Stopping Foreclosure When the Lender Says "NO!"

(THIS IS A RE-POSTING FROM AUGUST 12, 2009)

Bankruptcy is a good option if you are facing foreclosure and cannot get the lender to accept reasonable terms for a modification; terms that will allow you to either catch up on back payments over time, or which will put the arrearage at the back of the loan.

The filing of any type of Bankruptcy, which is asking for protection from creditors, will stop ALL actions for money, foreclosures, repossessions etc, against you. BUT, for most consumers, only a Chapter 13 will give you the ability to spread out payments for the arrearage over a period of up to 60 months. So, assuming you are 6 months behind in payments of $1,500 each, and there are $3,00 in legal fees because you are in a foreclosure status, and you have $300 in late fees, and the lender has paid $1,200 in taxes for you because your escrow account (where the lender collects money to pay real estate taxes each month as part of the mortgage) is short because you haven't paid in 6 months - you owe the bank $13,500.

Most of us do not have that amount of pocket change, and if you did, you wouldn't be 6 months behind. Spreading that amount of money over 60 months adds only $225 per month to your expenses. Please understand that there is no misunderstanding about a desperate financial situation, but if the arrearage occurred because of a temporary drop in income, for whatever reason, you can get caught up. Too many people give up once they get that far behind because they know they cannot pay $13,000+/- all at once, and once the foreclosure starts, the lender is not inclined to "make a deal".

The Bankruptcy Laws were established so that people could get a "FRESH START". The whole concept is to give people who get into a financial bind a way out, without losing their home, car, retirement accounts etc. Details of the protections a Bankruptcy gives you are on my website www.isacofflaw.com . Once in a Chapter 13 Bankruptcy, the United States Bankruptcy Court controls what a creditor can do. If you make payments on time, including the $225/month in the above example, the lender can only sit by a wait until you finish the Plan of payments. If you make all of them, your loan is put back into "regular" good payment status.

Also, if you miss a payment due to a temporary problem (broken arm with no sick time available from your job or a seasonal drop in hours so the overtime you have been counting on isn't available) the lender CANNOT just foreclose. It must ask the Bankruptcy Court for permission and there will be a hearing on the request. There, your lawyer (don't try a Chapter 13 Bankruptcy on your own) can explain the situation to the Court and usually work some type of compromise with the lender. The Bankruptcy Court is there to protect Debtors, provided the Debtors do what they promise.

Further, if you have equity in your house of $30,000, and your payments are $1,000 per month, the Court normally will not allow a foreclosure even if you are 2 or 3 months behind. While that is not specified in the Bankruptcy Code, the concept, called "adequate protection", is clearly spelled out. In essence it states that if the lender is not at risk of losing anything by waiting and using some of your equity to guaranty the arrearage will be paid, then the Court WILL NOT allow the lender to foreclose. The lender has no risk in waiting so you get a chance to get caught up again.

The Bankruptcy laws are complex, but the concept is not. If you are behind in your mortgage payments, and the lender wants to foreclose, and the lender will not "make a deal" with you, and you do not have a lump sum to pay all of what you owe from payments not made, a Chapter 13 Bankruptcy filing can be used to save your home. You can find a qualified Bankruptcy attorney by going to the website of the National Association of Consumer Bankruptcy Attorneys www.nacba.org , www.abi.org, or by calling my office for a "no charge" referral.

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

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/

Mortgage Modification - Court Ordered

Below is a letter I have written to the U.S. Congressman from my district, outlining the reasons I believe that the measure being taken up by Congress, to give Bankruptcy Judges the right to modify primary residence mortgages, should be approved. If you can, write your Congressman to ask his support, the letter, I believe, is self-explantory

RICHARD I. ISACOFF, P.C.
ATTORNEY AT LAW
100 NORTH STREET
SUITE 405
PITTSFIELD, MASSACHUSETTS 01201
____________
e-mail rii@isacofflaw.com

TELEPHONE (413) 443-8164 TELECOPIER (413) 443-8171

VIA FACSIMILE 202-226-1224

The Hon. John W. Olver
U.S. House of Representatives
111 Longworth HOB
Washington, DC 20515

Dear Congressman Olver

I write not only as a constituent, but also as an attorney who represents distressed homeowners in our area who are trying to save their homes from foreclosure. This is a genuine and urgent crisis that demands immediate and targeted congressional action. As such, I encourage you to support H.R. 200, legislation that would provide relief to these homeowners.

