Having been found culpable in a government report, an embarrassed Ben Bernanke admits he failed to see the housing bubble (but it's okay because everyone else failed too, right?)

Irvine Home Address … 14 VIENTO Dr Irvine, CA 92620

Resale Home Price …… $360,000

You've been caught in a lie!!

You can't deny it!

So let the war begin

You're far from innocent

Hell I just don't know where it will end

You are the one to blame

Another fallacy

Is laid in front of me

Now I just don't know

What to believe

This idiot won't let me go

Slowly penetrating the mind

‪Disturbed — Deceiver‬

We want our government officials to lie. We must, or we wouldn't continually put liars in positions of power. Ben Bernanke made a number of public statements around the peak of the housing bubble and during the financial meltdown that suggested his grasp of the obvious was challenged.

Personally, I prefer to assume men like Bernanke are knowingly deceiving the general public to avoid feeding into a financial panic. If Bernanke is as clueless as his public statements make him out to be, he is more like Greenspan than I am comfortable with, and our financial system is being run by a fool.

Last week I noted that the government commission to study the housing bubble and the financial meltdown found Greenspan and Bernanke responsible for the debacle due to their negligent handling of monetary policy.

Bernanke Says Fed Failed to See Broader Risks From Housing

By Scott Lanman – Jan 27, 2011 9:14 AM PT

Federal Reserve policy makers failed to foresee a threat to the financial system from the housing market in 2005 in part because central bank economists didn’t find major risks, Chairman Ben S. Bernanke said.

At one Federal Open Market Committee meeting in mid-2005, Fed governors and regional presidents heard staff briefings suggesting that the U.S. mortgage system “might bend but would likely not break” from a large home-price drop, and that the market may rest on “solid fundamentals,” Bernanke said in a Dec. 21, 2010, letter to the Financial Crisis Inquiry Commission, providing his views and revealing new details on FOMC meetings from 2005 to 2008.

The evidence that prices were not resting on fundamentals was quite compelling. The price to rent ratio went up abruptly.

The price-to-income ratio showed the same inexplicable rise after years of flatlining.

And more importantly, as this is really an market fundamental, the debt-to-income ratio showed borrowers were taking on huge debt loads only sustainable with toxic financing.

Of course, Bernanke argues that none of these were important because money was flowing and the economy was making jobs. In his mind, those were the fundamentals, and anything happening with price would be resolved by continued economic growth. Obviously, Bernanke was totally wrong.

“Given these and other analyses, it was hard for many FOMC participants, in the summer of 2005, to ascribe substantial conviction to the proposition that overvaluation in the housing market posed the major systemic risks that we now know it did,” Bernanke said in the letter, posted on the FCIC’s website.

Really? Given the data above, it is hard not to believe the markets are poised to crash. I said so at the time, and I was not alone.

The FCIC, the congressionally appointed panel assigned to probe the origins of the 2008 credit crisis, heaps blame on “reckless” Wall Street firms and “weak” federal regulators and concludes that the meltdown could have been averted. Some points from Bernanke’s letter are included in the commission’s a 545-page report, released today.

The 2005 presentations were made public this month as part of transcripts of that year’s FOMC meetings. The Fed, which has a policy of giving out FOMC transcripts with a five-year lag, hasn’t published any records from 2006 or later.

It will be interesting to read the meeting notes from later meetings when the housing market was obviously crashing.

Change for ‘Worse’

While most participants at a June 2005 Federal Open Market Committee meeting agreed that “the probability of spillovers to financial institutions from lower housing prices seemed moderate, they recognized that circumstances could change for the worse,” and several officials raised concerns about subprime lending and mortgage-backed securities, Bernanke said in the letter.

Atlanta Fed President Jack Guynn called the housing bubble in 2005.

In 2006, Fed officials “expressed nervousness” about some practices in the mortgage industry, said Bernanke, who became chairman in February of that year. He said he “had in mind increased regulatory oversight” and “increased vigilance” for the implications of housing on interest-rate policy.

