Home Loans - Too Risky? Don't Ask, Don't Tell!

Should Banks be making mortgage loans? We take the answer for granted. Yet, I have been involved in an on-line discussion that started about gold’s value and price, that became about the wisdom of banks making loans for homes. And, if so, the circumstances under which loans are made. Financial and economic modeling does not take into account all of the variables, nor can any model accomplish that feat. My position is that, the contributors to the conversation should have the actual experience to deal with the issues, and even then they will end up with as many opinions as there are participants

The Philosophical debate of home ownership is one that has so many moving parts, IBM's “Jeopardy!” winning super-computer, WATSON, would have difficulty arriving at "an answer".Oh, and that assumes that we can identify all of those factors which should/must be considered. Part of the problem here is that lending for home purchase is tied to our (U.S.) culture and societal expectations. Further, politically, we have tied ourselves to a tax and income structure that counts on home ownership.

How to make successful loans? Easy - (1.) Take only Borrowers with perfect credit and lifetime employment with Life and Disability insurance naming the lender (2.) Variable rate (3.) changing DAILY (4.) at a rate fixed to the Fed Funds rate (5.) Plus whatever margin the institution needs to satisfy stockholders. (Oops! Nothing will satisfy stockholders so let's just call it a reasonable “ROI”-Return on Investment)

The issue is simply Home Ownership for the “99%” or Not! The mutual financial institutions, including credit uions, have an advantage, that they have squandered, as they have no stockholders and pay lower/no taxes. Mutual holding companies allow community banking to survive the onslaught of mega-banks. But as mutuality disappears, we will be left with the Savings & Loan “S&L” model. That worked real well. I ran several failed S&Ls for the State of MD with the FSLIC (now part of FDIC) right next to me. Commercial banks? How about Bank of New England - $32B "failure" in 1990 (translate that to 2012 dollars!). I know it well, because I "worked-out" a small part of the organization, me having moved from MD, where I was President of a new Federal Savings Bank, in January 1989 to run the Berkshire, MA region of BNE.

Lending is RISK. That is what banks are supposed to do: Take Risk! However, it is supposed to be managed. Shareholders, by demanding higher dividends and share prices, force unwarranted risk-taking. The two demands are somewhat diametrically opposed, yet sophisticated models will demonstrate that they follow one another, and lower the risk taking as the Board over-sees the "lending activities". GOOD LUCK!

Spend 10 or 20 years in banks and mortgage companies. thrifts and commercial banks. Then spend 10 years looking at changing regulations, but not just "real" banking, but so-called shadow-banking (Morgan Stanley, Goldman Sachs et al) as well. See what the SEC (Securities & Exchange Commission) has planned, versus what was on the books in 2006. Then look at enforcement or the lack thereof.

My long and drawn out point is that without field experience one cannot "model" the issue of "to lend or not to lend" and how much to charge if the decision is "YES". Then again, we are at the juncture of epistemology, philosophy, and economics. Answering the question of whether there is A God, many Gods, an Intelligent Designer" (ha ha - think about it), or just Chance, would be easier.

The price and value of gold - I guess that debate is over. It's worth something because we say so and because my grandson liked shiny stuff when he was little.

Author's Copyright by Richard I. Isacoff, Esq, September, 2012 rii@isacofflaw.com http://www.isacofflaw.com/

Bankruptcy: After Christmas?

It's the time of the year where many people start buying gifts for others for the holidays. That, of course, is in addition to buying food, heat, electricity, telephone(s), gasoline, auto insurance, cigarettes (bad for health - bad for pocketbook), cable, clothes (don't forget shoes, socks, and underwear), and paying rent or mortgage and the car payment. Oh, and remember to buy the medications the Doctor prescribed.

Quite a list! How To Pay For It? Many people use CREDIT CARDS. Then comes February 1st and the bills flood the mailbox overwhelming the Letter Carrier's ability to carry all of the Visa, Mastercard, Discover, JC Penny, Sears, BestBuy, Fingerhut, QVC, Amex, Capital One, Orchard Bank, Bank of America et al BILLS.

When asked how they expect to pay, many will say "Well, I HAD to get those presents. I mean, it was Christmas (or Chanukah or whatever other holiday "requires" gift giving)". Says the lawyer at the first consultation about debt relief, "Okay, but how did you expect to pay the bills?" - the classic answer "I didn't think about that. I figured I be able to pay a little on each card, I guess." This response is typical from clients with sufficient income to pay the bill with minimum payments over the next 20 years, and from those who HAVE TO GO WITHOUT FOOD AND HEAT TO MAKE ONE PAYMENT!!

There are several problems here, actually many more than several. The biggest, in a sense, is that with debt that has accumulated over the past 3, 5, or 10 years there is no way ANY PAYMENTS are affordable. Then comes "Can I file bankruptcy?" The real question is "Can I file bankruptcy and still get rid of my bills (a discharge) even though I was foolish...?" There is no easy answer.

In order to eliminate/discharge debt, the Bankruptcy has to be filed in good faith. You cannot intentionally incur debt that you know you cannot pay. At a minimum, that debt cannot be discharged (made to go away). But wait...There's more! When the gifts were being bought and the plastic nearly melting from over-use, did the purchaser intend to repay the credit card company? The easy answer is "Yes, I always pay my bills!" But, is that the honest answer.

Many people just do not think about or know how to think about budgeting. People of all ages get caught up in the "I have to buy a gift for..." mode. So, what can be done for the honest but horrid money manager/giver?

Rule 1. Know how much you take home every month and how much must be spent on essentials, like the list above

Rule 2. If there is any extra, before deducting current credit card payments, be certain that it is truly disposable income immediately. Do not count the money you will save when you stop smoking.

Rule 3. Add up all of your credit card and other unsecured debt (debt not attached to collateral, like a car loan)

Rule 4. Multiply the amount of debt by 3% or 0.03

Rule 5. If the result after following Rule 4 is more than your "extra" (your disposable income) you should not incur more debt.

Rule 6. To figure how much unsecured debt you can support reasonably, DIVIDE your extra/disposable income by .03. So, if you have $200/month truly extra, the Most unsecured debt you can have is $6,000. And, remember that "extra" is what's left after paying all of the expenses listed in the beginning of this posting and any other NECESSARY expenses you have.

Even at the level shown, paying will be a bit of a struggle - things happen that cost money and are unexpected. Missing one month of the payment on any unsecured debt will make everything fall apart and you might never catch up.

If you have done those calculations, and after being careful you find that 6 months (I just picked a number) into the new year that you cannot pay because "Life comes at you fast!", then yes, you can file a bankruptcy with a clear conscience and peace of mind.

Author's Copyright by Richard I. Isacoff, Esq, November, 2011

rii@isacofflaw.com
http://www.isacofflaw.com

Mortgage Mods - Where Did The Money Go?

My mortgage modification clients often ask about the class actions or Attorney Generals actions against mortgage companies, lenders, and servicers, when the newspapers/Internet proclaims "XYZ Bank settles with Massachusetts for $XXX Million". The biggest single question is "Where did the money go?" Unfortunately, the answer I give is "I don't know except that there was no fund set up for modifications". Then I get the BLANK STARES from my clients.

"How can that be?" they query, to which I reply, "I do not know - probably to offset the cost of the suit and to establish a new unit to investigate mortgage fraud AND to help balance the budget." To this date I have never received notification that the Commonwealth of MA is setting up a fund to help borrowers avoid foreclosures, or even to set up an agency to help homeowners apply for a loan modification.

At this juncture, homeowners are being cast adrift. The 50 States +/- CA & MA (depends on the day) have been arguing with the biggest lenders/servicers over a settlement for all of these institutions evil-doings; and they were indeed evil! The proposals are at $26Billion or $26,000,000,000 but no one is offering to pay. Instead the Banks et al want to promise they won't do it again and that they will make it easier for homeowners to get a modification. Making it more difficult would be to say "NO, WE WON'T DO MODS ANYMORE". No money will go to individual homeowners. No funds will be set up to help a borrower get caught up. As the title of the movie proclaimed "GONE IN 60 SECONDS" (so where is Nicholas Cage when we need him?).

