While we have all looked hopefully to an improving real estate market as 2011 progressed, it is now fairly clear that we’re in for continued uncertainty as financial concerns continue to rock the economy.

On the International level, the downgrade last week of the United States’ credit rating by Standard & Poor’s has triggered a dramatic sell-off in the stock market and raising the borrowing costs for the government. This means the cost of US Treasury bonds will climb and can be expected to push up real estate interest rates for new loans. Those borrowers with adjustable loans tied to Treasury rates can expect similar increases. The biggest fear is that this, combined with instability with European financial markets, will cause businesses to continue holding onto cash instead of investing in new jobs. Business confidence and job growth is needed to lift us out of this recession and avoid further declines.

On the National level, real estate foreclosure rates continue to climb. Lender Processing Servcice reports that 217,000 new foreclosures were started in June and that 4.1 million loans are now either in foreclosure or 90+ days delinquent. This is a 13% increase from last year. What this indicates is that efforts to assist upside-down borrowers continue to fail. Plus, we’re seeing an increase of defaults among borrowers who have interest-only loans which will convert to full-pay in 2012. Without an option to modify, refinance, or sell, many such borrowers are deciding to take the hit now. The key to making such a decision is knowing whether the borrower will be at risk of a lender lawsuit for recourse after a foreclosure or shaort-sale. BPE Law’s consult services for upside-down borrowers can answer these questions for California property owners.

California remains in disarray as borrowers, lenders, and agents still try to make sense of the recently passed SB458 which amended California Civil Code Section 580e. By barring junior lenders from either deficiancy recourse or contribution, the legislature suddenly made short sales an all or nothing situation. All lenders owe their investors a fiduciary duty to try to recover as much as reasonably possible. First lenders generally make more money from a short sale than they would from a foreclosure so, this change has not substantially affected them. But junior lenders now must weigh the nominal amount offered them by a first lender (typically $3,000) against what they might recover by suing the borrower for deficiency after the first lender forecloses. Unless the borrower is clearly a Bankruptcy candidate, junior lenders will increasingly find foreclosure more attractive than short sale. For Realtors, this means further declines in short sale closing rates, more REO properties, and continued market decline.

We have a long way to go and many hurdles to cross before we reach any kind of certainty. Huge lawsuits are being filed against lenders by their investors, most recdently AIG’s $10 billion suit last week against BofA. Meanwhile, the proposed Settlement of the Attorneys General lawsuits against lenders arising from the “robo-signer” scam remains in limbo. The battle-ground there is demands that lenders modify loans and cut principal balances. The lenders refuse… or at least refuse to agree to government-imposed loan changes. For upside-down borrowers, there is no indication that anything transpiring in the economy or in the courts will bring any more hope for homeowners nor will there be any government bailout.

In the long run, as with past recessions, it will take inspiring and effective political leadership to move us forward. Today’s political infighting in Washington and in the States - especially California - has not produced any sense of confidence in the US or the World that we have the political will to make the hard decisions necessary to put our economy on a path to recovery. Any path will be painful. How that pain is balanced will remain the battle-ground.

Effective July 15, 2011, California has prohibited Junior Lenders (2nds, HELOCs, etc) from having any deficiency recourse claims against the borrower if the lender agrees to take part in a short sale. Gov. Jerry Brown signed SB 458 (Corbett) into law and it took effect immediately. In January, 2011, SB 931 (2010) was put into effect requiring that any First lender that agrees to a short sale must accept the agreed upon short sale payment as payment in full of the outstanding balance of all loans. But unfortunately, the rule did not apply to junior lien holders. SB 458 extends the protections of SB 931 to junior liens. Both laws only apply to one to four unit residential properties.

Whether this is a victory for sellers and the real estate industry remains to be seen.

California Association of Realtors President Beth L. Peerce stated: “SB 458 brings closure and certainty to the short sale process and ensures that once a lender has agreed to accept a short sale payment on a property, all lienholders – those in first position and in junior positions – will consider the outstanding balance as paid in full and the homeowner will not be held responsible for any additional payments on the property.”

