saving the dream
DESCRIPTION
A CONSUMER’S GUIDE TO LOAN MODIFICATIONSTRANSCRIPT
SAVING THE DREAM
A CONSUMER’S GUIDE TO LOAN MODIFICATIONS
by
Moe bedard
F R O M T H E C R E A T O R O F L O A N S A F E . O R G
M O E S E O . C O M 1 3 2 5 C O R O N A P O I N T E C O U R T
C O R O N A , C A 9 2 8 7 9
A comprehensive guide for consumers including all of the instructions, forms and spreadsheets needed
to process a successful loan modification
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Table of Contents
Chapter 1: Introduction Page 4
Foreword Page 5
About Loanworkout.org Page 6
Moe’s Mission Page 7
Results Oriented Auditing and Processing Page 9
Media Relations Page 11
Chapter 2: How to Process a Loan Modification Yourself Page 14
The Loan Modification Page 15
How to Determine if You are a Good Candidate for a Page 18
Loan Modification
Communicating a Hardship Effectively Page 20
Sample Hardship Letters Page 21
Financial Worksheet Page 24
Household Liabilities and Expenses Worksheet Page 25
Sample Loan Modification Request Page 26
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Sample Loan Modification Stacking Order Page 27
Overall Process Page 29
Reasons to Conduct a Forensic Loan Audit Page 30
Qualified Written Request Page 31
The Forensic Loan Audit Page 33
Chapter 3: Specific Strategies and Important Information to Page 34 Consider During the Foreclosure Process
Which is Worse, Foreclosure or Bankruptcy? Page 35
Principle Reductions: Wipe Out Your 2nd Mortgage with Page 40
Bankruptcy
A Deed in Lieu of Foreclosure as a Cure for Your Mortgage Page 46
Woes
Real Estate Short Sales the Right Way Page 48
The IRS on Short Sales, Foreclosures and Debt Forgiveness Page 53
Borrowers Who Negotiate Loan Terms with a Mortgage Page 60 Broker in Spanish Must Receive Their Loan Documents in Spanish
Chapter 4: Stories from the Front Line of the American Page 65 Economic Battlefield
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Deutsche Bank Foreclosures Tossed Out of Ohio Page 66 Federal Court “They Own Nothing!”
True Sale, False Securitizations Page 69
The Judicial Integrity of The United States Court is “Priceless” Page 74
Ohio Homeowner Fights Foreclosure and Lives Payment Free Page 76
for 11 Years
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Chapter 1: Introduction
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Foreward
“One of the serious obstacles to the improvement of our race is indiscriminate charity.”
Andrew Carnegie
Before writing this ebook I spent a great deal of time posting blogs to loanworkout.org to help consumers modify their loans. While the site has helped over 200 families modify their loans completely free, I knew there had to be a way to put all of the information from loanworkout.org in to a simple manual that would be both user friendly and take a consumer through the process from start to finish in one read. This ebook is the product of that dream.
While doing research for the manual I was overwhelmed with the amount of for-profit ebooks that failed miserably to explain the process of loan modifications. The free information and forms provided in this ebook are the same one’s that have been used by thousands of other people who have achieved success in the loan modification process. I hope that by downloading this free ebook, you’ll avoid the majority of the nonsense published for-profit on the internet and obtain a loan modification free of charge.
Sincerely,
Moe
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About Loanworkout.org
Loanworkout.org is a unique consumer oriented website that provides truthful mortgage and housing reporting with a focus on loan modifications and the mortgage servicing industry. While other media outlets tend to focus on the problems on Wall Street, loanworkout.org is focused on providing real time solutions and tools to educate homeowners in their efforts to obtain loan modifications and short sales. We realize that in order to maintain homeownership and preserve community growth, the bridge between the consumer and Corporate America must be re-built one person, one loan, and one home at a time.
Our unique platform of consumer advocate websites such as LoanSafe.org and LoanWorkout.org are the #1 FREE informational mortgage websites for consumers on the internet today.
Loanworkout.org is trusted and respected by thousands of homeowners throughout America who visit our sites every day. Moe Bedard is the primary contributor and operator at Loanworkout.org, President of Moeseo.com, and founder of LoanSafe.org, an online social media campaign that has helped over 200 families modify their loans and save their homes completely free of charge.
In the course of preparing your loan modification or in the course of preparing for other resolution services, I highly suggest reviewing the articles at LoanWorkout.org specific to your needs. The website includes tips and strategies not only from consumers, but expert advice as well.
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Moe’s Mission
Promote Safe Loan Modification Standards
I believe that the loan modification process can beneficial to both the consumer and lender when it is done with a focus on long term affordability.
Preserve the American Dream
Homeownership has and always will be part of the American Dream. I strive to help consumers modify loans and keep people in their homes. This is an outcome that is beneficial to all parties involved.
Maintain Open Lines of Communication
Effective communication is the most critical activity during the foreclosure process. Our websites bridge the divide between borrowers and servicers by acting as an intermediary and advocate of mitigating loss for all parties involved. We utilize our network of consumer friendly, not for profit websites like LoanSafe.org and LoanWorkout.org to educate and connect consumers with their servicers. To date we have assisted over 200 people in saving their homes for free.
No one wins in foreclosure. No one wins by playing hard ball. In order to effectively create solutions, all parties need to come to the table with the common goal of mediating damage in the most efficient and cost effective way
Minimize Loss to All Parties
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possible. Whether that be a loan modification, short sale or deed in lieu of foreclosure, it is possible that everyone can come out of the process a winner.
Real Solutions
LoanSafe.org and Loanworkout.org are dedicated to providing real solutions in today’s volatile mortgage and housing markets.
Moe Bedard’s Websites
LoanWorkout.org - Loan Modification & Loan Workout News
LoanSafe.org - Interactive Community for Homeowners That Need Help With a Loan Modification or Facing Foreclosure
PredatoryLendingLaw.org - Predatory Lending
Moeseo.com – Corporate Website
MHLoanPro.com - Mobile Home Loan Forum
The comments by Moe Bedard or Moeseo.com and its affiliates and the materials in this ebook are for informational purposes only and not for the purpose of providing legal advice. You should contact an attorney to obtain advice with respect to any particular issue or problem. The opinions expressed in and throughout this ebook are the opinions of the individual author and may not reflect the opinions of our employers, other ventures or any individual attorney. No advice or information, whether oral or written, obtained by you or through this ebook shall create any kind of promise or business relationship.
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Results Oriented Auditing and Processing
Since 2007 LoanSafe.org and Attorney Safe Solutions have received more positive media attention than any other forensic auditing and loan modification processing company in the entire nation. The free information website for consumers, www.loanworkout.org, consistently ranks number two on a Google search for “loan modification.” The only website that outranks www.loanworkout.org is the Department of Housing and Urban Development’s page regarding loan modifications. Nearly one million American consumers turn to www.loanworkout.org each and every month to get their questions answered. LoanWorkout.org receives nationwide media attention, consistently high, organic Google ranking and millions of visitors to the website for one reason: what it provides makes a difference in the lives of our members.
My hope is that you will come to understand the loan modification process from start to finish in the shortest time span possible. While utilizing Attorney Safe Solutions for your forensic loan auditing and loan modification processing needs is by no means mandatory, it would give you a great advantage over processing a loan modification yourself. In choosing Attorney Safe Solutions for your resolution services needs you:
1. Immediately obtain an auditing and processing infrastructure that is second to none
2. Free yourself from the hassle of processing the modification yourself
3. Rest assured you are dealing with competent professionals
4. Avoid the need to purchase and learn to use the analytic software that performs a forensic loan audit
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Attorney Safe’s auditing service includes a review of all of your loan documents and the documents your lender maintains, a telephonic interview to identify any qualitative information that may lead to violations that cannot be tracked with traditional compliance software systems and a loan audit report that may be given to the lender to improve the chances of a successful modification.
Our loan modification and processing service includes managing the loan modification process itself from beginning to end. All you supply is the requested documentation in our easy to follow checklist of loan documents and income information. However, we cannot negotiate the terms of the modification itself. Only a duly licensed attorney in good standing can negotiate the terms of the loan modification. The good news is that we can recommend attorneys that know what they are doing and have a proven track record of success.
While the goal of this manual is to give you all of the information you need to successfully process a loan modification on your own, remember, you do not have to reinvent the entire wheel. I highly suggest using our back end auditing and processing services as they are second to none. In my experience I have found that many people prefer to simply outsource all of the work if they can afford to do so. In either case I wish you the best of luck!
Sincerely,
Moe
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Media Relations
LoanWorkout.org is operated by consumer advocates and Moe Bedard. Their unique and "truthful" angle on the mortgage crisis garners the trust of millions of consumers who have visited their websites and provides them with the pulse of Main Street.
