One of the most common complaints we hear from upside-down owners is that lenders are non-responsive to their requests for loan modification or short sale. Documents are getting lost, or the lender says they have not been received, or the negotiator has changed, or many other excuses.  All of this has led many frustrated upside-down borrowers to believe that lenders have no intention of helping them despite all of the hype about government programs such as HAMP (Modifications) and HAFA (Short Sales and Deeds in Lieu). While I believe that most lenders are trying but are overwhelmed, there is a very real question of whether OneWest Bank is pushing for foreclosures.  The evidence suggests that it is.

First a little history.  A great many banks are insured by the FDIC, the national program designed to protect depositors’ assets. During the height of the real estate bubble, lenders were giving out loans without really any care for whether the borrower really could pay them back.  When the market crashed starting in 2006, foreclosures skyrocketed, banks lost their source of income and capacity to operate, ie: they “failed”. When a bank fails, FDIC steps in and takes control. This is what happened in 2008 with the collapse of Indymac. But FDIC does not want to run the bank. First they took control then found a buyer: OneWest Bank.  OneWest was created by a handful of very wealthy investors solely to take over Indymac from the FDIC.  What made this an attractive investment was the unique “Shared Loss Agreement” between Indymac and OneWest wherein OneWest purchased Indymac’s loans for between 58-70% of the balance owed but if there was a foreclosure, FDIC would pay 80-95% of the losses on the original balance. It is not rocket science to figure out that under this deal, OneWest could make far more money from a foreclosure than they could from a modification or short sale.  To learn more about this history, read Patrick Pulatie’s blog: http://iamfacingforeclosure.com/blog/2009/12/01/anatomy-of-a-government-abetteded-fraud-why-indymaconewest-always-forecloses/

So what does this all mean to you, the upside-down property owner: If you’re dealing with OneWest Bank or Indymac, don’t expect help because it may not be there.  Note also that FDIC has entered these Shared Loss Agreements with over 50 different lenders and servicers, although apparently none are as uncooperative as OneWest. Is there anything you can do to force them?  Possibly. First - write your Congressman for help. It is certainly unlikely that our legislature intended this perverse result when they approved the FDIC operations. This may put on pressure.  Second - use the Courts to get relief. Many States, such as California, require that a lender negotiate in good faith to attempt a resolution before commencing a foreclosure. Paragraph 2.1(a) of the FDIC-OneWest Shared Loss Agreement requires OneWest to “undertake, reasonable and customary loss mitigation efforts”.  A judge or jury can decide if OneWest has met their responsibilities. Remember, the squeaky wheel gets the grease. Faced with a legal challenge or Congressional pressure or both, OneWest may fix your problem to make you go away even if they are unwilling to change their policies.

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 having problems communicating with OneWest or Indymac, get competent legal advise in your State immediately so that you can determine your best options. 

If you have specific questions about your liability 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.

On March 5th, the House of Representatives gave a thumbs up to upsidedown homeownes by approving the Bankruptcy reform provision of President Obama’s Real Estate Recovery.  The provision would allow Chapter 13 Bankruptcy judges to “cram-down” loans to affordbale levels by lengthening terms, cutting interest rates and reducing mortgage balances of bankrupt homeowners. It also would permanently increase the FDIC’s coverage of bank deposits to $250,000. The measure passed the House 234-191 and now goes to the Senate.

Needless to say, the bankruptcy provision is opposed by the banking industry and most Republicans, who said it would further destabilize home prices. This makes passage by the Senate more uncertain. Everyone seems to agree that the bill is not perfect although there is a general concensus that something must be done to stem the wave of foreclosures.  Senate consideration will start next week and there is likely to be lots of pressure for revisions.  The bill passed the House narrowly and along party lines. Passage in the Senate will be more difficult.  Not mentioned in the many articles circulating will be just how the Bankruptcy Courts would handle the infux of potentially millions of new Bankruptcy filings. Certainly more staff would be needed and maybe even some expedited screeing process. Right now we’re at the big picture stage but, as with everything, “the devil is in the details”.