But the real question is whether this will in fact make short sales harder to get done.  For any lender being asked to take the loss of the deficiency in a short sale, their only obligation is to determine whether a short sale will get more money back for their investors than a foreclosure. For first lenders on one to four unit residential properties, short sales are almost always better because: 1) Buyers pay more at a short sale than at a foreclosure sale; and 2) almost all foreclosures of these type of properties in California are done using a Trustee Sale from which there is no deficiency recourse. So for the foreclosing first lender, the short sale will generally bring them more money than a foreclosure. That is not necessarily the case with junior lenders.

In most short sale situations, there is not enough value in the sale proceeds to pay anything to junior lenders. Unless the junior lender made a “purchase money loan” (acquire personal residence), the junior lender has recourse against the borrower if not paid in full. However, unlike the first lender, the junior lender will not foreclose. They will wait for the first lender to foreclose which will wipe-out the security for the junior loan. Once that happens the junior lender can file a lawsuit against the borrower for whatever is owed them and, unless the borrower files Bankruptcy, the lender can collect everything owed to them. This is very different from what pre-existed this law when at least borrowers had some legal defenses against junior lender collections after a short sale. There are few if any defenses to post-foreclosure junior lender collection lawsuits.

One of Murphy’s Laws is called “The Doctrine of Unintended Consequences”. We got into this market collapse as a result of a government policy to promote expansion of home ownership. But this required making loans to people who were less qualified to repay them. This noble Policy drove up demand for homes and that drove up prices…. until borrowers could no longer afford to pay their debts. SB 458 is a similarly good sounding Policy. As much as I hope it does not occur, I fear that the unintended consequence of the passage of this law will be that junior lenders will reject short sales, more homes will go into foreclosure, and the real estate industry will further decline (except for those handling post-foreclosure REO properties). Time will tell whether this is a victory or a disaster.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are a real estate professional involved with short sales or in anyway providing communication or advice to upside-down owners, be sure to get competent legal advice in your State immediately before giving any advice.

If you have specific questions about dealing with upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com. We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The FTC’s Mortgage Assistance Relief (MARS) Rule which took full effect on January 1, 2011 is designed to help distressed homeowners avoid mortgage relief scams through a combination of: 1) an Advance Fee Ban; 2) required Disclosures; and 3) a Prohibition against certain types of claims. See my previous Blog for details: Mars Rules Hope to Block Loan Scams.

Although targeted at Loan Modification Companies, The Rule is causing great concern for Realtors and other real estate professionals handling short sales.  Since short sales in part seek to provide debtors with relief from deficiency loan liability, the challenge has been how to do their job effectively without risk of liability for violating the MARS Rule in short-sale negotiations where they often discuss their clients’ delinquent mortgage situations, or refer clients to companies that specialize in loan workouts.

The National Association of Realtors (NAR) requested that the FTC carve out disclosure exemptions for home sales but that request has been denied. The result is Realtors handling short sales could be exposed to fines of up to $11,000 per day for non-compliance with the Rule.  To facilitate compliance, the California Association of Realtors (CAR) has created four new Disclosures to be used in short sales each of which is formatted with the type sizes and emphasis required under the Rule. Two of these concern short sales and two concern notice to tenants concerning post-foreclosure occupancy rights.  These new Disclosures are:

     (1)   Mortgage Assistance Relief Services Short Sale Negotiation Notice;

    (2)   Mortgage Assistance Relief Services Offer of Mortgage Relief Notice;

    (3)   Notice of Termination of Tenancy within One Year after Foreclosure (Giving Tenant At Least 90 Days to Vacate)

    (4)   Additional Information Regarding Termination of Tenancy within One Year After Foreclosure Giving Tenant Less Than 90 Days to Vacate).

As with any new law, the enforcement and applicability of the MARS Rule may change as courts ultimately interpret its full legal effect.  Meanwhile it is critical that all people involved in real estate transactions be aware of and comply the Rule’s requirements. If you are a Realtor, be sure to stay current with the legal forms being provided by your State Association of Realtors.  We will also seek to keep you informed in these periodic Blog postings.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are a real estate professional involved with short sales or in anyway providing communication or advice to upside-down owners, be sure to get competent legal advice in your State immediately before giving any advice.

If you have specific questions about dealing with upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

In November, 2010, the Federal Trade Commission passed a rule that bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable (FTC MARS Rule).  Called the Mortgage Assistance Relief Services (MARS) Rule, it is designed to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. Bogus operations falsely claim that, for a fee, they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs.

