How Bad Is Mendo’s Foreclosure Problem?

Susan Nutter of Fort Bragg led off last week’s Board of Supervisors discussion of the impact of home foreclosures in Mendocino.

“I’m a member of Occupy Mendocino,” began Ms. Nutter. “From January 2012 to July there are 259 parcels in the foreclosure pipeline in Mendocino County. Last year 68% of the real estate sales in the County were depressed properties. Real estate values have dropped from a mean of $400k in 2007 to under $200k in 2012, and this is of course compounded by the effects of foreclosures on surrounding property values. The County will certainly lose revenue as the devalued properties are sold and re-assessed. And residents will have to absorb the loss to the tax base and pay a greater share of county expenses. Additional loss of fees, including unpaid Recorder’s fees will also affect the tax base. … Foreclosures have a ripple effect on loss of jobs and closures of small businesses. There’s a link between small business owners, toxic mortgages and the financial distress of mortgage defaults that precipitate job loss and unemployment and accelerate the pace of foreclosures. Foreclosures place additional stress on county and community services, increasing demands on social and medical services, police and fire services, more court and jail costs and an increased need for homeless shelters. They add to the instability of the population with the break up of families, divorce and mental illness and to the financial insecurity and bankruptcy of both families and communities such as we are witnessing in Stockton right now. School income is lost because children are dislocated. According to the Joint Economic Committee of Congress the average foreclosure can cost up to $80 for all the stakeholders: homeowners, neighbors, cities and local governments, lenders and loan services. Whereas foreclosure prevention and counseling can cost as little as $1000 per househould. San Francisco City and County Board of Supervisors recently voted 5-11 on a resolution to support state and federal measures to protect homeowners and suspend foreclosure activities in San Francisco. … As you on the Board realize, Mendocino County needs to address this issue of foreclosures.”

Several speakers agreed with the articulate Ms. Nutter’s  assessment and a few gave personal examples of the harmful impacts of foreclosure on themselves, and the difficulty they’ve had in even finding anyone to complain to.

Ms. C.J. Holmes, a real estate broker in Santa Rosa had driven to Ukiah to deliver an energetic summary of the problem. “I count the numbers,” said Ms. Holmes. “I am the director of an organization that I created called Homeowners for Justice. We have to band together and get justice ourselves.”

Ms. Holmes passed out some materials to the board. “This is a map of Mendocino County showing properties which are currently scheduled in the foreclosure pipeline. The pipeline at this point ends on July 17. It's only about 3.5 months. It's a moving pipeline. These are the ones I can count. Right now there are 258 properties currently scheduled in that time. If you take that number and divide by 3.5 that's 45 auctions per month, or homes that will be lost. Your average home sales in Mendocino County last year was 36 homes a month. So they are currently taking more homes back then they sell in this market. Right now your upside down loans — and this is one of the disasters and why this foreclosure crisis has happened and why my number one point — the first point — is we must stop the foreclosures! The bridge is broken but the people keep driving over it. They are falling into the river. How long is it going to take for us to stop them? Will we fix the bridge? Every time you have a foreclosure, property values drop. They just do! Because the banks don't care, they want to get them sold. They list them cheap. Sometimes they have to be cheap because they are in disrepair. As soon as that new price is set, that chops the equity off of the neighborhood. So Mendocino County, interestingly enough, I count a lot of county numbers, and you are right near the top. You are the least damaged at this point, believe it or not. You are up there with San Francisco. Sonoma County is twice as bad. So if you look at the upside down loans — because this is what happens: the foreclosure gets sold and then the neighbor goes, ‘Oh my goodness, I have $400k invested in this house and that other house sold for $300k. I'm upside down. And right now, when you are upside down, it's over. You have no options. You can sell it short which means you lose the house. You will not be able to borrow for three years to buy a home. You can let it go to foreclosure which means you lose the house. You will not be able get a loan for three years to buy a home. You can attempt a loan modification which pretty much in this state is a scam and a sham, and even if you get it they don't necessarily honor it, they will dual track you. And you'll go to foreclosure and you'll lose your home. You have no other choices. You can't do anything. You are stuck. I don't care if you are a $1 million home in Marin or if it's a $100k home in Lake County. It doesn't matter. We’re all in the pipeline. In this county right now you have 2,247 loans that are upside down which is 11% of the county. Other counties have up to 41% of their loans upside down. What you need to understand about upside down loans is the future pipeline of foreclosures. Research already has found that once the value of the house is only 50% of the debt, the people make a business decision and they say, Even if I can afford it, that's a waste of money. We call it ‘strategic default.’ I am handing out a complicated little diagram I call 'The Heart and Cycle of Fraud.' I have been putting the pieces together for years now. This problem starts with the banks, the banks are at the heart, they make money at every stage. They are now allowed to be a commercial bank, an investment bank and an insurance company without control. It is completely out of hand. They never, ever assigned the loans to the mortgage backed securities that they sold. That is why if you take every loan assignment that is in the County Recorder's office that shows up, or you have a securitization audit of your loan, it will always show you that it never got into the security. Technically and legally that means nobody owns the loan. This is what robo-signing is all about. The banks had to fake the paperwork so they could foreclose. And so they robo-signed. They hired people. You'll see right there in the diagram where it says all the ‘Linda Greens.’ It's a classic case. You can go to my website and look at bank frauds and you can see the little videos and so forth, ‘60 Minutes’ had a 10 minute segment on it. They interviewed Linda Green. They picked her name because it is easy to sign. There were literally people sitting around a desk all stamping ‘Linda Green’ and all signing as fast as possible because they got paid by the signature. The whole thing is a complete fraud on the people, on the County, on our records. This is why the banks are settling with the Attorneys General. That's the whole point! The trouble is that right now in Mendocino County every two days three families lose their home to auction. You have to stop it.”

