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Update on the Cash Distribution to Foreclosed Homeowners from the National Mortgage Fraud Settlement

What qualifies you to receive the $1,500 to $2,000 restitution payment for losing your home to foreclosure? More clues have just become available.

 The “largest consumer financial protection settlement in US history,” the $26 billion national mortgage fraud settlement, was announced with great fanfare in February. More than a month later, on March 12, 2012, the details of the settlement were finalized and hundreds of pages of settlement documents were signed and finally made public. But all those pages still did not at all make clear how a person whose home was foreclosed will qualify to get the money.

To remind you about this, most of the money in this settlement is earmarked for current homeowners for loan modifications, refinances, and other ways to help them hold on to their homes. But just shy of $1.5 billion is for those who’ve already had their homes foreclosed. That’s the subject of this blog.

This part of the settlement applies only to:

  • foreclosures that occurred during the calendar years 2008 through 2011
  • mortgages held or serviced by Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial/GMAC and CitiGroup and their affiliates
  • mortgages on which at least 3 payments were made and the property “was not abandoned by the homeowner or condemned prior to the time of the foreclosure sale” 
  • “owner-occupied, one-to-four unit” residence in all states except for Oklahoma, which is not participating in this settlement

Find out if your mortgage is included in this settlement pool by going to the special settlement website for the banks’ toll-free phone numbers and websites.

But once you are in this pool, what further conditions, must you meet to get the money? The initial settlement documents last month surprisingly did not make this clear. They just stated that “cash payments” from the $1.5 billion fund would be provided to borrowers whose homes were foreclosed during the 2008 through 2011 period and “who submit claims arising from the Covered Conduct [the alleged mortgage servicing and foreclosure fraud]; and who otherwise meet criteria set forth by the State members of the Monitoring Committee.”

So if you are a foreclosed homeowner, do you only get the settlement money if you can show your foreclosure happened because of your bank’s alleged misconduct? Has the “Monitoring Committee” provided any more information on this or any other criteria to be used?

Two and a half months after the February 9 announcement of the settlement, there is still no definite answer to the first question. And the second question? The 14 state attorneys general on the “Monitoring Committee” has curiously not directly told foreclosed homeowners anything more about the qualifying criteria, apparently because that will be the job of the “Settlement Administrator.” But in the last few days this Committee HAS indirectly provided some important clues about the criteria through its release of two documents:

The RFP states the following:

Borrower Certifications:

In addition to the baseline eligibility criteria listed above, eligible claimants must also complete a claim certification form in which they certify under penalty of perjury to the following:

  • Borrower lost the home to foreclosure while attempting to save the home through a loan modification or other loss mitigation effort.
  • Servicer errors or misconduct in the loss mitigation or foreclosure processes affected the borrower’s ability to save the home.

But those two requirements are not clear either. What would be considered an adequate attempt by the borrower to save the home? For example, if you simply made a number of unsuccessful attempts to get the lender to respond to phone messages—would that be enough? And how are you going to know when a bank’s misconduct “affected” your ability to save the home when the bank is providing you that kind of information and not admitting anything? Indeed, in this entire multi-billion dollar settlement the banks are not admitting to a single act of misconduct!

The First Addendum—released just a few days ago on April 20—gives some further clues, albeit maddening ones. Here is a pertinent question from the Addendum and the Monitoring Committee’s response:

Question #12: Will the Settlement Administrator be required to request and review documentary proof from claimants who submit claim certification forms in order to determine eligibility?

Answer: No. Other than reviewing the claim certification forms to ensure that claimants properly made the required certifications, the Settlement Administrator will not be required to request and review documentary proof from claimants in order to determine eligibility.

So to receive the settlement money, it looks like you as a foreclosed homeowner will have to sign a claim form stating under penalty of perjury that the foreclosure occurred in spite of you efforts to save the home, AND the foreclosure occurred because of the bank’s “errors or misconduct”—which you may well have no way of knowing about. But, it looks like you will not need to provide any documentation to verify your statements. It is unclear whether information will be provided by your bank to the Settlement Administrator which might contradict your statements—for example asserting that you did not attempt to contact the bank to try to save the home. And if that occurs, there’s also no indication how such disputed facts would be resolved.