Even if there is money made available, the selection/application process will be as difficult as getting the modification as evidenced by the recent Federal "EHLP" (Emergency Home Loan Program) program that only gave out 1/2 of the $1Billion allocated for it.

In fairness, because of the structure of the mortgages, now part of giant pools of loans called "Mortgage-Backed Securities" or "MBS" for short, no Bank owns the loan(s). They are collateral for a Bond, typically a fixed income security, pieces of which are bought and sold as part of mutual funds, retirement funds, and corporate investments. It's like GE borrowing money by issuing a bond - this means that GE is stating to the world that if it receives up to $XXXMillion from investors, GE will pay them interest at "X"% for "Y" years, and GE puts up its assets as collateral. With MBS, the underlying assets of the fund, home mortgages, are the collateral.

The refrain often heard when one is trying to get a modification is "The Investors do not allow modifications" or "This requested modification is outside investor guidelines". When the investor is the Federal Nation Mortgage Association (FannieMae) or the Federal Home Mortgage Corporation (FreddieMac) or the Federal Housing Administration (FHA) the formula used to determine "Yes" or "No" is at least obtainable. And, because these are either Government Agencies or quasi-government agencies, they do participate in the HAMP program. But, you deal not with Fannie or Freddie or the FHA but with the loan SERVICER. This is the company picked to run the pool of loans - to collect payments and send out bills, and to start foreclosures and to actually WORK ON MODIFICATIONS.

There is no rhyme or reason to the process. Each servicer has slightly different requirements, all allowed by the Making Home Affordable program which created HAMP. Paperwork must be submitted and often resubmitted again and again. This is the period that most borrowers give up or taking time from work to put documents together again and again, in the hope of getting an affordable payment now that there is no more overtime or even one less job for the borrower(s) to count-on for the money to meet the payments.

I often sit at my desk working on one project, while on hold different times with a servicer for an hour or sometimes two. I can keep working on my computer and have at least one other phone in use while I work with a servicer. So far, my results are good but my client has no money to pay for all of that time, even when I only count the time I am actually doing calculations and filling out forms or talking to a servicer's representative. Because, in addition, there are the hours spent with the client who has no money to pay for the time and the results.

The most frustrating part of this process is when I ask my client, "Okay, you are now 4 months behind because the payment went up. How much have you saved? Certainly if the payment was $700 per month and now it's $850, you have the $700 put aside for each of the four months the Bank returned your money!", and the client answers "Nothing - I paid other bills". At which point I ask "Well, how are you going to pay if you get a modification if you can't even save the money you had been paying?". Occasionally the client will say "I don't know". Most often I hear "Well, when I have the modification, I will be able to make the payments somehow". With trepidation I ask "How, if you can't make the payments now?".

This conversation takes place in my office or on my telephone at least twice every week and sometimes twice a day.

RULES FOR GETTING A MODIFICATION:

1. Call the Servicer and ask for modification or HAMP documents or go on their website and print them

2. Put all required documents together - fill them out completely and DATE THEM ALL and send them to the address stated on the website or the forms. Often they MUST be faxed.

3. Remember, if you are working with an attorney or any other third-party, that person/entity is going to have to have written permission from you to deal with the servicer/lender

4. Documents expire in 60 days. That means if you send in only some of the documents required, and then send in more, and then send in more because the servicer wants them, the first docs you submitted may be "stale dated" - just like bread - and need to be updated and resubmitted. This is where the process breaks down for most Homeowners.

5. Put aside the mortgage payment you were making or that you hope to be making. If you cannot save the money, you cannot save your home. Put simply, If a borrower is not disciplined enough to save the money to pay the mortgage, then there is no ability to pay the modified payment - so what is the point of going through all of the aggravation. Sometimes Life Is Not Fair.

6. If you get a package sent to you from the lender/servicer open it immediately. If documents are due on Wednesday of next week Make sure they get there by then. A day late and you are disqualified. Fair? Probably not but read the last sentence of Item 5 above.

The people with whom you will speak are not bad people. They are doing a job, trying to avoid losing their house and are jsut asking the questions they must to avoid being fired. Don't rant at them - that assures NO COOPERATION. Remember that the folks at the top of the MBS pyramid are the folks "calling the shots" and they can't lose.

Author's Copyright by Richard I Isacoff, Esq October 2011

rii@isacofflaw.com

http://www.isacofflaw.com

Reverse Mortgages - The What's and Why's

Reverse Mortgage - a mortgage that goes backwards? In a real sense YES! Instead of building equity by paying back what you owe, a lender determines how much equity you have in your home and gives you cash for a part of that equity. BUT each month that passes you lose a month's worth of equity. It truly is a mortgage in reverse. The key is that you do not pay it back. BEWARE! NOTHING IS FREE!


OVERVIEW
In exchange for taking a payment for part of the equity in your house, you give the lender the right to own you house at the time of your death, or at such other time as you no longer live there (think assisted living etc.). Having a second home is fine. Living 6 months in your primary home, the one with the reverse mortgage, and 6 months in some far away place, is okay. It is only when you move out for good that the lender can take your house and sell it. The idea is that the Lender will have calculated accurately enough to be able to sell the house and get all of the money it "loaned" to you back, along with interest.

DETAILS
1. The amount of the loan is based on the value of the house minus any loans and other liens against it at the time of the transaction, or more succinctly, the EQUITY. That's it? Just call and get money? Well almost but the "devil is in the details" (that expression should be the topic of its own posting).

2. You or your spouse/partner/whoever owns the house jointly with you, must be at least 62 years old. Why? Because that was they rule that was made, and it's a rule that the Federal Housing Administration (FHA) has dictated. The theory is that at 62 you may be near retirement, there is a greater likelihood of serious illness, etc - basically income may drop more frequently than in the younger population. The older you are, the higher the percentage of equity you get. Why? Because you will die sooner (at least that's the way it works on paper).

3. The lender in a Reverse Mortgage acts more like a life insurance company. The Lender takes the age of the borrower and looks up the life expectancy to estimate "how soon will the old bugger die"! Obviously, the sooner the lender gets the house back the faster it can be sold, and the more the lender makes.

This is where it gets complicated. Why does a lender make more? When the loan is made, the lender considers how soon the person will die or move, and therefore determines how much to pay. Remember, interest builds each month.

The other element is the "time value of money". For example: If I lend you $100,000 and you give me a mortgage on your house, which is worth $166,666, and make no payments to me by agreement, but the interest is just accruing, or accumulating waiting to be paid, I have to take into account the interest I could be getting on my money if I bought bonds where I get interest every month.

Let's say that I assume you will live, per the "tables", another 12 years and that for those 12 years, I would earn an average of 6.333% per year with the bonds. I can do some math and figure out how much I need to get back at the end of the REVERSE MORTGAGE to be sure I get back at least what I loaned to you, ($100,000) and the amount I would have earned if I had bought those bonds in the example, instead of loaning you the money - $75,996, for a total of $175,996. If the house sells for at least this much I get all of my money and its earnings back. If it sells for less, I lose profit.

In theory, if you were to die after 3 years, and I sold the house for the $166,666 it was worth at the time of the mortgage, I make a large profit. THERE IS A BUILT-IN SAFEGUARD. A family member can always pay me back what I loaned PLUS the interest that was deferred - earned by me but not collected. If the payback is less than the house is worth, then the family would want to pay off the mortgage.

4. The program is regulated by the FHA and they also insure it. The insurance protects the borrower in case the borrower is getting monthly payments (instead of taking a lump sum at the time of the closing) and the Lender goes out of business; FHA pays the monthly payments for the duration. There is a hefty fee for the insurance that gets paid to FHA at the time the mortgage is closed (put into effect), but it's well worth the cost to know that you will get paid.

