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Monday, January 21, 2008

A Guerilla Approach to Fighting Foreclosure

I was digging through the WSJ.com archives for fun today, and came across an interesting article about Richard Davet, an Ohio native who was able to ward off foreclosure for 11 years. The part of the story I found most compelling was when a federal judge dismissed 14 foreclosure suits because the plaintiffs weren't able to prove that they in fact owned the mortgage when the lawsuit was filed.

During the housing boom of recent years, lots of lenders made millions by originating loans, then bundling them together and selling them on the secondary market. Eventually, it became difficult to know exactly who owned these mortgages.

So maybe a viable defense against foreclosure is, "Oh, so you wanna' foreclose on me? Well, I'm not moving, because I don't think you own my mortgage anymore. If you don't like it, take me to court and prove it!" With this defense, you'll probably end up on the street eventually, but it could buy a money-strapped homeowner many years in a mortgage-free home, time that can be used to save money and stabilize finances.

Here are some clips from the article:

"...Faced with the threat of foreclosure, many homeowners give up and abandon their homes.

Then there's Richard Davet.

He and his wife, Lynn, lived in a six-bedroom home in this Cleveland suburb for nearly 20 years when, in 1996, he was served with a foreclosure lawsuit. Rather than turn over the keys, he hit the law books. Flooding the courts with papers, Mr. Davet staved off foreclosure for 11 years, until this past January, when a county sheriff's deputy evicted the couple and changed the locks. They didn't make a mortgage payment the entire time..."

"...A former jewelry-business owner, Mr. Davet and his wife, a former graphic-arts tutor, bought their home in 1978 for $150,000. As its value increased they borrowed against it. They made their mortgage payments, but on one loan, they allegedly made payments late -- 90 times, according to NationsBanc Mortgage Corp., which assessed the couple some $4,000 in late fees.

After the Davets for two years refused demands to pay the late fees, during which NationsBanc began refusing to accept their regular mortgage payments, the company sued for foreclosure. At the time the couple still owed $80,000 in principal, plus an additional $160,000 on a second mortgage on the home. Mr. Davet insists the late fees were erroneous -- he points to a deposition in which a NationsBanc employee conceded that the company couldn't back up its claims for a chunk of the fees. So he began his full-time crusade in the courts to keep his home.

He started with the help of lawyers, but those arrangements didn't last. Dan Dreyfuss, who represented the couple when the case was filed, called Mr. Davet's strategy "a recipe for how to confound the courts." He quit after Mr. Davet filed a motion to disqualify a judge against his advice. Mr. Kalk eventually sued Mr. Davet, successfully, for unpaid legal fees.

On his own, as a "pro se" litigant, Mr. Davet was undeterred. Four times a week he went to Case Western Reserve University School of Law to study legal writing and case law in its library. His briefs were angry and colorful, including football analogies and an aside on Enron Corp.

Among his maneuvers: asking a judge to arrest NationsBanc's CEO for initiating a "sham" proceeding against him because the company claimed in error that it owned his loan. (The judge dismissed the request.) He later sought to disqualify the judge because she had accepted campaign contributions from real-estate developers, whose Beachwood developments Mr. Davet had publicly protested before the foreclosure litigation. When he didn't win that motion, Mr. Davet sought to disqualify the judge who had dismissed it. He appealed at every chance he could, which bought him extra years in his home..."

"...The house was later sold to another family for $410,000.

The eviction finally happened on a snowy day in January of this year. Don Saunders, who lived three doors down from Mr. Davet and is a trustee of the neighborhood association, says it came as a shock in the upscale area.

Mr. Davet continued to try, unsuccessfully, to get the federal court to agree that the state judgment was invalid. Then, a possible lifeline arrived this past October, when a federal judge in Cleveland, Christopher A. Boyko, dismissed 14 foreclosure suits because the plaintiffs that brought them couldn't prove they owned the mortgages when the suits were filed.

