Zombie foreclosures: Borrowers hit with debts that won't die

Even though Christopher Warner's mortgage debt was extinguished upon his foreclosure, debt collectors are still seeking $120,000.

NEW YORK (CNNMoney)

In these so-called zombie foreclosures, borrowers move out of their homes after their bank schedules a foreclosure auction only to find out months or years later that the auction never took place or the bank never transferred the deed to the house. That means the borrower still technically owns the home, leaving them on the hook for property taxes, fees and for homeowners' association dues.

Since the housing bubble first burst seven years ago, almost two million properties have started the foreclosure process but never completed it, according to RealtyTrac. In half of those cases, the homeowner is fighting to stay in the home. But there are close to one million properties that are in some sort of foreclosure limbo. While no one knows the exact number, it's estimated that tens of thousands of those properties could be zombie foreclosures.

Many of these homes are in low-income communities where foreclosures are so difficult to sell that lenders sometimes delay taking possession of the property to save on taxes and other costs that then stay under the borrower's name.

Those debts can then go unpaid for years because the borrower is unaware they owe them, further slamming their credit score and making life after foreclosure even harder.

Related: 10 great foreclosure deals

"The most frustrating part is that I can't move on," said Rose Nathan, a 37-year-old office manager.

Nathan lost her South Bend, Ind., home in January 2009, after working out a deal with CitiMortgage to voluntarily walk away in a "deed in lieu of foreclosure."

"On Christmas Eve, the bank called and told me a sheriff's sale was coming and I had to move out right away," she said. "So that's what I did -- seven days after New Year's."

She sold her belongings and moved to Hawaii. Nearly two years later, she received a property tax bill from the City of South Bend for $5,000. The bank had never taken possession of the house.

Citi told her attorney, Judith Fox, that the holdup was due to a lien on the home that they were never told about. Nathan said she knew of no liens at the time of the transaction. Upon doing a title search, Fox found no evidence of a lien until well after the bank agreed to the deed-in-lieu deal.

Related: Million-dollar foreclosures

Meanwhile, the unpaid debt has crushed Nathan's credit score. The deed-in-lieu alone lowered her score by 80 to 120 points, but the unpaid debt meant her credit kept taking a hit. Eventually her credit card companies cut her off, even though she said she was making her payments.

Her auto loan now carries a 25% rate. Her car insurance premiums have skyrocketed. She can only afford a one-bedroom apartment where she lives with her three kids. And forget about buying another home. "Nobody will give me a mortgage," she said.

Citi declined to comment on the case. Nathan said she has since paid off the lien with the hope that Citi will take the deed on the home.

Mustapha Sesay, a 45 year-old father of two, thought he had lost his Brandywine, Md., home in 2008. But two years later, a debt collector called telling him he owed $70,000.

The holder of his second mortgage had never forgiven his debt -- even though the lender holding his primary mortgage had foreclosed on the home.

Typically the second mortgage holder is out of luck if there isn't enough cash from the foreclosure sale to pay off both the first and second lien, said Cheryl Cassell, director of the housing counselor network for the National Community Reinvestment Coalition. But, depending on state law, second mortgage holders can sue homeowners to pay off the notes -- even after they lose the home in a foreclosure or the lender can sell the debt to a collection agencies.

Related: 100 hardest hit foreclosure neighborhoods

In Sesay's case, the debt collector calls every week or two. He has had little luck stopping it. "I talk to credit counselors, lawyers," he said.

Sesay would have been well on the way to credit score recovery. But now, he said, "I could move to Alaska in winter and no one would lend me ice."

Bill Purdy, a real estate attorney in Soquel, Calif., said borrowers can't always trust lenders to file foreclosure paperwork properly. In November 2011, when his client Christopher Warner's Felton, Calif., home was auctioned off, his mortgage debt was fully extinguished -- standard practice based on California law.

Warner's lender, however, recorded $120,000 on its books as debt -- the difference between what he owed and what the house sold for -- and gave it to a collection agency. The debt has lowered Warner's credit score by an additional 100 points, he estimated.

