Author Archives: Jillayne Schlicke

About Jillayne Schlicke

Educator in the field of mortgage lending and real estate. Follow me on Google+

I’ll Be at the Factoria Courthouse Friday Morning at 10AM for the Foreclosure Auctions

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Every Friday morning at 10:00 AM, Trustee Sales are held in various locations throughout the county.  Phil Leng, one of my students, invited me to attend the foreclosure auction with him this Friday at 3535 Factoria Blvd SE, Bellevue outside of the south entrance to the Northwest Trustee Services building.  I’ve been hearing rumors that banks are discounting their own opening bids right at auction and I want to check this out.

If you’ve been following along with Craig Blackmon’s foreclosure series, this means the amount of money owed to the bank, plus expenses, is the opening bid.  Bidders show up with cashier checks, receive a bid number, and typically bid UP from the bank’s opening bid.  During the height of the bubble run up, there were multiple bidders bidding the final price way up.  The rumor is that some banks or lenders may now be opening the auction at a bid price lower than their cost. I have heard of this happening in other states such as California, but not in Washington state. 

I’ll be there tomorrow. If you want to come and join me, I’ll be the one with a video camera recording as much as I can for a new class I’m writing.

JBA Financial Group: Get Licensed or Get Out of Washington State

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I heard a radio ad on KIRO 973.FM on Monday, April 13, 2009 at 11:45 AM during the Dave Ross show and again on Tuesday, April 14, 2009 at 6:02PM on the Ron and Don show.  The company was JBA Financial Group and they are advertising their loan modification services.  JBA Financial Group is not licensed to do business in Washington State, and they are not licensed as either a mortgage broker or consumer loan company according to the DFI database which is updated as of today.  I called JBA Financial. Here is how the conversation went:

Jillayne: “Hi, I’m a Washington State homeowner and I just heard your ad on KIRO 97.3FM here in Seattle.  I was wondering if you are licensed to do business in Washington State.”
JBA: “Well you sure sound happy. My name is X, what’s your name?”
Jillayne: “Jill.”
JBA: “Hi Jill, yes, we are licensed by the department of real estate and licensed by the department of corporations to do business in all 50 states.”
Jillayne: “Well on your website, it just says DRE-California. With all the news reports about predatory loan modifications, I want to be sure I’m dealing with a legitimate company.”
JBA: “That’s very smart of you.  As you can see on our website, we’re licensed to do business through the Department of Real Estate and that’s good for all 50 states.”
Jillayne: “No, I don’t think so. It just says “California” on your website, not “all 50 states.”
JBA: “Well you can call the department of real estate yourself and check us out.”
Jillayne: “No thank you, good bye.”

Newsflash for  JBA: The California Department of Real Estate does not give you approval to do loan modifications in all 50 states.

Isn’t there something in the contract KIRO radio signs with advertisers that they have to be sure the company is following state law?  I asked KIRO this question and here is what a KIRO representative, who refused to be identified, said on Monday: Listener concerns should be directed to the attorney general’s office. KIRO has left a message for JB Financial to inquire about the status of their ability to do business in Washington State.  On Tuesday, the same KIRO representative emailed me confirmation that JBA has the authority to do loan modifications in all 50 states, which they received from the owner of JBA.  Here is the document.  There is nothing in this document that allows JBA to claim that it can do loan modifications in all 50 states.  If I can easily figure this out, why can’t KIRO or it’s parent company, Bonneville?

I also put in a call to JB Financial Group’s owner, letting him know that I was preparing this blog post. I received a phone call from their vice president, who informed me that JBA’s primary business is real estate investments and they only recently began doing loan modifications.  He did not know if JBA is licensed to do loan mods in Washington State. He referred me to the company’s CFO, “the strictest compliance person you will ever meet.”  The CFO was not able to talk long because he was, no kidding, in the middle of recording another radio commercial, so the president called me back. He said that he believes the California Department of Real Estate gives them approval to perform loan modifications in all 50 states unless a state contacted them and told them otherwise. Wow, so much for strict compliance.   He believed that because his company is “attorney assisted” they didn’t need to be licensed. I informed him that WA State gives his company no such exemption.  

I’ll be happy to update this post once I find out that JBA Financial  Group is actually licensed in Washington State to perform the services that they are advertising on the radio. 

During the last decade we had hundreds and maybe thousands of predatory lenders roaming around Washington State.  In some of our state’s investigations, there were NO consumer complaints filed against lawbreakers such as the case of Liza Bautista. It will take a village to shut down the predatory loan mod companies.  I’m hoping that the legitimate loan mod companies as well as radio advertising decision-makers will help.  The closest we can come to “legit” is to make sure they are, at minimum, licensed with the Department of Financial Institutions working under either a mortgage broker OR licensed as a consumer loan company, or otherwise exempt from the act such as attorneys and free HUD-approved housing counseling agencies.