The MARS Rule has three key components:

1.   Advance fee ban - Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

2.   Disclosures - The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:

    (a)  They are not associated with the government, and their services have not been approved by the government or the consumer’s lender;

   (b)  the lender may not agree to change the consumer’s loan; and

   (c)  if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.

3.   Prohibited claims - The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

   (a)  the likelihood of consumers getting the results they seek;

   (b)  the company’s affiliation with government or private entities;

   (c)  the consumer’s payment and other mortgage obligations;

   (d)  the company’s refund and cancellation policies;

   (e)  whether the company has performed the services it promised;

   (f)  whether the company will provide legal representation to consumers;

   (g)  the availability or cost of any alternative to for-profit mortgage assistance relief services;

   (h)  the amount of money a consumer will save by using their services; or

   (i)  the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

All provisions of the rule except the advance-fee ban become effective December 29, 2010. The advance-fee ban provisions became effective January 31, 2011.

Most people in the real estate and lending community applaud this effort to protect already upside-down homeowners from predators promising help but who in reality are only out to take their money. However, passing a Rule is one thing, understanding and implementing it is another. In my next Article I’ll discuss the challenges being faced by the Real Estate industry to comply.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), or if you are being tempted by companies promising to get you a loan modification and enable you avoid foreclosure, get competent legal advice in your State immediately before giving them any money up front.

If you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

Upside-down borrowers, frustrated with a lack of lender willingness to modify their loans and desperate to keep their homes, often turn to lawyers who promise to stop foreclosures and force lenders to modify loans. But all too often what appears to be a meritorious Complaint gets quickly thrown out by the Courts and the borrower ends up still losing their home… plus thousands of dollars in legal fees. 

Significantly, in these cases the borrower typically requests and is granted a Temporary Restraining Order (TRO) to stop the pending foreclosure sale.  It appears as a quick victory. But a TRO is just a short-term stoppage for approx. two weeks at which point the borrower must convince the court to grant a Preliminary Injunction stopping foreclosure for the entire time it takes to get the case to trial which could be two years or more.  Here is where the lenders are winning the war.

The following analyzes several of the legal arguments raised against the lenders and what has happened in the Courts. The cases cited all originated in California state courts but were decided in the Federal courts. The decisions appear consistent with what is happening in other states. 

1.  I MADE ALL THE TRIAL MODIFICATION PAYMENTS AND GAVE THEM ALL THE DOCUMENTS THEY ASKED FOR. THE COURT SHOULD COMPEL THEM TO MODIFY MY LOAN   -  This argument is often raised as part of a lawsuit to stop a foreclosure from occurring.  The underlying arguments are: 1) the lender did not handle my HAMP modification application properly (Negligence claim); or 2) I met the lender’s or HAMP’s loan mod requirements but the lender denied the modification anyway (Beach of Contract claim) ; or 3) the lender never intended to give me the modification, they just wanted to get my Trial Mod payments (Fraud claim).  Most loan modifications on homes are being done under the government’s Home Affordable Modification Program (HAMP).  Where a borrower doesn’t fit HAMP’s guidelines, many lenders have their own “proprietary” modification programs.  The legal question is whether a borrower can force the lender to modify if they fit within the guidelines.  The courts routinely are saying: “No”.  In January, 2011, in the case of Phipps v Wells Fargo Bank, the Federal Court ruled that a Borrower has no right to sue a lender to force a HAMP modification. Even before this, in the 2009 case of Pantoja v Countrywide Home Loans, the Federal Court ruled that California laws do not impose a duty to modify a mortgagor’s loan.

2.   THE LENDER PROMISED ME THEY WOULD EXTEND THE FORECLOSURE SO I COULD COMPLETE MY MODIFICATION BUT THEY THEN FORECLOSED ANYWAY. THE COURT SHOULD UNWIND THE SALE AND GET MY HOME BACK  - Again the courts are routinely saying: “No”. In the 2010 case of Mehta v Wells Fargo Bank (Fed Ct decison 3/29/2011), the Court ruled: a gratuitous oral promise to postpone a sale is ordinarily unenforceable. Typically the loan agreements require that any modification be in writing and signed by all. Alternatively, the borrower must have proviuded the lender with some “consideration” to which the lender is not otherwise entitled. Merely submitting modification application documents is not consideration nor is it enough to have continued making Trial Mod payments.  Without a written agreement with the lender extending the sale, the foreclosure will not be rescinded.