5. Let's say that in the above example the homeowner lives 10 years longer than expected and the house goes down in value. The lender in this situation takes a big loss. BUT that loss is NOT a debt of the homeowner's estate. The lender takes the loss. NEITHER YOUR CHILDREN NOR ANYONE ELSE has to pay anything to the lender.

REVERSE MORTGAGES SOUND GREAT BUT THEY ARE NOT FOR EVERYONE! There is a mandatory counseling session with a trained financial expert who will explain the reverse mortgage concept and apply it to the prospective borrower's situation. Further, the fees that the broker can take are regulated/set by FHA.

A Reverse Mortgage can make life easier for someone who has equity in his/her home, a mortgage payment that is preventing the person from retiring, or worse, causing a foreclosure due to lower income at retirement, by lending a big portion of the home's equity to the homeowner. There are NO monthly payments. There is no credit check. It is all by formula; Amount of equity, the homeowner's/borrower's age ( minimum of 62) and then the amount of the maximum reverse mortgage payment can be calculated. If it's enough to payoff the exising mortgage you get to live in your home without making another mortgage payment, and if there's enough so that money is left over, it can be paid to you in a lump sum or in monthly installment.

Who would have thought: a mortgage that pays you!

Author's Copyright by Richard I. Isacoff, Esq., Septmeber, 2010
rii@isacofflaw.com
http://www.isacofflaw.com/

New Homeowner Protection - Neighborhood Stabilization Act

The new Neighborhood Stabilization Act, which was enacted with an Emergency Preamble, became effective, in part, upon signing by Governor Duval Patrick on Thursday, July 29, 2010. The new law gives meaningful additional protections to Homeowners facing foreclosure, and tenants living in houses that have gone to foreclosure sale. We will deal with the Ownership issues in this post and the Tenant issue in the next.)

In order to foreclose on a property in the Commonwealth of Massachusetts a mortgagee/creditor MUST give the homeowner/mortgagor a 150 day Notice To Cure the default giving rise to the foreclosure threat. This "Cure Period" is subject to the following rules:

1. If the lender/servicer certifies that is has "engaged in a good faith effort to negotiate a commercially reasonable alternative to foreclosure..." (defined below) and

2. If this effort "has involved at least one meeting either in person or by telephone, between a creditor's representative and the borrower or borrower's attorney or the borrower's representative..." and

3. "After such meeting the creditor and the borrower were not successful in resolving their dispute, then the creditor may begin foreclosure proceedings after a right to cure period lasting 90 days..."

4. If the borrower does not respond to mail offering to negotiate within 30 days (does not state when the 30 days starts) then the borrower must live with the 90 day period allowed the creditor instead of the 150 days

KEY DEFINITION

"Creditor has made a good faith effort to negotiate and agree upon a commercially reasonable alternative to foreclosure shall mean that the creditor has considered"

a. "an assessment of borrower's current circumstances including without limitation (they can consider more, not less) income, debts, and obligations"

b. "the net present value ("NPV") of receiving payments pursuant to a modified mortgage loan as compared to the net recovery following foreclosure" -(this is a calculation taking into account the following factors to arrive at a value to compare to the value of the modified loan)

1. the current market value
2. the costs of foreclosure
3. foreclosure stigma discount to re-sell the house
4. the total unpaid balance
5. number of months expected before sale
6. taxes and insurance costs
7. the appreciation/depreciation forecast.

The creditor must use the Mass Housing Finance Agency formula, FDIC formula, or Treasury formula.

c. "...The creditor shall provide by first class mail and certified mail or private carrier to the borrower documentation of the good faith effort 10 days prior to meeting, telephone conversation specified..." (in paragraph 2. above)

The importance of this law cannot be overstated. While it grants an extra 60 days to the borrower, sixty days which did not exist until the Commonwealth passed an earlier law in 2009, it REQUIRES the creditor to assess the situation OR wait 150 days to BEGIN a foreclosure process. It is as far as the Commonwealth can go to try to force a creditor / mortgagee to negotiate a modification.

The notice that has to be given to the borrower/mortgagor before the creditor can start the foreclosure process, whether it is a 90 day notice or a notice after the 150 days, MUST contain the following information

1. Nature of the default and the amount of money needed to cure/fix the default
2. The date by which the default must be cured (stating "150 days after the date of this letter" or "90 days after the date of this letter" is not good enough. The creditor must give an actual DATE)
3. That is the borrower/mortgagor does not cure the default (pay the back amount owed) the creditor can take steps to foreclose on the house
4. The name and address of the creditor and the telephone number of a representative whom the borrower/mortgagor can contact if the borrower/mortgagor disagrees with the statements in the notice
5. Name of current and former mortgage broker or mortgage loan originator for the mortgage
6. Statement that the mortgagor/borrower may be eligible for help with the names and telephone number of the agencies
7. That the creditor may sell the property to pay off the mortgage
8. That the borrower/mortgagor may redeem the property anytime PRIOR to the sale by paying all amounts due
9. That the borrower/mortgagor may be evicted after the sale (this does not mean 5 minutes after the sale but after proper eviction proceedings in the Court)

NO PROPER NOTICE, NO FORECLOSURE

The Act gets technical - do not try to navigate it yourself. If you are behind and you receive a Notice to Cure, and you cannot PAY ALL ARREARS, contact a lawyer or Housing Agency immediately
Author's Copyright by Richard I. Isacoff, Esq, August 2010

rii@isacofflaw.com
http://www.isacofflaw.com

Massachusetts Passes Homeowner Relief Bill

Yesterday, the Massachusetts legislature passed and Governor Duval Patrick (D) signed a bill that will grant additional safeguards to homeowners facing foreclosures.

In short, Lenders/servicers/anyone trying to foreclose on a 1-4 family residence will have to give the homeowner a 150 day notice that there is a default and that if it is not cured/paid within 150 days from the date of the notice, the foreclosing party will have the right to start a foreclosure proceeding.

The bill also makes lenders offer a modification or other workout plan unless a formula shows that to do so will net the foreclosing party less than a foreclosure sale (net present value test).

A full analysis will appear on Monday August 2, 1010

Author's Copyright by Richard I. Isacoff, Esq. July, 2010

rii@isacofflaw.com

http://www.isacofflaw.com/

Class Actions for Modifications or Divine Intervention

There has been movement in some state courts to shore-up the failure of the legislation enacting the Making Home Affordable program initiatives to modify loans (HAMP etc); Federal Courts seem paralyzed.

As stated in an earlier post, there is no private right of action under the Home Affordable Modification Program ("HAMP") or any of its siblings. Congress, the Treasury, Federal Reserve, and all of the alphabet soup of regulators (FDIC, OCC, OTS, TARP Oversight, etc), evidently did not want (or caved-in to the mortgage investment community) homeowners to be able to sue mortgage servicers and actual lenders just because the servicers and lenders uniformly and regularly ignore the intent and actual RULES and REGULATIONS set out in the MHA/HAMP enacting legislation/rule-making.

The lack of this "private right of action" means that no matter how slip-shod, devious, lying, resistant, unethical, and immoral the servicers and lenders are in reviewing, analyzing, and denying modifications, homeowners/borrowers CANNOT sue in Federal Courts, and specifically Bankruptcy Courts, to force a modification OR sue because the servicer/lender has REFUSED to follow Federal regulation, rules, and guidelines. Even if the home is foreclosed and sold after the servicer/lender promised a modification, Congress and the White House, in their hurry to curry favor with the Banking interests (Goldman Sachs, Chase, Bank of America) and keep lobbyists happy, failed to put any teeth in its MHA/HAMP legislation.

Only the regulators like the Treasury, FDIC, Office of Thrift Supervision ("OTS"), Federal Reserve, can even recommend/urge/push the Banks and Investors in mortgages and Mortgage-Backed securities to follow the rules. There are no teeth in the rules and regulations.

