New Strategies to Stop Foreclosure
Aug 18th, 2010
This economic recession has brought little hope for homeowners. Despite numerous government sponsored programs such as HAMP and HAFA, very few borrowers get loan modifications and thus upside-down owners are left facing either short-sale or foreclosure. But there may be a more effective approach… fighting back.
Part of what created this economic collapse was the willingness of lenders to make loans virtually to anyone without any real checking to see if they could really afford the loan. But with this drop of standards also came a drop in diligence in handling the loan paperwork properly. The reality is that millions of loans are legally defective and, in some cases, may not be collectible. This has given rise to a new wave of scams by so called “forensic auditors” who, for a large up-front fee, promise to search the loan documents for defects but more often would take the money and run. As readers of my Blog know, I’ve opposed such approaches because, even if they found defects in the loan, the legal remedy for Truth in Lending (TILA) violations was rescission: the lender gives you back what you paid but you have to give back the loan proceeds. This simply didn’t work. But now, there may be new strategies available through this process that can potentially stop foreclosure, stop judgments, and maybe even force a loan modification.
I recently attended a seminar put on by a Florida company called AmStar which is in the forefront nationally of assisting lawyers in challenging lenders. The critical issue is not TILA but rather the underlying changes in ownership of the loan and security: 1) Who really owns the loan? 2) Who really can foreclose (it’s not MERS); 3) Do the Loan Agreements conflict with HAMP and HAFA and specific State laws requiring good faith efforts to resolve loan disputes? Courts throughout the Country are starting to rule that lenders cannot foreclose if their loan documents or handling are defective. If the lender can’t foreclose, they’ll want to settle and that could mean a principal reduction modification enabling the borrower to keep their home.
Determining whether a borrower’s loan is defective requires several steps:
First, a Qualified Written Request (QWR) should be sent to the loan servicer to obtain their loan documents and payment and handling history. Recent law changes require a lender to acknowledge receipt of the Request in 5 days and actually send the responsive documents within 30 days (15 day extension possible).
Second, have the loan documents reviewed by a qualified and certified auditor to determine if defects exist and whether they are minor or fatal to enforcement of the loan. Beware of “auditors” charging upwards of $5,000 for this service. A good residential home audit will cost approximately $2,000.
Third, if the loan documents and audit results indicate that the loan is not enforceable, then you may have good cause to get a legal injunction to stop a pending foreclosure and possibly even beat the lenders in Court. Of course, most homeowners can’t afford the legal cost of a protracted litigation. But most lenders also don’t want a Court to dig in to the validity of their loan practices. The result is a greatly increased interest in settlement which can be a win-win for everyone, especially for the homeowner that gets to keep their home at an affordable payment rate.
Are these strategies for you? Every person’s situation is different. The information presented in this Article is not to be taken as legal advice. If you are upside-down on your loan(s), 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.





















