Ohio Foreclosures Decline 4% in 2010

After 15 years of annual increases, the overall number of residential and commercial foreclosures in Ohio actually decreased by 4% in 2010 compared to 2009, according to a report by the Supreme Court of Ohio. Of course, not every county was so fortunate with   30 out of 88 counties experiencing an increase in foreclosures. Cuyahoga County, home to our Cleveland office, still leads the state in the sheer number of foreclosures although at 12,825, there were 9% fewer foreclosures than in 2009. In Franklin County, home of our Columbus office, foreclosures rose by 2%. In Hamilton County, home of our Cincinnati office, foreclosures decreased by 2%. For complete information for all 88 Ohio counties from 2001-2010, the Supreme Court’s spreadsheet is available at: http://www.supremecourt.ohio.gov/PIO/news/2011/foreclosureStats_021011.asp

Foreclosure Rescue Scams Proliferating

Where there’s trouble, there’s trouble. As a growing number of homeowners have defaulted or neared default on their mortgages, numerous schemes have cropped up taking advantage of their willingness to do whatever it takes to save their homes. 

 

The Court in State v. Cicerchi, 2009 Ohio 2249 (Ohio Ct. App. 2009) took the time to explain one of the more common plots:

 

One all-too common scam occurs when an individual or company identifies an at risk homeowner and misleads the homeowner into a "temporary" transfer of the deed to a third party with good credit. The third party then purchases the property and "leases" it back to the homeowner. The scammer convinces the homeowners that they can "refinance" their home using the third party's good credit. The homeowners are led to believe that they will pay "rent" on the home and once their credit is rehabilitated, they will get the title to their house back.  The homeowners then lose title to their homes, while the perpetrator profits by remortgaging the property or pocketing fees paid by the homeowner. Rarely do the homeowners ever regain title or receive any benefit from the sale, and often lose any equity that may have been in their home.

 

In Cicerchi, the defendant perpetrated a similar fraud and was convicted of misdemeanor theft, securing writings by deception, and telecommunications fraud. On appeal, the Court overturned the securing writings by deception conviction due to insufficient evidence. 

 

Earlier this year, the U.S. Department of the Treasury announced a partnership with several state and federal agencies to combat these mortgage-rescue frauds. The focus of the partnership is to identify offending companies and disseminate information to potential victims. The Federal Trade Commission and Office of the Comptroller of the Currency have each published a helpful bulletin on the variety of scams that can occur. 

 

The obvious victims are homeowners in a situation where they require assistance to perform under their loan or otherwise come to an amenable resolution with a lender. But fraudulent foreclose rescue companies are also an impediment to banks because they commonly tell borrowers not to contact their lender or not to enter workout discussions. Banks are left in the dark until it’s likely too late. Further, the “fees” borrowers pay to participate in the scam could otherwise be paid to the lender for amounts due on the loan. Mortgage lenders would be well advised to contact distressed borrowers as soon as possible to notify them of potential scams and initiate workout negotiations. 

 

Protecting Tenants at Foreclosure

The rights of owners and tenants in post-foreclosure property have been dramatically altered by new legislation signed by President Obama. On May 20, 2009, President Obama signed the “Helping Families Save Their Home Act,” which contained provisions to aid renters whose landlords go through foreclosure. Title VII of the Helping Families Act (the “Act”) is entitled “Protecting Tenants at Foreclosure” and generally requires the immediate successor-in-interest on foreclosed property to recognize the lease rights of existing tenants on the property. 

The Act applies to any property where there has been a foreclosure on a “federally-related mortgage loan or on any dwelling or residential real property” after May 20. “Federally-related mortgage loan” is defined in RESPA as being limited to mortgages on property “designed principally for the occupancy of from one to four families.” Therefore, the Act’s requirements apply only to residential, and not commercial, property. 

If there are “bona-fide-tenants” on the property that signed leases prior to the foreclosure, the Act appears to require landlords to recognize the remaining term of the lease, although there is some ambiguity in the text of the Act regarding whether a landlord may choose instead to require existing tenants to vacate on ninety-days notice. “Bona-fide tenant” is a defined term essentially meaning that the tenant’s lease was the product of an arms-length transaction. 

There are two situations under the Act where it is clear a post-foreclosure owner may require a tenant to vacate upon ninety-days notice. First, if the new owner sells a tenant’s unit to a purchaser who will occupy it as a primary residence, the owner may require the tenant to vacate after expiration of the notice.  Second, a tenant who does not have a lease or whose lease is terminable at will must also receive a ninety-day notice before being required to vacate. The Act does not displace any federal or state requirements for terminating subsidized tenancies, or any state laws that offer greater protections to tenants. If not renewed, the Act will expire on December 31, 2012. 

It is especially important for lenders to be aware of this new law, as many are becoming owners of real property through foreclosure proceedings. Anyone acquiring property post-foreclosure must carefully examine existing tenancies to ensure it recognizes leases or gives appropriate notice as required by the Act. Hopefully, better guidance will be offered in the near future concerning when a landlord may terminate an existing tenancy after giving proper notice.

Ohio Foreclosures - Legislative Update

Two foreclosure related bills of great interest to both borrowers and lenders were introduced in the Ohio House of Representatives in February but are moving slowly, if at all, through the legislative process.  One of the bills is too bold to have a serious shot at getting signed by Governor Strickland, but the other is modest enough that it may pass. 

House Bill 3, the more sweeping of the two, has languished in the Housing and Urban Revitalization Committee.  At a very basic level, the bill would: 

1.         Impose a six-month foreclosure moratorium, during which a court could not hear or issue judgment on a foreclosure complaint.  The moratorium loses a bit of its teeth, however, as a mortgagee an petition the court to proceed with the action if a borrower is more than thirty days late on a payment during the moratorium.

2.         Establish new filing requirements for residential foreclosure complaints, including certain notices to be given to borrowers by loan servicers, a statement of mortgage information (including the identity of the note holder), an appraisal, and a $1,500 filing fee.

 3.         Allow common pleas judges to modify mortgage terms, including principal amount, in residential foreclosures if the judge determines the modification would benefit both parties.

 4.         Require mortgage loan servicers to register with the state and be subject to extensive regulation and oversight.

 5.         Establish a loan modification program, run by the Director of Commerce, which would allow borrowers to modify loans when a modification would result in a greater recovery to the lender than a foreclosure. 

 The drastic nature of HB 3, particularly the mortgage modification provisions, has led to strenuous opposition and even promises of constitutional challenges (and here) should it pass.   While the bill as a whole likely won’t move much further, it wouldn’t be surprising to see small pieces of it come up for a vote.  If any significant portion of HB 3 passes, lenders will be faced with sharply increased mortgage-related operating costs.  They would need to quickly develop processes to determine which distressed properties are eligible for the moratorium bypass and whether the $1500 filing fee makes a workout preferable to foreclosure on a given property. 

 

Substitute House Bill 9 was reported to the full House from the Financial Institutions, Real Estate and Securities Committee on March 26, 2009.  It would require residential landlords to notify tenants of pending foreclosure actions and upcoming foreclosure sales affecting their property. Absent a different agreement between a tenant and a party acquiring foreclosed property, all existing leases would be converted to month-to-month tenancies upon confirmation of a foreclosure sale. 

On a very practical level, it is important for landlords to stay abreast of Sub. HB 9 because all residential leases after the bill becomes law must contain a notice (a form of which is in the bill) notifying the tenant of the bill’s requirements.