Short Sales and REOs to Finally Become a Search Field in the NWMLS

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Courtney Cooper broke the news on Easter.  The Northwest MLS has voted to add a required field: “Third Party Approval Required” and “Bank/REO Owned.” From the NWMLS (no link): 
 
“NWMLS is excited to announce two new required fields; “3rd Party Approval Required

DFI Releases Guidelines on Loan Mods and Sets Limits on Fees

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Washington State Department of Financial Institutions has released an updated interpretive statement on loan modifications late this afternoon. People who perform loan modification services for Washington State homeowners must be licesed as a loan originator and under the supervision of a broker, or be working under a licensed consumer loan company.  Attorney have a limited exemption and non-profit housing counseling agencies are also exempt.  Real estate agents are not exempt.

 Licensees that charge a fee for loan modification services in advance of the services being provided must obtain a signed fee agreement for loan modification services from the borrower. Any fees paid in advance of services provided must go into the company’s trust account prior to disbursement, or be submitted to an independent escrow or title company to be held until disbursed at the instruction of the parties consistent with the fee agreement. Licensees are prohibited from collecting fees via direct access to a borrower’s bank account or via use of the borrower’s credit card.

A loan modification normally begins with a hardship analysis which is an examination of the borrower’s current mortgage, income, expenses, and ability to repay. The hardship analysis includes meetings or conversations with the borrower(s) and a determination of the borrower’s eligibility for a modification based on the particular lender’s eligibility requirements or the eligibility requirements of a federal modification program. The hardship analysis, sometimes referred to as “Phase I services,

Bottom Calling to Solicit Clients: Is it Ethical?

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A question was asked by seattlerenter in this post at SeattleBubble about an advertising letter mailed out by a real estate agent. See comment 19:

Dear Renter,

Youve been patient. Youve waited for the perfect time to buy a home. Well this is it. Home prices have bottomed out. Many experts see prices rebounding from current lows. The $8000 Federal Tax Credit is available for a limited time. The….. Buyers Rebate is yours when you use me as your Buyers Agent. And now Mortgages are at their lowest since 1971…Your patience has paid off!”

Seattlerenter asks if this is legal and ethical, specifically, using the phrase “home prices have bottomed out.” Since I do not practice law, I cannot answer the legal side. In this blog post, I will analyze the ethical question.

First we need to differentiate between real estate agents and Realtors. Everyone is an agent but only some are members of the National Assoc of Realtors.  In order to solve any ethical dilemma, it’s important to first consult the minimum moral standard; the law.  First we would consult the state agency law. Next we would look to other state laws that may answer the question such as consumer protection laws. After that, there may be a federal law that addresses the question. If we still have no answer, we would consult MLS rules. After that, we would check with our own company for policies and procedures and company ethical codes that address honesty and advertising. Perhaps we belong to a professional association. Then we would consult the ethics code of that association for guidance.

Real estate agents who belong to the Realtor association consult their Code. Here is the link to the NAR Code of Ethics.

As we see in Article 1, a duty of honesty is paramount when working with a client. But at this point, we are soliciting to obtain a client. We don’t have a client yet.  Standard of Practice 1-3 says, “REALTORS®, in attempting to secure a listing, shall not deliberately mislead the owner as to market value.”  In order for the marketing piece to be deceptive, the real estate agent must have known about the falling market in advance and intentionally choose to mislead potential home buyers and sellers. Since we can’t know the future, this article may not fit our situation.  Article 2 says “REALTORS® shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property.”  If Realtors have facts that lead them to believe that now is NOT the bottom, then they might be in trouble here. For home sellers, that’s not going to be a problem (since selling NOW in a down market is better than waiting.) This would only be problematic for a buyer who was lead to believe through exaggeration, that we are at the bottom.
Here is what I’ve been waiting for. Article 12:

“REALTORS® shall be honest and truthful in their real estate communications and shall present a true picture in their advertising, marketing, and other representations.”

How would a Realtor put up a defense against an Article 12 ethics violation for sending out the above letter?  Well, I suppose what he/she might do is to provide some sort of analytical proof with numbers, statistics, and graphs as to how he/she arrived at an affirmative realization that “now” is the bottom of the market. This Realtor may be able to defend against an ethics complaint by saying that he/she WAS being honest, based on the facts known at the time, and based on his/her analysis.

This leaves homebuyers to make their own decision as to if this particular Realtor’s personal opnion and analysis of the market can be verified by other third parties.

A prudent decision for a Realtor (who is going to embark on a bottom calling ad campaign) to do is to take his/her personal bottom calling statistics and analysis and have it reviewed by a neutral third party for accuracy. Similar to how we had our thesis papers reviewed by professors and then winced when they tore up our paper with obvious errors and made us do more research. We were better students because of those professors, even though we didn’t like doing the extra work, but I digress. Without neutral third party review, a bottom-call is just one person’s opinion.