Stay tuned here, and on the settlement website, for answers to these continuing ambiguities.

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Getting Just Enough Help for Your Home through Chapter 7

When does filing a Chapter 7 “straight bankruptcy” case help you enough so that you don’t need a 3-to-5-year Chapter 13 case?

If you are behind on your mortgage payments but want to keep your home, you have likely heard that a Chapter 13 “payment plan” is what you need. And that IS a powerful package, with an impressive set of tools to deal with a wide variety of home-related problems—everything from the mortgages themselves to property taxes, income tax liens, and judgment liens.

But what if you need to discharge other debts to get a fresh financial start, and have managed to fall only a couple of months behind on your mortgage? Or what if you are not keeping the house, but just need a little more time to find another place to live?

Then you may well not need a Chapter 13 case, and can maybe avoid the disadvantages it comes with—mostly, that it takes so much longer and generally costs lots more than Chapter 7. This extra time and cost can be well worthwhile when you need the great advantages of Chapter 13, but let’s look at ways that Chapter 7 can do enough for your home:

In a Chapter 7 case:

1. The “automatic stay”—the bankruptcy provision that stops virtually all actions by creditors against you or your property—applies to Chapter 7 just as it does to Chapter 13. So the filing of a Chapter 7 case STOPS a foreclosure in its tracks, just as quickly as a Chapter 13 filing. But if you are just trying to buy time to save money for a rental, the tough question is HOW LONG that break in the mortgage company’s foreclosure efforts will last, and how much extra time it’ll buy you. An aggressive creditor could quickly ask the court for “relief from the stay”—permission to resume the foreclosure process—thus potentially getting you only a few extra weeks. Or on the other extreme, a mortgage creditor could just do nothing for the 3 months or so until your Chapter 7 case runs its course and the “automatic stay” expires with the completion of your case. So, Chapter 7 often does not come with much predictability about how much time you’d gain. On the other hand, your bankruptcy attorney may well have experience in how fast certain mortgage lenders tend to ask for “relief from stay” under facts similar to yours.

2. Chapter 7 stops—at least briefly—not only mortgage foreclosures, but also prevents other potential liens from being placed against your house, including the IRS’s tax liens and judgment liens. But why would the few weeks or months that Chapter 7 gains make any difference with these kinds of creditors? In the right set of facts, it can make many thousands of dollars of difference.

• A timely filing of a Chapter 7 case can prevent you from having to pay a debt that would otherwise have become a lien against your house. For example, let’s say you have an older IRS debt that meets the necessary conditions for discharge, and you also have a little equity in your home but not more than your homestead exemption allows. If you waited until after the IRS recorded a tax lien for that debt against your house, that lien would continue being attached to your house even if you filed a bankruptcy and would eventually have to be paid. However, if your Chapter 7 filing happened before the IRS recorded a tax lien, the “automatic stay” would prevent that tax lien from being filed, the tax debt would be discharged forever, and your home’s equity would be preserved.

• Or if instead let’s say you have a debt that is NOT going to be discharged in bankruptcy—say a more recent tax debt—but you also had some assets that you were going to have to surrender to the Chapter 7 trustee, what we call an “asset case.” If again you filed the bankruptcy case before the recording of the tax lien, your Chapter 7 trustee could well pay those taxes as a “priority” debt in front of any of your other debts, potentially leaving you with no tax debt at the completion of your case.

3. Chapter 7 allows you to concentrate on your house payments by getting rid of your other debts. If you’ve managed to keep current on those mortgage payments, but don’t know how long you will be able to do so, the relief you get from discharging your other debts greatly improves your odds of staying current on your home long term. Or if you have missed only a few mortgage payments, AND can reliably make future ones, PLUS enough to catch up on your arrearage within year or less, then Chapter 7 would like very likely do enough for you. Most mortgage creditors will let you enter into an agreement –often called a “forbearance agreement”—to catch up the missed payments by paying a sufficient specific amount extra each month until you’re caught up, again, as long as that period of catch-up time is relatively short. Otherwise, you may well need a Chapter 13.

 

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Reasons to Do a Short Sale? Maybe Not

Besides avoiding a foreclosure and its hit on your credit record, you may have other sensible reasons for looking into a short sale of your home. Let’s consider those other reasons.