He was ready to start looking in to the industry after it already took every housing market in the country to the abyss.

FOMC members were briefed in June 2007 about the liquidation of subprime securities at two hedge funds sponsored by Bear Stearns Asset Management, Bernanke said. Some Fed officials were concerned that the Fed didn’t understand “the scope of the problem” because the central bank couldn’t “systematically collect information from hedge funds,” which were outside the Fed’s jurisdiction, he said.

Extent of Threat

In August 2007, as turbulence in the subprime-mortgage market rose to a “considerable” degree, policy makers at an FOMC meeting disagreed over the extent of the threat to the economy, Bernanke said.

“One participant, in a paraphrase of a quote he attributed to Churchill, said that no amount of rewriting of history would exonerate us if we did not prepare for the more dire scenarios discussed in the staff presentations,” the Fed chairman said.

The federal reserve knows they can commission studies after the fact to justify anything they do. Last year they exonerated themselves for responsibility for the housing bubble. Their argument was that interest rate policy did not cause the housing bubble; therefore, the federal reserve did not cause the housing bubble. The first part is true, but the second part is only true to the degree that interest rates were responsible for the housing bubble. The real failure at the federal reserve was in their oversight of the entire financial system as well as the toxic loans being churned out by the shadow banking system.

At that meeting, Bernanke and his colleagues judged that inflation was their “predominant” concern and left their benchmark interest rate at 5.25 percent. Within two months, they had scrapped that view and begun cutting rates. That December, the worst recession since the 1930s began, and a year later, the federal funds rate was cut almost to zero.

In September 2008, FOMC members briefed on the failure of Lehman Brothers Holdings Inc. were divided on what the government should do in such a situation. Some wanted the government to have no role in a rescue, while others sought capital injections instead of central bank liquidity or monetary policy interventions, Bernanke said.

“My own view at the time was that only a fiscal and perhaps regulatory response could address the potential for wide-scale failure of financial institutions during that period,” Bernanke said. “Such an approach would involve tools such as a robust resolution authority and a capital injection program, neither of which was authorized at that time.”

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

The real reason Bernanke had to step in and take over AIG was because the debt resolution of such a large entity with international creditors has not been worked out. In short, if we had not paid off a number of foreign banks (and Goldman Sachs) the entire financial system may have ground to a halt as countries begin seizing assets of distressed companies in an chaotic collapse. A wave of international protectionism and the resulting shutdown of international financial transactions would have been an economic catastrophe. It wasn't the housing market that needed to be saved.

The temporary liquidity operations launched by the federal reserve to get us through the crisis were quite successful. Before the fed enjoys too many kudos, it is worth noting that they were cleaning up their own mess.

Milking the cash cow

Many people who bought their first homes in the early 90s kept the property when they moved up and bought a larger home. It used to be that if you wait long enough, rents would rise to cover even the most bloated mortgage. Not thts time.

With payments on many houses significantly more than rental parity, people are faced with the prospect of negative cashflow, perhaps for decades. Of course, that can be made to work in the short term if appreciation is rampant, but most of the time, running negative cashflow is a financial cancer. All who nurture a negative cashflow investment will be consumed by it.

The owners of today's featured property paid $189,500 in 1991 at the peak of that housing bubble. The must have sustained ownership through a nine-year negative equity mortgage period, also known as a home prison sentence. After enduring such a protracted financial hardship, frugality should have been the lesson of the dark times. Instead, they went Ponzi.

• Their original mortgage data is not available, but they likely put 20% down ($37,900) leaving a first mortgage of $151,600. They may have borrowed more. In any case, on 1/4/1999, they had a $163,000 first mortgage.
• On 2/26/2002 they opened a HELOC for $40,000.
• On 7/24/2003 they refinanced the first mortgage for $200,000.
• On 5/27/2004 they obtained a $100,000 HELOC.
• On 1/28/2005 they enlarged to a $194,000 HELOC.
• On 11/3/2006 they got one last HELOC for $285,000.
• Total debt is $485,000.
• Total mortgage equity withdrawal is around $335,000, but I can't be sure how much was borrowed and spent. What would you guess?