Such a problem can occur when mortgages are turned into securities and sold to investors. The companies involved in the transaction may not have checked that each mortgage was legally transferred, or "assigned," to the new owners. In essence, the originating lender continued to legally own the mortgage -- and would thus need to be the plaintiff in a foreclosure suit. In Mr. Davet's case, however, the mortgage, which was not securitized, changed hands multiple times and wasn't actually owned by NationsBanc until three years after the company filed suit.

Other judges have since followed Judge Boyko's lead. The Ohio attorney general has asked numerous judges to dismiss or delay foreclosures based on similar grounds.

Earlier this month, Mr. Davet filed a second federal appeal, this time citing the Boyko ruling, which he believes he inspired. It's unclear whether the latest salvo will work. If it doesn't, Mr. Davet says, he will set his sights on the U.S. Supreme Court..."

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Tuesday, January 15, 2008

Falling Home Values and Urban Blight: The Start of a Grand Debt Reduction Adventure

urban blightAbout a decade ago, my sister and my mother bought a modest two family home together in a working-class neighborhood made up primarily of people that lived in the homes that they owned. Many of these people had been in the neighborhood for decades, and many were getting on in age.

Through the years, as the older folks passed away, their adult children would return from suburbia long enough to pack up a few mementos, sell what could be sold, leave the rest on the curb for the city trash collectors to dispose of, and turn the keys over to a realtor. A few kept the keys and joined the ranks of absentee landlords, as were many of those buying properties from the realtors.

Soon, we had strangers in our midsts. Drug dealers who were tired of the competition and danger of selling in New York City and preferred the relative calm and higher profits of the capital region made up a significant portion of the new arrivals. A neighborhood that once featured kids playing outside and neighbors who all knew each other, became one in which shootings happened. Stabbings happened. Drug and prostitution traffic were readily visible.

The children had to be taught how to adapt to the new environment. If you hear loud arguing, get in the house. If you see the police driving slow down the block, come in. No playing outside without one or more of the Great Danes keeping watch. Those are the rules for the back yard, they're never out front alone. A dispute between drug dealers ended up with a 12 year old getting grazed by a stray bullet a couple of summers ago.

Property values, naturally, declined. My mother passed away and I took over her half of the two-family home. And, my sister and I started to think. We thought about: over $900 per month for the mortgage, almost four thousand a year for property tax, and heating costs of more than $500 per flat per month during the heating season. All for a place in which we were, really, no longer happy.

Our situation was this: with kids and an assortment of pets that includes Great Danes upstairs and downstairs, her cats, my mother's birds, which I had to take custody of after her death, as they would not survive my sister's cats, and my nephew's turtle, we have no choice but to own. Selling the house leaves us with no start up capital to buy another home, as the property values have dropped and we have debts remaining from the period of time after my mother's stroke, when her health insurance ran out, until we could make other arrangements for her health care costs. Credit scores were damaged in the struggle to make sure my mother had her medicine during the period she was without health coverage.

And, then, we came up with a plan. Our grand debt and cost of living reduction adventure. Sell the house, eliminate the lingering debt, get a fresh start. Buy a tract of land, and set up our homes to run off the grid, using solar and wind power, reducing our expenses greatly. Invest our efforts and our money into being as self-sufficient as possible, including food production. The goal is to eliminate debt and reduce cash outlay, which will, in turn, allow us to reduce the time spent working and increase the time spent enjoying our children and our lives. After all, children grow so fast, too fast, and all too soon there will be plenty of time for 60 hour weeks again.

We are currently in phase one -- wrapping up the details of the house, packing up, and putting things in storage until we are ready for them. The motor home is parked out front, awaiting the beginning of our journey to make our new home in much warmer weather. We expect to leave NY during the first week of February and I look forward to sharing the details of our grand debt and cost of living reduction adventure with you as we experience it through the weeks and months to come.

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