In my last blog I showed how a short sale may be harder to pull off than expected, and how they can be dangerous if you do not get advice from knowledgeable professionals looking out for your interests. Simply put, you should not assume that any particular solution is the right one without knowing all your options. And that means asking whether the reasons you are pursuing one option might or might not actually be better served through a different option.

So here are some sensible reasons to consider doing a short sale:

1. You can’t afford the house anymore and so believe you have no choice but to get out.

If your income has been cut or the mortgage payments have gone up so that you cannot keep up those payments, and yet you can’t sell your house in the normal fashion because it’s worth less than the mortgage balances, then a short sale may be a good way to escape the house and its debt.

But maybe you have important reasons to stay in your home. Your family may benefit from staying for deep personal reasons—such as not leaving your kids’ school district or maintaining family stability. If you leave this home it may be a long time before you would have the financial means to buy again. So there may be ways to lower the cost of keeping your home. A mortgage modification may now be more available than in the last few years because of the recent large mortgage fraud settlement with the major banks, and other improved programs. A Chapter 13 case in bankruptcy court may enable you to eliminate or drastically reduce a second mortgage balance, and either eliminate, reduce, or delay payments on other liens on the house. And either a Chapter 7 or 13 could reduce or eliminate other debts so that you could better afford to pay the home obligations.

2. You’ve heard that bankruptcy does not allow “cram downs” of mortgages on your home. So you see no way out of your second mortgage other than getting them at least a partial payment through a short sale in return for writing off the rest of that debt.

You’ve been doing your homework if you understand that mortgages secured only by your primary residence cannot be “crammed down,” reduced in bankruptcy to the value of that residence, unlike lots of other kids of secured debts.

But there’s a big exception, one that keeps getting bigger as home values continue to decline in many areas. If your home is worth less than the balance of your first mortgage, so that there is no equity at all in your home for the second mortgage, then through a Chapter 13 case you can “strip” this lien off your home. That means that your second mortgage debt can be paid very little—sometimes even nothing—during your 3-to-5 year Chapter 13 case, and then written off completely. This not only saves you from paying the 2nd mortgage payment from then on, it reduces your debt on your home forever, making hanging onto your home economically more sensible. If this second mortgage strip applies to your situation, then you will pay less each month for a home with less debt on it.

3. You may be induced to do a short sale not just because of your voluntary mortgage debts on your home, but because of various other usually involuntary ones which have attached to your home’s title, like one or more tax, judgment, support, utility, or construction liens.

You may have found out that your title is saddled with other obligations, and in fact you may well be under a great deal of pressure to pay one or more of these obligations. The IRS and support enforcement agencies can be especially aggressive. So you would understandably feel that you have no choice but to sell your home to get that aggressive creditor paid. And since you have no equity in your home, you can only sell it on a short sale. But the problem is that the more lienholders you have, the more challenging a short sale becomes. And even if it does succeed, the troublesome lienholder may agree to sign off for less than the balance, leaving you still being pursued by it.

I can’t cover here how a Chapter 7 or Chapter 13 case would deal with each of these kinds of lienholders. That’s a many-blog discussion, and would depend on each person’s circumstances. But often you would have options that would give you more control over your home and over your financial life than would happen in a short sale. Considering what is at your stake, it certainly makes sense to consult an attorney who is ethically bound to explain all the options in terms of your own goals and best interests.

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Short Sales: Seldom Easy and Often Not What You Expected

A short sale of your home is sometimes your best alternative. But short sales often do not successfully close, and even when they do you must be vigilant to avoid problems later.

In a short sale, a house is sold by “shorting”—underpaying—one or more of the lenders (or “lienholders”), because the value of the house, and thus the purchase price offered by the reasonable buyer, is not enough to pay everyone in full. The liens can include not just voluntary ones such as the first and second mortgage, but also judgments, income taxes, support obligations, unpaid utilities, and property taxes. All lienholders must consent and release their liens, or the sale cannot occur, because the title needs to be clear for the new buyer to be in full ownership.

The important thing to know is that unless you get a full settlement or satisfaction in writing you may face continuing liability to any creditor who was not paid in full, even after the sale!  This is why it is important to work with competent and knowledgeable professionals in dealing with any short sale situation.