Irvine Home Address … 14 VIENTO Dr Irvine, CA 92620

Resale Home Price … $360,000

Home Purchase Price … $189,500

Home Purchase Date …. 5/31/1991

Net Gain (Loss) ………. $148,900

Percent Change ………. 78.6%

Annual Appreciation … 3.3%

Cost of Ownership

————————————————-

$360,000 ………. Asking Price

$12,600 ………. 3.5% Down FHA Financing

4.84% …………… Mortgage Interest Rate

$347,400 ………. 30-Year Mortgage

$73,190 ………. Income Requirement

$1,831 ………. Monthly Mortgage Payment

$312 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$60 ………. Homeowners Insurance

$348 ………. Homeowners Association Fees

============================================

$2,551 ………. Monthly Cash Outlays

-$300 ………. Tax Savings (% of Interest and Property Tax)

-$430 ………. Equity Hidden in Payment

$23 ………. Lost Income to Down Payment (net of taxes)

$45 ………. Maintenance and Replacement Reserves

============================================

$1,890 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$3,600 ………. Furnishing and Move In @1%

$3,600 ………. Closing Costs @1%

$3,474 ………… Interest Points @1% of Loan

$12,600 ………. Down Payment

============================================

$23,274 ………. Total Cash Costs

$28,900 ………… Emergency Cash Reserves

============================================

$52,174 ………. Total Savings Needed

Property Details for 14 VIENTO Dr Irvine, CA 92620

——————————————————————————

Beds:: 2

Baths:: 3

Sq. Ft.:: 1460

Lot Size:: 2,269 Sq. Ft.

Property Type:: Residential, Condominium

Style:: Two Level, Traditional

Year Built:: 1978

Community:: Northwood

County:: Orange

MLS#:: S645459

Source:: SoCalMLS

—————————————————————————-

Charming and spacious Sundance home located at Northwood Irvine. Clean and in good conditon. Newer wood laminated flooring throughout. Newer dual-paned vinyl windows. Open and airy. Large living areas. Kitchen sink and great room opens to back patio for outdoor entertaining. Gas fireplace. Laundry area located in attached two car garage. Closet and half bath first level. Master bedroom suite and bath area with tub redone and updated. 2nd bedroom with large window and natural light. This home is close to and walking distance to public schools and shopping areas with restaurants. Northwood Irvine was once part of the old Irvine Ranch with romantic orange groves history and nearby eucalyptus trees and lining streets and roadways. This is a short sale listing.

California cities dominate Forbes.com's new list of America's most miserable cities. The housing bubble is the direct cause of the suffering.

Irvine Home Address … 50 ARBOLES Irvine, CA 92612

Resale Home Price …… $420,000

Looking out for number 1

California here we come

Right back where we started from

Hustlers grab your guns

Your shadow weighs a ton

Phantom Planet — California

California was the land of milk and honey, but with the collapse of the housing Ponzi scheme, Californians are not being given free money. It's making them miserable.

America's Most Miserable Cities

Kurt Badenhausen, 02.02.11, 12:00 PM EST

California has never looked less golden, with eight of its cities making the top 20 on our annual list.

Arnold Schwarzenegger was sworn in as the governor of California at the end of 2003 amid a wave of optimism that his independent thinking and fresh ideas would revive a state stumbling after the recall of Gov. Gray Davis.

The good vibes are a distant memory: The Governator exited office last month with the state facing a crippling checklist of problems including massive budget deficits, high unemployment, plunging home prices, rampant crime and sky-high taxes. Schwarzenegger's approval ratings hit 22% last year, a record low for any sitting California governor.

California's troubles helped it land eight of the 20 spots on our annual list of America's Most Miserable Cities, with Stockton ranking first for the second time in three years.