Loanworkout.org has been featured in the media on numerous occasions. From the New York Times to the LA Times and from Fox Business to Business Week, Loan Safe is where the media goes to get the truth on the mortgage meltdown!
Moe Bedard is a trusted, valuable source for journalists because of his unique platform of consumer advocate websites such as LoanSafe.org and LoanWorkout.org. These websites are the #1 source of free information on mortgages for consumers.
These websites are trusted and respected by thousands of homeowners throughout America who visit our sites every day. To date, we have donated thousands of hours of our time to save over 200 homes for FREE!
Please call (951) 531-0148 or email [email protected] for an interview or help with your news story or with his own story ideas.
Read more about Moe Bedard in the media below:
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• Smart Money - Why Loan Modifications Often Don’t Work - January 14, 2009
• Examiner - Home loan modification - online support resources - January 13, 2009
• MSNBC - ‘Angel’ of foreclosure defense bedevils lenders - Dec. 19, 2008
• EuroMoney - Will slow and steady win the race?
• New York Times - The Silence of Lenders by Gretchen Morgenson
• LA Times - Mozilo on distressed borrower’s appeal for help: “disgusting”
• Business Week - The Next Real Estate Crisis - June 5, 2008
• Press Enterprise - Corona Man Uses Blog to Save Homes
• Slate Magazine - Here Comes the Next Mortgage Crisis
• Fox Business - Muzzling Homeowners?
• CBS/KCAL News - Man Offers Tips Online to Save Your Home
• AZ Republic - Restructuring of mortgage loans gets tougher
• Bloomberg - Alt-A Mortgages Next Risk for Housing Market as Defaults Surge - September 12, 2008
• The Real Deal New York - Mortgage servicers sucking loans dry? - September 2008
• Chicago Tribune - Document review could save homes - October 3, 2008
• Contra Costa Times - Struggling borrowers face brick wall on loan workouts - October 4, 2008
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Moe Bedard is the owner and operator of loanworkout.org and loansafe.org. Mr. Bedard is a leading expert and a trusted authority in regards to loan workouts and loan modifications.
In addition to operating LoanSafe.org, Moe is also the main contributor to LoanWorkout.org (The internet’s first blog dedicated to loan workouts and loan modifications). He writes on the subject of home loan resolutions more than any other person on earth and has personally been involved in over 300 loan workouts and mortgage audits.
Other Important Websites:
• LoanWorkout.org
• AttorneySafeSolutions.com
• PredatoryLendingLaw.org
• Moeseo.com
• MHLoanpro.com
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Chapter 2: How to Process a Loan Modification Yourself
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The Loan Modification
A loan modification is a change to the loan contract which is agreed to by the lender and the homeowner. The lender modifies the existing loan(s) in order to work with the homeowner because of a hardship. The purpose is to help make the loan(s) more affordable. Usually loan modifications are in the form of a rate reduction and/or fixing the rate for a certain period of time. In the past, loan modifications were only utilized when a borrower was delinquent and suffered a hardship such as a job loss, divorce, or illness.
Now, borrowers can obtain modifications from their lender for unaffordable rate adjustments on adjustable rate mortgages. The earlier the homeowner addresses the issue, the better the chances are of negotiating a fixed rate and a payment that is manageable.
If the homeowner can afford their home and but not their current mortgage then they may be eligible for a loan modification. A key factor that is required in every loan modification submission is the existence of a hardship. The hardship can be temporary in nature or permanent, but the borrower must be able to prove the hardship.
The following are a sample of hardships that get loan modifications approved:
1. Adjustable Rate Mortgage Reset-Payment Shock 2. Illness of the Borrower 3. Illness of a Borrowers Family Member
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4. Curtailment of Income 5. Loss of Job 6. Abandonment of Property 7. Property Problem 8. Inability to Sell the Property 9. Inability to Rent the Property 10. Mortgage Servicing Problems 11. Transfer of Ownership Delays 12. Reduced Income 13. Failed Business 14. Job Relocation 15. Death of the Borrower 16. Death of Spouse or Co-Borrower 17. Death in the Family 18. Incarceration 19. Divorce 20. Marital Separation 21. Military Duty 22. Medical Bills 23. Damage to Property (natural disaster or unnatural)
Notice that “My Realtor lied to me” and “My loan officer/broker lied to me” is not on this list. Keep this in mind when you write a hardship letter. Documenting the hardship is very important to the lender’s or servicer’s loss mitigation department and will be verified during the approval process. Without proper documentation, your file may be flagged as fraudulent. You definitely do not want this to happen for obvious reasons and it will slow down the process or terminate the process completely. There are two important things to remember about loan modifications:
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1. A loan modification should be requested only if no other reasonable options are available and/or the homeowner is experiencing a hardship.
2. Loan modifications are designed for homeowners who can afford their homes but not their loans.
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How to Determine if You are a Candidate for a Loan Modification
Lenders and servicers will, in general, look for one thing when you submit a modification request. They look for a documentable hardship of course, but at the end of the day if they decide to grant your request for a loan modification all they really want to know is if you can afford the new payment(s). This is the big secret behind getting a loan modification approved.
There is, however, an art to making loan modifications work. You must disqualify yourself from your old payments and at the same time qualify yourself on a new payment structure. It sounds complicated and it is at first but you will quickly learn important strategies for effectively processing loan modifications.
To understand what the lender or servicer considers qualified, you have to know how lenders calculate your income. The income you can use to qualify for a modification is different from traditional income calculations used to qualify for traditional loans. Moreover, the difference in the qualification guidelines is typically in your favor.
For a modification, you can qualify based on your documentable total household income. As such, you can count income from almost any source: Grandma’s SSI, income from child day care services, from a second job paid under the table, etc. so long as it can be proved. Proof must be in the form of bank statements, 1099’s or in some other documentable form as outlined in the submission paperwork you will provide the lender. In addition, if only one of two spouses was on the original loan, the other spouse’s income can count so long as it is documentable.
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Once you calculate all documentable monthly income from all household sources you then have what you can present to the lender as the new qualifying income.
To calculate a qualifying monthly mortgage payment, use the benchmark fully amortizing 5.00% rate on whatever the new balance might be, counting arrearages if they are added back into the loan. WARNING: this is only for a general qualifying exercise only; do not expect this rate or payment! If the payment at 5.00% is just too high, then you may not be an appropriate candidate for a modification. However, you can still request help with other services such as a deed in lieu of foreclosure, a short sale or postponing as long as possible a notice of trustee’s sale in an effort to help you transition to more affordable housing.
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Communicating a Hardship Effectively
Effective communication is the single most important aspect of describing hardship issues. Many modification requests fail because the homeowners can not tell their story in a simple way. It is easy to forget there is a real human being analyzing the hardship letter within the lender’s or servicer’s loss mitigation department who is responsible for determining the existence of a real hardship. With that said you must keep your hardship letter simple and get to the point quickly.
Loss mitigation departments are overwhelmed with foreclosures, short sales, and modification requests. They do not want to read a ten page letter regarding the loan officer who put them in the loan, why they bought the house, the memories they have had there and why they want to keep their home. When writing the hardship letter, keep the letter simple and to the point. In addition, handwrite the hardship letter. The fact is that people personally relate to handwriting more than a typewritten letter and this includes the lender’s or servicer’s loss mitigators. What follows on the next pages are perfect examples of sample hardship letters, a financial worksheet, an income and expense worksheet, a sample loan modification request and a sample stacking order for you to use. Notice as well that on the loan modification request and on the sample stacking order for a loan modification you will need to include documentation of your home’s value. You can obtain reliable documentation of your home’s value from a local Realtor, Title Company or from an appraiser.
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January 23, 2009
To: Countrywide Mortgage
Account # XXXXXXXXX
To Whom It May Concern:
Due to the recent adjustment to the mortgage I currently have with your company, I am finding it very difficult to afford the new payment. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in Feb. 2009.
Considering my current income, there will be no way I can afford the increased payments come February. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home.
Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible, can you postpone the next rate change to a future date to allow me to continue making affordable payments or refinance? Any other solutions you could provide would be greatly appreciated.
I have had no problem making my payments for over three years now and do not want that to change. My mortgage was originally written by another company and bought by Countrywide. I was assured that refinancing would be no problem but that turned out not to be true due to the downturn of the housing industry.
The main problem is that my property is now worth about 5-10% less than what I paid for it which is preventing me from being able to refinance. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct. 4th 2006) regarding the servicing of Conventional Mortgage Modifications.
I believe this addresses the situation I currently find myself in along with many other homeowners.
Thank you for your time and consideration.
