary to everyday life. A person needs a house to live in, for shelter. Commercial property is only needed to further a business enterprise. If the scale of business is lower in a down economy, we need less of it.

The resulting crash will have devastating affects on local municipal budgets. Much of the revenue for counties and cities comes from property taxes and sales taxes. As much as 70% – 80% of a local government budget comes from commercial taxes. Foreclosed commercial buildings and empty stores will turn off this revenue stream very quickly. Few city or county governments could continue to operate on a day-to-day basis if a significant portion of this cash flow is lost. This could turn into a local catastrophe.

Properties are already reaching foreclosure in cities like these examples in Cincinnati. Anticipating the wave of foreclosures in commercial properties is nothing new, having been discussed for a few years. It is becoming apparent however that it will start happening now, and it could be severe.

Already, $107 billion worth of office towers, shopping centers and hotels are in some form of distress, ranging from mortgage delinquency to foreclosure, according to a report by Real Capital Analytics. This is in advance of delayed fallout from the layoffs and store closing which are continuing to accelerate. Malls from Georgia to Michigan are in foreclosure, and office tower construction is stopped in its tracks.

We’ll be hearing more about this in mainstream news over the next few months.

Government mortgage modifications

The descendant of HB 7307 is still kicking around congress, and could soon become law. Out of Committee last month, the “Helping Families Save Their Homes In Bankruptcy Act of 2009″ gives courts the power to modify mortgages to bring them in line with underlying home values. It will allow homeowners to force their mortgage lenders to reduce the principal owed on their mortgages, through bankruptcy. A bankruptcy judge could unilaterally reduce a mortgage amount from $250,000 to $175,000 if that was the current value of the home. It would not matter if the mortgage amount was a result of serial refinancing or home equity line withdrawals. Objections to the bill cite examples of how it can be abused by property owners.

There is some precedent, as mortgage debt is currently the only consumer debt prohibited from being reduced in bankruptcy. If the bill becomes law, as it appears to be, it raises some questions.

What documents will be filed to record the modification? In theory, a modification agreement could be used, but there are multiple terms being modified. In addition to the principal, the interest rate is subject to change. It also appears that there will be provisions for the lender to recoup a certain percentage of equity appreciation over a certain time period, on a sliding scale; 80% the first year, 60% the second, 40% the third, and 20% the fourth. The term of the loan may change, or start again at a 30-year amortization.

It may be necessary to have an entire new loan document recorded. This could affect priority of other items, but most other items would likely be disposed in the bankruptcy. Remaining items could be handled with subordination agreements.

Will searching these recorded documents be different for abstractors in the future? If a loan document contains equity ownership provisions for the lender, it will be important for abstractors to be aware of these when doing searches years from now. Unless the modified mortgage document is read thoroughly, a second mortgage would appear to collateralize all of the equity above the value of the first mortgage. However, some of the equity above the first mortgage amount may be claimed by the unusual first mortgage.

The potential ownership interest of the lender would be a title issue that needs to be listed on the abstract.