"It nearly put me into bankruptcy," he said. He has hired Purdy to get the debt collectors off his back.

In a $25 billion settlement with the state attorneys general last spring, the nation's five largest mortgage lenders agreed to inform borrowers of any decision to forgo or delay a foreclosure. But victim's attorneys said the banks have not been careful about following that policy.

Borrowers can get credit counseling from community advocacy groups, like those affiliated with NeighborWorks America and NCRC. They can call the Mortgage Help Hotline to connect with a counselor near them. The organizations don't charge for their services and they are experienced in working with borrowers in trouble.

First Published: February 20, 2013: 6:28 AM ET

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Budget cuts will mean more time at the airport

Airport wait times will get longer once budget cuts hit.

WASHINGTON (CNNMoney)

How about an extra hour to go through security? And, international travelers, brace for this -- four hours to clear customs?

These are likely scenarios at the nation's airports when the much-feared $85 billion of forced U.S. budget cuts hit in March. Many federal agencies -- including those that handle airport security, customs, and air traffic control -- will be forced to furlough employees, which means workers will have to stay away from their jobs for no pay for certain time periods over the next seven months.

Secretary of Homeland Security Janet Napolitano told Congress last week that furloughs at the Transportation Security Administration will lead to fewer available officers, and passengers could spend an extra hour getting through security.

Similarly, furloughs at the U.S. Immigration and Customs Enforcement will lead to fewer inspectors to clear international passengers. That means it could take up to four hours to get through customs at the busiest airports such as Newark Liberty International Airport, John F. Kennedy International Airport, Los Angeles International Airport and Chicago O'Hare International Airport.

"Such delays not only would cause thousands of missed passenger connections, they would have severe economic consequences at both the local and national levels," Napolitano said.

The Federal Aviation Administration is also preparing for a $627 million budget cut. The agency warned that most of its 47,000 workforce will be furloughed for one day every two weeks through September, according to a Feb. 11 letter from FAA Administrator Michael Huerta to employees.

"The furlough of a large number of air traffic controllers, technicians, and aviation safety employees would require a reduction in FAA services to levels that can be safely managed by remaining staff," he wrote.

The timing is particularly bad. The furloughs will likely start taking effect in late April and early May, right before the beginning of the busy summer travel season, said Dan Stohr, spokesman for the Aerospace Industries Association.

"You're going to see tarmac delays, longer lines getting through security, flight delays and fewer flights," Stohr said.

Related: Obama, Republicans clash on forced spending cuts

FAA's Huerta also warned of "travel delays and disruptions," during the critical summer travel season.

A trade group representing airlines said that federal officials have assured them that the skies will remain safe. The airlines are lobbying Congress and the White House to find a solution to avoid the cuts.

"In this still difficult economy, with the busy travel season a few months away, the traveling public deserves responsible action from Congress and the Administration," said Victoria Day, spokeswoman for Airlines for America.

First Published: February 20, 2013: 6:35 AM ET

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Unemployed would lose benefits if federal budget cuts go through

Forced budget cuts could cost the jobless 10% of their unemployment benefits.

NEW YORK (CNNMoney)

Many safety net programs, such as food stamps and Medicaid, are protected from the $85 billion in forced spending cuts, but extended federal unemployment benefits are vulnerable.

Those payments kick in when state benefits, which last up to 26 weeks, run out. Eligible workers can then collect federal benefits for up to 47 weeks. The payments, which average $300 a week, are an emergency measure Congress has been authorizing since 2008. It's a stopgap aimed at protecting the millions of Americans struggling to find new jobs in a challenging economy.

The forced spending cuts scheduled to take effect next month trim the program's funding. Recipients of those payments could lose an average of more than $400 in benefits each through the end of the federal fiscal year, according to the Department of Labor. The fiscal year ends on Sept. 30.

State benefits would not be affected.

An estimated 3.8 million Americans currently receive federal unemployment benefits. Just when they'll see smaller checks depends on where they live. It could take a few weeks, as states scramble to reprogram their systems if Congress fails to avert the cuts. But any reductions would be retroactive to March 1.