The primary benefit of a short sale is that it avoids a foreclosure on the homeowner’s credit record—that is, it does so IF the short sale is successful. Generally, the most common current underwriting criteria will prevent a borrower from qualifying for a new home loan for up to 7 years after a foreclosure, but only 2-4 years after a short sale.  (However, given the present economic climate, in the future there may be less credit record difference between a short sale and a foreclosure.)  This credit record difference is often the primary reason borrowers will try to do a short sale, instead of just letting a property go to foreclosure.

Short sales can have problems, however.

First, they can be much harder to pull off than expected, and can take much longer than expected. It is also possible they fail to close, typically due to servicer/lender rejection of reasonable purchase offers, which can be very frustrating to all parties involved.  Short sales may also fail due to:

  • Lack of incentive of the Servicer:  Many mortgage companies are not well organized or staffed to handle short sale negotiations.  Borrowers and agents generally must work through a servicing company, whose financial incentives may well not encourage short sales. So they may drag their heels, and can even sabotage your efforts, even after months of submitting documents and reasonable offers.  This causes many would-be buyers to get frustrated and walk away from the deal rather than keep trying in the face of such adversity and frustration.  LAck of responsiveness of servicers is a major cause of short sale failures.
  • Since all lienholders must agree, any one of them can kill the deal: To accomplish a short sale, usually the first mortgage holder has to give up some money to a junior lienholder or two. The benefit to the first mortgage holder is that getting a little less out of the sale is better than incurring the substantial costs and delay of foreclosure.  However, they may not be willing to allow enough money to a junior to entice all parties to allow the short sale to be completed.  Everybody wants their “fair share” of a pie that is too small to make everybody happy.  So just when you think you have a deal among the main players , someone else crawls out of the woodwork demanding a payment and jeopardizing the closing. They all have a legal claim against the property, and can delay or undo the whole deal.
  • Closing and other costs can be too high: Sometimes after adding up all the closing costs and realtor fees, there may not be a high enough “net proceed” number to entice the lender to do the deal.  Of course, the realtors and their negotiating agents are doing a lion’s share of the work in any short sale process, and must be adequately compensated by the lender at closing.  This is how a short sale can be done with little or no out-of-pocket cost to the borrower.  Sometimes the banks have a hard time with this concept and will lead to a sale failure by their rejection of reasonable market offers.  This just means they will actually lose more money in the long run, and it is frustrating for everyone involved, particularly the realtors and others who put substantial time and efforts into the process only to have it fail due to a recalcitrant or incompetent servicing agent.

Short sales can be dangerous if you are not well-informed:

  • Potential liability from unpaid balances on the junior mortgages and liens: Although you may be told that you will not be liable, you need to be sure that the acceptance and/or settlement documents and the applicable law in fact cut off any financial liability to you following the sale. Also be aware that sometimes in the midst of the negotiations, especially if a junior lienholder is playing tough, and the closing has been delayed for a long time, you may be feel forced to accept some liability in order for the closing to occur.  This may or may not be in your best interest, and you may wish to consult with an attorney to discuss all the factors and options – be sure to consult with someone who is unbiased and who will advise as to your interests alone (unlike realtor or others who may only get paid upon sale).
  • Potential tax consequences: This issue deserves a whole blog by itself. The key principle is that debt forgiveness can be treated as income subject to taxation unless you fit within one of the exceptions. Make sure you talk with an appropriate tax specialist or attorney about this before investing any time or expectations in the short sale option.  Most residential borrowers will have an exception, but not always!
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A New Alternative to Foreclosure: Mortgage to Lease

Bank of America is starting a pilot program that will allow homeowners at risk of foreclosure to stay in their homes. Essentially, it entails handing over the deed to the house to the bank and signing a lease that will allow them to rent the house back from the bank at a market rate. Borrowers will agree to a “deed in lieu” of foreclosure, which is less costly to the bank and damages the borrower’s credit less than a foreclosure. Former owners will be offered a one year lease with options to renew every two years at or below the current market price.

The initial breadth of the program has been released to 1,000 homeowners in Arizona, Nevada, and New York-and only homeowners who receive letters from the bank can participate. It is unclear yet how widespread the program will become.  Some have suggested a deterrent may be the need for the bank to comply fully with the Oregon and Washington landlord-tenant act in becoming a  landlord, which includes an obligation to maintain the habitability of the housing unit.  Are banks really ready to become landlords?  My guess is, not really.