3.   IF THE LENDER CANNOT PRODUCE THE ORIGINAL PROMISSORY NOTE, THE COURT SHOULD BAR THEM FROM FORECLOSING  -  This “standing” argument has received extensive publicity natonwide, especially concerning the rights of MERS to foreclose.  Although early rulings tended to vary, Courts are more generally ruling in favor of the foreclosing lenders. As stated in Pantoja v Countrywide Home Loans, under California law there is no requirement to produce the original note prior to completing a non-judicial foreclosure (Trustee’s Sale).  A different result could possibly arise in a Judicial Foreclosure although that process is extremely rare in a home foreclosure.  Similarly, the courts agree that MERS has a right to foreclose when MERS is named in the Deed of Trust (which is most often the case).

4.   I WOULD HAVE PAID BUT THE FORECLOSURE NOTICE WAS DEFECTIVE  - California has a “Tender Rule” which requires the borrower to allege and to prove not that they “concievably” could have paid, but it was “plausible” that they would have paid.  Simply put, actual proof of real capacity to pay is needed.  Court rulings are consistent: If you couldn’t pay anyway, a defective notice was not the cause of the foreclosure.

The bottom-line in all of this is to be wary in believing that just because the lender may have mishandled your loan modification, a court will help you out.  At a basic level, a loan is a contract between the lender and borrower in which the lender gives the borrower money in exchange for the borrower promising to repay the loan on the terms in the written agreement.  Courts will generally not interfere in the contractual agreements of parties unless one of the parties breaches the agreements or does some other illegal action.

Obviously the above analysis just touches the surface of where the law is today.  Hundreds and perhaps thousands of cases are moving through the courts as borrowers seek to keep their homes.  In some cases, different courts will reach different rulings from those stated in this Article.  However, it does appear that these decisions are likely to be widely followed.  In fact, just yesterday a Sacramento Superior Court judge denied a Preliminary Injunction after having granted a TRO and allowed the foreclosure to continue. The judge’s legal reasoning cited all of the cases identified above and more. 

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, or if you are considering suing your lender, get competent legal advice in your State immediately so that you can determine your best options.

If you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

For the past three years, I’ve been regularly advising upside-down property owners on the challenges, risks, and strategies of dealing with their lenders and upside down loans.  Over 2,000 borrowers and their Realtors have consulted with us to determine what they should do.  As our nation’s economy slowly recovers, some solutions have improved such as lender’s willingness to do short sales while others have gotten worse such as the failure of loan modification programs.  And we’re now defending more and more clients from lender and collection company lawsuits seeking deficiency judgments.

At the request of several clients, we’re providing the following informational links to Outlines that can help owners and Realtors know which questions to ask and learn which way to proceed.

Guide for Upside-Down Property Owners

Outline for Property Owners Seminar

Outline for Realtors Seminar

If you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

Across the country, real estate agents are reporting a dramatic increase of lenders rejecting short sales and pushing forward with foreclosures.  This change of practice seems to be most evidence with Bank of America although they certainly are not alone.  In one recent case in Washington reported on KATU.com, the lender (Flagstar) rejected the buyer’s offer as being too low and demanded a higher price. When a new buyer agreed to pay the lender’s price, the lender rejected the deal and foreclosed anyway.  In a similar situation in California, BofA rejected an offer that was substantially higher than comparable sales (realtown.com).  So what is driving this change?  It may be the interaction of several changes. Here’s what may be going on:

1.  Changes at Bank of America - it is no great surprise that BofA’s foreclosure rate would increase. As reported here on Feb. 9, 2011(Changes coming to BofA), this lender has now divided itself in two with one part holding their good loans and banking business, and the other part - called “Legacy Asset Servicing” - holding the bad. And they’ve brought in a veteran forecloser from One West Bank to lead it.  The expectation is that the two year plus lag times which BofA has taken to foreclose will soon disappear as they push to get these bad debts off their books.