"The longer a state waits, the next check the person gets could be very small," said Brian Langley, unemployment insurance director for the National Association of State Workforce Agencies.

Related: When unemployment runs out

Many of the federal budget cuts will not be felt immediately, but the slashing of unemployment benefits will ripple through the economy fairly quickly. Recipients often use the money to pay for housing, food and other necessities.

"Losing 10% of your check will be felt," said a House staffer involved in assessing the cuts' impact.

The budget cuts also mean the unemployed will have fewer resources at job centers, as funding aimed at helping dislocated workers, low-skilled adult workers and disadvantaged youth find positions is sliced. Veterans' transition assistance, which helps military personnel find jobs when they return home, would also be cut.

States will also lose part of their funding to administer the unemployment insurance program, which could result in staff layoffs and slower processing of claims.

First Published: February 20, 2013: 6:44 AM ET

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Apple's search for its next billion-dollar product

Customers are waiting for Apple's next game-changing innovation.

NEW YORK (CNNMoney)

The slate of rumors about upcoming Apple (AAPL, Fortune 500) products is similarly uninspiring. An even bigger or cheaper iPhone? Meh. A watch? Yawn.

Some Apple followers have begun worrying that the company has lost the secret formula that made it so successful during the Steve Jobs era.

But instead of the end of Apple's innovation streak, what we may be witnessing is Apple's response to a mobile device market that's all grown up. The smartphone, in its current form, has been around for six years now. Tablets are replacing PCs. When consumers already own an average of five mobile devices, according to Yankee Group, new category killers that give us even more stuff to carry around aren't what we really need.

"I'm not buying the 'Apple isn't innovating because it hasn't done a category-buster in three years' story," said Carl Howe, analyst at Yankee Group. "It's a bit like saying Toyota (TM) is doomed because Toyota's latest category-buster, the Prius, is 11 years old."

In a mature market, innovation is bound to focus on extending the usefulness of what's already out there, the same way that webcams, microphones, touchpads and touchscreens came along after the PC and enhanced the way we interact with our machines. Watches, glasses, shoes and wearable computing gizmos that all connect to one another seem like a logical evolution -- if not revolution -- of the mobile device space.

Some believe that to continue succeeding in mobile, Apple needs to create an ecosystem of devices that connect to the iPhone.

Others think Apple has a bigger trick up its sleeve. The company could invent wearable devices that make the iPhone irrelevant, similar to how the iPad has begun to replace the Mac.

"If Apple pitches a watch as a potential smartphone replacement, it could have disruptive potential," said Sameer Singh, head analyst at BitChemy Ventures, a technology incubator.

Apple has become a victim of its own success. It's under tremendous pressure by investors and Wall Street analysts to outperform its rivals and top itself quarter after quarter.

Yet Apple's multi-year run as the world's most valuable company -- while maintaining startup-like growth -- was bound to end eventually. Now, analysts say, is the time for Apple to retool and evolve.

"It's not a bad strategy for Apple to take its time and deliver the best products rather than be first to market," said Laura DiDio, principal of consultancy ITIC. "To think that Apple will grow its revenue at 50% year over year and introduce revolutionary products and pioneer new markets annually is an unrealistic expectation."

That doesn't mean Apple can kick back and simply enjoy the multi-billion dollar successes the company has created. Sales of Macs have begun to slip, iPhone sales are showing signs of plateauing in developed markets, iPad profits are being brought down by the cheaper iPad mini, and iPods have been in a multi-year decline. Apple's stock has fallen by a third over the past five months.

"The high-technology industry is not known for its patience," DiDio said. "Apple has some time, but it doesn't have the luxury of four or five years to sit on the sidelines and be a follower."

First Published: February 19, 2013: 6:47 AM ET

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The wealthy haven't recovered from the Great Recession (but they're doing way better than you)

The average annual income of the top 1% hasn't returned to its 2007 peak of more than $1.4 million.

NEW YORK (CNNMoney)

The annual earnings of America's economic elite remain way below their 2007 peak, according to a recent study. These folks took home an average of $1.05 million in 2011, down nearly 30% from the $1.48 million they averaged four years earlier, before the Great Recession took hold.