Some State Courts have seen fit to force Lenders and servicers to show that they have acted in good faith when a Homeowner manages to get before a judge. The key here is "acting in good faith". If there has been no "good faith", or worse, demonstrated "bad faith", State Courts are allowing injunctions to stop foreclosures. No one expects there to be a modification when a homeowner is 30 months behind and cannot make a payment even if it based on 2% interest rate for 40 years, unless the problem was fraud in the origination of the loan. But most issues are regular people with regular problems in today's economy: job loss, reduced income, illness or death.

The exception may be CLASS ACTION SUITS. Simplifying a complicated legal issue, simply put, if there can be shown that as a pattern and practice a lender/servicer systematically and consistently rejects modifications, or acts so negligently as to de facto reject modifications (never gets paper processed etc), and there are enough diverse persons affected, then there may well be a "CLASS" of persons affected enough to demonstrate that all are "third-party beneficiaries" of the federal law.

Homeowners and their attorneys should begin to think about such Class Actions. Perhaps if there are enough suits against Lenders/servicers and the "investor-managers" of the Mortgage-Backed Securities, Congress may take action: Don't count on the mortgage industry or the Banks to help any more than they are forced to by some higher power (as morality is out, do not plan on Divine Intervention).

Author's Copyright by Richard I. Isacoff, Esq, July 2010

rii@isacofflaw.com

http://www.isacofflaw.com/

The Sale is Over - My House is Gone!

The first step in reversing a foreclosure is to prevent it in the first place. Makes no sense but it is true. Very few people (almost none) lose a house to foreclosure without knowing it is going to happen. This is true in a state like Massachusetts which does not require a Court hearing before a foreclosure sale, or one like Connecticut where there is a Court required mediation before any sale can take place. The first clue that there might be a foreclosure sale is that the homeowner HAS NOT PAID HIS/HER MORTGAGE FOR A NUMBER OF MONTHS!

Hire a lawyer and if you do not know who to call, call the State Bar Association. Or go to or call a Housing Agency or go to a Court and ask someone in the Clerk's Office what to do, especially if there is a Housing Court where you live. Do whatever you can (legally) to stop the sale.

Okay, the sale takes place and the Lender buys back the house. What now? How have I managed to reverse a sale or actually 4 or 5 of them (one pending now)? The secret, which really is just good lawyering, is to understand the process; from the time a loan application is completed - the origination process, closing, recording of the documents, servicing (sending bills and collecting monthly mortgage payments), all of the steps in the actual foreclosure process, and, critically, WHAT HAPPENS AFTER THE SALE!!

In almost all States, there is a short period after a sale takes place for the homeowner and borrower to contest the validity of the sale. It may involve going to a Court, or registering the opposition at the place recording the Land Records or filing a grievance with a special Board; but there is a way to contest the proceeding. This step is important because it stops the process in its tracks. Stop the Foreclosure Deed from being put on record. Remember the purpose of the sale is for the Lender to get money - that is why it is called a foreclosure SALE. It get incredibly more difficult to reverse the sale if there is a second transfer to another buyer.

Do not forget that the lender which has your mortgage ordered the sale. Call them as soon as possible after the sale. You may have to wait on hold for an hour but so what! It's your home. Get to the foreclosure department at the lender, which may take another hour, but again, so what! You may be referred to the law firm or auctioneer which held the sale -call it. Do not give up until there is no one left to call. Make detailed notes of every number you called or department to which you were transferred, the name of the person(s) to whom you spoke, the length of the call, the length of the conversation, the CONTENT of your conversation, and anything else you think might be important.

The legal work really comes down to a few issues:

1. Was the sale conducted in strict accordance with the State statute - there are no federal laws?
2. Was the sale and the property properly advertised? (this is part of state procedure)
3. Were all of the steps required after the sale followed by the Lender and the "Buyer"?
4. Can you get to a Court and file a suit to prevent the deed from being recorded while things get sorted out?
5. Were you in the middle of a modification program, especially one under the Making Home Affordable program (HAMP modification), the so-called Obama Plan? If so contact the Lender IMMEDIATELY, and call a lawyer or housing agency.
6. Even though you were behind, can you make any payments to show good faith - family/friends who didn't realize the seriousness of the problem?
7. If you had previously spoken to a bankruptcy attorney CALL HIM/HER IMMEDIATELY.
8. Is the loan one owned by FannieMae or FreddieMac? If so, there is a good chance you can get the foreclosure fixed, rather undone.

There are another dozen legalities and related matters that should be examined, but the ones above will be the most critical right after the sale.

Author's Copyright by Richard I. Isacoff, Esq., May 2010

rii@isacofflaw.com
http://www.isacofflaw.com/

The Recession:It Has An End (We Hope)

I recently saw a billboard that read " THE RECESSION: IT HAS AND END". Tell that to the people who have been irreparably damaged by the economic collapse we have just been through and the slow recovery we are in now.

The recession and the increase in foreclosures has actually aided one sector of business. If you watch cable television, especially after 8pm almost any evening you will instantly recognize the verbal headline "STOP FORECLOSURE NOW!" or one of my other favorites "IF YOU OWE AT LEAST $10,000 IN CREDIT CARD DEBT WE CAN HELP WITHOUT BANKRUPTCY". The telephone number to call is the same "CALL 1-800-WE SCAM U"

Jaundiced, cynical view? Just a hard cold look at an industry that preys off of peoples’ misery in these very difficult times. While the pace of NEW consumer credit debt has slowed, it is more because of the fact that card issuers have increased rates to 30% (just before the Feb. 22, 2010 deadline) or because they have cut back credit lines so that there is virtually no available credit on many card-holders cards - they have been MAXED OUT (Read James Scurlock’s book of that name or get the DVD of this award winning documentary on consumer credit in the US)

The Mortgage rescue scam companies are out there in force promising to save your house provided you pay them anywhere from $1,500 to $7,500 up front for their services. The most that nearly all of them can do is to direct you to complete documents for participation in the President’s "MAKING HOME AFFORDABLE" program.

From experience, most lenders, while they do not want to take houses, do not want to have a mortgage loan on the books that is not paying the monthly installment. It is inconceivable that there are these super companies out there in TV world which can work miracles and force a mortgage lender or a mortgage servicer to take less than it is owed. Some will have your mortgage documents audited - reviewed for any irregularities or violations of the laws that govern consumer lending and specifically mortgage transactions. Others will just keep stalling, using your money until the house is foreclosed on, or right until the week before a foreclosure sale and then return some portion to you. They will blame the lenders - You will not have a home!

On the credit card side, there is at least one company that is offering assistance with credit card debt as "...authorized by the President's Stimulus Plan". The Treasury Department’s, FDIC’s TARP’S, the Federal Reserve’s plan all allow debt reduction. BUT, such plans were always allowed. . The promise that for a "reasonable fee" a company can force a creditor to take 50% is absurd. It is especially harmful to those who stop making regular payments because of the promised salvation described in the 60 second "magic pill"commercial

Quick tips :

1. There is no secret to reducing the debt (see earlier posts). If it is a mortgage, you need an attorney or someone from one of the government sponsored programs to help you through the maze of paperwork.

2. Credit Card debt? - Most companies will not even talk to you about a compromise settlement until you are 90 days late. By then, if the company will not accept the "settlement offer" you are so far behind that you will never be able to catch up. There are a few like Consumer Credit Counseling Services of Southern New England (or your location) which will try to negotiate reduced interest rates to lower your payments BEFORE you get too far behind. They change a nominal monthly fees but no up front fee for their service.

3. If you are in danger of losing your home, or of losing your sanity, contact an attorney who works in these fields. You should get objective and non-leading advice. If a bankruptcy is the only way to protect your house, you will be so informed. If you cannot make even minimum monthly payments on your credit cards, a brief consultation, normally free, with an attorney will point that out to you. On the other hand, if there is another way around the problems, a knowledgeable and ethical attorney will be able to show you the way.

In summary - do not fall for the "1 800 we save u" companies. If they were that good, the TV advertising wouldn't be necessary and the Treasury Department would hire them to straighten out the federal budget

Author's Copyright by Richard I Isacoff, Esq, March 2010

http://www.isacofflaw.com/

rii@isacofflaw.com

Never Mind Who's On First; Where Is First?

