Philadelphia to suspend some foreclosure sales

Breaking news from Reuters: "Authorities in Philadelphia will suspend foreclosure sales of homes whose owners have fallen behind on adjustable-rate subprime loan payments -- potential relief for tens of thousands of struggling debtors."

More: "Sheriff John Green said he would halt sales of foreclosed properties in April and would seek a court order extending a moratorium for an unspecified period. His action follows a nonbinding resolution passed unanimously by the Philadelphia City Council on Thursday calling on Green to stop the sales to give borrowers more time to seek a settlement that would prevent them from losing their homes."

The story raises questions: First, is this action legal? If I'm running a large bank and I'm trying to get my hands on houses so I can put them on the market before they fall further in value, I might want the houses now. Second, will other municipalities follow suit? My guess is that the answers are no and yes, in that order.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com.
Photo Credit: Philadelphia Mayor Michael Nutter, by AP.

Comments

[mapletree]

That was my first question as well....is this legal and it's not. This is really incredible...yet again I'm speechless.

THESE PEOPLE ARE NOT ENTITLED TO OWN REAL PROPERTY. GO RENT. They can walk away from their "home" that they don't own or paid nothing for and rent. Why is that such a difficult concept to understand.

Since when do we in this country promise ownership of real property? Apparently today we do!!!

Amazing.

[mapletree]

Peter,

Can you find out (probably not) does this apply to all homes even in the 650K and up (million dollar homes) range?
Probably, can you imagine what this means to a responsible, honest non homeowner renting American citizen??? WOW.

[mike]

can i buy a porsche or ferrari in philly???

[William Jones]

Could the City of Los Angeles step in and stop the escalating price of gas and food? Those affect just about every person that lives here, either directly or indirectly.

[Giacomo]

Hard to believe it would be legal...and harder still to believe lawsuits won't follow if it's put into effect.
I realize politicians want to capitalize on this PR opportunity, but voiding legal contracts? What's next? And what investor wants to put money into a system were the government might decide to freeze assets to the advantage of one subset of constituents?

[DS]

I think that is fair. I mean the owners are still probably going to lose the house. The only difference is that they are going to live free for a couple or more months. I mean the only ones that suffer are the greedy banks. As they are forced to keep a depreciating asset for longer that they would like

[Ace]

Yet another reason why Philly sucks...

Hmmm... I could go for a cheesesteak right now..... maybe Philly isn't so bad.

[Giacomo]

My prediction (and hope) is that this will get watered down to a "resolution" or some other degree of governmental claptrap in the end. Just like most of Paulson's efforts have been largely "voluntary" (=lenders doing whatever they were going to do anyway).

[mapletree]

You don't get it DS the people living in the house didn't pay for it. The Bank gave the money and owns it, perhaps they aren't on title (although they may be at this point, east coast title transfer is different from west coast) regardless, these people own nothing, didn't pay anything for a house---DO YOU GET THAT????? They have no right to continue to live there.

If you are a renter and don't pay your rent can you just continue to live there for years and years, or months and months...no!

[stevestevens]

I've been reading the comments on this blog for about three months now and have come to the realization that most of you are complete jerks. These are people we are talking about, families. Most of these people have sacrificed to make homeownership possible fo their families and in an instant it is gone. Shame on you. We all want and admire "a reasonable rate of return" but at what cost? I'm sure there are greedy speculators being hurt by the correction and they shouldn't be allowed to benefit or profit from any kind of government intervention. This doesn't discount the fact that real families, working families, are in the middle of the worst economic disaster of their lives. We need to work together as a community and find a solution to this as soon as possible and keep people in their homes. Equating governement help for people fending off foreclosure to forgiving a luxury car loan is petty and quite frankly not even witty.

[CD]

What part of foreclosure do they not understand. Is that concept foreign to Sheriff Green ? That cannot happen
because then people would stop paying their mortgage all together and invoke Sheriff green who says it's ok not to pay and to re-negotiate the terms with your bank any time you have a problem. If banks start this process,then they will have to re-negociate all over the country with the people whose home value has gone down....There will be no end to the negotiations....this is really bad.

[Pasadena'ed]

Dear Mayor Villaraigosa,

My mortgage payment is too difficult. Please push the magic button and flush my legal obligations away…or at least hit pause so I can do some "retail therapy" before my wages are garnished.

You can always count on my vote, Santa...er...Mayor.
-SuperConsumer

[NoWayinLA]

If I'm a bank looking to sell a property, and the local law enforcement tries to tell me to stop, my first question would be, "Well, who the hell do you think you are?", followed shortly by, "When did the City Council pass the law illegalizing property sales that you're here to enforce?"