2.  Changes at Fannie Mae and Freddie Mac - These government sponsored enterprises (GSE’s) are the actual investors in nearly 90% of all loans being made today.  As the investors, they have the control over whether a short sale offer is accepted or rejected.  Now that the government wants to get out of the lending business (winknews.com), there is a push underway to wind down the enormous amount of bad debt on their books. On February 23rd, Fannie Mae announced what it has called the “STAR” program which will actually rate lender servicers and provide rewards for those who perform timely and fines for those who don’t.  This could mean that lenders that do not foreclose timely will be fined! (see Bob Hertzog blog).

3.  Problems with Broker Price Opinions - The underlying cause of these rejections often is based upon the lender’s unrealistic opinion of the property’s value. When considering a buyer’s short sale offer, the lender has a responsibility to its investor to independently determine the value and for this they generally have their own real estate representative provide a broker price opinion, commonly called a “BPO”. While this should reasonably match up with what a buyer would be offering, it doesn’t always happen.  And sometimes it bears no relationship to reality.  Again and again we hear about lenders rejecting short sales and then opening the foreclosure sale with a bid even less than the short sale buyer would pay.  How can this make sense?  Well, there are some ways:

      (a)  Investor makes more money on a foreclosure - In many cases lenders’ and investors’ risk of loss is less than we might believe: (1)  lenders may have their own mortgage insurance policies in place that pay them only if there is a foreclosure;  (2) lenders may have some access remaining to TARP bailout money to offset bad loan losses; and (3) lenders such as One West who take over failed banks from FDIC may have government guarantees that pay them more if they foreclose (see: One West blog 8/2010).

     (b)  BPO is defective - Just because a bank requests their agent to run a BPO does not assure that it will be accurate.  In today’s marketplace, real estate values vary widely. If the agent does not use comparative properties of the same size, location, and physical condition, the BPO may tell the lender to demand a higher price than a buyer would be willing to pay.  If this happens to you, request a review of the BPO and provide good detail on the subject property and the comps.  A full-blown appraisal would be better but no-one wants to spend the money on this, especially if the lender is not really motivated to short sell.

    (c)  Negotiator Opposition - Even when everything seems right, the Short Sale must still be approved by the lender’s negotiator and this can add an element that has nothing to do with market value.  We recently were involved in a short sale with Chase in which the seller stayed current on their loan to avoid credit damage (he was a banker). The negotiator refused the short sale because, since he was current on the loan he must not have a hardship. She wanted him to pay the entire deficiency even though he had no ability to do so. This short sale eventually succeeded by “appealing upstairs” to a supervisor but it was a battle all the way. 

IN SUMMARY - Overall, there are five generally recognized reasons that Short Sale offers get rejected.  Make sure that the short sale offer you submit satisfies each of these:

      (1)  Price is too low:  Make sure to supply a fully and accurate comparative market analysis or approasal.  Be ready to counter a defective BPO.

      (2)  Short Sale Package Incomplete:  Don’t expect a lender to tale a hit on the deficiency if the Seller has not provided full information required to evaluate a hardship application, including net worth statement.

      (3) Seller does not Qualify:  If the Seller has assets that they can contribute to reduce the deficiency but refuses to do so, the lender may reject the short sale.  Bridging this requires analysis of the impact that a foreclosure could have on the Seller and on the lender.

     (4)  Buyer does not Qualify:  As with any offer, the lender must be reasonably confident that the Buyer will be able to complete the sale so be sure to provide at least a Prequalification Letter with the offer. Also, make sure that this is a third party transaction. If the Buyer is a friend, family member, or business associate of the Seller, it will probably be rejected as being a sham “straw buyer” seeking to stick the lender and then getting the property back to the seller.

      (5)  Bank sold the Loan:  Banks have thousands of loans on their books. Short Sale offers are often submitted to the lender who is receiving the Seller’s loan payments.  But they may only be a servicer if they have sold the loan.  Seek to get confirmation quickly that the lender still owns the loan… they may not know for certain themselves.

Meanwhile, if you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

 In that matter, it turned out that the decision maker was the loan’s investor, FNMA.