Congratulations, Stockton! I remember being contacted by a recruiter in 2005 about a position in Stockton. I remember thinking to myself that Stockton is not where I wanted to be trapped when the housing bubble burst. Construction related unemployment will be high there for a very long time.

In Pictures: America's Most Miserable Cities

Located in the state's Central Valley, Stockton has been ravaged by the housing bust. Median home prices in the city tripled between 1998 and 2005, when they peaked at $431,000. Now they are back to where they started, as the median price is forecast to be $142,000 this year, according to research firm Economy.com, a decline of 67% from 2005. Foreclosure filings affected 6.9% of homes last year in the Stockton area, the seventh-highest rate in the nation, according to online foreclosure marketplace RealtyTrac.

A 67% decline down to 1998 prices. Wow!

Stockton's violent crime and unemployment rates also rank among the 10 worst in the country, although violent crime was down 10% in the latest figures from the FBI. Jobless rates are expected to decline or stay flat in most U.S. metro areas in 2011, but in Stockton, unemployment is projected to rise to 18.1% in 2011 after averaging 17.2% in 2010, according to Economy.com.

“Stockton has issues that it needs to address, but an article like this is the equivalent of bayoneting the wounded,” says Bob Deis, Stockton city manager. “I find it unfair, and it does everybody a disservice. The people of Stockton are warm. The sense of community is fantastic. You have to come here and talk to leaders. The data is the data, but there is a richer story here.”

He is probably right. The misery in a town experiencing economic hardship is not bore equally. Those that are unemployed suffer greatly while those who continue working as during the boom suffer very little, other than perhaps the loss of their home equity. Those that are unemployed and did not take on a toxic mortgage to buy a house suffer most.

There are many ways to gauge misery. The most famous is the Misery Index developed by economist Arthur Okun, which adds unemployment and inflation rates together. Okun's index shows the U.S. is still is in the dumps despite the recent gains in the economy: It averaged 11.3 in 2010 (blame a 9.6% unemployment rate and not inflation), the highest annual rate since 1984.

Our list of America's Most Miserable Cities goes a step further: We consider a total of 10 factors, things that people gripe about around the water cooler every day. Most are serious issues, including unemployment, crime and taxes. A few we factor in are not as critical, but still elevate people's blood pressure, like the weather, commute times and how the local sports team is doing.

The Green Bay Packers do more to uplift Wisconsin than economic data. Go Packers!

One of the biggest issues causing Americans angst the past four years is the value of their homes. To account for that we tweaked the methodology for this year's list and considered foreclosure rates and the change in home prices over the past three years. Click here for a more detailed rundown of our methodology.

Florida and California have ample sunshine in common, but also massive housing problems that have millions of residents stuck with underwater mortgages. The two states are home to 16 of the top 20 metros in terms of home foreclosure rates in 2010. The metro area with the most foreclosure filings (171,704) and fifth-highest rate (7.1%) last year is Miami, which ranks No. 2 on our list of Most Miserable Cities.

The good weather and lack of a state income tax are the only things that kept Miami out of the top spot. In addition to housing problems (prices are down 50% over three years), corruption is off the charts, with 404 government officials convicted of crimes this decade in South Florida. Factor in violent crime rates among the worst in the country and long commutes, and it's easy to understand why Miami has steadily moved up our list, from No. 9 in 2009 to No. 6 last year to the runner-up spot this year.

California has its own miseries it heaps upon its cities. Do you think California will get a federal bailout?

California cities take the next three spots: Merced (No. 3), Modesto (No. 4) and Sacramento (No. 5). Each has struggled with declining home prices, high unemployment and high crime rates, in addition to the problems all Californians face, like high sales and income taxes and service cuts to help close massive budget shortfalls.

The Golden State has never looked less golden. “If I even mention California, they throw me out of the office,” says Ron Pollina, president of site selection firm Pollina Corporate Real Estate. “Every company hates California.”