Sincerely,
Borrower’s Signature
Co-Borrower’s Signature (if applicable)
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Date:
To: Countrywide Mortgage
To Whom It May Concern:
Due to the recent adjustment to the mortgage I currently have with your company, I am finding it very difficult to afford the new payment. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in February, 2009.
Considering my current income, there will be no way I can afford the increased payments come February. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home.
Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible, can you postpone the next rate change to a future date to allow me to continue making affordable payments or refinance? Any other solutions you could provide would be greatly appreciated.
I have had no problem making my payments for over three years now and do not want that to change. My mortgage was originally written by another company and bought by Countrywide. I was assured that refinancing would be no problem but that turned out not to be true due to the downturn of the housing industry.
The main problem is that my property is now worth about 5-10% less than what I paid for it which is preventing me from being able to refinance. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct. 4th 2006) regarding the servicing of Conventional Mortgage Modifications. I/We hope we can solve this problem together.
Thank you for your time and consideration.
Sincerely,
Borrower’s Signature
Co-Borrower’s Signature (if applicable)
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Date
Lender Name
Address
City State, Zip
Re: Loan Number(s)
To Whom It May Concern:
The purpose of this letter to explain the unfortunate set of circumstances that have led to my mortgage delinquency (or proposed delinquency – if not late yet). After exhausting all of my resources, I have but one avenue left, and that is to appeal to you for a mortgage loan modification. I believe this would be a tremendous relief in my situation in that it would allow me/us to affordably keep the home I/we/my family love(s).
The main reason that caused me/us to be late is (insert reason here and don’t be too lengthy or too vague. Please be sure to indicate the type of loan you have, if it is going to adjust, or has already adjusted, especially note if this is what created the hardship). This has caused me to become further and further behind. I am not in the position to refinance due to loss of values in the real estate market.
(Insert the approximate date of hardship and clarify if your situation is Temporary or will be Permanent.)
By obtaining a loan modification, I feel confident that I will be able to maintain my mortgage, and pay on the loan that has been afforded to me. I hope you will consider working with me/us on this matter.
Sincerely and Respectfully,
(Borrower’s Signature)
(Co-Borrower’s Signature)
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October 10, 2008
Loss Mitigation Department / Legal Department
[INSERT BANK NAME]
[INSERT BANK ADDRESS LINE 1]
[INSERT BANK ADDRESS LINE 2]
REF: Borrowers: [YOUR NAME(S)]
Property: [SUBJECT PROPERTY]
Loan No: [LOAN NUMBER]
LOAN MODIFICATION REQUEST
Proposal: [PROPOSE NEW TERMS IN THIS SECTION] EXAMPLE:
• A Competitive interest rate of 2% FIXED, STEP LADDER PROGRAM. Max Rate after the fourth year at 5%, Amortized in 30 YEARS thereafter, to capitalize past due amounts, legal fees, escrow deficiency, if any, etc.
Hardship: [SUMMARIZE HARDSHIP IN THIS SECTION] EXAMPLE:
• We are not looking to relinquish our responsibility, but rather, we are looking for a Loan Modification and / or Workout Plan equitable to our financial situation. With our already increased living expenses, and an Interest Rate that is set to adjust, the new payment will become unaffordable and difficult for us to maintain.
Market Value:
• Current Existing Balance: $ [YOUR CURRENT BALANCE] • Current Fair Market / New Principal Balance: $ [TODAY’S MARKET VALUE] • (Supporting Documents Included) • Principal Balance Reduction: $ [REQUESTED REDUCTION AMOUNT]
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Request Details: [INPUT YOUR CURRENT AND PROPOSED DETAILS HERE] EXAMPLE:
Current Interest Rate: 6.00% Requested Fixed Interest Rate 2.00% Current Loan Type: Option Arm, ARM ect… Requested Loan Type: Step Ladder Program Amortization Remaining: 323 Months Requested Amortization: 30 Years Previous Payment: $1000.00 New Payment: $1075.00 Late Fees / Penalties FORGIVEN / WAIVED Late Balance: INCL IN NEW PRINCIPAL BALANCE Requested Next Payment Date: 2 Months
Please find the following for you to proceed with the Loan Modification and / or Loan Restructuring Request:
• Mortgage Statement • Market Value Documentation • Hardship Letter • Financial & Budget Worksheet: • Income Documentation: • Bank Statements
Thank you for your assistance in this matter.
Sincerely,
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Overall Process
Using the forensic mortgage loan document audit as basis for pressuring lenders, you will move lenders to take immediate action to stop an impending foreclosure and keep your home safe and place yourself in a better financial situation. This audit reveals various federal and state violations or errors in the original loan documents. Our internal auditing statistics show that four out of every five loans we have audited have significant violations. In the beginning of the process you will need to send your lender a Qualified Written Request (QWR). The QWR is a formal demand that the lender must comply with under federal law to produce copies of your loan documents within a specified timeframe. Once you have collected all of the required documentation from your lender you can proceed to perform a forensic loan audit. Once the audit has been completed and if violations are found a formal request for a loan modification is sent to the lender along with an abundance of highly organized financial information that makes the best case possible as to why you (a) deserve a loan modification and (b) can afford the new payments. This is a long process that requires patience and negotiation skill.
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Reasons to Conduct a Forensic Loan Audit
Obtaining a Forensic Loan Document Audit is essential in every Loan Modification, Short Sale, and Deed in Lieu resolution. The findings of an audit can significantly improve your chances for a positive resolution. The following are common reasons to conduct a forensic loan audit:
1. General Loan Documentation Errors 2. Reverse Engineering 3. Real Estate Settlement Procedures Act (RESPA) Violations 4. Truth in Lending Act (TILA) Violations 5. Home Owner Equity Protection Act (HOEPA) Violations 6. Good Faith Estimate Compliance 7. Misleading Disclosures 8. Overstated Home Values 9. Overstated Income in the Loan Application 10. Lender and/or Broker Misrepresentations 11. Usury Violations 12. Excessive ARM Adjustments 13. Packing 14. Excessive Points & Fees 15. Predatory Lending 16. Forgery 17. Loan Flipping
To include a forensic loan audit with your modification contact
Attorney Safe Solutions today at (951) 531-0148.
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Qualified Written Request
To perform the most comprehensive forensic loan audit you should compile all of
the loan documents you maintain and get all of the loan documents your lender
maintains. A Qualified Written Request (QWR) is a written demand to your
servicing company. After receiving a QWR, the servicing company has twenty
days to respond to the request and forward a copy of all loan documentation on
file. The servicing companies also have to suspend all reporting activity to the
major credit bureaus and then resolve the issue within sixty days. Federal RESPA
laws require the servicing companies to comply and respond within this specified
time frame. A QWR will be generated by you and submitted to the servicer for
every file prior to the completion of the forensic loan document audit.
A sample QWR follows on the next page.
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August 27, 2008
American Home Mortgage Services, Inc Attention: Correspondence Dept.
Re: Loan Number: 1234511722 Name : Johnathan Jones Subject Address : 12345 Erehwon Street, Heartland, OH 12345
To Whom It May Concern:
Please accept this letter as a “Qualified Written Request” under Section 6 of the Real Estate Settlement Procedures Act (RESPA) to obtain copies of ALL documents pertaining to the origination of the above mentioned Clients’ current mortgage on the referenced subject property. Please see below for a list of documents needed.
Initial Loan Application and Final Loan Application Executed Notice of Right to Cancel (if refinance) Deed of Trust/All Riders Note and All Addendums/Riders Truth-in Lending Statements Itemization of Amount Financed Good Faith Estimates Estimated and Final Closing Statements (HUD) Appraisal Title Report Grant Deed(s) Copy of Loan Payment History – This must include all payments made, all fees incurred, any and
all escrow account disbursements and how payments were applied
In addition to the above, please forward any and all disclosures, rate sheets etc. associated with the above transaction. Please note that all copies need to be clear and legible and all documents should be copied in their entirety.
In closing, We/I understand that under Section 6 of RESPA you are required to acknowledge our/my request within 20 business days and try to resolve any issues within 60 business days.
Please forward requested documentation as soon as possible and we look forward to working with you on a solution that benefits our mutual concerns.
Thank you for your time.
Sincerely,
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The Forensic Loan Audit
A Forensic loan document audit is a comprehensive investigation of the documentation from your existing loan(s). Attorney Safe Solutions utilizes special state and federal mortgage loan post compliance software to calculate and identify violations that will transfer the findings into a detailed report.
The forensic loan document audit is a significant part of a loan modification request. We have found that over four out of five of the audits performed reveal major TILA (Truth in Lending Act), RESPA (Real Estate Settlement Procedures Act), Predatory Lending, and Real Estate/Mortgage Fraud violations.