Dasvedanya, and pass the borscht. It seems we're destined to become that which we've always feared the most.

[martin]

I'm all for helping those in financial distress. And I don't believe those who bought a home with a difficult-to-service loan should be refuced any lower than they already have been. However, I agree with the consensus here. Stalling the foreclosure process is usually a waste of time. Every banker and bankruptcy attorney will confirm that.

What would be pretty cool is if there was some sort of counselor who was able to determine if the distressed homeowner understood all of their options. I know. It sounds too simple. And it probably is. Sigh. 'Tis a cold cruel world we live in.

[ENOUGH OF THIS BLEEP !!!]

Stevestevens. WAKE UP, JERK !!!!!

Everyone of these "families" signed to
put themselves in these homes in what
amounts to nothing more than keeping up
with (or getting ahead of) the Jones.

Let your heart bled for this scum, I want
them at the end of the renters line. Now!
How's that for witty.

[NoWayinLA]

stevestevens: "Most of these people have sacrificed to make homeownership possible fo their families and in an instant it is gone."

Sacrificed? Since when is paying $800 a month on a 2000 sq-foot house a sacrifice? The rent on a 2-bedroom townhouse was 50% more than that!

They were renters during the bubble, they just didn't realize it. Homeownership on a $600k house with a $40k income is NEVER possible.

[formerlahomeowner]

stevestevens,

Do you personally know any of these people in Philly who were not speculators? People earning $50K annually cannot afford a $400K house. Being foreclosed on means you cannot afford the house.

Sacrificed to own a house? How about sacrificing to save a downpayment and wait for this bubble to implode to buy an affordable house? Renting is not a bad option.

[SoCalRealEstateNews.com]

AAAARRRRRGGGGGGG!!!!!!

Dear "Sheriff John," and SteveStevens,

All this does is make it that much harder and more expensive for everybody to get mortgages!!

Investors are already scared to death of mortgage backed securities, so now let's ditch all the excessive legal protections now in place & make it that much harder for the banks to get at least some of their money back.

Yes, many of these buyers were taken advantage of by unscrupulous lenders and yes, the banks should have been smart enough not to give 100% financing to subprime borrowers with no verification of anything when the market was obviously overvalued. . .

but--are we really ready to just throw out the concept of a legal contract!

I don't know about Philadelphia, but in California the borrower's usually 3 - 6 months behind before the lender starts foreclosure, which takes another 4 months and can be further delayed with a simple bankruptcy. The only thing that will happen during an additional 3 months is the house and the market will deteriorate more.

AAAARRRGGGGGG!

[lefty]

hey that's a great question, can government tell cops to stop enforcing certain laws? the heck if i know, but there is one thing for sure: nothing beats beautiful metro L.A.!! so just grab the family and grab a house while the supply is high; good luck everyone!

[Cal]

I'm not aware of all the legal issues but police powers are pretty broad.

But the real issue is.. if I'm a bank.. would I want to lend in Philly? It's called collateral based lending, what is collateral based lending without collateral? You'd get credit card rates for home loans because its huge money with huge risk. Housing values are going down either way in that area, if they stop foreclosures the lenders raise rates and house prices go down. If they don't stop foreclosures prices go down.

It's a stupid idea passed by an uneducated City Council. I imagine they are about to get a lesson in financing right quick.

[WhatMeWorry]

I believe the law of unintended consequences will kick in with a vengeance.

1. It'll be impossible to get a mortgage in PhilaPa driving down the price of real estate to pocket change like back in the 70's. Can you say slums?

2. All of these over-stretched mortgagee's will default on the city property taxes owed

3. PhilaPa's credit rating will tank

4. All city services will get massive cuts

Sounds like a perfect storm for a hardcore localized recession

[Maggie Knowles]

WAS IT LEGAL FOR THESE INVESTMENT BANKERS, RATING COMPANIES, LENDERS AND BROKERS TO CREATE THE BAD LOAN PRODUCTS IN THE FIRST PLACE?

WAS IT LEGAL FOR THE JUSTICE DEPARTMENT TO BLOCK ATTORNEYS GENERAL IN 50 STATES FROM LEGISLATING AGAINST PREDATORY LENDING PRACTICES BACK IN 2005 WHEN ALL THIS WAS FIRST GETTING OUT OF CONTROL?

[are they crazy]

So does this go for people that had affordable homes and then sucked the equity out to live high on the hog and now can't or won't pay? I'd like to know how many of the current default, foreclosure, walk aways and upside down, started out in a house they could afford and then screwed themselves by sucking out their equity or moving up to something unaffordable without an exotic/toxic loan.