There are many highly trained and talented people living in California, and this will always be a draw to employers to locate here, but the high taxes and highly regulated nature of the state makes it very unattractive to business.

Last year's most miserable city, Cleveland, fell back to No. 10 this year despite the stomach punch delivered by LeBron James when he announced his exit from Cleveland on national television last summer. Cleveland's unemployment rate rose slightly in 2010 to an average of 9.3%, but the city's unemployment rank improved relative to other cities, thanks to soaring job losses across the U.S. Cleveland benefited from a housing market that never overheated and therefore hasn't crashed as much as many other metros. Yet Cleveland was the only city to rank in the bottom half of each of the 10 categories we considered.

Two of the 10 largest metro areas make the list. Chicago ranks seventh on the strength of its long commutes (30.7 minutes on average–eighth-worst in the U.S.) and high sales tax (9.75%—tied for the highest). The Windy City also ranks in the bottom quartile on weather, crime, foreclosures and home price trends.

President Obama's (relatively) new home also makes the cut at No. 16. Washington, D.C., has one of the healthiest economies, but problems abound. Traffic is a nightmare, with commute times averaging 33.4 minutes–only New York is worse. Income tax rates are among the highest in the country and home prices are down 27% over three years.

I note that Las Vegas did not make the list. An oversight, perhaps?

I also note that Irvine didn't make the list. Like Disneyland, Irvine is the happiest place on earth.

Leaving the family holding the bag

Everything you will read about this property today is speculation based on a few facts. First, according to Redfin, the 2006 sale at the peak was not an arms-length transaction. That usually means the property was transfered to a family member.

However, when that sale occurred, the peak buyer borrowed $545,000 to complete the transaction. Arms length or not, the lender was happy to extend 100% financing to the borrower. Basically, the bank bought this property at the peak in exchange for the buyer's credit score.

If this was a family member non-arms-length transaction, how do these two parties feel about it? The original owner sold at the peak and obtained a huge windfall. He must feel good. The family member who paid peak price has trashed credit, but isn't out-of-pocket any money. Does the buyer feel ripped off? Does she ask grandpa to make her whole?

Irvine Home Address … 50 ARBOLES Irvine, CA 92612

Resale Home Price … $420,000

Home Purchase Price … $177,500

Home Purchase Date …. 2/17/1988

Net Gain (Loss) ………. $217,300

Percent Change ………. 122.4%

Annual Appreciation … 3.8%

Cost of Ownership

————————————————-

$420,000 ………. Asking Price

$14,700 ………. 3.5% Down FHA Financing

4.84% …………… Mortgage Interest Rate

$405,300 ………. 30-Year Mortgage

$85,388 ………. Income Requirement

$2,136 ………. Monthly Mortgage Payment

$364 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$70 ………. Homeowners Insurance

$384 ………. Homeowners Association Fees

============================================

$2,954 ………. Monthly Cash Outlays

-$350 ………. Tax Savings (% of Interest and Property Tax)

-$502 ………. Equity Hidden in Payment

$27 ………. Lost Income to Down Payment (net of taxes)

$53 ………. Maintenance and Replacement Reserves

============================================

$2,183 ………. Monthly Cost of Ownership

Cash Acquisition Demands

——————————————————————————

$4,200 ………. Furnishing and Move In @1%

$4,200 ………. Closing Costs @1%

$4,053 ………… Interest Points @1% of Loan

$14,700 ………. Down Payment

============================================

$27,153 ………. Total Cash Costs

$33,400 ………… Emergency Cash Reserves

============================================

$60,553 ………. Total Savings Needed

Property Details for 50 ARBOLES Irvine, CA 92612

——————————————————————————

Beds:: 2

Baths:: 2

Sq. Ft.:: 1440

Property Type:: Residential, Condominium

Style:: One Level

View:: Mountain, Park/Green Belt, Faces South

Year Built:: 1975

Community:: Rancho San Joaquin

County:: Orange

MLS#:: 22147357

Source:: i-Tech MLS

Status:: ActiveThis listing is for sale and the sellers are accepting offers.