In the on-going saga of the Making Home Affordable Program, which spawned HAMP and HARP, no less a giant in news than the New York Times, carried what seems to be directly contradictory information about the program's success/failure.

In the Saturday January 16th edition the Times ran two stories: "JPMorgan Chase Earns $11.7 Billion" by-lined to Eric Dash, and "U.S. Mortgage Plan Aided 7 Percent of Borrowers" by-lined to Sewell Chan. Both stories are well-written and intriguing, but neither can be accurate. The problem is that no one knows the truth.

Eric Dash recites that JPMorgan has been so successful that it has $26.9 billion set aside for employee bonuses. That is attributed in large part to the fact that the "...bank has agreed to temporarily modify 600,000 mortgages. Only about 89,000 of those adjustments have been made permanent." Mr. Sewell, in his news story states that "Mortgage payments have been permanently lowered for more than 66,000 borrowers under the Obama administration's $75 billion program to protect homeowners from foreclosure..." He goes on to write "as of the end of December, they said [Treasury and HUD] more than 853,696 homeowners were actively in the modification program... The figure includes 787,231 trial modifications and 66,465 permanent modifications"

Assuming the number of trial modifications is correct in both stories, that means that all other lenders COMBINED account for only 253,696 modifications - less than 29%. Has JPMorgan really outpaced ALL OTHER LENDERS COMBINED and done 71% of all modifications? And if Treasury and HUD are reporting only 66,465 permanent modifications, how has JPMorgan Chase managed 89,000? That would mean that JPM Chase has done all of the reported HAMP modifications and 23,000+/- of their own!

The reality is that NO ONE KNOWS! Further, the Treasury Department and Housing and Urban Development do not have a clue about what is really happening "in the trenches". Yesterday I received an e-mail from a client who had applied for and been approved for a trial modification. Now, 4 months later, after making all of the required payments, she received a letter from the venerable JPMorgan Chase asking for a "complete Trial Modification Package".

This scenario is playing out in 1/2 of my clients going through HAMP. Who knows what the percentage is nationwide? The program is not bad, it's just that no one is in charge. Washington feels good because "they" can say that "they" have committed $75 billion to help the entire country - 4 million homeowners. It's not working! (And think about the amount of money - $75 billion for all 4 million (and increasing) mortgages in trouble: $26.9 billion for bonuses at JPMorgan Chase Investment Banking.)

HAMP and HARP are disasters - there is no enforcement of the rules set out by Treasury and HUD. There is no monitoring on an institutional basis. All reporting is unaudited. What is worse, there is no one for a borrower seeking help to call.

The lenders/servicers have call centers staffed with people who try to be helpful but just do not have much information. They read from a computer screen to tell borrowers what they need to supply to apply. The call center folks may have an FAQ section to which they can refer. But, if there is a problem such as the one my client has, where she is being asked to start over, there is no one who can help her. The call center people will say that documents have been received and processed but they cannot fix the problem of the new request; nor is there anyone else with whom the borrower can speak. Give up? Do Not! Ask for a supervisor, send in new documents, certified, return requested mail.

Next installment - what to do until the Doctor comes. An outline of how to navigate MHA a/k/a HASP and the off-spring HAMP and HARP

Author's Copyright by Richard I. Isacoff, Esq., January 2010

http://www.isacofflaw.com/
rii@isacofflaw.com

Mortgages, Foreclosure, Morality

It is unfortunate but we must deal with the economics of keeping versus "walking away from" your house.

Housing values have fallen dramatically over the past 18 months, to a level that many homeowners owe more than the house is worth. That is not so bad if the owner can make the payments without struggling. But what happens when a foreclosure looms? The choices seem obvious - 1. Let the house, your home, go to a foreclosure sale, and you move; or 2. Scrape and fight and get money any honest way you can to try to keep that house you call home.

Ah, one might say - you are acting immorally by walking away from the home and the debt. Or, someone might think, "Gee, if I give up my house I will never be able to get another one." Better yet is the argument bringing the kids into the equation "Well, I can't move my kids to a different school or a different neighborhood. I MUST keep my house even if it kills me. I will work 20 hours a day if necessary!"

First, there is nothing immoral about making a contract with a bank or other lender that states "We, the BANK, will lend you money to pay for a house, and YOU promise to pay us back, a little each month. IF YOU DO NOT PAY we will take your house away from you and evict you." That is the deal. The contract, mortgage and note" do not mention heaven, hell, purgatory, or even limbo (if it still exists). It does not state that if you do not pay, and you believe in reincarnation, that you will come back as a rock, or a brick that get put into a house destined for foreclosure.

Let's be realistic: which is worse - 1. Kids having to move to a different house (same school through school choice in Mass. at least) and have to make new friends in the new neighborhood [even that doesn't work if they are past grammar school] or 2. Mom/Dad in a foul mood, bickering and fighting as to who is to blame for the money problems. That "discussion" typically goes something like this:"You were paying the bills. You knew we were getting behind. Why didn't you do something about it?" Responding in a louder voice "ME? You are the one who went to work for that sleazy contractor/sales force/outlet store/whatever. Why aren't you back to work yet. I mean why haven't you gotten a second (or third) job? I told you not to get that mortgage" Now, yelling back, "How dare you talk to me like that. I earned $XXXXX - how was I to know that..." Shrieking, the retort is "Is was your job to know! And you should have seen that the mortgage was no good (or that the house would drop in value or whatever).

That is great for kids to hear and feel - feel the tension in the house; understand that Mom/Dad (one or both) are angry, scared, "in a mood", ignoring those kids except to yell at them. And if there are no kids, but a spouse or companion, the battle rages on, neither party stopping to work out a solution - analyze the options. Just move ahead blindly because he/she MUST keep the house!!

There is no shame in finding out that you cannot pay the increased payments, or the regular payments because hours were cut. Do not try to blame yourself by believing "I should have read the papers more closely - even though I did not understand anything" or convinced that, if you are on lay-off, you will be called back to work and you can catch up then.

The mortgage companies had no problem or regrets in selling loans they knew might not be good. These same banks and lenders do not hesitate to let their own investment properties go to foreclosure if there is no value and it would be "good money after bad". They had no difficulty with their collective consciences when the mortgages were packaged and sold to mutual funds that crashed. They do not feel immoral when they refuse to modify loans so you can keep you house, or when they send you paperwork to complete which you send in which they lose so you send it in again, which they don't ever get etc.

I am not advocating just walking away from the debt/house without a full examination of whether there is a solution that will let you keep your home. But, I am pushing you to "do the numbers". Is it realistic to try to keep the house? Is there any equity in it or will you paying on value that was never there or that disappeared? How about the relationship with your partner, family, your kids?

If there is any shame in any of this housing mess, it would be that families are devastated and torn apart - not by having to move, but by trying to hang on to a dream that is not lost, just postponed.

It is just money - Contact an FHA Home Preservation Counselor or an attorney who deals with these issues regularly so that you can at least have all of the facts BEFORE you make a decision. If you are concerned about the Lender coming after you for any deficiency (difference between what you owed and the foreclosure sale price) there are ways to avoid that, legally. Do not despair - there is help available.

Author's Copyright by Richard I. Isacoff, Esq. , January 2010

http://www.isacofflaw.com/

rii@isacofflaw.com

How Many Clients Does it Take....

"How Many Clients Does It Take To Change A Light Bulb?" is the name of a small but funny (to a lawyer anyway) book by a fellow attorney from the other end of Massachusetts. Val (actually Giovanni) Diviacchi has written this short but all to true statement, not just about clients, but about all of us in reality. The Answer? One! He/she holds the light bulb and expects the world to revolve around him/her!