Don't feel too bad for the wealthy, though. The bottom 99% have seen their earnings drop a more modest 12% from their peak four years ago, but their income continued slipping, according to Internal Revenue Service data crunched by Emmanuel Saez, an economics professor at University of California, Berkeley.

Those in America's bottom 99% had an average income of $42,826 in 2011. That's essentially flat compared to two years ago -- meaning that while America's richest enjoyed a rebound, others have not. Their average income is the lowest it has been since 1995, compared to 2003 for the top 1%.

Most of the gains for the country's top earners came in the first year of the recovery, between 2009 and 2010, thanks largely to the stock market's revival. Growth flattened after that, but Saez expects 2012 to be another good year for the privileged few.

"Top 1% income will likely surge, due to booming stock prices, as well as retiming of income to avoid the higher 2013 top tax rates," he wrote in a recent report. "Bottom 99% will likely grow much more modestly."

Related: Where the rich people live

The declining fortunes of many American workers predates the Great Recession, according to Frank Levy, a labor economist at the Massachusetts Institute of Technology.

Until the 1980s, employees benefited as productivity improved. That changed as blue-collar jobs dried up and unions receded.

"The productivity gains don't translate into wage gains for workers," Levy said. "That's not always been true, and is not always true in other countries."

First Published: February 19, 2013: 7:02 AM ET

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New Bowles-Simpson deficit plan would cut $2.4 trillion

Erskine Bowles and Alan Simpson chaired President Obama's fiscal commission in 2010.

NEW YORK (CNNMoney)

Bowles and Simpson were the co-chairmen of President Obama's bipartisan fiscal commission in 2010, and their recommendations came to serve as a yardstick for other debt-reduction proposals.

Since the fiscal commission disbanded, Congress and the White House have enacted about $2.7 trillion worth of savings that will occur over the next decade.

The $2.4 trillion in deficit cuts in the new Bowles-Simpson proposal would be made between 2014 and 2023 and come on top of the $2.7 trillion already passed.

Another $2.4 trillion is needed to stabilize the debt as a share of the economy -- at a level at or below 70% of GDP, according to estimates by the bipartisan Committee for a Responsible Federal Budget.

Related: What you need to know about the sequester

The amount of debt reduction recommended by Bowles and Simpson is a more ambitious goal than President Obama has set.

Obama is aiming for another $1.5 trillion in savings, which would stabilize the debt at 73% of GDP by the end of the decade. And it's a less stringent, more gradual approach than the stated House Republican goal of erasing all annual deficits by 2023.

Bowles and Simpson suggest the $2.4 trillion in savings could be achieved through a combination of measures, some of which were in their original fiscal commission 2010 plan:

Taxes: Enacting tax reform that eliminates or minimizes tax expenditures. The revenue raised would be used to reduce deficits and to pay for the cost of lowering tax rates and simplifying the tax code.

Medicare: Reducing Medicare and Medicaid spending by cutting payments to health care providers, changing incentives for providers and beneficiaries, and increasing premiums for high earners, among other changes.

Inflation-adjusted payments: Adopting a less generous and some say more accurate inflation formula, known as "chained CPI," for any federal payments that are adjusted for cost of living, such as Social Security benefits. Chained CPI would also apply to inflation adjustments for income tax brackets.

Other measures: Curb farm subsidies and increase how much civilian and military personnel contribute to their health and retirement plans.

In addition, the new Bowles-Simpson framework calls for lawmakers to go beyond that $2.4 trillion for the long-term. Among other things, they recommend Congress agree to Social Security reforms this year and earmark future savings for the program.

The Bowles-Simpson recommendations are bound to draw vehement opposition.

Many Democrats oppose changes to entitlement programs unless they only affect the wealthy. And many Republicans refuse to consider raising any new revenue for deficit reduction through tax reform.

Bowles and Simpson plan to release more detailed recommendations at some point this year to flesh out their framework after consulting with members of Congress.

First Published: February 19, 2013: 7:19 AM ET

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32 days of higher gas prices comes at tough time

Gas prices have been rising because of higher crude oil prices, production cuts and refinery issues.