On Redfin:: 15 days

This sophisticated Town Home is situated on park-like grounds on a quiet cul-de-sac. A corner unit, this home features a spectacular view of the Newport Coast Mountain RangE & Mason Wildlife Regional Park. This single-level unit with warm neutral tones and an abundance of natural light accentuate the exotic cherry wood flooring throughout the main living area. The spacious entry boasts a handsome built-in Alderwood desk, while the open living room and dining area is graced by an outstanding stacked stone fireplace. The bright and airy kitchen offers beautiful white Hartmark cabinetry, Delerium granite countertops, double porcelain Kohler sink & bay garden window. The well appointed master suite offers an impressive 16 feet of custom built-ins in a mirrored closet complete with cedar ceiling, a master bath that includes a bright picture window with a spectacular view, and 13.5' vaulted ceiling. The guest bedroom features French doors & custom closet with cedar ceiling.

A California court ruled that irregularities in the Notice of Default do not harm the borrower and are not grounds to avoid foreclosure.

Irvine Home Address … 362 DEERFIELD Ave #111 Irvine, CA 92606

Resale Home Price …… $420,000

It was a long and dark December

From the rooftops I remember

There was snow, white snow

Clearly I remember

From the windows they were watching

While we froze down below

When the future's architectured

By a carnival of idiots on show

You'd better lie low

Coldplay — Violet Hill

Last week I wrote Notice of Default irregularities: new false hope for loan owners. Well, the false hope didn't last very long. A recent ruling has struck down the idea of suing based on irregularities in the Notice of Default.

Aceves ruling: Foreclosed homeowner has cause to sue bank for fraud

by KERRY CURRY

Tuesday, February 1st, 2011, 12:22 pm

A California appeals court ruled that a former homeowner's lawsuit against U.S. Bank (USB: 27.39 -0.98%) for fraud may continue after the bank allegedly reneged on a promise to negotiate a mortgage modification, opening the door for claims from potentially thousands of similarly situated troubled borrowers in the Golden State.

While the court ruled that a case for fraud–which includes claims for damages–could proceed, it also ruled that the homeowner, Claudia Jacqueline Aceves, lacked sufficient cause to get her home back after the foreclosure sale.

What could become a landmark foreclosure ruling appears to be both a win and a loss, for mortgage servicers and foreclosure defense attorneys alike. Mortgage servicers prevailed on issues of alleged defects in the foreclosure process, with the court ruling that none of the Aceves allegations of irregularities “would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.” Aceves had claimed, for example, that the notice of default was defective and therefore void, a claim the court rejected outright. “Absent prejudice, the error does not warrant relief,” according to the ruling.

The idea of getting a free house because someone made a clerical error on a Notice of Default is crazy. We live in a society that believes unjustified enrichment due to “technicalities” is fine, and if millions of deadbeats get free houses, justice must somehow be served.

The court spent most of its 15-page ruling, however, discussing how U.S. Bank had purportedly promised to negotiate a potential loan modification if the homeowner agreed to allow the bank to lift a bankruptcy stay, which had protected the home from seizure. Yet, when the homeowner agreed and attempted to begin negotiation on a loan modification, the bank allegedly opted to foreclose without negotiating.

Another feature of this ruling is going to be a renewed reliance on the defense that borrowers are immune from foreclosure while a loan modification is being negotiated. Banks will need paperwork from the loan modification department demonstrating the loan modification has been denied before a foreclosure can go forward.

Paul Jackson notes the passing of the Notice of Default irregularity defense in his editorial on the case:

Aceves: Far more than meets the eye

by PAUL JACKSON

As we roll the 2011 calendar over to February — already?— outcomes of hand-to-hand legal combat in courtrooms across the nation over the sprawling foreclosure mess are continuing to unfold. Early this year, a state supreme court case out of Massachusetts called Ibanez managed to forever alter the meaning associated with one of the world’s most famous electric guitar makers.