If ever hauled in for a professional standards committee hearing, there would be ample documentation from a wide variety of local, state, regional, national, and international economists , Nobel Prize Winners, and other real estate industry experts who could provide solid opinions based on known facts as to if we were at the bottom on the day that marketing piece was mailed.

The third to the last step in any professional ethical dilemma is to consult one’s own set of values. What kind of a real estate agent/Realtor do I want to be? What behavior do I value in this world? For example, if I value honesty then I need to also be honest with other people, too.  Careful reflection is important when considering all the possible consequences.  Realtors value honesty, justice, beneficence and non-maleficence, responsibility, respect for persons, loyalty, and compassion.  These values are hidden all throughout the Realtor Code.  How does our marketing campaign support the values that we believe in?

The second to the last step is to make the decision.

The last step is to look back and reflect on what we did, how it turned out, and if we’d do anything different next time.

The person making the “bottom call” in the letter claims to have experts who agree with him/her. Who are these experts and where can the letter reader go to get more information? Perhaps the real estate agent who wrote the letter could provide that information in the letter.

At best, the letter brings to mind the viagra, porn, and loan mod spam in my spam bin, and I haven’t even touched the typos and the deception regarding the $8,000 tax credit. 

If Realtors care about their ethics as much as they claim to, then Realtors should talk with each other about the possible consequences of calling bottom in marketing material and provide guidelines as to what research to use.  It goes without saying that we would have benefitted from guidelines like this when we rode the real estate bubble on the way up. 

Using the NAR’s economist as the only source  would be a very, very bad decision.

National Association of Realtors Announces New Community Service Plan

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The National Association of Realtors has announced a new community service outreach plan  “Operation Home Rescue.” Realtor members will be opening their homes to families who have been displaced by foreclosure.  Each NAR member will offer their basement, family room, third bedroom, and in the case of an already full house, their garage to families who may otherwise be homeless due to their own foreclosure. “We have a duty to help those less fortunate and in this case, some of these folks will likely be our past clients” said an NAR Spokesman.  “We won’t be going out of our way to make their stay to terribly comfortable,” he said, “because these are our future homebuyers!”  When asked about how a recent foreclosure effects a person’s ability to obtain a mortgage again, he said, “pretty soon, the lenders won’t have anyone else to lend money to, so they’ll have to take these homebuyers back again.”  NAR representatives were not sure how the plan would work when the foreclosing homeowners are Realtors.  “Frankly, I’d rather volunteer to take in their abandoned dogs or cats instead of taking in one of my competitors” said Sean Q., a real estate agent.   Homeowners in foreclosure should contact the Realtor who sold them the home for more details. 

In addition, a Realtor spokesman explained that a motion was made at the previous convention to add an article to the Realtor Code of Ethics which would have made it a Realtor’s ethical duty to make sure the homebuyer could actually afford the mortgage payments but the motion was defeated.  “NAR is on record as being against banks getting in to the real estate business so we figured it was a good idea if we stay out of the banking business.”

NAR’s Operation Home Rescue outreach program provides a dual benefit of rescuing foreclosed families and then selling them another home which will help to clear out the inventory of homes for sale.

Robert Shiller Coming to SPU

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Yale Economist Robert Shiller of the Case Shiller Home Price Index will be speaking at Seattle Pacific University on Monday, April 27, 2009 at 1:00 PM.  Details are on the SPU website; hat tip Tim Ellis.  I missed Paul Krugman when he came to the UW a few months ago and I’ll miss this one, too.  But Tim said he’d take notes for us and post them on Seattle Bubble. Thanks Tim.  BTW, the latest Case Shiller reports are out and the analysis on the Seattle market can be found here which shows the Seattle area off 20% from our peak.

Naughty Mortgage Fraud Mom Gets Life Sentence Instead of a Time Out

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From North Texas:

A Henderson County woman was today sentenced to 99 years in prison for her role in a mortgage fraud scheme. On Tuesday, a Navarro County jury found the defendant, Kandace Yancy Marriott, 52, of Gun Barrel City, guilty of engaging in organized criminal activity. According to prosecutors, evidence presented at the punishment stage showed Marriott received monthly mortgage payments from her clients, failed to remit those payments to the mortgage lender, embezzled the homeowners’ funds, and therefore caused her clients to default on their home loans. Marriott’s conviction stems from her involvement in a complex mortgage fraud scheme that defrauded the federal government. The scheme’s principal operators were the defendant and her husband, Darrell L. Marriott, 54, who sold manufactured homes through their company, One Way Home & Land. However, the defendants’ daughter, Kally Marriott, and Kandace Marriott’s sister, Karen Hayes, have also been indicted for their role in the scheme. All four defendants face separate charges for related criminal conduct in Kaufman County.