Last Fall, controversy erupted nationwide when it was disclosed that lenders were falsifying Declarations legally required to foreclosure on defaulted property owners. The law requires that someone with personal knowledge of the facts declare under oath that the facts were true and that they justified the foreclosure.  In reality, banks were having staff members sign thousands and thousands of these Declarations without even reading them and with no personal knowledge of the facts they were swearing to.

Although the furor quickly died when banks promised to clean-up their acts, the Attorneys General of many States brought legal charges against the lenders. Last week, they unveiled a draft Settlement which contains a great many provisions which, if adopted, would end the abuses and inefficiencies which have plagued the loan modification process and led to the foreclosure of millions of homes.  Most controversial however is the requirement II.M. of the draft Settlement which would require lenders to consider and apply Principal Reductions as part of the loan modification process.  Opposition has been swift.

As reported in DSNews.com, almost as soon as the draft Settlement was released, Bank of America’s CEO, Brian Moynihan, spoke out against the principal reduction requirement saying “it would not be fair to underwater homeowners who have struggled to remain current”.  Senator Richard Shelby of Alabama stated: “This proposed settlement appears to be an attempt to advance the administration’s political agenda, rather than an effort to help homeowners who were harmed by a servicer’s actual conduct”.  And Iowa Attorney General, Tom Miller, acknowledged that “too generous a program might encourage homeowners to walk away from properties…”.  This was followed by the Chairman of the House Financial Services Committee, Spencer Bachus, who called the draft an effort to “transform the mortgage servicing industry and fundamentally change the rules that have historically governed relationships among borrowers, servicers, and investors”. He asked: “Will forcing servicers to fund principal reductions for underwater loans they service affect the incentive of mortgagors to stay current on their loans?”

Obviously the proposed Settlement is just a draft at this point and the final terms may vary greatly from the initial proposal.  But judging from the initial media reports, there is a widespread opposition to intervening in the lender-borrower relationship by compelling principal write-downs.  If the investors who provide their moneys to lenders to make loans cannot rely on their right to enforce the loan terms when there has been a default, those investors may decide to invest elsewhere. If so, the availablity of loans, especially for the riskier borrowers, will become much more difficult to obtain.  No matter what else happens, the political discussion created as a result of the Robo-Signer scam could potentially change the entire financial system for both the better and for the worse.

Please take the time to review the draft Settlement and let your Attorney General and House and Senate representatives know how you feel on this issue. Watch this Blog and others as the revisions occur.

Meanwhile, if you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

As readers of my Blog are aware, there has been a legal issue in the nation as to whether MERS, the Mortgage Electronic Registration System, can foreclose on a Deed of Trust if they do not own the Promissory Note. First a little background.  A loan is generally made up of two documents: 1) the Promissory Note in which the borrower promises to repay the lender upon terms set forth in the Note; and 2) the Deed of Trust which gives the lender a security interest in the real property.  If the borrower defaults in payment under the terms of the Note, the lender can take the property based upon a foreclosure power contained in the Deed of Trust. Depending upon the State and the method of foreclosure used, the lender may or may not be able to obtain a court judgment against the borrower for any portion of the loan not paid (deficiency judgment).

During the growth of the real estate bubble from 2000-2008, lenders regularly sold the loans to get money to make more loans. This involved assigning the Note and Deed of Trust to the new owner and recording the assignment of the Deed of Trust.  This process was costing lenders millions of dollars in recording fees. Their solution to avoid this was the creation of a separate entity, MERS, which would be assigned the Deed of Trust but note the Note.  Then, if there was a default, whoever then held the Note would tell MERS to foreclose.  The legal question this raised was whether MERS had any real rights to enforce the loan default terms or were they merely an agent of the actual owner of the loan, ie: the holder of the Note.  This is very important because if MERS is only an agent, they have no legal right (”standing”) to take any action… only the holder of the Note can.  In States where foreclosure can only be done through a legal action (such as Ohio, Florida, and others), foreclosure actions by MERS started getting thrown out of Court when they could not prove that they also owned the Note. 