Innocent music instruments aside, a new ruling out of California in the past week has the potential to be every bit as important: Aceves v. U.S. Bank. HousingWire’s own Kerry Curry broke the story Tuesday afternoon, which really is a Jeckyll and Hyde sort of ruling that has the potential to be one of the nation’s most significant rulings in the foreclosure morass.

Depending on your view, in Aceves, you have something to cheer; and depending on your view, you also have something to fear. Regardless of your view, you have a ruling you can’t ignore, especially in California.

But, as we’ll see, the real bombshell in the Aceves ruling isn’t at all what you might expect.

The majority of the ruling’s text discusses the borrower’s right to pursue potential fraud and so-called promissory estoppel claims against the servicer, as HousingWire's original coverage provides strong detail on. And while the ruling should be instructive on that front to servicers working with borrowers in bankruptcy in California, there is far more buried in the pages of the ruling that is likely to be missed by the media hype.

Instead, the real importance of Aceves is buried on page 14 of a 15-page ruling, in a section called, innocuously enough, “Remaining Claims.”

And in particular, within a single paragraph:

Aceves also takes issue with the notice of default, pointing out that it mistakenly identified Option One as the beneficiary under the deed of trust when U.S. Bank was actually the beneficiary. Although this contention is factually correct, it is of no legal consequence. Aceves did not suffer any prejudice as a result of the error. Nor could she. The notice instructed Aceves to contact Quality Loan Service, the trustee, not Option One, if she wanted ― “[t]o find out the amount you must pay, or arrange for payment to stop the foreclosure, or if your property is in foreclosure for any other reason.” The notice also included the address and telephone number for Quality Loan Service, not Option One. Absent prejudice, the error does not warrant relief. (See Knapp v. Doherty (2004) 123 Cal.App.4th 76, 93–94 & fn. 9.)

This is a much larger finding than it might seem, according to at least two California attorneys I spoke with that practice in creditor’s rights. Explaining why, however, requires some unpacking.

Let’s get legal

For those of you that are intrepid researchers, you’ll note that the appellate court ruling in Aceves above cites Knapp v. Doherty as the controlling authority regarding its finding on the validity of the notice of default — that full case ruling is available here.

And if you read Knapp v. Doherty, you’ll note that the 2004 California state appellate ruling in that case applied only to the notice of sale in a nonjudicial foreclosure, not explicitly to notices of default.

But by granting the Aceves allegation of errors on the notice of default — and then still tossing out the claim anyway — the court in Aceves made it unmistakably clear that the so-called “prejudice rule” as applied to notices of sale in Knapp v. Doherty now applies to notices of default in the state of California, as well.

In plain English, the court basically said: We don’t care what the alleged defect in the notice of default is, unless you can also demonstrate that you were somehow harmed by that same defect.

This is common sense. The delinquent borrowers knew they were delinquent, and with notices taped to their door, they knew it was their property coming to auction. Notice of Default irregularities should not have become a defense against foreclosure. It no longer is.

It’s worth noting that state appellate court rulings are binding on lower-level trial courts, according to the legal sources I’ve spoken with — so this ruling has extremely wide implications on potentially thousands of existing cases in the state of California where borrowers are contesting a foreclosure on something akin to the validity of the notice of default. It's equally worth noting that California's so-called “prejudice rule” is not new, and is extremely well-established.

Going forward, attorneys I’ve spoken with tell me this is a sea change relative to how foreclosure-related litigation will be managed in the state. It also is likely to influence other states with similar “prejudice rules,” especially those that permit a nonjudicial foreclosure process, these attorneys have suggested. California attorneys have told me for months that nearly every contested foreclosure case in the state has involved a challenge in some way to the notice of default; it’s the single most common claim, I've been told.

I suppose when borrowers have nothing else, finding some minor technical error is weak but better than nothing.