Too many families in this District and throughout the Commonwealth are on the brink of losing their homes to foreclosure. Across the country, it is estimated that 8.1 million homes will be in foreclosure over the next four years if Congress does not act. As devastating as foreclosure is for the individual families whose homes are threatened, the effects of this foreclosure epidemic are felt throughout the economy. Indeed, virtually every economist has recognized that the financial crisis gripping the country can be resolved only by dealing with the root cause –the escalating millions of foreclosures. I will gladly send you detailed and summary materials on this issue.

H.R. 200 would help families save their homes by giving them more flexibility to restructure the mortgages on their primary residences. The bill would fix current law, enacted in 1993, that prevents judicial modification of primary home mortgages, but allows such changes to virtually all other loans. Why shouldn’t Judges be able to correct “bad faith” loans – regardless of which side acted in bad faith?

Sadly, the magnitude of the foreclosure crisis dwarfs the response to date from Washington. The very clear lesson of the last two years is that foreclosures will not be curbed through top-down voluntary efforts on the part of the financial services industry alone, no matter how many incentives are provided. Courts must be empowered to implement economically rational loan modifications where the parties are unwilling to do so on their own. Loan modifications through the bankruptcy courts can be accomplished on a sufficient scale and time frame to have a meaningful impact. The mere threat of judicial modification may, in fact, lead to more meaningful voluntary loan modifications.

OLVER, REP./CON’T
February 21, 2009
Page 2

President Obama recognized Chapter 13 judicial mortgage modification as an effective approach to stemming the foreclosure tide and expressed his support for legislation that would accomplish this. While the Mortgage Backed Securities investors and market-makers might lose some value, getting a modification that pays 80% of the loan with interest, is better than a foreclosure sale yielding 40%-50% of the investment cost.

Please support the Bill – campaign for it. I worked with you in the days of the BNE collapse and RECOLL Mgt.; I would be honored to do so again. If you need additional information, please contact me at my office on (413) 443-8164, my private cell phone (413) xxxxxxxx or by e-mail.


Sincerely,



Richard I. Isacoff, Esq




RII/mpb
cc: Maureen Thompson, NACBA


Website:www.isacofflaw.com

BLOG: http://finance-for-us.blogspot.com

Mortgage Rescue Plan: Does It Need a Rescue?

Now we know what the monsters are under the bed: partisan politics, inertia, greed, and despair. The economy keeps getting worse and every program that is announced to help gets roundly criticized by the Press, Pundits, and Politicians. How about injecting some hope into this quagmire?

The latest rant is against the Mortgage Bailout for Homeowners. For the most part, those leading the charge seem to be talking about borrowers who KNEW that they were borrowing more than they could afford to pay back, or the borrowers who got a mortgage loan where the borrower could make minimum payments (interest only or some other lower amount) hoping/expecting the house to rise in value so the borrower could refinance again, or the borrower who lied on his/her mortgage application in order to qualify for the loan without realizing that at the very first rate adjustment, she/he would not be able to afford the payment if it went up, but prayed for a raise/new job/no rate increase/ or divine intervention (or is that intervention by the intelligent designers?).

Below is the content of an e-mail I sent to CNBC's morning business show, SquawkBox, about the call for a financial revolution against the President's plans. You can see the clip where Rick Santelli, a Trader at the Chicago Mercantile Exchange attacks the Homeowner Mortgage Bailout, by going to the web address provided: http://www.cnbc.com/id/29283701

THE E-MAIL

Dear Becky, Joe and Carl (please excuse the use of the familiar but…),

I am a private-practicing sole practitioner attorney in Western Massachusetts. My background is banking, S&L work-outs for the State of Maryland and with FSLIC, Regulator in connection with the S&Ls, and part-time lobbying in the mid-80s for the Mutual Savings Bank industry. I relocated back to Western Mass to run the Berkshire County portion of the ill-fated Bank of New England and ended up working for the Fleet/FDIC workout group, RECOLL Mgt. (Great career move – I resigned as President and CEO of a de novo FSB [federal savings bank] I had started in Ellicott City, MD.).

