California Homebuyers Pushing The Financial Envelope To “Afford The Unaffordable”

The Public Policy Institute of California (PPIC) has released a twenty page report which examines current trends in housing affordability and mortgage financing in California. Despite rapidly escalating housing prices, sales of single family homes have continued at record levels. So how do California homebuyers afford to purchase homes in this market? According to PPIC, more Californians are paying a larger percentage of their annual incomes on housing costs with as many as 20% of recent homebuyers spending more than 50% of their incomes on housing, leaving them with less disposable income than ever before. At the same time, more new homebuyers are relying upon non-traditional mortgages, including option ARMS and interest only mortgages, to achieve affordable monthly payments as loan balances rise faster than borrowers' incomes. These trends suggest a potential for higher default risk if California's overheated housing markets begin to cool as many economists predict. For a summary of the PPIC report, read the accompanying press release.

Increase in New Foreclosures for June 2005

The Los Angeles Business Journal reports that new foreclosures were up 19% in June 2005. Despite the increase, however, California's default rate still remains below the national average.

Beware "Mortgage Elimination" Scams

Several of our clients have been harmed by "mortgage elimination" scams being promoted nationwide by two Northern California men, D. Scott Heineman and Kurt F. Johnson. The scheme has been marketed through Internet discussion groups, Craigslist.org, e-mail, conference calls, conventions and dozens of web sites which claim that the entire federal banking and monetary systems are illegitimate. For a fee of between $1,000 and $3,000, promoters claim that they can eliminate a mortgage through an elaborate process by which they ultimately prepare and record fraudulent documents that purportedly release the lender's security interest. In some cases, they then obtain new mortgage loans and receive as much as 50% of the loan proceeds. Among the business names associated with scheme are Capital Creation Resource, The Dorean Group, Oxford Trust, Universal Trust and DTE Financial.

Usually, lenders don't discover the fraudulent reconveyance documents until several months later when their borrowers stop making payments and they try to start foreclosure. Litigation is then necessary to cancel the fraudulent reconveyance documents so that lenders can proceed with foreclosure.

State and federal law enforcement investigations led to Heineman's arrest on May 28, 2005 and to Johnson's arrest on July 21, 2005. Both men are facing felony charges in Salt Lake City, UT, and they have also been charged with wire fraud, bank fraud, mail fraud and money laundering in the U.S. District Court for the Northern District of California in San Francisco where U.S. District Court Judge William Alsup has recently issued a preliminary injunction prohibiting the defendants from further violating 18 U.S.C. § 1341 (Mail Fraud), 18 U.S.C. § 1343 (Wire Fraud), and 18 U.S.C. § 1344 (Bank Fraud) through their “mortgage elimination” program, and from alienating or disposing of property obtained as a result of said violations. However, acolytes of Heineman and Johnson are still operating many of the same websites that promote their "mortgage-elimination" scam despite these recent law enforcement actions.

You can obtain more information from the Sacramento Bee which has been following this story since earlier this year and from this story originally published by a reporter for Inman News.

We have experience handling these matters for our mortgage lending clients. Call us today if you believe that you have been scammed.

Links to California Statutes

In California, the statutes goverining the creation and enforcement of mortgages are found at Cal.Civ.Code Secs. 2920 et seq. Other important provisions affecting the rights and obligations of lenders and borrowers are found at Cal.Civ.Code Secs. 2947 et seq.

DQNews - Foreclosures Press Release

Dataquick reports that the nine year drop in foreclosure activity throughout California appears to be leveling off.

California Mortgage Law Founder, Publisher and Managing Editor

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