It was only a few weeks back, after all, that colleague Kate Berry at American Banker made national headlines with a story that echoed the concerns (hopes?) of many lawyers contesting foreclosure actions, who were quick to suggest to the press that procedural errors in notices of default—including that evil of all judicial foreclosure evils, robo-signing — could render even nonjudicial foreclosures invalid, too.

Now? Probably not so much, at least in California.

I’d guess some of the same sources that led Berry to write her original story are moving fairly quickly at this point to marshal their resources around the fraud issue now green-lighted in Aceves (and detailed in HW’s news coverage of the case). After all, while the facts in the case are pretty unusual, pretty much every troubled borrower on Earth can allege: “I would have filed bankruptcy, too, if only I’d known the truth about loan modification.”

Paul Jackson is the founder and editor-in-chief of HousingWire. As with any HW columnist, his views are his own only and do not represent those of HousingWire. Follow him on Twitter: @pjackson

Attorneys will have to retool their cases by taking out the claims about deficient NODs and put in claims about being foreclosed while a loan modification was being considered. The latter circumstance being quite troubling for lenders. Everyone who went though a foreclosure who made a verifiable attempt at a loan modification will make a claim against the banks.

What a mess.

Zero down, $100K free money

Sometimes, I feel pretty stupid not buying a house in 2004-2006. I might have bought if I had known that I could purchase with nothing down and within a couple of years go back to the bank and get free money.

Of course, I know that is going Ponzi, so I couldn't get myself to do that; however, through ignorance, carelessness, and greed, many bubble-era buyers did buy these properties, and they did go Ponzi.

The owner of today's featured property paid $385,500 on 8/26/2003. He used a $308,080 first mortgage, an $77,020 second mortgage, and a $400 down payment. Perhaps the bank saw that as a security deposit?

On 10/31/2005 the obtained a $401,250 first mortgage and a $80,200 HELOC to raise the total property debt to $481,450 and the total mortgage equity withdrawal to $95,950.

Now that prices have gone south, this borrower is short selling and leaving the lender wondering how they are going to get their free money gift back.

Irvine Home Address … 362 DEERFIELD Ave #111 Irvine, CA 92606

Resale Home Price … $420,000

Home Purchase Price … $385,000

Home Purchase Date …. 8/26/2003

Net Gain (Loss) ………. $9,800

Percent Change ………. 2.5%

Annual Appreciation … 1.2%

Cost of Ownership

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$420,000 ………. Asking Price

$14,700 ………. 3.5% Down FHA Financing

4.84% …………… Mortgage Interest Rate

$405,300 ………. 30-Year Mortgage

$85,388 ………. Income Requirement

$2,136 ………. Monthly Mortgage Payment

$364 ………. Property Tax

$0 ………. Special Taxes and Levies (Mello Roos)

$70 ………. Homeowners Insurance

$289 ………. Homeowners Association Fees

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$2,859 ………. Monthly Cash Outlays

-$350 ………. Tax Savings (% of Interest and Property Tax)

-$502 ………. Equity Hidden in Payment

$27 ………. Lost Income to Down Payment (net of taxes)

$53 ………. Maintenance and Replacement Reserves

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$2,088 ………. Monthly Cost of Ownership

Cash Acquisition Demands

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$4,200 ………. Furnishing and Move In @1%

$4,200 ………. Closing Costs @1%

$4,053 ………… Interest Points @1% of Loan

$14,700 ………. Down Payment

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$27,153 ………. Total Cash Costs

$32,000 ………… Emergency Cash Reserves

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$59,153 ………. Total Savings Needed

Property Details for 362 DEERFIELD Ave #111 Irvine, CA 92606

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Beds:: 2

Baths:: 2

Sq. Ft.:: 1367

$0,307

Lot Size:: –

Property Type:: Residential, Townhouse

Style:: Two Level

Year Built:: 1985

Community:: Walnut

County:: Orange

MLS#:: C11009806

Source:: MRMLS

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Status:

On Redfin:

2 bedrooms, 2.5 bath.