I take extreme exception to Mr. Santelli’s commentary, his logic, and his outlook.

I represent people, statewide, who are presently losing their homes. Not one has a Lexus or other such luxury car, and if having 1 bathroom with inside plumbing is a luxury, then I guess all of my clients have a luxury.

Just for perspective, the President’s yet fully clarified program will help my clients: the short-form facts of some are as follows:

1. Husband and wife – both working for the same molding company, both laid-off the same day. For the past 18 months, only one has been able to get a job at a time. Husband hired, wife hired, Husband laid-off. Husband gets job, wife gets laid off, etc. Mortgage with Beneficial (which is under a consent decree in Mass. for bad lending practices). Interest rate high; clients “sold” insurance (life, AD&D, disability); loan adjusts up but the disclosures show a downward adjustment by .25% each year “if for a 12 month period all payments made on time” (day due, not 15 day grace period). Repeated calls to Beneficial have yielded no help in a modification

2. Single woman in late 50s. Religious Ed teacher at Catholic High School. Loan from BankUnited, FSB in FL, through a local broker. Initial year’s payments based on 1.7% teaser rate but interest rate, not payments, adjusted month 2 to index (6 mos LIBOR) plus margin (6.75%). Payments increase by 7.5% per year. At end of first year, Orig principal of $159,000 is now $163,000. At month 43 of loan payment is $700+/-. Month 44 –payment is $1,400.30 for rest of loan. Becky will be Pope before this woman will understand the loan she was sold. Oh, by the way, the Broker lied, in writing, and is no longer in business. Closing costs/fees to Broker and Lender - 6% making it a “High Cost Loan”

3. First time home-buyer with 720 FICO. Mortgage Broker puts her in 2/28 LIBOR ARM –tells her the rate will go up and down like prime. Never tells her first adjustment will be 3%. She tries to refi and is told her income is not adequate. House is a two-family but because she rents to family member, Lender will not count the income. She has “banked” payments for the period after the second adjustment, based on the original payment. Money is available to Lender. Lender went to sell at foreclosure. I stopped it, but no response from Lender. All we asked for was original deal – as presented by broker – 30 year fixed 7% - accept monies held by me in escrow, capitalize thew arrears, if any, after recalculating the balance by applying the original rate and actual payments.

4. HFC sells 30 year fixed rate loan. Borrowers have ability to pay with acceptable ratios 32/36 DTI. Loan is billed as a “conventional 30 Year Fixed”. Loan is, in reality a “Simple Interest Loan”, so interest runs every day. There are no 15 day grace periods – pay on the 2nd of the month and get an additional day’s interest charged. Pay on the 16th, which would normally require a 3% of the payment penalty, and pay the penalty PLUS 15 days interest. RESULT: Negative Amortization – off the books – run as a ledger accrual account. $425,000 loan - $22,000 accrued, not paid, interest in 18 months. No payment ever went 30 days – all made by 15th day.

I have a dozen more like these. I have filtered out the guy who has refinanced 13 times since 1985, and now want to get out of the 14th loan – an Option Arm – he can no longer afford. This is the person Santelli should attack. This person kept “cashing out” the equity and is now in a bind due to a 25%-40% drop in prices in the Boston metro area.

One last note – why are people afraid of a judge determining if a loan was made by a lender in bad faith? Misrepresentation goes both ways, and the borrower is the weaker party. Maybe the Lenders should have watched their originators more carefully.

I watch the show every morning from 6-6:45 –get to my office at 7:05 and grab it on CNBC Plus while I go through the e-mails and loan docs. Great show, but how about some better balance. Darwin was right, but to use his theory as a life approach is ignoring basic decency. It is like the “let them eat cake” of the 18th century French elite. Santelli does not sound French.

Richard Isacoff

(end of the e-mail)

It is difficult to convey the details of the President's plan at this point, because thee are none. It is not that the program isn't outlined in detail, but the who qualifies, how does someone apply for help, how do you communicate with your lender, etc, has not been finalized. We are supposed to receive the operational details on or about March 4th. In the meantime the next post will have a summary taken from the Whitehouse Press information, stories in the Wall Street Journal and the New York Times and other publications.