Stay tuned for further information. If you have specific questions about your liability, foreclosure, or any legal issue, feel free to contact me at sjbeede@bpelaw.com

As you know from my past Articles, a key component of the Obama Real Estate Recovery Plan is getting Congress to approve allowing Bankruptcy Chapter 13 Judges to “cram down” principal amounts on over-encumbered homes to current market values. Congress is debating this as they have been for many months. But there may be some interim help while we wait.

Yesterday while I was in Court assisting a client in a Bankruptcy matter, a lawyer came in on another case and sought to oppose a lender’s request for Relief from Automatic Stay. When someone files Bankruptcy, the filing automatically stops any adverse legal action against the debtor without the BK court’s permission. This lender was seeking that permission so they could complete their foreclosure of the debtor’s home. This is routinely granted since the borrower has no equity.  This time however, the result was different.  The attorney did not have any legally valid reason to oppose the lender’s request. Instead, he asked the Judge to delay ruling on the Lender’s request until the impact of the Obama Plan can be known. The Lender’s attorney did not vigorously object and the Judge actually agreed to delay ruling for 6 weeks. That gives that borrower another month ans a half to stay in their home and provides added incentive for the Lender to agree to a modification. Plus, it is not guaranteed that the stay will be lifted in 6 weeks. The attorneys must come back to court at that point and make any further arguement as to why the Relief from Stay should or should not be granted.

If you are one of the millions out there facing foreclosure, this result in this Bankruptcy court may provide an extra margin of help if other judges are willing to rule the same way.  While I am not at all a fan of Bankruptcy, in certain cases it is a necessary and valuable tool to enable an upside down borrower to get back on their feet.  If you have any other real estate or legal questions, please feel free to contact me at sjbeede@bpelaw.com or through our website at www.bpelaw.com .

Last Wednesday, President Obama unveiled his long-awaited plan to stimulate a recovery in real estate and assist homeowners facing foreclosure. Technically called the “Homeowner Affordability and Stability Plan“, the Plan is part of the President’s broad, comprehensive strategy to get the economy back on track.

The plan will help up to 7 to 9 million families restructure or refinance their mortgages to avoid foreclosure. In doing so, the plan not only helps responsible homeowners on the verge of defaulting, but prevents neighborhoods and communities from being pulled over the edge too, as defaults and foreclosures contribute to falling home values, failing local businesses, and lost jobs.

The key components of the Homeowner Affordability and Stability Plan are:

1. Refinancing for Up to 4 to 5 Million Responsible Homeowners to Make Their Mortgages More Affordable

2. A $75 Billion Homeowner Stability Initiative to Reach Up to 3 to 4 Million At-Risk Homeowners

3. Supporting Low Mortgage Rates By Strengthening Confidence in Fannie Mae and Freddie Mac

For complete details, go to the Treasury Dept’s Executive Summary at http://www.treas.gov/initiatives/eesa/homeowner-affordability-plan/ExecutiveSummary.pdf

So… how will this affect you if you are now upside down on your home loan?

First, In anticipation of the Plan, several financial institutions  have said that they will stop foreclosures on owner-occupied properties while they review and discuss the Plan’s contents. These include Fannie Mae and Freddie Mac plus Bank of America, J.P. Morgan, Chase, and Citigroup. This hold should last at least until mid-March and in many cases continues a hold started last September.

This gives some breathing room and hope to many on the edge of a foreclosure sale but… it only applies to owner-occupied properties, not rentals oe abandoned property.

Second, this measure (combined with other State measure such as California’s mandatory efforts to modify before starting foreclosure) should stimulate a more reasonable and pro-active approach to loan modification.

So far, banks have been very unresponsive and inconsistent in dealing with modification. This Plan will require lenders to modify loans if they want any more government assistance.

Third, the Plan calls for Congress to pass the pending Chapter 13 Bankruptcy “cram down” laws which would allow Federal Judges to reduce principal balances and payment rates to affordable levels. Right now, Judges have that power over consumer debts but not home loans.

Many fear passage of this will create a huge increase in Bankruptcy filings. However, whether done voluntarily by Lenders or through the courts, the end result is an owner-occupied home with an affordable loan at today’s market price. This is the same result a Lender would end up with after going through the trauma and expense of foreclosure.

Look to us for updates.  If you have specific questions about the economy impacts on your real estate of business, feel free to e-mail me at sjbeede@bpelaw.com or go to our website at www.bpelaw.com