from Local Attorney, Michael H. Wasserman

Tuesday, June 17, 2008


Way back in March, I posted some comments on the foreclosure troubles at the Sterling Private Residences, a near-north high rise apartment building that American Invsco converted to condominiums. Today Crains gives statistics to something I "knew" and reported anectdotably back then: the foreclosure problem extends to many of its other conversion projects as well.

According to the story, eight of American Invsco's downtown towers have accounted for 57.7 percent of all foreclosure cases brought against original buyers in all 76 downtown condo projects of 175 units or more since 2001. (Invsco accounted for 12 percent of the homes sold in big downtown projects over the same period of time.)

Crains picks up on the same issue I did in this Spring (and back when clients were showing me contracts to review):
"Why do American Invsco buildings lead downtown Chicago in foreclosure cases? One explanation may be the role of investors, buyers who intend to flip or rent out their units rather than move in. Though most downtown developers courted investors during the recent condo boom, American Invsco crafted an incentive package with special appeal for investors. Not only did the developer offer to pay condo assessments and property taxes on its units for two or three years, in some cases it promised to pay rent as well, guaranteeing investors a revenue stream to help defray monthly mortgage payments."
the complete & gruesome story here.

Monday, June 16, 2008


Ray Cohen of Revere Mortgage sent out the alert this morning.

Starting July 1, every mortgage closed and recorded in Cook County must carry a "certificate of exemption" or a "certificate of compliance" for the State's new mandatory mortgage counseling program. Counseling will be required for

  1. ALL loans where all the borrowers are deemed "first time home buyers" (anyone who has not owned a home in the past three years); and
  2. All refinancers, who are taking a loan that include prepayment penalties, interest only payments, negative amortizations interest rates that adjust in 3 years or less, OR where fees, YSP and points exceed 5%.
Ray goes on to note that jumbo adjustable rate loan for lenders with pre payment penalties are currently 2% cheaper than those without penalties. Thus as a practical matter all Jumbo adjustable buyers will need to submit to this (massive waste of time
and money).

The program will cost $300 and will only be offered between 9:00 a.m. and 5:00 p.m., Monday thru Friday. IN PERSON. Ray goes on to predict that the counselors will be quickly overwhelmed with the volume of borrowers who will "need" this counseling and that delays will be a near certainty. Buyers will need to have all loan documents AND all supporting documents, (i.e. W-2s, paystubs, bank statements, etc.) The counselor will give the buyer a certificate which must be presented at closing.

"After July 1 even an Harvard MBA who runs a hedge fund and are buying
a multimillion dollar house, have to put up with this".

(I think you can tell, Ray thinks this a lousy idea.)

Chris Covalle at Countrywide was kind enough to comment as well.

I believe some of the info you received regarding the bill may be incorrect so wanted to give you this cheat sheet.

Essentially, first time home buyers or clients refinancing their primary residence only have to go to counseling if one of the following conditions from section A & B at the top of page 3 are met. With all the changes to industry guidelines, the only one I see which may pose a counseling session would be interest only. Neg am's are gone/ high cost should be a non issue/ 3 year ARM's and under stink as far as pricing/ pre-payment penalties are scarce.

Any stated income deals are automatic counseling, but again, these are also becoming rare.

The larger issue is the time required to enter all this info into the state database (some 70-80 items of info) and receive your certificate of exemption.

Finally, if someone does trigger one of these criteria, they only have to go to counseling if they are working with an entity which is not federally chartered (i.e. most brokers). Right or wrong, places like C'wide, Chase, etc. will also have a certificate of exemption, regardless of the scenario.

Saturday, June 14, 2008


Far be it from me to answer that question. Too much self interest to be objective or unbiased. But here is a cautionary tail from Sunny Florida that might (or might not) persuade:

"Bill Prekker has been planning to build his retirement home on land he owns in Cape Coral for the better part of three decades.

Then, he discovered someone else had already built a home on his property, and the 1,900-square-foot residence has been there for 11 years."

Thursday, June 5, 2008


The lenders, as a group, seem to be doing a good job at screwing things up even before they get to their orders of foreclosure. They are making it harder and harder for distressed owners to offer compromise or "short sale" proposals. In just the past month, I have seen three contracts canceled in situations where the mortgage holder has taken too long to decide whether to accept a short sale or out-right dis-approved the sale.

Short sales are a necessary and utile solution for owners (and their lenders) where the value of the property is less than the amount owed on the mortgage. The owner, if they can sell for the current market value can get out from under the mortgage obligation without having to resort to foreclosure or bankruptcy and at least minimize the damage caused to their credit ratings. The lender can get back much of the mortgage money lent without having to incur costs of a foreclosure or the time delay involved in a foreclosure.

But the lenders are either unwilling or unable to make timely decisions on short sale requests.
The phenonenon is detailed in a CNN Money article posted last week .


Any looking to understand how and why the mortgage companies got themselves into the financial mess they are in will appreciate the experience a client of mine had recently while trying to buy a foreclosure property from the bank.

The property in question was one of three units in a condominium building. For whatever reason, all three units are now owned by the three banks that foreclosed on the three mortgages used by the three original unit owners.

Each bank undoubtedly made their borrowers covenant to maintain insurance on the condominium common elements. After all, if the building were to burn down, the lender would want to either see it rebuilt or to apply the insurance proceeds towards the loan repayments. Each of those banks also insisted that, in the event of an insurance policy lapse or cancellation, they would have the right to purchase insurance - at their borrowers expense - to prevent such losses. Standard procedure there. No surprises.

BUT, now that the banks took control of the three condo units, guess what? Each stopped paying the monthly assessments. There is no condo association. That "master" insurance policy on the building? Long since lapsed. They are all uninsured!

Worse yet, no one who wants to purchase any of those units (and use a mortgage loan to do so) can buy one until insurance is in place! Or until an association exists, in order to get necessary lien waivers from the association.

We spotted this problem early and canceled the contract.

The only buyers who will likely be able to purchase any of these units are going to be cash buyers who are willing to also buy insurance for the whole building, or speculators who are able to buy all three units in order to re-establish the condo association.

How many buyers can possibly qualify to do this? who knows. until then, this property will sit idle and empty.