For the full story, please visit: http://online.wsj.com/article/SB10001424052702304724404577297904070547784.html?mod=WSJ_myyahoo_module

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The Bankruptcy Consequences of the National Mortgage Settlement

The bankruptcy world played a quiet but significant role in bringing about this controversial $26 billion settlement. So, fittingly, the settlement terms require the banks to make significant changes in their behavior in bankruptcy court.

Before leaving my current series of blogs on this mortgage settlement, I had to tell you about its bankruptcy angles.

The bankruptcy courts are where some of the earliest signs of bank misconduct appeared. For many years before the “robo-signing” scandal broke in the fall of 20010, mortgage lenders had been making a bad name for themselves in bankruptcy court with shoddy accounting and loose paperwork. Unlike most foreclosures—judicial or non-judicial—in which homeowners do not have attorneys representing them, the majority of homeowners in bankruptcy do have attorneys. So when, for example, mortgage lenders try to get “relief from stay”–permission to foreclose on a home under bankruptcy protection—the homeowner has both a convenient forum—the bankruptcy court—and an advocate who can point out to the court that the lender has not credited all the payments, that it has misplaced payments in some “suspense account,” and/or that it hasn’t even provided its own attorney with accurate accounting information or documentation.  

The bankruptcy system also had another player with a major role, as U.S. Attorney General Eric Holder highlighted when he announced the settlement last month:

The U.S. Trustees Program, which serves as the watchdog of all bankruptcy court operations, was one of the first federal agencies to investigate mortgage servicer abuse of homeowners in financial distress.  As part of their investigation, Trustees reviewed more than 37,000 documents filed by major mortgage servicers in federal bankruptcy court – and took discovery in more than 175 cases across the country. 

Accordingly, the Complaint filed against the banks as part of this settlement documentation includes a major section on “The Banks’ Bankruptcy-Related Misconduct,” listing 15 distinct types of misconduct. (See pages 34-38 of the Complaint.)

And each bank’s Consent Judgment contains a series of requirements related to their bankruptcy procedures. (See the Ally Financial/GMAC Mortgage/Residential Capital ”Consent Judgment” here, along with its exhibits, totaling more than 300 pages. The other banks’ Consent Judgments can be found here.)

Here is an example of some of the requirements, as applicable to the banks’ filing of proofs of claim (“POC”) in bankruptcy court, which they file to establish the nature and amount of a debt:

The lender “shall ensure that each POC is documented by attaching:

a. The original or a duplicate of the note, including all indorsements; a copy of any mortgage or deed of trust securing the notes (including, if applicable, evidence of recordation in the applicable land records); and copies of any assignments of mortgage or deed of trust required to demonstrate the right to foreclose on the borrower’s note under applicable state law  … .

….

f. The POC shall be signed (either by hand or by appropriate electronic signature) by the responsible person under penalty of perjury after reasonable investigation, stating that the information set forth in the POC is true and correct to the best of such responsible person’s knowledge, information, and reasonable belief, and clearly identify the responsible person’s employer and position or title with the employer.”

These requirements strike at the rampant problems with insufficient documentation and authorization, including assignments and recordings.  There are similar rules applicable to motions for relief from stay, about fees charged by lenders during Chapter 13 cases, and their loss mitigation behavior during bankruptcy.

Remember that this national mortgage settlement does NOT settle or waive any “claims and defenses asserted by third parties, including individual mortgage loan borrowers on an individual or class basis.” (See the Federal Release, Exhibit F, p. 42, and the State Release, Exhibit G, p. 10, in the Ally Financial “Consent Judgment,” by way of example.) In effect that means that debtors in bankruptcy are not limited by the settlement from pursuing mortgage lenders for their violations of bankruptcy law, including those laws referred to in this settlement. These lenders simply also have their feet to the fire for the next three and a half years while the settlement is in effect and they are being monitored for compliance with its requirements.

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National Mortgage Settlement to Hand Out Cash to Foreclosed-Out Homeowners

Most of the $26 billion or so in this national settlement is designed to help current homeowners keep their homes. But $1.5 billion of it will go to about 750,000 who have already lost their homes to foreclosure. That’s about $2,000 each.