NEW YORK (CNNMoney)

That means that the average price for a gallon of regular unleaded gasoline has increased more than 13% over that period to $3.73.

It's hitting wallets right in the middle of winter, when people are already looking at large home heating bills. And it comes just after many Americans have been hit with smaller paychecks, and are worried about looming budget cuts that could deliver an even deeper blow.

What's behind the higher prices at the pump? It's a confluence of factors, from rising crude oil prices, to production cuts and refinery closings.

"Right now, things are tight worldwide," said Ray Carbone, president of New York commodities trading firm Paramount Options. "Refineries going down, unanticipated maintenance, and higher demand ... going into driving season."

Two-thirds of the cost of one gallon of gas comes from the price of crude, which has jumped 10% in the last two months, according to the Energy Information Administration. As the U.S. housing market experiences a resurgence, the jobs picture brightens and consumer spending expands, anticipation of higher oil demand is driving up prices. At the same time, fears have ebbed that there would be a protracted slowdown in China's economy, which would have dampened global demand for oil.

OPEC, the powerful cartel of petroleum exporting countries, is also believed to have cut production by about 1 million barrels a day in the last few months, partly in response to rising oil production elsewhere, notably the United States.

Adding to that, several refineries are either preparing to, or have already, shut down for maintenance before their annual switch to summer gasoline, which is formulated differently.

For the average American, all this couldn't be happening at a worse time.

Most of the country's 160 million workers are taking home less pay each week since the payroll tax cuts expired last month.

The government in 2011 had temporarily lowered the payroll tax rate for the first $113,700 of annual earnings in an effort to keep more cash in the pockets of Americans and provide a boost to the economy.

Now, workers earning the national average salary of $41,000 are receiving about $60 less on every monthly paycheck.

Related: CNNMoney map: Check gas prices in your state

Many Americans are also worried that the federal aid programs they rely on are on the chopping block. Next month, lawmakers will face off against the so-called "sequester," which will slash $85 billion from federal agencies over seven months.

By some estimates, up to 1 million jobs will be lost even as millions of federal workers will be furloughed and a bevy of programs and services across the government will be curtailed.

In such a scenario of widespread furloughs and job cuts, gas price will likely have a deeper impact if they continue to rise.

First Published: February 17, 2013: 5:26 PM ET

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Maker's Mark won't water down whiskey, after all

Emerging markets are driving growth in the liquor business, and bourbon, with its sweeter taste, is appealing to consumers in countries like India.

NEW YORK (CNNMoney)

After an outpouring of outrage, Maker's Mark announced Sunday that it won't be watering down its whiskey, after all. The bourbon producer last week said it would have to cut the alcohol volume of its signature red wax-sealed whiskey to 42%, from 45%, in order to meet rising global demand.

But Maker's Mark said it was reversing its decision, and starting Monday, it will resume production at 45%, just the way it has made it since the beginning.

"You spoke. We listened. And we're sincerely sorry we let you down," the company said in a statement. "While we thought we were doing what's right, this is your brand -- and you told us in large numbers to change our decision."

Related: Doubling down on bourbon in the heartland

The response to last week's announcement was immediate across social networks. A stream of whiskey-loving Twitter users remarked that this was a surefire way to lose customers.

Rob Samuels, chief operating officer of Maker's Mark, said the company heard from thousands of customers via phone calls, emails and social media. He said that the overwhelming feedback made it "very clear" that customers were less than pleased with that decision.

In a comment posted on CNNMoney's story about the change, reader Mike Carter said Maker's had been his favorite brand for many years, but he would now be switching to a competitor.

"I won't buy watered-down bourbon," he wrote. "This is a very bad decision."

Disgruntled customers may be breathing a sigh of relief, but Maker's Mark still faces the same issue that caused the whiskey maker to water down the drink in the first place.

Emerging markets consumption of liquor has soared, according to Matt Shattock, CEO of spirits company Beam (BEAM), which makes brands like Knob Creek and Jim Beam. Shattock told CNNMoney last year that bourbon, with its sweeter taste, is appealing to consumers in countries like India.