Supervisor John Pinches said he thought a foreclosure moratorium wouldn't work because it would mean that it would give home buyers some kind of sanction to not pay their mortgages since there would be no foreclosure option at the end of the process.

County Clerk-Recorder-Assessor Susan Ranochak said that robo-signing wasn't an issue in California.

“The Recorders in the various Counties in the state were asked to testify when this system was implemented,” Ranochak said. “And the Recorders in California said, ‘No, there is no problem.’ Are there documents that are not being recorded because of the Mortgage Electronic Recording System [MERS — the nationwide bank system to back-create mortgages that were bundled and jumbled and repackaged for sale to other investors]? I would assume so. That's what was discovered in the San Francisco audit.”

Supervisor John McCowen: “And if those documents have not been recorded and there is a substitution of trustees who have not been reported would that put a legal cloud on foreclosures that would follow?”

Ranochak: “I'm not an attorney. I try not to answer legal questions. I would assume that if the procedures have not been followed that the banks are required to do under state law, I would assume that the title is clouded, yes. But what legal ramifications that means, I don't know.”

Supervisor Pinches pointed out that under Proposition 13 if a property changes hands through a stock transfer then there is no reassessment.

“Then we issue a demand letter,” Ranochak quickly replied. “We are making attempts to collect those debts.”

Pinches repeated that if there was a foreclosure moratorium, banks would stop financing new home purchases in Mendocino County. And people would not want to sell property on a private note because “if they can't foreclose then there's no hammer for them ever getting their payments. And if that happens new home buyers will be prevented from buying new houses at cheaper prices.”

“That was a great pitch for economic Darwinism,”  McCowen commented.

“I didn't know Darwin personally,” said Pinches.

McCowen: “We are not talking about a foreclosure moratorium. Members of the public have mentioned it. But we are talking about the nuts and bolts of what can and cannot be done. I disagree that a foreclosure moratorium would in any way affect home sales. A foreclosure moratorium comes at the end of the process, not at the beginning. The homes being foreclosed on are the ones which have lost value or they’re upside down and below market value. Homes being sold today and financed today are based on real-world values. I just don't see how the two are connected.”

McCowen then asked the room, “Where should mortgage fraud be reported? The District Attorney? The state Department of Consumer Affairs? Is there some other state or federal agency?”

County Counsel Jeanine Nadel: “The first place to start with that would be to go to the District Attorney if there is evidence or if somebody has a complaint.”

McCowen: “Can citizens come to the Clerk-Recorder's office and work on the evidence?”

Ranochak: “People can come in and look at the recording system. It's all public record. People can come in and you have that. But it can be cumbersome. We don't have much staff for helping people with that at this time because we are a general fund department and I don't have the staff to spend a lot of time on this, not that I don't want to. But it takes a considerable amount of time. If someone gives me a list of names or a list of documents, we could go through them. But when we would get to that or when we can give you the answer as to the success of that would not be until after the June primary and after the Assessment Roll is complete, probably in late summer at the earliest. Then it would come to a halt again because we have a November general election to work on. I'm not sure how productive it would be since the State Assessor-Recorder team has already done this and he has already submitted his audit to the Attorney General. Maybe it would be better to just see what she [Attorney General Kamala Harris] does with his audit. She may have enough information from this audit that she can extrapolate that over 58 counties. Or she could come back to the Recorders and say, okay, I want you to provide some additional information and we will start issuing subpoenas or providing an investigator from the Attorney General's office or the California Bureau of Investigation will be brought in and they will be in our office and they will do the research.”

Pinches: “It's difficult to prove fraud and it takes a lot of investigative time. You generally don't get much money back either; people can go to jail but they don’t reimburse much.”

Supervisor Hamburg said he supported sending a letter of support for the pending Homeowners Bill of Rights legislation at the legislature. “A lot of people have said that that's the starting point of what needs to be done legislatively. It's kind of limited in the progress that it makes but they all represent steps in the right direction. I would fully support the state issuing a moratorium on foreclosures.”

McCowen: “There's so much information out there about how these have been accomplished and then it's back to the issue of, if government is supposed to protect the people from harm, which is one thing we ought to be doing, and we have people who are being thrown out of their homes and their homes are upside down, you throw them out, you let the home deteriorate further, then you sell it at even less than what the person you just threw out would have been willing to pay on, because if it was written down to the market value, then most people would be able to stay in their home and keep paying. So that should be the goal. How do we get to that result? The current system brings a lot of personal devastation to the affected individuals and the communities. Other than that. the banks get paid off in full if they foreclose and they don't if they write down — there is no way this makes sense.”