[Giacomo]

"ACORN welcomed the move, saying it will give the borrowers more time to negotiate with lenders."

"ACORN" is worth googling. For a "community organization," it has an unusual number of links to voter registration fraud indictments, strongarming unions, and various far left groups. Probably just a coincidence, huh?

[MyLessThanPrimeBeef]

Mahatma Steven, the great one, when you given a man fish, you feed him for one day, but when you teach a man to fish, you feed him for life.

And the lesson of the day to be taught is self reliance...speficially Benjamin Franklin's self reliance. I don't think he would be eating any cheesesteack right now, but he must be turning over in his grave in, of all places, Philadelphia now.

[Dan]

If I were a bank, I would stop issuing mortgages in Philadelphia right away before other cities try to copy them. There's no point to issuing a mortgage if you can't foreclose...

[ajk]

This seems like a version of eminent domain where the government takes property from one private party to enrich another. The usual version is when government takes property from a private homeowner to give it to a large developer. When the Supreme Court upheld this practice, there was an outcry against it. Now the government is taking from a bank and giving to a homeowner. It is still taking from one private party to benefit another.

[Inland Empire]

I don't think its legal and I don't think its the right thing to do (nor a bailout). I do think that the banks could renegotiate with many of these people for a new loan that would benefit both parties. Maybe not all cases but many.

[waitingitout]

It's much ago over nothing. No workaround Philadelphia, the Fed or even lenders can conjure up will alter the fact that most of these folks facing foreclosure have ZERO chance of ever paying off their mortgages. Most foreclosures have occurred before the borrowers' resets even took place. To keep these people in their homes, without any hope of building a dime of equity, knowing that it'll be 10 years before they can sell to break even - let's just say the city of Philadelphia isn't doing them any favors. Neither will Clinton, Obama or anyone else hatching a half-baked plan.

The problem will take care of itself - it is taking care of itself - despite politicians' best efforts. All we have to do is sit back and wait.

[unbelievable]

What a crock of BS. They make it seem as if these people will be "out on the streets" huddled around a fire in a trash can trying to stay warm if we do not have governement bailouts. Oh, poor them. These "homeowners" can simply leave the home they never put money into anyway, rent a place like everyone else, regroup and try again later.

Where the hell was this kind of action when the prices were skyrocketing out of control? Where was the price freeze then?

They politicians all need a lesson in economics. We are simply seeing an overdue and inevitable price correction.
Let the free market work, let overly inflated home prices reach their normal equilibrium and let the people who deserve to lose money, lose money.

[Stevestevens]

Thats is what I'm saying guys . If the market continues to decline and people end up walking away or crashing and burning or whatever is supposed to happen, we wont have some dramatic and cathartic moment were all the speculators console each other and the over extended home owners compare foreclusre stories at the back of the rental line. What do you think will be happening if housing collapses to the point where we would see prices from 1996? This isn't a minor correction that will go away by doing nothing. They are scared this time, really scared. ( just like some guy above mentioned)We will have severe economic contraction not only on the local level but unprecedented financial disaster on the national and global level. I think you are right on the whole legality of the contract aspect...the fact is I don't know. How do we get around that? What can we do collectively to solve this? I don't know. I guess my point is that most people's perception is "let it crash so I can buy really low.!! Well, if it gets too low housing will be the last thing on our minds.

[Dave]

>Can you find out (probably not) does this apply to all >homes even in the 650K and up (million dollar homes) >range?

Mapletree, as a former longtime LA homeowner and now a Pennsylvania homeowner, I can tell you that very, very, very few houses in Philly city are priced above $650K. Philly is not like LA, where the burbs are part of the city. Much of Philly is gritty urban innercity, with houses selling in the five-figure range. (Several zipcodes have median house prices below $20,000.) These are the houses typically affected by this action. There are only three zipcodes in Philly where the median price of homes exceeds $200K.

>First, is this action legal?

A foreclosure is part of a judicial proceeding. A sheriff is an officer of the court, not a legislator nor a judge. Thus he does not have the power to do this. Reversing his action will take time, however. A smart lender would go into court on Monday and get a TRO to stop him. That lender, while acting within its legal rights, would likely face some PR fallout.

[SJ]

Hey Stevestevens and Martin,

NOBODY forced them to "buy" the home they are now being foreclosed on. They CHOSE to buy it. They willingly signed a legal and binding contract which said they would pay back the money they borrowed. These people had no business buying a home in the first place. This excess demand put even more pressure on already high home prices to increase making it even more difficult for every other person who does not own a home to buy one at a reasonable, affordable price - a price in line with income levels.