Looking at the growing number of foreclosures and the ever-increasing unemployment, we do not have the luxury of waiting for the world, the state, the Feds etc., to help us. As was reported in the New York Times last week by Peter S. Goodman, the modification programs, including the so-called Obama Plan, the Making Home Affordable program, are not working. Under MHA only 2,000 out of 700,000 modification in process have become permanent. Considering that there were 2.7 million loans eligible for that one program, the percentage is scary - 7/100ths of 1% (or .0007 for decimal lovers)

If you are facing a foreclosure or might be in the near future because of a job loss or cut-back, illness, marriage, baby, or just bad money management you should act now. First, contact the lenders loss mitigation department or its "troubled borrower" department. Ask what they can do to help. If you were out of work for 3 months and are just that same 3 months behind, you should be able to work out a plan quickly. I say "should" because even easy problems can be made into full blown wars .

If you have received a notice that states that the Lender is or intending to foreclose, CALL A LAWYER who works in one or more of the areas of foreclosure prevention, predatory lending, loan modifications, and bankruptcy. This is not the kind of problem that will go away. Do not think by not picking-up that certified mail that you are safe! THE WORLD WILL NOT REVOLVE AROUND YOU.

The following link is to an interview of me by a local television host, Andrew Cort, DC, JD. It describes how it came to pass that mortgages were bad and foreclosures happen in Mass. at the rate of 125 each day.

Spend the time to watch the video. I may not be pretty, but the words are worth it (Just close your eyes and LISTEN!).

http://www.andrewcort.com/spirit12RichardIsacoff.html

A Note About "Notes"

The Judge said if you can't prove you own the loan/mortgage, then you don't get any money! The October 25th edition of the New York Times reported on a very important legal case brought in the Bankruptcy Court for the Southern District of New York. Attorney David Shaev had filed a Chapter 13 bankruptcy (repayment plan) for clients facing imminent foreclosure. In the process he discovered that no entity could prove it owned the loan on his clients' home. Judge Robert D. Drain then determined that the lack of proof of ownership by anyone of the loan meant the homeowners did not have to pay "the mortgage" at all. He erased the debt!

The servicer of the loan, PHH Mortgage, was left without any defense. In theory, it was just sending statements and collecting checks for the owner, supposedly U S Bank. Unfortunately for the bank and PHH, there was no proof of who actually was entitled to the monthly payments. It was not a situation where the Promissory Note (the I.O.U. to the Bank) was presented with several parties claiming it was theirs. What is worse, the ownership had been transferred several times, but no one had the assignment (proof of the sale) showing that PHH or U S Bank was the owner - or any other party to the action. You can be certain that the case will be appealed.

THIS IS DIFFERENT from the current street wisdom of "Gee, if they don't have the ORIGINAL note, then I get my house for free". As is often the case, the street is not very wise. In the New York case, no proof of current ownership was provided. No one was questioning whether there was a loan, just the right of U S Bank or PHH to foreclose. Neither one could even show an assignment, the legal document that transfers ownership of a note from one party to another, to either PHH or U S Bank.

If there was an assignment, the issue of the Promissory/Mortgage Note itself would have become an issue. However, even if the original note was lost but a copy could be presented with the assignment, ultimately that would have been good enough , in most states. In litigation there is what is called the "best evidence rule". Simply put, a copy, if it can be authenticated, is acceptable. Authentication would happen in trial or deposition quite simply; the bank's lawyer would ask Mr. Jones, the owner:

"Mr. Jones, do you own the house located at 123 Elm Street, Blackacre, USA?" (in case Mr. Jones wants to lie, the attorney would have a certified copy of the deed and recording information to prove Mr. Jones "owns" the house).
"Mr. Jones, did you ever borrow money to purchase or refinance the house?"
"Mr. Jones, is this a copy of your current mortgage?" (again, the lawyer would have a certified copy, just in case).
"Now, Mr. Jones, would you examine the document I am handing to you and read the title." (unless he cannot read, or it really does state something different, Mr. Jones would answer "Promissory Note" or Mortgage Note" or something similar).
"Mr. Jones, please look at the signature line on the bottom of page 2. Please read aloud the name typed under the signature line" (it will be "Mr. Jones" in this example).
"Do you recognize the signature?"
" Is that your signature?" (meekly "Yes" says Mr. Jones)
"Thank you Mr. Jones" (unsaid, "you have just authenticated the copy as being the note that obligates you to make payments in order to keep you house in Blackacre")

The loss of an original is not the end of the world, or more importantly, the DEBT. The foreclosing Bank not having the right to claim that it owns the note is the end for that proceeding. The right is proven only with the note (or authenticated copy) AND an assignment to the current owner , if there was a sale of the mortgage.

Confusing? Not in principle. The Bank needs to PROVE it owns the mortgage or has been given the right to foreclose by the real owner, and has to PROVE who is the real owner. No proof, no foreclosure (but no free house)!

Author's Copyright by Richard I. Isacoff, Esq, November, 2009

Photo Credit: http://www.ebaumsworld.com/pictures/view/80793502/

rii@isacofflaw.com
http://www.isacofflaw.com/

Foreclosures; Another Shoe is Dropping

Currently, in the City of Pittsfield, MA, there are 190 properties in some stage of foreclosure; 69 are currently in default, 30 are Bank owned, 16 are awaiting a foreclosure sale date, and the rest are in some part of the process (such as sale completed but deed not yet recorded or waiting for the sale with a date set).

For a city the size of Boston, or Atlanta, or even Springfield, MA, that number might not be worthy of note, but in a city of 40,000, to have 190 HOMES in some state of being taken from the homeowner is alarming. What is more concerning is the fact that there is no action on the part of the city to assist those homeowners in trouble. There are no meetings inviting homeowners to learn how to protect their home which is probably their biggest investment; the local community college, which offers courses and seminars in all types of subjects, has no offerings to educate homeowners about how to avoid the common pitfalls that lead to defaults and foreclosure. There isn't even a hotline that is well publicized, that a homeowner in trouble can call to get emergency legal assistance/counseling.

What is most disturbing is that the situation in Pittsfield is not the exception, but the rule. This issue pervades the country and, yet, because we have moved to a new news cycle, gets no attention anymore. The stock market is nearing 10,000 again; the dollar is low so exports are high; oil is over $70/barrel but not too much; gold is over $1,015 per ounce but that is because of the weak dollar; inflation is under control; and the Federal Reserve is continuing to give the banks cheap money to lend. The fact that it isn't being loaned to consumers or small businesses also goes undetected.

We are facing a real housing crisis. As has been commented on and explained in earlier postings, the next wave of adjustable rate increases is about to hit - the so-called Option-Arms, were "prime" borrowers could get a mortgage, and pick a payment for the month. Well, that period of pick as you may is starting to change. Most had that scheme for 3-5 years. The 3 year period is beginning to end (2006-2008) was most of the activity, so we will start to see loans that have to have PRINCIPAL & INTEREST PAID each month for the remainder of the loan term (27 years generally). That will be coupled by a rate increase of 2%-3%, based on the contract (mortgage documents).

So, will the better qualified borrowers start to default and hit the statistics as a "property in foreclosure"? Not all of them but YES, many will! Keep in mind that many of these borrowers no longer have the jobs they did when they got the loan, or hours have been cut, or the second job is gone, or there is no overtime. This will start another decline in home prices and cycle of panic.

Mortgage lending has already slowed to a trickle of what it was. That is not all bad, but when people cannot refinance or buy a new home, even when they have a steady job and decent income, but only a 670 credit score (680 being the line between prime/regular and the evil sub-prime borrower) we have a major problem.

In many areas, local banks and credit unions are trying to fill the void, but the demand is greater than the supply of loans. And, many institutions have new financial requirements to meet per FDIC, OTS, OCC and the rest of the alphabet; the locals have little to lend on anything but the best prime loans.

One hidden factor regarding the recovery of home prices and the market: banks that have foreclosed on homes, many homes, are NOT putting them on the market for sale, hoping for a recovery in pricing and not wanting to flood the market and further depress prices by increasing the supply of "existing" homes beyond the demand.

So much for the good news!