Who’s included?

  • The entire settlement—including this foreclosure cash restitution payment—applies only to mortgages held by the five biggest home mortgage holders and their subsidiaries: Bank of America, Wells Fargo, J.P. Morgan Chase, Ally Financial/GMAC and Citi. To contact these banks to find out if your mortgage is included, go to the special website for this settlement for their toll-free phone numbers and websites. (See the right column, under “Settlement Parties.”)
  • Your home must have been “finally sold or taken in foreclosure between and including January 1, 2008 and December 31, 2011.”
  • One state–Oklahoma—did not join in this settlement, so foreclosed homeowners in Oklahoma are not eligible for this payment.

 What are the conditions for receiving the money?

  • Although one section of the settlement website states that there’s “no requirement to prove financial harm,” the Executive Summary on the same website adds that eligible borrowers are those “who were not properly offered loss mitigation or who were otherwise improperly foreclosed on.” Sounds like some showing of improper servicing or foreclosure behavior by the bank will be required, without a need to prove that this behavior necessarily caused you financial harm. But exactly what information or evidence will be required is not clear yet.  
  • What is clear is that former homeowners will not need to release any potential claims against their mortgage holder in order to receive the money. The payment received would, however, be credited as an offset against any such other claim against the bank.

What’s the procedure and timetable?

  • Within about 90 days, a Settlement Administrator will be selected “to administer the distribution of cash to individual borrowers.”
  • Over the following six to nine months, that Administrator will work with the banks to identify the eligible former homeowners, and send out letters to them to apply for the payment.
  • If you are concerned about the Administrator having your current address, you should contact your Attorney General’s Office to have it send your address to the Administrator.
  • The amount to be distributed to each foreclosed homeowner will depend on how many people qualify and apply. And since the $1.5 billion or so pool of money paid by the banks towards these for payments also pays for “all the costs and expenses of the Administrator,” that reduces what will be available for the homeowners. (The actual amount of the pool, by the way, is actually exactly $1,489,813,925.00—I do not know the reason for that odd amount!).
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Senate Bill 1552B Passed March 5th Provides Strong Foreclosure Protection to Oregon Homeowners

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Senate Bill 1552B (passed by the House Rules committee unanimously) would provide key protections toOregonhomeowners. The B engrossed bill includes most provisions of SB 1552 and SB 1564 as passed by the Senate and would provide strong foreclosure protection toOregonhomeowners. The B engrossed bill contains the following elements:

  • Mandatory Meeting with Distressed Homeowners – Requires lenders to meet with homeowners who are underwater to discuss alternatives to foreclosure with a third party mediator upon borrower request.
  • Mediation for Homeowners in Default – Requires lenders to meet face to face with homeowners in default to negotiate possible alternatives prior to foreclosing, unless homeowner chooses to opt-out. 
  • Housing Counseling – Requires a homeowner visit a housing counselor prior to proceeding with mediation.
  • Fast Track to Mediation – If the homeowner is unable to get an appointment with a housing counselor within 30 days, the housing counselor requirement is waived so the homeowner can proceed directly to mediation.
  • Advance Notification – Notice of mediation must be sent 60 days prior to the notice of sale, which is 180 days before a bank can sell a home in foreclosure. The existing 120 day timeline from notice of default to foreclosure sale remains.
  • Authority to Negotiate – Banks must send someone to mediation that has the authority to accept or reject proposals for foreclosure avoidance measures. If good cause is shown, the mediator may allow the lender’s representative to attend the mediation by other means.
  • Attorney General Oversight – Directs the Attorney General to draft rules and oversee the foreclosure mediation program.
  • No Cost to Homeowner – Allows mediator to waive cost of mediation to homeowner.
  • Exception for Small Lenders – Lenders doing fewer than 250 foreclosures a year (including those filed by affiliates or agents) are exempt from the mediation requirements.
  • End to “Dual Tracking” – Prohibits banks from “dual tracking” homeowners (renegotiating loan terms with homeowners while at the same time  pursuing foreclosure) by only allowing a lender to foreclose if:
  1. The borrower has violated a current foreclosure avoidance agreement, or;
  2. The borrower is not eligible for any foreclosure avoidance measure.
  • Proper Notice – Once a lender has determined it can foreclose, it must provide the homeowner with notice 30 days before the foreclosure date is scheduled. If the sale is postponed, the lender must provide the homeowner at least 15 days’ notice of the new date.                                                                                                                                                                  
  • Right to Damages – A violation of dual tracking provision is liable for a $500 fine, actual damages incurred by the homeowner, and reasonable attorney fees to the prevailing plaintiff.
  • Cloud on the Title – Violation of either mediation or dual track provisions would create a cloud on the home’s title that would prevent a bank from selling an illegally foreclosed upon property.