Pinches: “The federal government owns the Fannie Mae and Freddie Mac loans and they have already taken the loss. If you are successful with a moratorium on foreclosures you just have a backup of unpaid mortgages which will produce a bigger bill for foreclosure and that would totally devastate your real estate market more because somebody would say, Wait a minute, I'm not going to buy a house now. I'm no wait for this year-long moratorium to expire, and that will drive the prices down further while people just wait. I don't see an upside to that. You might keep those people in the house for an extra year, but are you really doing them a favor? Because all you're doing is prolonging and backing up the amount of money that they will have to come up with to get outside of that.”

Hamburg, whose natural tendency to Big Think is hard  for him to contain, headed off there. “I agree that we should bring back a letter supporting the homeowners Bill of Rights. But I would go further. This is a national problem. This is an international problem. They have turned these mortgages into securitized fictional properties and they sell those all over the world and they have hedged the sales of those and they have created a worldwide financial calamity based on these phony mortgages. It's bad enough that people in our county are being foreclosed on, but these foreclosures affect everybody in this county. It depresses the entire economy of our county. And our region. And our state. Our nation. Our planet. It's really hard to know where to grab onto this elephant, as a county supervisor, and do much about this. There have been some lame attempts by the Obama administration including $26 million back in February. President Obama signed a bill that was intended to make restitution to homeowners who have been defrauded and damaged by lenders. But it doesn't do anything about going forward prospectively. It just gives some small handouts to some of the lenders who have been defrauded. There have been a few other attempts by the administration, but none of them have really taken hold. Some of the things we've talked about today, such as writing down — if the federal government had put money into helping people stay in their houses and maintaining some kind of a floor on the housing market, that might have done some good. But basically the only people who have made out in this are the banks and they continue to make out in this. As far as I know Fannie Mae and Freddie Mac have been backed up by the taxpayers. It's now our grandchildren who will pay the debt that has been assumed by the federal government through Fannie and Freddie, meanwhile Fannie and Freddie paid these incredible bonuses to their top officials. The whole thing is just a total — I don't even want to say the word. It starts with a C and it ends with a K. And Cluster is the first couple of syllables. It's just a total mess. We are feeling it right here in Mendocino County. I understand that our former District Attorney was looking into this whole area of mortgage fraud and how it affected us here in Mendocino County. So far I guess our current DA has not really picked up on it. I don't know if there is a good enough return possible from looking into those fraud issues or not. We’re all in a daze. We deal with these issues and we're at the tail end of these crises and it's kind of hard to know where to grab on. But maybe, Sue [Ranochak], you want to talk a little bit to this. Whether the District Attorney might really have a role to play here.”

Ranochak: “The former District Attorney requested us to print off all the notices of default on a monthly basis and send them to her. What she did with those, I'm not sure. There is a provision in the government code that $3 can be added to a document, and these are just certain types of documents, it's not all documents, that can be used for the county to set up a fraud prevention fund that basically allows the District Attorney funding to administer a fraud program. And some percentage of that $3 comes back to the Recorder for administration, but it's negligible. The last time I reviewed that for the District Attorney based on the documents of foreclosure in Mendocino County it amounted to a little over $27,000 on an annual basis.”

Hamburg: “Not a huge amount of money.”

Ranochak: “No. There is legislation out there to increase the types of documents that will be allowed to have that fee charged to it. But so far the government code has not changed. All these documents must be signed by someone and notarized by a Notary Public.”

McCowen, tossing out a reference that very few people would understand, replied, “Wasn't Oscar Klee [a former supervisor and attorney who got into some legal difficulty back in the 60s] a notary?”

Ranochak: “I believe you are correct.”

McCowen: “If anyone rememberes…” (Laughs.)

The hour was late so McCowen wrapped things up, waving at the Occupy Mendocino people in the audience: “I think there is a committee right out there and you can organize yourselves. We will be putting these subjects on future agendas and we will work with you.”

SoCo realtor C.J. Holmes took the podium for one more proposal: “What if you created the affidavit of authority as a voluntary document so that anybody who wanted to do a foreclosure during the moratorium and owns the note and is not afraid to sign that note, that document, they can foreclose! All we want is to make sure that the entity that forecloses owns the note. And we already know that the banks don't! So it would stop them, but all the individuals, all the seller financing, all those people, they still have their clout. That seems fabulous to me. Because it's voluntary. You don't have to change the law. If you want to foreclose during a short moratorium, if we can get this Recorder affidavit of authority passed through the Legislature, have at it! That meets the needs legally for those people. The problem of converting to rentals, having people who own become the renters? When the market recovers that price will go up and they won't have the opportunity for the appreciation. You need to insist that the principles be written down to the market value.”

Ranochak: “I am not opposed to a voluntary program, but it would not matter from a recording standpoint if that affidavit was completed or not, the document would still be recorded if it was presented to me. And even without it being presented, I do not have the authority to not record that document under the Government code.”

The hour was late, so on that inconclusive note, McCowen declared the meeting over, having taken no action at all.