In some cases, if you are simply overcharged by only $35.00 on the final HUD-1, or if the annual percentage rate (APR) is only 0.125% higher than what was originally disclosed, there may be a violation of the Truth in Lending Act. This gives you the leverage necessary when negotiating with the lender and more than enough incentive for the lenders to grant you a beneficial loan modification.
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Chapter 3: Specific Strategies and Important Information to Consider During the Foreclosure Process
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Which is Worse, Foreclosure or Bankruptcy?
The single most important question consumers ask themselves during the foreclosure process is whether it is better to lose their house to foreclosure or file for bankruptcy protection.
A foreclosure will remain on your credit report for 7 years, while a bankruptcy remains for 10 years. If you ever plan on getting any kind of loan, especially a mortgage, lenders are going look at a foreclosure more seriously than they will a bankruptcy that doesn’t include a house.
Even in the heyday of the subprime loan era you could obtain a loan one day out of bankruptcy. But a foreclosure was ALWAYS a black cloud and lenders usually wanted three to four years time to pass before considering a borrower for a loan.
No one will argue that the days of banks lending to anyone with a pulse is over. What this translates to for the consumer is that you should expect to have to wait at least four years from the time of bankruptcy discharge to obtain a mortgage with relatively favorable loan terms.
The main goal in trying to perform a loan workout with your lender is to avoid the catastrophic credit implications of a foreclosure or bankruptcy. But sometimes, even the best efforts to save your home and your credit fail.
Hoping for the best but preparing for the worst is the mindset anyone in the foreclosure process should maintain. There are no guarantees that even the hardest efforts to work with your lender will meet with success. If you are to be prepared for the worst, then it is important to consider the process of bankruptcy.
There are different ways to file for bankruptcy and not all of your debts have to be included. So even if faced with bankruptcy, you’ll need advice from someone, either a good credit counselor or a bankruptcy attorney that can walk you through the choices you’ll face.
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While the bankruptcy process in the U.S. is governed by federal laws and handled by a system of federal bankruptcy courts, state laws regarding consumer debts and the disposition of property also come into play. There are also different types of bankruptcy filings. No matter which course you take, the filing stays on your credit record for 10 years. This makes it very difficult to get any type of loan during the bankruptcy process and even afterwards. If you can obtain a loan it will surely be more expensive than if you did not file for bankruptcy.
The two most common forms of personal bankruptcy are called Chapter 7 and Chapter 13. Under a Chapter 7 filling, you get to keep certain property (this is where state laws vary), but the rest is turned over to a court-appointed trustee that sells your eligible property or gives it to lenders to satisfy your debts. Under a Chapter 13 filing, you pay back your debts under a plan worked out by the court. The trustee collects payments, pays off your debts and makes sure you stick to the plan.
If you own a business, you may want to consider a Chapter 11 filing. This let’s you stay in business, as long as the court and the people you owe money to approve of the plan to pay off your debts. If the court decides a trustee needs to be appointed, the trustee takes control of your business and its assets.
Not all debts can be wiped clean in bankruptcy. The list includes alimony and child support, taxes, court fines and most student loans. New debts, taken on after the discharge, aren’t included. And if the judge finds out you’ve lied or committed fraud, your discharge can be denied.
You can also choose which debts you want to have discharged while you keep paying off others. You might want to work out a payment plan so you can keep your car, for example. To do this, you have to sign a “reaffirmation agreement,” which says that you promise to pay off that debt. If you don’t pay it back, the creditor can send it to a collection agency like any other debt.
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If you’ve filed a Chapter 7 bankruptcy and gotten a discharge, you’ve got to wait 8 years before you can do it again. There are different limits on filing for Chapter 13, depending on whether you’re trying to get debts discharged.
If you’re having trouble making payments or even if you are behind by a month or two, contact and attorney and/or your lender before you get further behind. If you can, do this before you are 30 days late or before you receive the official “notice of default,” indicating you’re several months behind. This will insure you have time to get prepared before the formal foreclosure process begins.
First of all, you need to get honest with yourself about your situation. You need to take a good hard look in the mirror and decide if you can really afford your home and if you really want to save it. Either way, you are going to have to make a plan and you are going to have to act on that plan.
You may have to consider moving. Even if you do lose your house, you don’t want a foreclosure on your record when you go looking for a smaller house or a place to rent. One option is to ask the lender to hold off on foreclosing until you sell. If your mortgage balance is greater than your house is worth, you have the option of negotiating a short sale with your lender. You’ll still owe money to the lender even after the house is sold. In some cases, lenders will let you off the hook for that amount rather than go through the expense of foreclosing. But you may not be completely off the hook: you may owe taxes on that amount. Consult an accountant for more information regarding the tax consequences of short sales.
You can also try something called a “deed in lieu of foreclosure” which basically means you turn over your house to the lender and walk away without owing anything. However, you’ll need to work this out with the lender as well.
A good attorney who knows real estate and mortgage law can help you when you are facing foreclosure. If you cannot afford proper legal representation, then you should seek assistance from a legal aid or pro bono attorney. You can also seek a referral from your local BAR Association or get help from a legitimate credit counselor (from an accredited, non-profit agency).
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A competent third party is a great choice for most people because they may be able to help smooth out the process and make sure that no laws have been broken by the lender when you received the loan.
If it is found that Truth in Lending Act, RESPA and other predatory lending law violations have occurred, then you may have legal recourse to sue your lender. A bankruptcy, then, would not be necessary and you can save your home and your credit form a foreclosure.
If you never seek proper legal advice, then you will never truly know what rights you have to properly defend yourself against your lender.
Deciding whether foreclosure or bankruptcy is worse for you can be difficult to define. What makes this such a difficult question to answer is that no two loans are the same, no two consumer hardships are identical and hence what is best for you will not be the same for others. Getting advice from competent and trustworthy sources and educating yourself about the process of foreclosure and the options at your disposal is the best way to begin to make a sound decision.
Great places to look for consumer advocate attorneys:
www.NACA.net The National Association of Consumer Advocates (NACA) is a nationwide organization of more than 1000 attorneys who represent and have represented hundreds of thousands of consumers victimized by fraudulent, abusive and predatory business practices. As an organization fully committed to promoting justice for consumers, NACA’s members and their clients are actively engaged in promoting a fair and open marketplace that forcefully protects the rights of consumers, particularly those of modest means.
Email: [email protected]
Phone: (202) 452-1989
Fax: (202) 452-0099
1730 Rhode Island Avenue NW, Ste 710
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Washington, DC 20036
www.NACBA.com National Association of Consumer Bankruptcy Attorneys - NACBA is the only national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy. Formed in 1992, NACBA now has more than 2500 members located in all 50 states and Puerto Rico.
NACBA has also played a critical role in many important court cases affecting the rights of consumer bankruptcy debtors by filing amicus briefs in U.S. Courts of Appeal and the Supreme Court, with many of those case decisions influenced by NACBA’s participation. In addition, NACBA provides the most comprehensive educational programs in the country for consumer bankruptcy attorneys with its annual convention seminars.
Candace Lambrecht
Administrative Director
1501 The Alameda
San Jose, CA 95126
Phone: (408) 350-1173
Fax: (202) 331-8535
National Association of Consumer Bankruptcy Attorneys
2300 M Street, Suite 800
Washington, DC 20037
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Principle Reductions: Wipe Out Your 2nd Mortgage with Bankruptcy
Millions of American homeowners are now upside-down on their home mortgage and they are looking for a way out. In some areas like the Inland Empire of California, local homeowners have seen values drop 30-50% and many are making a “business” decision to walk away without ever exploring ways to save their home. If you have decided to walk away from your home and think you have no other option but to bail on your upside-down house, you may want to read this.
Wouldn’t it be much easier to save your home if you only had a first mortgage and no other payments? What if you could effectively wipe out $50,000, $100,000 or $200,000 of what you owe on your mortgage? Also, if the market turns around, think of all the equity you could build back up years from now?
For homeowners who have taken out a second mortgage on their home, facing financial difficulties can be particularly challenging. In most cases, a second mortgage reduces your home equity to a very small margin leaving you vulnerable to the whims of your lenders. In cases where real estate values have declined, as we are seeing in most markets today, there are strategies that you can use to protect yourself from excessive debt. Current bankruptcy law allows judges to approve the loan modifications of the terms of certain debts, namely auto and student loans and second-home mortgages. In the case of second mortgages, if the value of the property falls below the loan amount, debtors potentially could reduce the balance of the loan to equal the current value of the property.
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Stripping the Lien, Cram Down or Strip Down
When a judge removes the second mortgage during bankruptcy proceedings it is referred to as “stripping” the lien, a “cram down” or “strip down.” This can happen if the loan is secured by other collateral that is part of the bankruptcy filing or if the home is not your principal residence or even if the payment structure on the second mortgage falls heavily during the bankruptcy filing period itself.