That being said, I do not feel one bit of pity for these people. They can simply rent just like the rest of us. I do not want the money I pay in taxes to go to helping them unless some of their money helps me pay my rent. Fair is fair.

[martin]

Stevens stevens had a point. He just lost his position when he called intelligent bloggers here -- with an opinion different that his -- "jerks." I would never want him to serve as my mediator.

Nevertheless, somehow/someway try to appreciate that Stevens' reference to families in distress is valid. Tens of thousands of families are going through a financial nightmare. No one bargained for that no matter how foolish they were taking on a big loan. Yet they created the cause and there is an effect.

I don't see an easy solution and I too have adopted a conservative opinion here. There should not be government intervention. As Mr. Paulson said, the storm must pass. In time, housing demand will stablize the real estate market simply because housing will be more affordable. Government intervention will only delay the process. It makes sense.

Still, families are in distress. To say they should go to the back of the line as renters, however, is cruel. Yes, they should now rent because they must have a safe home. But people are allowed to make a mistake. They surely had no idea that their actions combined would contribute to the real estate bubble and ensuing chaos. When push comes to shove, I ultimately blame financial institutions that adopted a come-one, come-all loan marketing approach.

I'm a longterm homeowner. I'm a longterm landlord. I'm in a comfortable position to ride this storm out (for now). But it doesn't mean I don't have compassion.

I think Philadelphia's city council made a major mistake. Their legislation is Socialist in nature. And I largely suspect they will now have to weather a major storm because of their decision. Those silly councilmen. They had a heart too.

[Ann]

The story raises questions: First, is this action legal? If I'm running a large bank and I'm trying to get my hands on houses so I can put them on the market before they fall further in value, I might want the houses now. Second, will other municipalities follow suit? My guess is that the answers are no and yes, in that order.

________

Question 1: Highly highly doubtful that a court will allow the sheriff to stop doing foreclosure auctions. In fact, the sheriif may find himself trying to explain to the court why HE should not be held in contempt of court.

PA is a judicial foreclosure state. Lender goes to court, gets the judgement and the court orders the sheriff to hold a foreclosure auction.

Real real bad move to ignore the court and not do as he is told when ordered by the court to auction the property.

The City Council has NOT authority to alter state law on foreclosures nor to tell anyone not to obey the Judge. That City COuncil resolution has all the legal effect of making a wish upon a star.

The court will get very annoyed, order the sheriff to proceed or be found to be at least in civil contempt where he can be tossed in jail until he agrees to do what the court ordered him to do. (In civil contempt where the individual is jailed he is said to'hold the keys to his cell door' because he can get out the minute he agrees to do as he was told.)

So, the whole thing will be a tempest in a teapot.

Lenders will run to the court, court will order the sheriff to appear and threaten him with contempt and jail if he does not hold the auction. Sheriff does auctions to dtay out of jail.

The CIty Council can pass anything they want but it IS and WILL BE totally ineffective in this area as it is a matter of state statute, not local ordinance.

(2) PA city council may pass such ineffective resolutions but they have no effect for the reasons explained above.

In non-judicial foreclosure states as well, again the rights of the parties' to the mortgage are created by STATE LAW - not local governments. Local governments can huff and can puff but they can NOT change state law - and will be so informed by any state court.

Doubt you will see many sheriffs in judicial foreclsoure states who will be willing to be held in contempt by a couurt or get tossed in jail until they obey the court and hold the foreclosure auction.

[blackbox]

NUTS!!!!!!

[mbob]

Our local chucker-of-widows-and-orphans-into-snowbanks foreclosure fella sez.....anybody with more wit than a bivalve can run out the process to about, ah, let's see, um, ohhh, say 5 years. No pagar en los anos del negocio, either.

We are so close to what might be politely called a grand episode of rodent fornication.

[buz]

Agree with WhatMeWorry 100%. The banks have already grown extremely cautious due to this bubble rupture. Future lending in Philly will be nonexitent if this crap flys. Oh, and SteveStevens you are a true dimwit.

[sheila]

if it's so damned urgent for these banks to get their hands on these houses to sell them, then how come they haven't "tried" to sell the houses they already have? look at your own examples of how long they are sitting on vacant properties (which hurts the owner, the asset and the neighborhood), then how insanely they are listing them, then how inflexible they are when they get offers! since we all know they aren't gonna sell them, at least not right away, it's better for everyone to have people living in them so at least there is a small chance the vacant house won't totally blight the neighborhood. in the meantime, they might just realize that a 30 year fixed at 6.5% to someone who wants the house and is already in it is better than trying to flog it at auction, refusing the bids, re-listing, etc.

reminder - if these are ARM resets, maybe people CAN afford them, if the rapacious re-set interest rates are dropped below 13-15%. Consider this - on a $400,000 house, the payment is only $2,400/month at 6% but is over $4,400 at 13%, which is a normal reset rate we are seeing for these foreclosed ARMs. That is a HUGE monthly difference, so stop acting like all these people are so insane and could never afford their houses, when they easily could - if the banks would get a clue.