The  Oregon senate bill 1552 is expected to be signed by Governor Kitzhaber.  Once that happens, these new provisions become effective 91 days thereafter.  

The main thing this does is set up a whole new state-run system of foreclosure workout mediation, which is a pre-requisite to all non-judicial foreclosures by any lending institution which conducts at least 250 of them in a year (so all big banks/servicers are subject).  It requires them to be physically present at the mediation together with authority to negotiate a deal and information such as borrower’s complete payment history, copy of actual note, and chain of title of trust deed.  Interestingly, it also appears to allow for a borrower who is in danger of defaulting to pro-actively make a request for this loan workout mediation ahead of any foreclosure notice being filed by the lender.   This could potentially open up a whole new avenue to getting loan modifications, short sales, and other workout options accomplished.

One other significant new provision is the new law will eliminate any possibility for deficiency in a residential trust deed foreclosure action so long as the borrower (or immediate family) lives in the property at the time of the initial DEFAULT leading to the foreclosure.  This is significant because under the current law, in order to receive this protection, the borrower must live in the property at the time the foreclosure action is commenced, which could be a lot later.  This will make it a lot easier for people to abandon properties to foreclosure without worry of deficiency if they wish to do so.

Two more really significant things in here I forgot to point out earlier:

1)      No more “dual tracking” – basically designed to stop lender from negotiating a workout while at the same time pursuing foreclosure – people will know one way or the other and should reduce those situations where the servicer says everything is coming along great, and then they find out the house was foreclosed on the same day, etc.

2)      This one is similar – lender must re-notify by serving a written notice of any postponement of auction which is either greater than 2 days from initial date or more than one postponement.  This will also eliminate the situation where borrower thinks the auction was cancelled, but really was just postponed by oral proclamation at the time, and no further notice ever required to be given.  This will change that quirky and dangerous system of the past.

The remainder appears to be a lot of language and syntax cleanup of the existing statute.

 

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The National Mortgage Settlement’s Actual Terms Finally Released

The settlement documents of the deal that was announced more than a month ago were finally completed and filed at court on Monday, March 12. They catalog page after page of serious wrongdoing by the banks in their servicing of mortgages and processing of foreclosures.

In my last blog I said that the settlement would be finalized and made public “any day now.” It actually happened only hours later.

The settlement documents consist of hundreds of pages, but I’ll make it easy for you.

One document talks about the past, the wrongdoing by the banks. That’s the Complaint. The plaintiffs are the United States, 49 of the 50 states (all except Oklahoma), and the District of Columbia; the defendants are five of the biggest banks—Bank of America, JPMorgan Chase, Wells Fargo, Citi, and Ally/GMAC, and their subsidiaries, totaling 18 named defendants. This 99-page Complaint is the subject of today’s blog.

The rest of the documents—one Consent Judgment for each of the five banks—talk about the agreed penalties for the banks’ past wrongdoing, but mostly focus on the future: 1) where the money from those penalties is going to be spent; and 2) the new standards by which these banks are now required to service mortgages and process foreclosures.  In my next blog I’ll talk about these penalties, and how they are supposed to help homeowners who have been hurt by the banks.

To say that the Complaint is 99 pages long is misleading, because it actually ends on page 48, followed by signature pages for each of the 51 plaintiffs. And In fact the document doesn’t really get to the point until the Factual Allegation starting on page 21. The detailed litany of bank misconduct goes on relentlessly for the following 16 pages, totaling 55 paragraphs of allegations, some including many subparagraphs of even more detailed allegations. It’s difficult to do justice to all this in one blog. To try to show both the breadth and depth of the alleged misconduct, I’ll give you most of the Complaint’s outline of the types of wrongdoing, and one or two examples quoted under each one:

A. The Banks’ Servicing Misconduct

            1. The Banks’ Unfair, Deceptive, and Unlawful Servicing Processes

Failing to timely and accurately apply payments made by borrowers and failing to maintain accurate account statements; imposing force-placed insurance without properly notifying the borrowers and when borrowers already had adequate coverage.