Here is a Lien Stripping Example:
• Home is worth $200,000.
• The first mortgage is $200,000.
• A second mortgage (or in certain states, a deed of trust) for $100,000.
• Lenders are only secured up to the value of the property. In this case the first lender is secured by the property value.
• The second lender has nothing securing their lien. They are unsecured because the property has no value left over from the first lien. In a Chapter 13 bankruptcy, you can lien strip the second lender.
• The second lien is treated as an unsecured creditor.
• Most likely the second lender will not be able to collect on the mortgage after the bankruptcy discharge and the homeowners (debtors) still get to keep the house.
• The homeowner would not even have to pay the lien when they sell the house.
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Now, THIS IS A POWERFUL tool for homeowners who are underwater!
Additional liens on your home beyond your initial mortgage, whether you have taken a second mortgage or just another related lien, could be negated in the case of a Chapter 13 personal bankruptcy filing.
Liens can be stripped off of the debtor’s assets in Chapter 11 or Chapter 13 when there is not enough equity in the asset, after deducting senior liens from the property’s current market value, to secure the unsecured in whole or in part, where the lien exceeds the value of the debtor’s property. Section 506 of the Bankruptcy Code acknowledges that a lien is only a secured claim to the extent there is value in the asset to which it attaches. To the extent that the claim exceeds the value of the collateral, that portion of the claim is unsecured. In Chapter 11 or Chapter 13, even voluntary liens, such as mortgages and security interests, can be stripped down to the value of the collateral, with the exception of voluntary liens secured only by the debtor’s residence. Moreover, Congress is currently considering changes to bankruptcy law allowing the modification of home mortgages.
Despite the general rule, two exceptions may apply so as to allow lien stripping of a mortgage on a personal residence: loans based on a home plus other collateral. Lien stripping is prevented only when the lien is secured “solely” by a personal residence. Court decisions have made it clear that when the debtor has given other collateral (in addition to the personal residence; e.g., office equipment) as security for the mortgage, lien stripping will be allowed. Thus, if you will be taking out a second mortgage or refinancing your home, you should consider offering additional collateral, such as furniture, as security for the loan. This can be done under the guise of seeking better terms from the lender, such as a lower interest rate.
Many (but not all) bankruptcy courts follow a rule that makes a second mortgage totally unsecured if the first mortgage balance equals or exceeds the value of the personal residence. This exception will not apply in the case of a refinancing of a
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mortgage, since in a refinancing the new mortgage pays off the first mortgage. The exception is predicated on there being two distinct mortgages (a first and a second mortgage). For this reason, if you have the option of financing your business through a second mortgage or refinancing your first mortgage, the second mortgage may be the better choice, especially where the amount of the first mortgage is close to the value of the home.
In addition, remember that the general rule applies only to a lien secured solely by a personal residence. Thus, lien stripping will be not allowed for a mortgage on a building used in a business.
While there is no assurance of what the courts will decide, depending on the terms of the original loans as well as the details of your filing, there are options for home owners with multiple liens on their home. This is because most additionally mortgages are unsecured, especially in the modern context of depressed home values. While inflated home appraisals may have allowed you to take out an additional mortgage, it’s possible that your original home loan is now upside-down. When the real estate market was much more active, lenders often side stepped the 20% down payment rule by allowing the borrower to get private mortgage insurance. As a further side step this rule of thumb, many borrowers took out a second mortgage to cover the 20% payment which led to the additional lien on the home. Given current market conditions, many buyers ended up with net negative financing, or negative equity, before they even made their first payment (and often did not have to provide any collateral).
Within Chapter 13 Bankruptcy law, section 11 USC 1322, can potentially allow you to forego your second mortgage, under certain circumstances. If your second lien on the whole is unsecured, then when the value of your home drops below the first mortgage deed of trust, the second becomes wholly under secured. This second loan can be negated through a Chapter 13 filing.
The lien stripping program is available for individuals desiring to reorganize their debt using Federal Laws under Title 11 of the United States Code. The mortgage
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removal program can only be used in the context of reorganization, often referred to as Chapter 13(see below).
If you own a home with more than one mortgage, you may be able to completely remove or “avoid” the second and subsequent junior mortgages from your home and county records, thus leaving only the first original mortgage!
To qualify for this defense, the court will generally require objective evidence that the home is appraised for less than the value of the initial mortgage, which can be obtained through a county property appraisal or through a third party certified appraisal that is accepted by the court. In an environment where home prices in most markets have fallen at least 30%, many borrowers may qualify.
Attorney Pernell Agdeppa has much to say about this bankruptcy defense for homeowners:
“Homeowners can file a Chapter 13 bankruptcy and can pay the various filing charges/fees (to strip a lien we must file a complaint against the second or junior lien holder(s)).In my opinion, the most critical aspect of this process is to carefully qualify each potential client to determine whether bankruptcy is their best alternative and make them aware of its lasting credit impacts.”
“While removing junior debt from their properties will help them financially, clients must also be capable of staying within their financial plan to fulfill their obligations of their Chapter 13 filing.”
Tax liens can also be stripped off in reorganization proceedings (Chapters 11 and 13) to the extent that the lien does not attach to equity in property. Tax liens can’t be avoided in Chapter 7 on the grounds that they impair exemptions; if the
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tax is dischargeable in the Chapter 7 filing, the bankruptcy court can determine the amount of the lien that is secured at the time of the filing. Payment of that sum entitles the debtor to the release of the lien.
Ultimately, working with a qualified tax and real estate attorney or experienced real estate bankruptcy lawyer will help you present your case to the Federal Bankruptcy Court, so it’s important to get qualified legal advice in advance regarding any filings.
The comments, posts, threads and material in this ebook are NOT to be taken as legal advice and we highly recommend that anyone facing foreclosure should seek the counsel of an attorney and/or an accountant. ALWAYS obtain a second and third opinion on your particular situation from a trusted source. We will not be held liable for any material, comments, posts, threads, emails or any communication made subsequent to downloading this free ebook. The comments made and the materials available in this ebook are for informational purposes only and not for the purpose of providing legal advice. You should contact your attorney to obtain advice with respect to any particular issue or problem. The opinions expressed in and throughout this ebook are the opinions of the individual author and may not reflect the opinions of our employers, other ventures or any individual attorney. No advice or information, whether oral or written, obtained by you or through or from this ebook shall create any kind of promise or business relationship. The views and opinions in this ebook are likely to change over time.
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A Deed in Lieu of Foreclosure as a Cure for Your Mortgage Woes
For home borrowers (mortgagors) facing foreclosure, a deed in lieu of foreclosure provides an alternative solution to the standard default process. In particular, the deed grants the lender, the “mortgagee,” full rights to the property title to satisfy the conditions of the loan. Such agreements are a common form of mortgage contract settlements. In general, a deed is a right granted by a legal contract based upon mutual agreement; therefore, a deed-in-lieu must be based upon voluntary agreement in good faith.
In cases where a borrower lacks sufficient assets for a deficiency judgment, the lender will often pursue a deed settlement independent of court proceedings. Under certain conditions, a deed in lieu of foreclosure can offer several advantages to the borrower and lender alike. If agreed to by both parties, the lender is then able to assume ownership of the property, creating a more efficient process by limiting court costs and waiting periods involved in standard foreclosure processes. Standard foreclosure procedures can take years to process in court and are further complicated by personal bankruptcy declarations, which are relatively common in such cases. For a borrower facing foreclosure, the deed agreement can relinquish him or her from underlying debt, thus removing the foreclosure record from a credit record and reducing the need for a declaration of personal bankruptcy. Lenders also benefit in terms of improved settlement efficiency, which greatly reduces the time, cost and potential complications that would otherwise be involved in a repossession procedure.
In order for the agreement to be reached, the appraised market value of the property must be less than the outstanding debt from the original agreement, and the property must not be subject to any third party creditor claims or liens. Deeds-in-lieu are often initiated either by personal financial difficulties on the part of the borrower or changes in the macroeconomic environment that shift interest rates and/or underlying home values. Mortgage contracts that rely upon
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a relatively high monthly payment based upon a variable interest rate (with a limited, initial down payment) are particularly vulnerable to shifts in the economic environment; an interest rate change of just a few percentage points could double a borrower’s monthly payment, under certain circumstances. The recent housing market challenges have reflected a coalescence of these factors, which have made deeds-in-lieu a common instrument for borrowers facing foreclosure.
Technically, to proceed with a deed in lieu both parties must agree to and sign both an Agreement in Lieu of Foreclosure, which outlines the terms of the deed, as well as the deed itself, which transfers legal ownership of the property. In certain situations, a borrower may pay to reduce the debt to ensure they maintain their credit rating. Once the agreements are reached, the lender then classifies the original loan as paid and issues a waiver to deficiency judgment, which would normally go into effect in case sale of the property results in an amount less than the debt. A third party escrow service then executes the agreement, thus releasing both parties from their original contract.