As for them being stupid to sign up for an ARM, many of them were not that cheap in the first 3 years (in the 5% range), and Greenspan was cheering loudest for them, so maybe they had a right to trust in the "experts?" Right when they were poised to refinance, per the usual process that's been done forever, all the lenders closed up shop and they got stranded. Lots of normal, responsible people have used ARMs for decades, so you have to look at the individual facts and stop generalizing.

[Danny]

This is INFURIATING. An adjustable rate loan is a gamble. You take the lower interest rate up front and hope that you can refinance later on. But it is a risk. RESPONSIBLE homeowners take a fixed rate mortgage, buy a smaller house, or rent. It is the heads of those households who have put their own families at risk.

[amir]

That's just silly and counterproductive.

If mortgages can be legally superseded by the city or the state, then they're a far riskier investment. If they're far riskier the interest should not be 7%, but 17%, Good luck going for a recovery. The sanctity of contracts is a basic part of our legal system.

[Sky]

I think my landlord tricked me into paying too much rent on the house I'm renting. I mean, I didn't think she was serious about me paying all that rent. Luckily, I'm occupying the house so it must belong to me now and I don't see any reason to keep paying the rent (since it is mine now). Hallelujah, there's more than one path to the American Dream!! Thank God we live in a country where possession is 9/10ths of the law!!

[Law Guy]

Ummmm... I hate to be disagreeable here, but I think we're wrong in assuming that the city's actions are clearly illegal. To the contrary, the city's actions may well be legal in light of the current mortgage crisis and the public interest in controlling massive foreclosures. The case on point here is Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398 (1934), in which the Supreme Court upheld a Minnesota statute that temporarily extended the redemption period on defaulted mortgages. I think the burden is on the banks to distinguish Blaisdell.

[Sean]

Stevestevens,

What the hell makes you think I have not been "sacraficing" to the same extent as these "homeowners" and their irresponsibility you so easily dismiss? What makes you think you know me? I have been patiently waiting - for YEARS - for the housing prices to correct itself. I have been saving my money responsibly, paying my bills and living on a tight budget. I did NOT buy a home I could not afford. I did not want to be high debt position and have the strong possibility of not being able to pay back what I borrowed. Instead, I have been renting, saving and waiting.

Who the hell gives you the right to judge us as "jerks". All we want is to have the government butt out and let the free market work the way it is supposed to. This will allow the market to correct itself.

Frankly, if anyone is the jerk it is you for not truely understanding the situation from all angles.

[Kathryn]

Isn't this just going to discourage investors from investing in mortgages? If local governments can just suspend foreclosures, then what bank or lender wouldl want to loan money to those areas? Sure, they might keep a few people in their homes now, at the expense of everyone else who wants to borrow money for years to come. This is a good way to make sure there isn't a recovery.

[NoWayinLA]

sheila: "reminder - if these are ARM resets, maybe people CAN afford them, if the rapacious re-set interest rates are dropped below 13-15%. Consider this - on a $400,000 house, the payment is only $2,400/month at 6% but is over $4,400 at 13%, which is a normal reset rate we are seeing for these foreclosed ARMs. That is a HUGE monthly difference, so stop acting like all these people are so insane and could never afford their houses, when they easily could - if the banks would get a clue."

Most people cannot afford your $2400 a month for housing. To meet the standard 3:1 debt-to-income ratio for a 30-year fixed, the household income would have to exceed $133k. Do most families make that?

You know the bubble is out of control when people use the word "only" in front of a sum like $2400/mo.

[houserenterinLA]

sheila: "reminder - if these are ARM resets, maybe people CAN afford them, if the rapacious re-set interest rates are dropped below 13-15%."

Sheila, your argument is void when you look at the facts. Most people are going into foreclosure right now due to FALLING PRICES, NOT Adjusted rates. NPR did a segment on this. Once these "innocent" homeowners realize their home won't double in value in 1 year, like it did in LA from 2004 to '05, they STOP MAKING PAYMENTS. THEY WERE ALL SPECULATORS, EVEN IF THEY LIVE IN THE HOUSE THE SPECULATED ON!!!!