More On Modfications - The Borrowers' Hidden Costs

Mortgage Modification, as stated in earlier posts, can mean anything from allowing a late payment without a fee attached to it, or reducing interest and principal substantially. Unfortunately, most are closer to the deferred penalty than a true modification of terms which will allow the borrower to keep their home.

In today's USA Today, there is a brief analysis of the business of mortgage modifications. The article "Many mortgage modifications push payments higher" by Stephanie Armour, recites the history of 2 borrowers, but details the problems with the program. http://www.usatoday.com/money/economy/housing/2009-09-14-mortgage-modifications-not-helping_N.htm?csp=34

The MHA (Obama) program concentrates on lowering payments. This is accomplished by lowering the interest rate, and, if necessary, extending the term of the loan to 40 years, so that the payment of principal, interest, taxes and insurance, is no more than 31% of the borrowers gross income each month. HOWEVER, the amount of principal owed can actually increase substantially in the process. Per USA Today's quote of government studies "Of loans modified from Jan. 1, 2008, through March 31, 2009, monthly payments increased on 27 percent and were left unchanged on an additional 27.5 percent, according to a recent report by banking regulators." Dismal? Yes! The light might be that the new program, MHA, will do better.

For a borrower that has fallen 6 months behind with his/her $1,500/month payment, accumulated interest, penalties, late fees and other costs, such as legal and inspections, all get added to the amount ultimately owed by the homeowner. In this example, that translates to a minimum of $14,000 added to the amount owed. This in turn would normally increase the monthly payments so a balance has to be reached, generally by adjusting the rate.

NOTHING IS FREE as we all know. Many of these mods (common slang now for mortgage loan modifications) are fixed for only 5 years, and can then adjust. The mod itself creates a new Adjustable RateMortgage ("ARM"). Is this just postponing the inevitable foreclosure? Maybe so - but at least there is a chance for the borrower (who can find new/additional employment, and can clean up his/her credit score, and can make every payment on time) to keep the house by a refinance at the 5 year adjustment period.

Other issues with modifications. There are a number of agencies, well-intended, which help borrowers at risk for foreclosure, to get a modification. The thought there is that by postponing the foreclosure at least the borrower has an opportunity to keep the house. One of the problems here is that many of these agencies are ill-equipped to go toe-to-toe with a mortgage company, be it the servicer or the actual lender. To many of the agencies, any modification is better than none - right? MAYBE!! If the agency is funded by getting modifications done, it can turn into a numbers game. A modification completed is one towards the quota for funding. Keep in mind that a modification can be simply delaying 2 or 3 payments until the end of the loan, or even creating a balloon payment at the end of the term of the loan.

Well, some may say, at least the borrower kept the house for a few more years. Well, I say, "SO WHAT"? The modification should give the borrower a real shot at keeping her/his home for as long as she/he wants.

Recapping, we have a federal program that was put into place for loan mods - fixes - to allow homeowners, who are facing imminent foreclosure or who will be falling behind over the next several months because of a job cut or an UPWARD MORTGAGE INTEREST RATE ADJUSTMENT, to keep their homes. The program allows the mortgage industry, company by company to participate or not. There is only one standard program and that is the Making Home Affordable ("MHA") plan.

Lenders can opt to modify any way they would like to, and are doing so, especially to those borrowers who do not qualify for MHA. The modification may be detrimental to the borrower in the long term but who cares? CreditSights, which is a firm that tracks such matters, states that of the more than 1/2 million mods this year, 90% have resulted in higher principal balances. Good? Bad? It would seem that just adding back interest and fees to a delinquent loan is not good. It seems and is counter-intuitive, and counter to success. It is a short term fix - a band-aid.

HERESY but perhaps there are those who would be better-off losing the house that is a constant struggle to pay for, month after month, year after year. Maybe some homeowners would be better-off losing a house, regrouping and getting finances straight, renting for a few years and saving money each month for a down payment on a house that is affordable.

Author's Copyright by Richard I. Isacoff, Esq, September, 2009

rii@isacofflaw.com
http://www.isacofflaw.com/

Mortgage Modificiations To Get More Difficult?

Countrywide, now part of Bank of America was one of the major lenders to sub-prime borrowers (that only means a credit score below 680 (or 640 depending on the day). It also packaged and sold the loans it originated, as Mortgage-Backed Securities ("MBS"). It continued to service the loans (collect money and send bills from and to borrowers) and was paid by the owners of the MBS to do so. The owners were just investors - they bought $xxxxx of a bond, not any different than if they bought a corporate or municipal bond.

When the mortgage/housing crisis hit, in large part due to Adjustable Rate Mortgages ("ARM") there was tremendous pressure on the Servicers, of which Countrywide was one, to MODIFY loans so that they were affordable for the borrowers. Some servicers modified loans, which they may or may not have been permitted to do in their contract, called a Pooling and Servicing Agreement ("PSA"), with the "packager"/"owner" of the bond. Countrywide modified loans and then, ignoring its PSA, refused to re-purchase the loans that had been modified by lowering the interest rates or even putting payments at the back of the loan. In simpler terms, Countrywide altered the amount of interest the owners of the MBS would receive.

A federal court ruled that Countrywide's motion to dismiss the lawsuit brought against it by the investors would not succeed. The Court stated that the case was one which should be brought in State Court, the the modifications were not protected by the recent legislation and Congressional acts to force lenders and servicers to modify loans. Basically, the Court said that if there is a contract, Countrywide must observe it - any quarrels with that belong in a state court on a case by case basis. No "get out of jail card" was given to Countrywide.

WHY DO YOU CARE? Because Servicers, if they aren't protected when they make modification from the investors, who expect a certain percentage return, will refuse to modify citing the Court ruling but relying on the contract they made, and arguing that they cannot breach the contract! This means more difficulty getting Servicers, which are not participating in the Federal program to modify loans, now for fear of a lawsuit.

This issue was brought up months ago and detailed in my posts of 10/25/2008 and 11/9/2008 -
http://finance-for-us.blogspot.com/2008/10/foreclosure-crisis-how-to-stop-it.html and http://finance-for-us.blogspot.com/2008/11/who-is-bailout-helping-right-now.html.

This just points out the disconnect, the lack of communications and an efficient coherent policy to deal with the foreclosures. Maybe Congress would act if it the home of a member!!

Author's Copyright by Richard I. Isacoff, Esq, August 2009
http://www.isacofflaw.com/
rii@isacofflaw.com

Mortgage Modification Mandates

As a follow-up to the last post, several important matters:

1. If you have submitted the application for a loan modification under the "Making Home Affordable" program, any foreclosure proceedings must stop. The exception is if you do not meet the basic criteria (see http://www.makinghomeaffordable.gov/)

2. To see if your lender/servicer MUST participate in the program go to http://www.financialstability.gov/impact/contracts_list.htm - if it is listed, it has to deal with the modifications

If the lender or servicer received any TARP funds or "volunteered" to be part of the Home Afforability Modification Program "HAMP" or the Home Affordability Refinance Program "HARP" it should be on one of the lists

3. If a mortgage company or servicers tells you not to send any money until the paperwork is received or not to send money for any other reason, ask for the person's name or employee number. Also, ask how you be certain that you should not send any payment. Even if you are satisfied that you do not have to send a payment "that" month, DO NOT USE THE MONEY for anything else. Set up a separate savings account and put all of the money for the payment(s) in the account. If the MHA modification doesn't work, and the lender has its own program, you WILL be asked if you have the last "X" payments, since the last one mailed.

4. If you get mail offering to help you get a loan modification, and the solicitations asks you to send in any money, even after you have called the company and spoken with a "counselor" DON'T DO IT, unless it is your lender/servicer and you have an agreement. There are hundreds of scams right now - 15% of my clients have paid money to some company that cannot help, except to help themselves.

Two expressions come to mind: "God helps those who help themselves" and "God help those who help themselves". (Interesting what one "s" can do!)