According to state investigators, the defendants illegally forged home buyers’ signatures, inaccurately completed loan applications, and falsified supporting documents, including the buyers’ rent payment verification statements, proof of employment, and Social Security Administration benefits data, among other items. Court documents filed by the state indicate that the defendants conduct was intended to ensure that unqualified home buyers loans were approved by mortgage lenders. The scheme involved predominantly low-income purchasers whose residential loans were guaranteed by the U.S. Department of Housing and Urban Development. As a result, when the unqualified buyers defaulted on their home loans, their mortgage lenders did not suffer financial losses. Instead, HUD – and therefore the taxpayers – had to cover the default costs. Investigators believe the defendants’ scheme cost the taxpayers more than $3 million.

Is 99 years too tough? Some argue about the unfairness of the folks from Enron receiving a lighter sentence for stealing billions while this mom gets 99 years for stealing 3 million. Well, some of those Enron defendants decided to become a witness against others in order to receive a lighter sentence. But we can’t quite compare Mortgage Fraud Mom with Andrew Fastow because I believe a person cannot testify against a relative. Perhaps the horrifying lesson is to always commit fraud with a non-relative.

There will be no public sympathy for what this family has done as long as the economy resembles a slow moving train wreck.  It may take years for some humans to ever begin to trust mortgage lenders (banker, broker, or consumer loan company) again. 

This is just one case of a mortgage fraud family. How many more are out there that we haven’t even begun to prosecute or may never find? 

On the bright side, perhaps she will still be able to see her sister and daughter when they join her in the same prison. 

Even better, maybe 99 year sentences would have the effect of actually deterring mortgage fraud.  The existing set of consequences were clearly not enough.

I Have a Crush on Paul Krugman

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I have a crush on Dr. Paul Krugman, Professor of Economics at Princeton.  He recently received the Nobel Prize in Economics for his new theory on trade patterns and location of economic activity. Dr. Krugman is also an author and editor of about 20 books.  My new copy of The Return of Depression Economics and the Crisis of 2008 just arrived. Sigh.  I’m not the only reading his blog in the New York Times telling us what to do to avoid the next Depression. Now the media has caught up with Dr. Krugman and I can watch countless videos on youtube. Yes, yes, I know he’s married. That’s what makes it such a safe crush: Because it will never happen. It’s like having a crush on Bono or CR. 

I wait patiently each day to read such lines as “What we’re looking at now are the consequences of a world gone Madoff.

Distressed Property Law Changes Pass the Legislature

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Proposed changes to the Distressed Property Law have passed both branches of the Washington State Legislature and the bill is headed to Governor Gregoire’s desk for her signature.  You can read the changes here. Real estate agents and Realtors are now exempt “from the definition of “distressed home consultant” when the broker or salesperson is providing services governed under the real estate brokerage laws and the services do not result in a distressed home conveyance.”

I have mixed feelings about the passage of the exemption. Real estate agents and Realtors were raging mad last summer when their liability increased under the original Distressed Property Law.  All through the summer and fall of 2008, agents swore up and down that they were going to avoid listing or selling short sales in order to limit their liability.  In a way, the Distressed Property Law had some good consequences: Only experienced agents were allowed to take short sale listings at some firms, and it became extremely important to make sure the homeowner was referred to legal counsel.  Short selling homeowners are often better served when their listing agent knows what they’re doing.  The home buyer is also better served when the seller’s listing agent is short sale-competent.  The Distressed Property Law brought this to everyone’s attention.  There were many agents who were very, very worried about increased liability.  So far, I haven’t heard about any lawsuits.

Something interesting started happening toward the end of fall, 2008.  November and December of 08 saw a remarkable increase in the number of real estate agents attending the Short Sale class.  Attendance went from, say, 15-25 agents all summer to 50-70 by December of 2008.  When I asked why they were in class, agents all agreed: “Short sales are becoming more and more of the percentage of available inventory.  We don’t have a choice anymore; we HAVE TO take these listings, even with the added liability. We need to pay our own mortgage and we also like to eat, Jillayne.”

So now real estate agents are exempt from the DPL (provided they’re not going to engage in a distressed home conveyance.)  This means we will see an increase in agents listing short sales left and right, whether or not they are short-sale competent. 

KLK and other agents have said that foreclosures would increase because of the Distressed Property Law.  I argued that it’s not the DPL that will result in more foreclosures but the normal unwinding of mortgage lending gone wild and that higher foreclosure rates will be with us for some time as homeowners who cannot afford their home loans sell or default and return to the housing market as renters.  As time moves forward through the rest of 2009, it will be interesting to see if, in fact, foreclosure rates decline.