[Charles]

If this is true, all people there will suffer a substantially jumped mortgage rate or even worse, some lenders may even retreat the business there.

This actually means all people are going to pay for this small irresponsible group.

[alvin]

Stevestevens, don't confuse "jerks" with reality. our economic system is painful sometimes - but that's the reality of a market based economy. short term pain for some is the "cost" for the most efficient distribution of limited resources over the long run.

government can play a vital role in supporting those in short term need - but that support shouldn't come in the form of impeding the market process (by stopping foreclosures). the unintended consequences of those actions will do far more damage over the longer term and make eventual recovery that much more difficult for all.

[Laker]

I think this is illegal. They are basically nullifying a contract in a non recourse loan or not complying to a court order in a recourse loan.
Also, as many stated, if the bank can't take the house back in case the borrower is not paying will simply increase the risk factor to the lender. If indeed something like this turns out to be implemented, interest rates will jump to double digits pretty much like credit cards. Good credit FICO will get 11.99% rate and subprime FICO will pay 29.99% interest rate...I guess you all know what that will make the prices of houses...
What people like "sheila" don't understand is that most foreclosures today are not a result of a rate reset. They are un-affordable even at original rates. If you add the rate resets, then you get total mess. People can't afford fixed rate loans, that is the reason they took ARMS. Even today, many rich people use ARMS because they can buy "more" house with it. I call this over extending.
In any case, When you have all these "loan" owners that bought with 0 (zero) down, they simply rented and thay is why they are loosing the houses. there is no incentive to keep them.
I wonder what will happen when renters stop paying their rent in Phili,...maybe the police officer will also keep the house landlord from pulling the renter out of the house/apartment.

they might just realize that a 30 year fixed at 6.5% to someone who wants the house and is already in it is better than trying to flog it at auction, refusing the bids, re-listing, etc.

[Danny]

Again, if you sign up for an ARM, this is what you get. It's a gamble. Don't act like the big, bad banks are out to get these poor homeowners. A teaser rate is a teaser rate, and if you can't deal with the future hikes, get a fixed rate mortgage or RENT.

The absolute limiit of government assistance should be to allow homeowners to deduct their housing losses on their taxes. Anything else is propping up a house of cards, as someone above me said. The market will win out eventually, and the politicians are just getting in the way.

[Robbie Fields]

The Philadelphia action may not stick but it may be a harbinger of events to come.

Once there is a run on US treasuries and not only is there recognition that the U.S. Government and the money center banks are all insolvent, we will have a debt moratorium announced. And a new currency will be introduced backed by gold.

Right now, if you have not already noticed, there is an unofficial debt moratorium between the banks and the Fed..

[Jack]

To put this all in perspective, foreclosures in Philadelphia are actually lower in 2008 than in 2007, according to the Philadelphia Inquirer story on this action. And, real estate in the Northeast has pretty much held its value and sales are at a close to normal pace, in sharp contrast to states like California and Nevada. The Northeast US has been least affected by subprime meltdown.

Looks to me like this is political showboating and not an actual remedy.

Is Sheriff John Green running for re-election this year by chance? Does he have his eye on another office? Betcha he does.

[Michael Snyder]

It seems these folks are getting political advice from Marion Barry and no legal advice at all. Years ago some "rocket scientist" tried to pass legislation changing the mathematical concept of "pie" from 3.14 ad infinitum to 3.0 so it would be "easier to work with". His legislation didn't pass so they put him in charge of a bridge project in Minneapolis...

[Rob Dawg]

You can bet there are any number of lenders and investors on the phone right now with the Penna AJ seeking to have the Sheriff removed for cause.

Not that it matters. By now thousands of upside down homemoaners who were struggling to make the next payment have heard the good news and have stopped paying their mortgage.

I can haz Moral Hazard now?

[robert laughing]

When Reagan was Gov of CAL, he emptied the nut farms and looney bins - these challenged folks were free to ...run amok, with or without their meds. Now, the same mentality led many folks to ACQUIRE property without any ernest money. How does one protect the criminally negligent from themselves? Have politicians step in and rob the working middle class, who ARE paying their bills and mortgages, and give THEIR money to the criminally negligent! Like giving more welfare to a woman who keeps having children with different fathers, and having the taxpayers pick up ALL the costs, and bear the burdens of criminal children doing it all over again...let's vote for Clintons wife, then Paris, then Spitzer's girl.

[Justin McCarthy]

I love this quote that the NY Times pulled from one of their reader's comments:

"The banks, too, are 'borrowers' from the Fed who 'speculated' and made billions of bad wagers, far 'beyond their means.'"