5. If you have questions, call a bankruptcy attorney or a foreclosure attorney in your area. If you don't know who to call, check http://www.naca.org/ or for a lawyer http://www.nacba.org/ OR send me an e-mail

Author's Copyright by Richard I. Isacoff, Esq, August, 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Buying at Foreclosure May Be Less Than You "Bargained For"

With the rise in foreclosures and the resultant drop in real estate prices, coupled with the lower interest rates available for "qualified" borrowers, an increasing number of people are buying property at foreclosure sales. The idea is to purchase a house at the "distress" sale price, and end up with a bargain.

As in any other business transaction there are issues that must be considered, aside from the matter of having financing/available funds ready at the time of the foreclosure sale. Some can turn what seems like a "great deal" into a nightmare. For instance:

1. There are no guarantees or warranties that accompany the house. You buy what you see - no more, no less. Further, there is no obligation on the part of the foreclosing party or the auctioneer to point out flaws or defects with the property

2. It is imperative to have an attorney or title company (depending on the state where the property is) check the land records to determine if the foreclosing entity has good title through its sale. In essence, can the company legally foreclose?

3. Getting financing BEFORE the auction is critical. You will have to place a rather large deposit in order to be a successful bidder, and that IS NOT refundable because you discover, later, that you cannot obtain a loan. How can this be done? One way is for you to have your local bank view the property with you. You will have to get an appraisal from a company approved by the bank, and have the full title report available. In addition, it would be wise to get a home inspection - obviously this is not possible if the house is occupied.

4. If the house is occupied by the owners or tenants at the time of the sale, once you buy it it is YOUR responsibility to have the tenants or former owners (who have just become tenants) leave the property. This might well mean eviction, a process that can take, without any major fighting,3 months. With arguments and the tenants trying to stretch out the time they have before they have to vacate, you might not get possession for 6 months.

5. Consider an alternative to buying at the foreclosure sale. You can contact the owner, or the realtor who might be trying to sell the house pre-foreclosure, as make your offer. If it is less than the amount owed, typical in most foreclosures, you might suggest that you want to make an offer directly to the lender for a "short sale". This is where the lender takes a loss, but gets rid of the house. Keep in mind that the lender will have to pay at least 15% of the balance owed, just to foreclose - and then it has to pay taxes, maintain the house, market the house for sale etc. This way you can get an inspection, have time to get financing, and not have to evict the owners because they will leave by agreement when you buy the house.

Last - let the buyer beware

Author's Copyright by Richard I. Isacoff, Esq., June 2009

http://www.isacofflaw.com/
rii@isacofflaw.com

Foreclosures Skyrocket - Help Doesn't

(NOTE: For reasons that are obvious to most of us, the majority of the financial information published, in print or by broadcast, has been about the economy in general, the mortgage crisis and the "fix" to it, the looming credit card disaster, or the stock market's on-going saga. Consequently, nearly all of the postings to deal with these issues. Other legal matters have not been forgotten)

We have all heard about the various federal plans to help homeowners keep their homes. Unfortunately, nearly all of the programs have had little impact to date, which has left borrowers who are in trouble at the mercy of the lenders/mortgage companies or the manager of the mortgage backed security ("MBS") that really owns the mortgage.

According to an article in the New York Times, published on May 14th, 55,000 homeowners have signed for assistance with one of the federal mortgage-relief programs. At first glance that may seem like a good response. Put into perspective though, in April there were 342,000 foreclosures. The point? The programs are not working. (see the chart from the New York Times above)

The Senate, without any support for the Senate Bill 61 from the White House to pass it, voted down legislation that would have made the mortgage lenders and the MBS managers pay attention and try to fix this country's biggest economic problem. The Bill would have given Bankruptcy judges the power to modify loans that were deemed unfair and predatory in nature. Lenders would have had to compromise or face the Courts. The Banking lobby killed it.

As long as the housing market continues to slide, and as long as foreclosures continue to climb, we will not see a major recovery in the general economy. One might argue that it is the 650,000 lost jobs last month that is the root cause of the recession (5,000,000+ jobs lost in the past 8 months). BUT, the crisis started when the mortgage market collapsed, loans that people could not afford adjusted, and the MBS that were being held nationally and internationally became worthless overnight. The MBS and CMBS (Commercial Mortgage Backed Securities), both of which are derivatives, represented trillions of dollars - yet the downfall of one "Bank", Lehman Brothers, began the chain reaction that has brought us to our knees.

There is little that can be done on the national political level, except for writing our elected representatives and asking that work for their constituents instead of the lobbyists. However, there are other steps that can be taken to help stricken borrowers.

The New York Federal Reserve Bank and the New York City Bar Assn. have set up a program to train lawyers to help victims of predatory lending practices, or the economy as it relates to home mortgages. The courses, offered at no cost to the participants provided each takes at least one pro bono (no fee based on the homeowners financial hardship) case in the next 12 months, will give the attorneys the knowledge to review all phases of the loan transaction to determine if the Lender/Broker/Originator took advantage of the Borrower, or if the Servicer is now committing violations of the Federal or State rules regarding collections, notices, foreclosure procedures, etc.

In Massachusetts, The Boston Bar Association has run similar type training, although not as comprehensive, as has The Mass Fair Housing Association in conjunction with the Hampden County Bar Assn ( western Mass) Foreclosure Task Force. Further, attorneys with experience in the field are handling those cases which come to them either on a pro bono basis, or if the borrower can pay, for a fee based on the ability to pay. The idea here is to do as much as we can to save houses.

At any given time, I have 5-8 predatory lending/hardship cases in process. The results are good so far, but each case takes a great deal of time, mainly on the telephone, on hold (listening to bad music). Each Lender and Servicer has different procedures that have to be followed; that is easy once you know what they are. The biggest issue is speaking to someone, on behalf of my client(s), who can make a decision or at least refer me to someone else who can do so. When I am doing a training course, I caution attorneys to just try to get their client(s) back to the place that the client really bargained for, and to have the attorney's fees paid by the Lender; not to try to get a big judgement against the Lender etc. The goal is to stop foreclosures and keep homes.

For example, I have a couple who Borrowed from Wells Fargo through a Broker, Direct Finance, whose representative (originator) promised a $1,200 per month payment, matching the existing loan. My clients were getting cash out of the closing to payoff credit card and medical debt. The closing where my clients actually signed all of the paperwork was a farce. The attorney that actually was the settlement agent (closing attorney - all of whom represent the Lender technically) was filling in for the Lender because the attorney that was supposed to do the work had a conflict in his schedule. The closing lasted 15-20 minutes. There was no way that the attorney could explain all of the documents and the terms of the loan to the borrowers in that time. In fact, the borrowers, my clients now, were just given paper after paper to sign - the attorney had another appointment.

When my clients finally received documents with the actual figures on them, the payment was $1,900 per month PLUS taxes and insurance, for a total of $2,200. This was $1,000 above what had been promised. My clients had been told that the rate would drop from the 7.75% they had, to 5.75 % which would make up the difference for the "cash out" portion of the refinance. Further, the Originator cannot be found - by me, the Broker, or the Lender. However he did the same thing, working for a different broker, to a couple to which he was referred by my clients. This indicates that there was a pattern and practice of fraud and deceit, at least by the originator and quite possibly by the Broker.

My sole job in the matter above is to make a deal so my clients can keep their home. We are not asking for punitive damages, or compensation for the stress, anxiety and "conscious suffering" my clients have been enduring since receiving a foreclosure notice. e simply want was my clients thought they were "buying", and my fees which a nominal in the context of the loan itself and the Lender's attorneys' fees.

If you are facing a foreclosure and the reason is not simply that you haven't paid the mortgage company, but could have, but is because of irregularities in the lending process or what you believe were problems, contact your State or local bar association for a referral to an attorney who is handling these type of cases. If you cannot find an attorney, feel free to contact us at the email address below, and we will try to get you a referral to competent counsel

Author's Copyright by Richard I. Isacoff, Esq., May 2009

rii@isacofflaw.com

http://www.isacofflaw.com/