             2. The Banks’ Unfair, Deceptive, & Unlawful Loan Modification and Loss Mitigation Processes

Providing false or misleading information to consumers while initiating foreclosures where the borrower was in good faith actively pursuing a loss mitigation alternative offered by the Bank; miscalculating borrowers’ eligibility for loan modification programs and improperly denying loan modification relief to eligible borrowers.

   3. Wrongful Conduct Related to Foreclosures

Preparing, executing, notarizing or presenting false and misleading documents, filing false and misleading documents with courts and government agencies, or otherwise using false or misleading documents as part of the foreclosure process (including, but not limited to affidavits, declarations, certifications, substitutions of trustees, and assignments).

 B. The Banks’ Origination Misconduct

   1. Unfair and Deceptive Origination Practices

In the course of their origination of mortgage loans in the Plaintiff States, the Banks have engaged in a pattern of unfair and deceptive practices. Among other consequences, these practices caused borrowers in the Plaintiff States to enter into unaffordable mortgage loans that led to increased foreclosures in the States.

 C. The Banks’ Bankruptcy-Related Misconduct

Making representations that were inaccurate, misleading, false, or for which the Banks, at the time, did not have a reasonable basis to make, including without limitation representations contained in proofs of claim under 11 U.S.C. § 501, motions for relief from the automatic stay under 11 U.S.C. § 362, or other documents.

 D. Violation of Servicemembers Civil Relief Act (SCRA)

The Banks foreclosed upon mortgages without required court orders on properties that were owned by service members who, at the time, were on military service or were otherwise protected by the SCRA.

 The 55 paragraphs of wrongdoing resulted in these five banks agreeing to pay about $26 billion in a combination of cash and other forms, to the states and to individual homeowners. As I said, I’ll tell you how this is supposed to be divvied up in my next blog.

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Federal court ruling against MERS foreclosure in Oregon comes (again) as Republican lawmakers try to validate it

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A federal judge has yet again issued a ruling that effectively questions the validity of scores of foreclosures in Oregon, a crisis the Legislature could resolve in the mortgage industry’s favor this week if bank lobbyists and House Republican leaders have their way.

In an opinion issued Wednesday, U.S. District Court Judge Michael Simon rejected a magistrate judge’s finding and rulings by two of his colleagues that big banks could avoid recording notices in local land records each time a loan is sold to other lenders or investors.

 Simon sided with two other federal judges in Oregon in ruling that lenders have violated state recording law. They’ve done this, they say, by logging sales within its nationwide Mortgage Electronic Systems Inc. and declaring MERS a “beneficiary” of the loan.

The mortgage industry created MERS to reduce the need for recording loan sales, or assignments. That enabled mortgages to be quickly bundled and sold to investors. MERS does not loan money, collect loan payments or invest in mortgages. It is, however, named in certain loan documents as the mortgagee or beneficiary of record.

Simon ruled that under state law, lenders must file a notice in county records each time they sell or transfer a note, or a promise from a borrower to pay.

MERS, he ruled, can file those notices on the lenders’ behalf, if a lender has authorized it to do so. MERS cannot, however, simply log those notices within its own database without also recording it publicly, he found. In millions of loans nationwide, it has.

In acting as he did, Simon overruled lower Magistrate Janice Stewart’s previous findings and recommendations in the case. His ruling also conflicts with opinions in other cases issued by his equals in Oregon — Judge Michael Mosman and Judge Marco A. Hernandez.

But it aligns with rulings in other cases by Judge Owen Panner and U.S. Bankruptcy Judge Frank Alley. Panner’s ruling, which also came last year as lawmakers debated the MERS issue, is on appeal to the U.S. Ninth District Court of Appeals.

-Excerpt taken from  Brent Hunsberger, The Oregonian @ OregonLive.com

See full story here

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