[Ann]

Ummmm... I hate to be disagreeable here, but I think we're wrong in assuming that the city's actions are clearly illegal. To the contrary, the city's actions may well be legal in light of the current mortgage crisis and the public interest in controlling massive foreclosures. The case on point here is Home Building & Loan Assn. v. Blaisdell, 290 U.S. 398 (1934), in which the Supreme Court upheld a Minnesota statute that temporarily extended the redemption period on defaulted mortgages. I think the burden is on the banks to distinguish Blaisdell.

Posted by: Law Guy
___________

Sorry but that was a different set of fact. Remeber the first day of law school when they told you 'chnage the facts, change the outcome'?

Blaisdell was the instance of a STATE legislature modifying STATE law and merely allowing a court to extend the redemption period - not eliminating the contractual right to foreclose for an indefinite time.

The Philadelphia City Council does NOT have the authority to modify the PA state statutes on foreclosure. PERIOD.

Further, the issue in Blaisdell was provisions of part 1, 4, of the State law which authorized the district court of the county to extend the period of redemption from foreclosure sales 'for such additional time as the court may deem just and equitable,' subject to the above-described limitation;and further requring the mortgagor to pay the fair rental value during the extended redemption period.

The extension of the redemption period was to be set for a specific period by a court. A big difference from a City COuncil attempting to change the state statutes on foreclosure by saying 'just don't do the foreclosure sale' to the sheriff.

Further, the extension of the redemption period occurred at a time when immediately proceeding the extension, all banks had been closed by the order of FDR; and no banks had been making mortgage loans.

Further, the interest of all parties were fully protected during the extended redemption period:

"the integrity of the mortgage indebtedness is not impaired; interest continues to run; the validity of the sale and the right of a mortgagee-purchaser to title or to obtain a deficiency judgment, if the mortgagor fails to redeem within the extended period, are maintained; and the conditions of redemption, if redemption there be, stand as they were under the prior law. The mortgagor during the extended period is not ousted from possession, but he must pay the rental value of the premises as ascertained in judicial proceedings and this amount is applied to the carrying of the property and to interest upon the indebtedness. The mortgagee-purchaser during the time that he cannot obtain possession thus is not left without compensation for the withholding of possession. "

The redemption period by staute had been 1 year - and it was extended by 2 years as permitted under the new statute. The property was worth more ($6000) than the amount owed on the mortgage and costs incurred by the purchasing lender, ($4056.) During the time of the extension (24 months), the mortgagor was to pay $40 per month or a total of $960 which was the rental value; and which did not go towards reducing the amount owed to redeem.

HUGE difference between 'oh well, just don't have the foreclosure auction as the contract requires and the statute says the sheriff must do and let them live there for free for some unknown length of time" and this case.

Distinguish it? Case is 'on point'? It isn't even on the same issues! The central issues are:

Can the Philly City Council direct the sheriff to not obey the state law - passed by the state legislature, not the Council - and not carry out his duties as spelled out in the state law which requires him to hold the foreclosure auction upon receipt of an order to do so from the court, and to not obey the order of the court to hold the foreclosure sale

The City Counciil is acting ultra vires if it attempts to abrogate or nuliify the state statutes abou foreclosure or the duties of the sheriff

The City Council is acting ultra vires if it attempts to order the sheriff to refuse to obey an order from the court directing him to hold a foreclosure auction

The lender can sue the City Council for tortious interference with contract. The lender can bring a mandamus action and a motion for contempt in the foreclosure case against the sheriff (both of which will be granted) if he refuses to hold the auctions as he is in violation of his duties as spelled out in the state statutes and he is in violation of a court order.

Let me guess. You are in your first year or so of law school.

I, on the other hand, spent over 30 years doing constituional litigation in Federal Court and many many years representing local governments.

[Law Guy]

Glad you're so well-qualified, Ann.

[myles]

Perhaps the renters who comment on this blog should refrain from celebrating until houses have come down in price to a level where those folks can actually afford them. Until these smug renters do, in fact, become property owners, their schadenfreude is still based on wishful thinking and, yes, mere speculation.

[SJ]

Danny,

You are 100% correct. These people GAMBLED on an ARM and lost. Most of them did not put ANY money down and took the RISK that their house would increase in value anyway, thus allowing them to refinance. Nobody forced them to take this gamble, they chose to. They took a teaser rate to get into a home at no money down and AGREED to a higher rate at a later time.

Buying a home is like any other investment - you can make money OR lose money in the deal. These people GAMBLED with their money AND LOST.

Pack up your belongings and go rent a place for a while. Let these deadbeats who created this mess by borrowing beyond their means learn not to be so reckless in the future. Get your finances together and try again at a later date. This allows the free market to adjust the price of housing to its proper level.