The surge in global demand has led to shortages, Maker's Mark said, and using less alcohol in each bottle would allow it to stretch the supply.

Bill Samuels Jr., the company's chairman emeritus, said Maker's Mark had faced 20 shortages in the 35 years he ran the company.

Bourbon is a type of American whiskey that must be aged in new barrels and distilled at less than 160 proof, or 80% alcohol.

According to the company, the response made it clear that customers were not willing to compromise on quality and would rather put up with occasional shortages.

Rob Samules said that moving forward, Maker's Mark will have to balance its inventory and work closely with its distillery to keep up supply with demand.

"The unanticipated dramatic growth rate of Maker's Mark is a good problem to have," he said.

First Published: February 17, 2013: 2:58 PM ET

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Thailand's economy races ahead

Workers in Thailand pictured next to containers filled with rice.

HONG KONG (CNNMoney)

Thailand's economy expanded rapidly in the fourth quarter, with the government reporting gross domestic product growth of 18.9% compared to the previous year.

The eye-popping growth figures are rooted in misfortune, as Thailand experienced crippling floods in late 2011 that depressed production and consumption.

But even with the lower baseline caused by the natural disaster, Monday's data suggests that Thailand's recovery is more robust than previously thought.

Economists had expected much slower growth of around 15% for the quarter -- a consensus that now appears conservative.

Su Sian Lim, an economist at HSBC, attributed the growth to better-than-expected gains in private consumption and net exports.

Related: World's largest economies

There are more indicators that suggest the growth is for real.

Compared to the third quarter, a more recent benchmark, the economy expanded by a very rapid 3.6%. And the government said Monday that full-year GDP growth in 2012 was 6.4%.

The massive floods in 2011 killed hundreds of people and caused damage worth billions of dollars. The country is a regional manufacturing hub, and is especially important for the auto and electronics sectors.

G20 pledge: No currency war

HSBC's Lim said the country's central bank is now less likely to cut rates later this week -- a strategy that some government officials have advocated in a bid to boost the economy.

"With growth this strong, it is difficult to make a case for more policy accommodation, no matter what the government may say about the need to compress interest rate differentials and keep [the baht] from strengthening," Lim said.

Rate cut or no, Thailand is projected to keep its momentum. The government forecasts growth of 4.5% to 5.5% for 2013, a number in line with private forecasts.

First Published: February 18, 2013: 3:56 AM ET

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Heinz deal sparks SEC insider trading investigation

The ketchup maker agreed to be purchased for $28 billion by a group including Warren Buffett's Berkshire Hathaway and private equity firm 3G Capital.

NEW YORK (CNNMoney)

The SEC said "unknown" traders using the account had purchased options the day before the announcement and reaped $1.7 million when the H.J. Heinz Co (HNZ, Fortune 500) deal was revealed on Thursday. In a complaint filed in Manhattan federal court, the agency said those responsible "are either foreign traders or traders trading through foreign accounts" in Zurich, Switzerland.

The court order prevents the potentially illegal profits from being withdrawn while the SEC investigates the case.

"Irregular and highly suspicious options trading immediately in front of a merger or acquisition announcement is a serious red flag that traders may be improperly acting on confidential nonpublic information," the SEC's Daniel Hawke said in a statement. Those using the account will have to appear in court to explain their trades if they want their assets unfrozen.

The SEC said the trades were suspicious in part because the account in Switzerland, which is known for its bank secrecy, had not been used to trade any Heinz-related securities in the past six months until the day before the acquisition announcement, and because trading in these options had been "minimal" in the days prior.

Related: Is Buffett overpaying for Heinz?

Heinz shares surged following the announcement of the acquisition, placing the traders in position to profit. Berkshire (BRKA, Fortune 500) and private equity firm 3G Capital agreed to buy Heinz for $72.50 a share, a 20% premium over Wednesday's closing price.

Heinz spokesman Michael Mullen declined to comment on the SEC investigation. 3G Capital and Berkshire did not immediately respond to requests for comment.

First Published: February 15, 2013: 5:12 PM ET

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