These early successes gave birth to law firms promoting that they would stop foreclosures by finding the disconnect between MERS and the Note holder.  However, it also started legal argument nationwide on whether this ownership of both the Note and Deed of Trust was required.  In May 2010, the US Bankruptcy Court in California ruled that if MERS did not own the Note, they could not foreclose on the debt (Case of Rickie Walker).  However, that did not settle the dispute.  As reported in DSNews.com , Courts around the country have continued to differ. Last week, a New York judge ruled that MERS cannot foreclose unless they own the Note.  But within days, judges in Kansas and Mass. ruled that ownership was not required. Other Courts, particularly the Minnesota Supreme Court, ruled that MERS could foreclose. On February 18, 2011, California Court of Appeals (4th Dist) ruled that MERS could foreclose (Gomes v Countrywide Home Loans). In that case, MERS was actually named in the Deed of Trust signed by the borrower and had authority to foreclose.  Different facts might bring a different result.

Only rulings by a State’s Supreme Court are binding on all lower courts in a State so it is likely that the dispute will continue.  However, consensus appears to be growing in the Courts around the nation that MERS does not need to own the Note to foreclose on the security.  Perhaps, although not stated, this reflects a judicial attitude that since the borrower has actually defaulted in repaying the debt, they should not be able to use the MERS technicality to avoid the consequences. 

Time will tell how this dispute eventually plays out. In the meantine, we advise that you do not get lured in by advertisements promising they’ll stop foreclosures because MERS doesn’t own the Note.

If you have specific questions about your loan and the lender rights or any other legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

As followers of my Blog know, I have long stated that our current market crash was caused by a lending industry taking advantage of a government deregulation intended to make home ownership available to more Americans. In a classic example of the Law of Unintended Consequences, the deregulation allowed lenders to sell virtually any loan they created regardless of whether or not the borrower was qualified for the loan. This house of cards eventually crashed when original teaser rates re-set and millions of borrowers could no longer afford the loans.

In 2008, Congress created a Commission to investigate the cause of the crash and appointed Sacramentan, Phil Angelides, to head it. In a blistering report that followed 18 months of testimony and fact-gathering, Angelides and his Financial Crisis Inquiry Commission blamed a wide cast of characters for the epic meltdown, including executives of insurance giant AIG and Goldman Sachs and government policymakers like Alan Greenspan, Timothy Geithner and Ben Bernanke. The report said human error created the crisis. The Report blamed mortgage lenders for the flood of risky subprime loans that ignored “a borrower’s ability to pay.” Wall Street investment banks recklessly packaged the loans into toxic securities that exposed the entire financial system to melt down, the report concludes.

The panel held four field hearings, all in communities that were among the hardest hit by the real estate crash: Sacramento, Las Vegas, Bakersfield and Miami. In Sacramento, commissioners heard about the Central Valley’s vulnerability to the housing price bubble. One witness testified that appraisers were pressured by lenders to make inflated appraisals so shaky loans would go through. The final report mentions Sacramento numerous times, noting that housing prices more than doubled in a five-year stretch.

All the while, government watchdogs were asleep. For more than 30 years, lawmakers and presidents bought into the free-market ethic backed by the likes of Greenspan, the former Federal Reserve chairman. “The sentries were not at their posts,” the report said. However, following the release of the report, government officials lost no time in getting to finger-pointing. The crisis commission’s findings were caught up in immediate partisan bickering. While the report was endorsed by the six Democrats on the commission, the four Republicans refused to sign off on its conclusions.

At the press conference introducing the report, Mr. Angelides made no bones about where he stood on this question: This was an avoidable crisis, he said bluntly. As the report puts it, “The crisis was the result of human action and inaction, not of Mother Nature or computer models gone haywire. If only regulators had been willing to regulate; if only Wall Street had done proper due diligence on the mortgages it was securitizing; if only subprime companies had acted more honorably; if only the credit ratings agencies had said no when asked to slap triple-A ratings on subprime junk. If only, if only, if only”.

Now comes the real test of whether our leaders will put back in place the economic regulations necessary to prevent irresponsible lending while not stopping the economic recovery which is just beginning. We need to have a thriving lending system for our nation to continue to grow and prosper. But that lending system owes a duty to us all to act reasonably and responsibly… a duty sadly lacking in causing this market crash.

If you have specific questions about landlord-tenant law in California or about short sales, foreclosure, or any legal issues, feel free to contact us at sjbeede@bpelaw.com We offer a $200 flat fee consultation to evaluate your liabilities and strategize a resolution. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.