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Real Estate Short Sales the Right Way
If you find yourself in a difficult real estate situation where your home and loan is upside-down, don’t fret, a short sale might just be the answer to help cure your mortgage woes. In today’s market, it is imperative that you take a step back from all of the noise to reflect upon your situation. At each point in your financial history, you made decisions that you believed would best help you realize your goals. Because nobody has perfect foresight into their future income status, or the property market generally, it is only natural to re-evaluate your current debt situation when things change unexpectedly. One option for home owners is short sale negotiations, which may allow you to sell your home to satisfy the existing loan.
First and foremost, it’s important that you act as your own primary advocate in this situation. Put your best foot forward because short sales only work when fully agreed to by both the borrower and the lender (your mortgage holder). Understand that, given today’s extraordinary market environment, even high profile individuals are often in a position where there is a gap between what they can afford and what they believed they could afford in the future. Take the case of well-known TV personality Ed McMahon: his Beverly Hills home faced foreclosure due to unexpected changes in property value, interest rates and his own personal income (see Business Week).
In order to satisfy the requirements of the home loan, Mr. McMahon has been working to reach an agreement with a third party to clear a short sale to satisfy his mortgage. Like Mr. McMahon, you may find it initially difficult to find a market clearing transaction to satisfy your lender, but remember: just as hard work and persistence allowed you to afford a home in the first place, diligence can help you overcome obstacles to find the best way to address to your current home loan.
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A short sale MUST be accepted by your current lender or servicer in order to proceed with the sale of your home. Short sales are considered a privilege and not a right. So, with that said, you must be prepared to provide proof and evidence that you qualify and deserve a short sale by your lender. Getting a lender to approve a short sale is primarily a question of economics. You have to provide hard numbers to show that the amount of money a bank will realize on the short sale is better than the amount it may recoup from foreclosing on the property and selling the property.
Your short sale submission package should include:
1. Hardship Letter - explaining the circumstances that make it impossible for them to pay the full amount of the loan. The seller needs to be able to show true financial hardship. Someone with the assets or the income to pay is unlikely to be considered.
2. Proof of employment or unemployment - W-2 forms from employers (or a letter explaining the seller is unemployed).
3. Proof of income - bank statements, two years of tax returns, and other financial documents outlining income and debt obligations. Most lenders will ask if you have an access to a retirement fund, investment fund, 401’s, stocks, and how much is accessible and why if these funds are not accessible has to be provided in a written statement.
4. Comparative Market Analysis or CMA, Broker Price Opinion or BPO (Mini appraisal). The bank will need comparable sales data or a broker’s price opinion showing the current estimated of value of your home. Be very thorough with your analysis with Closed and then Active listings. Closed comparable sales are of course what they are looking for above all, but if you cannot find any homes sold in the last three months in the exact same complex or street or block due to the
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sluggish market, be very detailed with your analysis and calculate by square footage, age, size, views, frontage and upgrades, amenities etc..
5. Listing Agreement or Proof of Listing and The Listing Agreement in a Short Sale: Any offer is contingent primarily upon the Lender’s approval and secondarily on the buyer’s acceptance. The Listing has to be executed and advertised on the Multiple Listing Service (MLS) prior to sending your package for short sale consideration to the Loss Mitigation Specialist.
Tip: In preparing the package, be careful about discrepancies between the seller’s income and the income used to obtain the loan. A big gap may indicate mortgage fraud, unless employment circumstances have drastically changed.
Other Items you want to include in your short sale package:
• Cover Letter
• Authorization to Release Information
• Two Months Bank Statements
• Supporting Hardship Info – HOA liens, medical/disability statements etc.
• Repair Estimate for the Property
• Contract
• Net Sheet
• First mortgage holder may ask for a payoff amount from the 2nd
• Second mortgage holder may ask for a payoff amount from the 1
• Lender may ask for an Initial Title Report
st
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• FHA and VA may have their own forms and special requirements as well
Ultimately, a short sale can be understood as a negotiation to recognize a changed environment from when the loan was originally signed. Any offer to buy the property must be evaluated by the lender, who is in a favorable position of being able to determine whether to accept such an agreement. Because of this, it’s crucially important that you present your property in the best possible light, just as you would in selling your home directly. Never accept the least common denominator as the only solution to the issue. By working hard as an advocate for your own cause, you can make a solid case to the lender that a short sale might be in both parties’ best interest.
Negotiating Deficiency is Key When Attempting a Short Sale:
With a short sale, the lender has three possible ways to handle the deficiency balance, which is the portion of the mortgage debt not covered by the sale of the home. First, the lender can attempt to collect the deficiency balance from the seller after the property has closed. Second, the lender may require the seller to sign an unsecured promissory note for the deficiency balance as a condition of agreeing to the short sale. If the new note is for less than the balance of the original debt, the difference would be considered canceled or forgiven debt. Third, the lender may agree to cancel the entire deficiency balance. You must negotiate for the release of both the property lien and the underlying personal debt secured by the note. If you fail to do this, the lender may not forgive the personal debt and it will become a collection.
In short sales, just as in any negotiation, it’s important to put yourself in the lender’s position and try to understand their approach. The decision they make is based upon the opportunity cost of holding onto the property after foreclosure
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and then determining what to do with the asset. If they believe that the stated property value is low then it will make it more difficult to clear a short sale. Because of this, it’s important to present the property as a potential investment to other buyers, putting your value proposition at the center to generate the highest possible offer. The higher the offer, the more likely your bank will be open to accepting a short sale. It is wise to consult with an Attorney or Real Estate Agent who is familiar with short sale negotiation and has significant experience working with lenders. Keep in mind that Attorney’s fees or Realtor fees come out of the lender’s net proceeds; therefore, you should not have to pay out of your own pocket for an Attorney or Realtor to assist you with the transaction.
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The IRS on Shorts Sales, Foreclosures and Debt Forgiveness
If you borrow money from a commercial lender and the lender later cancels or forgives the debt, you may have to include the cancelled amount in income for tax purposes, depending on the circumstances. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender. When that obligation is subsequently forgiven, the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. The lender is usually required to
From the IRS on Shorts Sales, Foreclosures and Debt Forgiveness
The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for this relief.
This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount excluded reduces the taxpayer’s cost basis in the home. More information on claiming this exclusion will be available soon.
The questions and answers, below, are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007.
1. What is Cancellation of Debt?
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report the amount of the canceled debt to you and the IRS on a Form 1099-C, Cancellation of Debt.
Here’s a very simple example. You borrow $10,000 and default on the loan after paying back $2,000. If the lender is unable to collect the remaining debt from you, there is a cancellation of debt of $8,000, which generally is taxable income to you.
2. Is Cancellation of Debt Income Always Taxable?
Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:
Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income. The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception.
Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in
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cancellation of debt income. However, this may result in other tax consequences, as discussed in Question 3 below.
3. I Lost My Home to Foreclosure. Are There Tax Consequences?
There are two possible consequences you must consider:
Taxable cancellation of debt income (Note: As stated above, cancellation of debt income is not taxable in the case of non-recourse loans).
A reportable gain can occur from the disposition of the home because foreclosures are treated like sales for tax purposes. Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income.
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt).
1. Enter the total amount of the debt immediately prior to the foreclosure___________.
2. Enter the fair market value of the property from Form 1099-C, box 7___________.
3. Subtract line 2 from line 1.If less than zero, enter zero___________.
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
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4. Enter the fair market value of the property foreclosed on. For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure ________.
5. Enter your adjusted basis in the property (Usually your purchase price plus the cost of any major improvements) ____________.
6. Subtract line 5 from line 4. If less than zero, enter zero.
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds $250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
4. I Lost Money on the Foreclosure of My Home. Can I Claim a Loss on My Tax Return?
No. Losses from the sale or foreclosure of personal property are not deductible.
5. Can You Provide Examples?
A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007. The original purchase price was $170,000, the home is worth $200,000 at foreclosure, and the mortgage debt canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower
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is insolvent, with liabilities (mortgage, credit cards, car loans and other debts) totaling $250,000 and assets totaling $230,000.
The borrower figures income from the foreclosure as follows:
Use the following steps to compute the income to be reported from a foreclosure:
Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip this section. You have no income from cancellation of debt).
1. Enter the total amount of the debt immediately prior to the foreclosure___$220,000__.
2. Enter the fair market value of the property from Form 1099-C, box 7 ___$200,000__.
3. Subtract line 2 from line 1.If less than zero, enter zero___$20,000__.
The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21, Other Income, of your Form 1040.