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

e-mail: rii@isacofflaw.com

website: http://www.isacofflaw.com/

Stop the Foreclosure: How?

Since the last posting, very little has come of the stories about bailout money being available to stop foreclosures. Loan modifications are obtainable, but, without patience and a knowledge of the process, the task is nearly insurmountable. What is worse is not just that the pace of foreclosures is increasing, but that the moritoriums are over and all of the borrowers who thought that a solution would be reached, before the sale date, are being rudely surprised.

The argument that the President Obama will institute programs that will be the lifesaver for which everyone is waiting has merit; but what do we do about all of those homeowners who lose their homes in the meantime? If you have any concern about a soon-to-happen foreclosure, please read the post of December 22, 2008, which deals with stopping the process.

If there is any question about whether a property will be sold at a foreclosure action, contact an attorney or a legal aid organization. If there is no time left, and if there is a sale tomorrow, file a Chapter 13 Bankruptcy. The Clerks at every Bankruptcy Court can help an individual file the basic documents to get the Bankruptcy started, thereby STOPPING the sale.

The offer is open and will remain so - contact me through my website or directly by e-mail and I will try to assist through a referral to an attorney, or by "walking you through" the filing process.
Author's Copyright by Richard I. Isacoff, Esq, January, 2009
http://www.isacofflaw.com/

rii@isacofflaw.com

Sub-Prime? The Next Generation! FHA? (really?)

SUB-PRIME - PREDATORY - LOANS LENDING - BAILOUT -FINANCIAL CRISIS


They're Baaack! Just when we thought it was safe to go into the wate.. no no no, I meant the mortgage market! This time, FHA loans are the mark.

With the drying-up (or is that drying-down?) of the credit and especially the mortgage market, as announced, the Federal government is trying to re-start the housing market. One way to do that is to use already existing programs, like VA, FHA, USDA Rural Home, etc. Each of these programs is very good at what it does, and with all three of them it is to make loans, specifically mortgage loans to current or existing homeowners.

There is always a catch - some mortgage brokers are committing the same kind of fraud with FHA loans as were prevalent with other loans, such as those made by IndyMacBank, Wells Fargo, Option One, Ameriquest et al. Mortgage applications and documentation is not meant to be an exercise in creative writing. Unfortunately too many mortgage originators do not understand that.

The tricks are the same -altering an application after the borrower has signed it so income can be added to make the loan more attractive to an underwriter. Getting someone in a Bank to falsify Verifications of Deposit or Verifications of Mortgage, also works well to fool the folks making the decisions. Having fake appraisals done, where the value is placed well above the market is another favorite. In June of 2008, the Massachusetts Attorney General announced that the principals of Direct Finance Corporation, which was licensed by the Division of Banks, and at least two employees of community banks were indicted for mortgage fraud and various other matters, for doing just those things.

FHA was too trusting of its originators because they were usually trustworthy. Once the "bad guys" lost the ability to do conventional non-agency loans, like to the lenders mentioned above, these middlemen/women just took the same techniques and applied them to the VA/FHA/USDA field. We might think that these groups would have been more vigilant but...

In the 1980s, while I was working with the Maryland S&L crisis, running failed S&Ls I came across a true story about mortgage fraud that seems both comical and sad now. There were two older women who had been in the mortgage business for years. Keep in mind, that in the mid 80s interest rates were in the mid teens, like 15% for a NORMAL residential mortgage rate.

These women worked with FHA and VA loans almost exclusively. To make a loan more appealing, they would alter an application, make up Verifications, change documents before, during and after closings. Remember, PCs were just getting started so the method was the comical (now) side. They had no fewer than 10 typewriters of different manufacture so they could match the type style. Additionally, they had several IBM Selectrics, the ones with the little interchangeable steel ball, so they could use a hundred different type faces and fonts. They were caught by chance and went to jail for several years (the sad part). Point is that the mortgage fraud business has always been alive and well.

Author's Copyright by Richard I. Isacoff, Esq - November 2008

http://www.isacofflaw.com/