It's not the end of the world - it is simply an overdue housing correction. Let the free market take its course.

[LeavinLA]

Don't you love when lawyers fight?

But seriously, that was fascinating, Ann. Thank you for the explanation.

[sean]

Hey Myles,

You are missing the point. The renters on here are not smug, just fed up. We are fed up with the notion of bailing out irresponsbible "homeowners" who are crying for government help because they either:

a) lied on their loan about their income
b) bought a home they could not afford to pay for
c) took out a loan with no money down and have no equity
d) agreed to a teaser rate to "buy" a home KNOWING that it would later adjust to a higher rate. Now that it has and they find it difficult to pay for, they are crying about it and want a bailout.

We just do not expect to have to pay for their mistakes. Please read some of Christopher Thornberg's takes on this mess and you will understand our feelings and what we are "smug" about: http://www.latimes.com/news/opinion/
la-op-leonard-thornberg24mar24,0,3653152.story

By the way, my rent is due in a couple of days. I live in an apartment that greatly exceeds my budget. I also have blown most of my savings on a flatscreen TV and a new car. I expect you will be glad to pay my rent for me so I don't get evicted.

[dfb]

The question is: Is the move by the City of Philadelphia legal?

The answer is: It depends.

It depends on the justifications given by the city and how much power it has been given by the laws of Pennsylvania. If the government smells fraud in contract negotiations, it can use its broad policy powers to provide some relief. Here, the relief is only temporary. Since it is not permanent, it is not likely a taking, such as would be the case in eminent domain. From what I've read, the city council chose this route because there are widespread arguments of fraud in the mortgage business in Philly and it is necessary to delay all FC proceedings to provide more time for homeowners, the city, and non-profit advocacy agencies to deal with the tsunami of foreclosures. I think it can be argued that this move is equitable for three reasons: 1) widespread fraud; 2) exigent circumstances, based on total numbers; and 3) it is temporary. Ultimately, people will lose their homes, housing prices will continue to drop, and banks will still operate in the city (major city). Banks should thank their lucky stars it isn't Detroit, otherwise they might as well walk away themselves.
http://bigpicture.typepad.com/comments/2008/02/
detroit-housing.html

I expect local legal scholars will soon blog or write editorials regarding the legality of the move. Keep an eye out for them. One, Thomas Maule teaches at Villanova and often comments on local political issues. http://mauledagain.blogspot.com/

[JohnnyB]

This is CRIMINAL behavior on the part these Philly "authorities".

MASS moratoriums and freezes like this DO NOT HELP HOMEOWNERS in the long run.

The overall result is to MITIGATE the housing price declines (that are currently unsupported by income levels).

Freezes are designed to keep the gravy flowing to the corrupted banks/lenders AND OVER-INFLATED PROPERTY TAXES FLOWING TO THE CITY'S COFFERS.

This shackles folks to an OVER-PRICED DEBT BURDEN. And, this is not to their benefit. This is so basic and simple.

If the “officials” want to really help individuals and families (and, ONLY if they really deserve it), facilitate their transition back to renting. Then allow the property back on the market.

NOTE: The timing of this "move" coincides with the upcoming PA primary in which the Clinton's (and their strong, corrupted PA institutional support) are fighting for their life to get every low income and middle class vote they can. TO PERPETUATE THE CURRENT CORRUPTED SYSTEM.

It's designed to PLACATE and PANDER to these voters.

It will BACKFIRE here and anywhere else it is tried because too many people know it's just plain WRONG. People are finally wising up to their collective bamboozlement by the industry, their local and federal governments and Wall Street – and they’re PISSED OFF.

[pathetic]

No stevenstevens, the point is that nobody here wants to be stuck with anyone elses debt. eg. bailout with taxpayer money.

[the problemwithcaring]

You can bet there are any number of lenders and investors on the phone right now with the Penna AJ seeking to have the Sheriff removed for cause.

Posted by: Rob Dawg

I have several family members that work as Billing Customer Service Specialist for Washington Mutual. They are so backlogged on NODs, foreclosure filings, shorts sales, etc. that even people trying to pay their mortgage bills on time get thwarted in the system.

The lenders therefore are secretly probably thrilled there that foreclosures are temporarily suspended by a 3rd party, even though I am sure that one city won't make a dent in their backlog.

But you are probably right though, Rob, that they could ever admit it.

Also, as an aside: I think when some people call the bloggers here "jerks" what they mean is that we can hardly see the forest sometimes for our gleeful celebrating of the trees. I don’t mind being called a jerk also. The truth hurts indeed!