Step 2 – Figuring Gain from Foreclosure
4. Enter the fair market value of the property foreclosed. For non-recourse loans, enter the amount of the debt immediately prior to the foreclosure __$200,000__.
5. Enter your adjusted basis in the property.(Usually your purchase price plus the cost of any major improvements) ___$170,000__.
6. Subtract line 5 from line 4.If less than zero, enter zero___$30,000__.
The amount on line 6 is your gain from the foreclosure of your home. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure, you may exclude up to $250,000 (up to $500,000 for married couples filing a joint return) from income. If you do not qualify for this exclusion, or your gain exceeds
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$250,000 ($500,000 for married couples filing a joint return), report the taxable amount on Schedule D, Capital Gains and Losses.
In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000 minus $170,000), because they owned and lived in their home as a principal residence for at least two years. Ordinarily, the borrower would also have taxable debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there is no tax on the canceled debt.
Other examples can be found in IRS Publication 544, Sales and Other Dispositions of Assets, under the section “Foreclosures and Repossessions.”
6. I Don’t Agree With the Information on the Form 1099-C. What Should I Do?
Contact the lender. The lender should issue a corrected form if the information is determined to be incorrect. Retain all records related to the purchase of your home and all related debt.
7. I Received a Notice from the IRS on This. What Should I Do?
The IRS urges borrowers with questions to call the phone number shown on the notice. The IRS also urges borrowers who wind up owing additional tax and are unable to pay it in full to use the installment agreement form, normally included with the notice, to request a payment agreement with the agency.
IRS LINKS:
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If you are having difficulty resolving a tax problem (such as one involving an IRS bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service may be able to help. For more information, you can also call the TAS toll-free case intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.
In some cases, you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. Find information on LITCs in your area.
Related Items:
• Publication 523, Selling Your Home
• Publication 544, Sales and Other Dispositions of Assets
• Publication 908, Bankruptcy Tax Guide
• Form 1040, U.S. Individual Income Tax Return
• Form 1040, Schedule D, Capital Gains and Losses
• Form 1099-C, Cancellation of Debt
• Form 9465, Installment Agreement Request
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Borrowers Who Negotiate Loan Terms with a Mortgage Broker in Spanish, Must Receive Their Loan Documents in Spanish
Hablas Espanol? Su casa es mi casa!
“Just sign right here on this mortgage and real estate contract. I know you cannot speak or read English, but that’s not a problem. Everything I have told you is in writing in this here paperwork.”
“You can trust me. We are from the same country and speak the same language! Just sign here. Would I do you wrong? I sold your sister, brother and son a home and we go to the same church!”
“Buy this house and I’ll get you the mortgage also. Don’t have a social security card? Heck, we make those silly things right here in house. And if we just say you are a citizen on the loan application I can get the loan from banks that I know do not require proof of citizenship. Don’t even worry if you cannot afford the home or the loan. How can the bank come after you if you’re not a citizen?”
How many times do you think this happened over the last few years? The sad truth is A LOT!
It seems as if lenders forgot to follow the law in their hastiness to make as many loans as possible over the last decade. I think the main underwriting guideline followed by most lenders was the “breathe on the glass” qualification method. If it fogs, loan approved!
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There is a little known law in the state of California that was set in place to protect non-English speaking borrowers against predatory lenders. The funny thing is that it was never, ever followed.
While this law may not be frequently used as a means of penalizing banks for unscrupulous behavior, I anticipate that with the flood of toxic mortgages we will see more and more cases of lenders modifying terms of their loans or being severely penalized for completely ignoring the letter of the law.
The law in particular that relates to non-English speaking borrowers is California Civil Code 1632.
(f) At the time and place where a contract or agreement described in paragraph (1) or (2) of subdivision (b) is executed, a notice in any of the languages specified in subdivision (b) in which the contract or agreement was negotiated shall be conspicuously displayed to the effect that the person described in subdivision (b) is required to provide a contract or agreement in the language in which the contract or agreement was negotiated, or a translation of the disclosures required by law in the language in which the contract or agreement was negotiated, as the case may be. If a person described in subdivision (b) does business at more than one location or branch, the requirements of this section shall apply only with respect to the location or branch at which the language in which the contract or agreement was negotiated is used.
The law is very clear and it states that if a contract is negotiated in a foreign language then that contract needs to be written in that foreign language. If the loan is negotiated in Spanish, then the loan documents need to be in Spanish.
The reality is that this never happens and many borrowers are going into foreclosure when they have a legitimate defense and can fight back against this form of predatory lending.
California Civil Code 1632
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According to the United States Census of 2000, of the more than 12 million Californians who speak a language other than English in the home, approximately 4.3 million speak an Asian dialect or another language other than Spanish. The top five languages other than English most widely spoken by Californians in their homes are Spanish, Chinese, Tagalog, Vietnamese, and Korean. Together, these languages are spoken by approximately 83 percent of all Californians who speak a language other than English in their homes.
(b) Any person engaged in a trade or business who negotiates primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally or in writing, in the course of entering into any of the following, shall deliver to the other party to the contract or agreement and prior to the execution thereof, a translation of the contract or agreement in the language in which the contract or agreement was negotiated, which includes a translation of every term and condition in that contract or agreement:
(1) A contract or agreement subject to the provisions of Title 2 (commencing with Section 1801) of, and Chapter 2b (commencing with Section 2981) and Chapter 2d (commencing with Section 2985.7) of Title 14 of, Part 4 of Division 3.
(2) A loan or extension of credit secured other than by real property, or unsecured, for use primarily for personal, family or household purposes.
(3) A lease, sublease, rental contract or agreement, or other term of tenancy contract or agreement, for a period of longer than one month, covering a dwelling, an apartment, or mobile home, or other dwelling unit normally occupied as a residence.
The law is very clear and it relates to most all contracts and in particular, contracts that involve real estate and mortgages.
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The fact is that many people are taken advantage of and many are swindled by unscrupulous brokers and lenders. Unfortunately, many of the unscrupulous brokers that employ the tactic of verbally explaining detailed contracts in a foreign language but demanding their clients sign contracts written in English are people of the same race that speak the same language in an effort to gain the confidence of the non-English speaking borrower. This is a prime example of a confidence scheme.
This is a serious problem that needs serious attention in today’s foreclosure and predatory lending climate. There are most likely many other states that have similar laws and these non-English speaking borrowers have a just defense against a foreclosure action or unlawful loan.
There are certain laws that act as umbrellas of protection for the American consumer. These laws are broad in scope. Regulation M and Regulation Z refer to any rule, regulation, or interpretation promulgated by the Board of Governors of the Federal Reserve System and any interpretation or approval issued by an official or employee duly authorized by the board to issue interpretations or approvals dealing with, respectively, consumer leasing or consumer lending, pursuant to the Federal Truth in Lending Act, as amended (15 U.S.C. Sec. 1601 et seq.).
Upon a failure to comply with the provisions of this section, the person aggrieved may rescind the contract or agreement in the manner provided by this chapter. When the contract for a consumer credit sale or consumer lease which has been sold and assigned to a financial institution is rescinded pursuant to this subdivision, the consumer shall make restitution to and have restitution made by the person with whom he or she made the contract, and shall give notice of rescission to the assignee. Notwithstanding that the contract was assigned without recourse, the assignment shall be deemed rescinded and the assignor shall promptly repurchase the contract from the assignee.
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So what does this all mean? It means this spells T-R-O-U-B-L-E for banks.
Just think how many loans and real estate deals were made this way. Imagine how much liability is on the line and the potential litigation that can be brought just based on this one law. Contracts should always be in the language of the consumer so as to insure a well informed consumer can make decisions that are in their family’s best interest.
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Chapter 4: Stories from the Front Line of the American Economic Battlefield
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Deutsche Bank Foreclosures Tossed Out of
Ohio Federal Court - “They Own Nothing!”
By Moe Bedard and Aaron Krowne
Judge Christopher A. Boyko of the Eastern Ohio United States District Court, on October 31, 2007 dismissed 14 Deutsche Bank-filed foreclosures in a ruling based on lack of standing for not owning/holding the mortgage loan at the time the lawsuits were filed.
Judge Boyko issued an order requiring the Plaintiffs in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating the plaintiff (Deutsche Bank) was the holder and owner of the Note and Mortgage as of the date the complaint was filed, or the court would enter a dismissal.
The Court’s amended General Order No. 2006-16 requires the plaintiff (Deutsche Bank) to submit an affidavit along with the complaint, which identifies them as the original mortgage holder, or as an assignee, trustee or successor-interest.
Apparently Deutsche Bank submitted several affidavits that claim that they were in fact the owner of these mortgage notes, but none of these affidavits mention assignment or trust or successor interest.
Thus, the Judge ruled that in every instance, these submissions create a “conflict” and they “do not satisfy” the burden of demonstrating at the time of filing the complaint that Deutsche Bank was in fact the “legal” note holder.
While the decision is great for homeowners in distress (due to providing a new escape hatch out of foreclosure), it also represents a serious roadblock. If the toxic mortgage fiasco is to be cleaned up, there must be a simple means of identifying what banks own and what they do not own. This judgment is an example of the enormous task ahead in sorting out the mortgage mess.
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Jacksonville Area Legal Aid Attorney, April Charney, broke this news to us via email and made these comments in regards to the Ohio Federal Court ruling (emphasis ours):
“This court order is what I have been saying in my cases. This is rampant fraud on every court in America or nonjudicial foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure.”
These loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. This means that the loans are being held by the originating lenders after the alleged “sale” to the trust despite what it says per the pooling and servicing agreements and despite what the securities laws require. This means that many securitized trusts don’t really, legally own these bad loans. Regarding this mess Charney further explains:
“In my cases, many of the trusts try to argue equitable assignment that predates the filing of the foreclosure, but a securitized trust cannot take an equitable assignment of a mortgage loan. It also means that the securitized trusts own nothing.”
This decision confirms that investors in the mortgage debacle may very well own nothing—not even the bad loans they funded! It seems their right to the cash flow from the underlying properties does not extend to ownership of the properties themselves; thus, clouding the recovery picture considerably.
Summarizing the problem Charney concludes:
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“This opinion, once circulated and adopted by State and Federal Courts across the country, will stop the progress of foreclosures, at first in judicial foreclosure states, across America, dead in their tracks.”
We agree with the remarks Charney makes pointing out that this decision will have major adverse implications for the prospects of an amicable financial workout for the various investor contingents in mortgage-backed securities (MBSs). Doubt is cast on where the full write-downs will eventually land, and this uncertainty can only be expected to further harm the market value of MBS and MBS-based synthetic securities, already in shambles purely due to rising underlying delinquencies. Investors in these securities might have assumed—wrongly, it turns out—that they actually owned some “real estate” in these deals.
To paraphrase Jim Cramer, “They own nothing!”
Original Story from IamFacingForeclosure.com.
http://iamfacingforeclosure.com/article/20071113_Boyko/01.html
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True Sale, False Securitizations
By Moe Bedard and Aaron Krowne
A story we broke this past Tuesday in regards to the Ohio Federal Court Deutsche Bank ruling has been getting a tremendous amount of attention, and rightfully so. It wasn’t long after we posted it here that dozens of bloggers and forums were circulating in the news and around cyberspace.
Calculated Risk’s Tanta did a total of three blog posts of follow-ups largely intended to serve as rebuttals to our opinions. Gretchen Morgenson did a great New York Times piece yesterday, bringing much more visibility to the issue. Even Nigel and the Haterz gave us credit where credit is due:
“It may be a Casey fantasy, but it is true in real life. I Am Facing Foreclosure
First, we want to establish that even Tanta seems to agree with us on one critical point: foreclosures are going to be more expensive for investors in mortgage-backed securities than they might have hoped. Perhaps they will be much more expensive. Just because Deutsche Bank may have a chance to “get its ducks in a
broke a story that was respected enough and accurate enough to be stolen by the New York Times.”
Well, maybe not stolen… but apparently we were on the right track.
Tanta had numerous objections with our conclusions and apparently those of April Charney (who is actually an attorney that specializes in this legal field). We wanted to reply to some of these objections here. We don’t believe the issue is settled, and our lawyers aren’t budging.
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row” and since the foreclosures were not dismissed with prejudice, this is not grounds to disregard the implications of the ruling. As such, our point is that while Tanta may agree with us on this one point, his overall argument appears to be throwing the baby out with the bath water.
While Tanta might not see this ruling as a big deal or game-changer, we suspect investors will.
This point aside, there is something more profound to be learned from this ruling. Tanta’s core criticism (as we understand it) is that finding the assignments was simply a matter of due diligence that Deutsche Bank was attempting to evade from. Not being legal gurus ourselves, we went back to April Charney for further comment and clarification. She had this to say:
“First of all, it is not a fair assumption that “nobody could find the original assignments.” The “original” assignments from the originating lender to the trust don’t exist to be found until after the foreclosure actions are filed and the loans are already supposedly in default. It would be very interesting to see where these nonperforming loans have been booked until now. This is an epidemic across the country.”
“As to the real ramification of the Ohio decision, aside from slowing the foreclosure trains, is that the fact that there were no “original” assignments rendering the sales of the mortgages to the trusts, in violation of the true sale obligations imposed by securities law.”
This, again, does not seem like a small issue, easily dismissible to us.
April further directed us to an article By Tim Reason regarding true sale in securitizations from 2003.
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What we gleaned is that the “true sale” issue (specifically as it comes to securitization) has never been settled. One would think from the Reason article that securitizations would have fallen out of favor after the tech stock collapse, where they were used for various sorts of accounting deception and producing synthetic AAA-ratings (including, famously, in the Enron case). Instead, the problems were swept under the rug and everyone got back on the merry-go-round a second time for the housing bubble. Reason’s article contains this ominous explanation on the subject:
“Kenneth Kettering, associate professor at New York Law School, argues that the securitization industry owes its very existence to the willingness of rating agencies to rate ABS securities based on “extravagantly hedged” true-sale opinions. “No competent lawyer ever gave a simple flat opinion that the asset transfers involved in a securitization transaction constitute a ‘true sale.’ Indeed, given the absence of controlling case law, a lawyer could not responsibly do so,” he wrote in a letter to Congress. “These all-but-liability-proof legal opinions underline the fact that the parties to a securitization transaction are knowingly assuming a serious legal risk.”
Somehow we suspect that nobody explained this state of affairs to the various pension funds, the Chinese, the Europeans, the Canadians, and all of the other parties exposed to questionable securitized MBS pools. But hey, what’s a few trillion between friends?
This time around, securitization was scaled-up to a greater extent than ever before, despite the fact that the fundamental issues of ownership were not settled. Echoing (and reinforcing) the pay-to-play ratings complex that emerged at the same time, the securitization complex chugged merrily along, while profits were high and defaults were low.
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But now these fundamental issues are getting their day in court again, and if this Deutsche Bank ruling is indicative of future rulings, it isn’t going to go over well for the investor class. Will there be another muddle-through, like last time?
The conflagration seems unlikely to blow out quite so easily this time around. Previously, true sale challenges could be counted on to be rare and occur only in the occasional large-scale corporate bankruptcy cases, i.e., when a creditor or the bankrupt company itself wanted to “raid” the assets of a securitization to satisfy obligations. Now, the challenges are threatening to proliferate right along with the exploding number of foreclosure cases across the country.
We followed up with California mortgage attorney Nathan Fransen about this landmark case and its implications:
“California is a non-judicial foreclosure state. This means the banks do not file a complaint in court to foreclose on the property. They simply execute a Trustee Sale. This requires them to provide notices in strict accordance to the applicable laws. The sale is a private action that effectively terminates ownership rights by the borrower.”
“Typically the sale is followed up by an unlawful detainer proceeding to evict the former owners. The way in which the logic of this court could be used is by filing a complaint and Preliminary Injunction in a court in the county where the property is located. The injunction would stay any foreclosure proceedings by the trustee. A declaratory judgment could also be obtained that would declare the rights of the trustee invalid and thus prevent them from taking future actions against the homeowner.”
“There are other claims worth exploring that are derivatives of all this. For example, perhaps a claim for slander of title since the trustee did not have the rights to initiate the foreclosure process. Claims under California Business and Professions Code Section 17200 (UDAP
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statute) may also be available. The leverage that a consumer attorney could use from this type of an action may very well make the difference between a homeowner staying in their home, or packing their bags.”
So saith the lawyers. Hence we take it that, far from a trivial matter of paperwork, Boyko’s decision is serious business. This is a tangible ray of hope for distressed homeowners and a huge headache for securitized mortgage investors (we’re not even sure it’d be proper to use the term “holders” or “owners” anymore).
Original Story: “Don’t do it Casey’s way!”
www.IamFacingForeclosure.com/blog
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The Judicial Integrity of the United States Court is “Priceless” – 27 More Foreclosures Dismissed
By Moe Bedard
In a decision piggy-backing on Judge Boyko’s recent Deutsche Bank ruling (announced on this site Tuesday), Judge Rose has thrown out another batch of foreclosures, making the following summary remarks:
“This court is well aware that entities who hold valid notes are entitled to receive timely payments in accordance with the notes. And, if they do not receive timely payments, the entities have the right to seek foreclosure on the accompanying mortgages.
However, with regard the enforcement of standing and other jurisdictional requirements pertaining to foreclosure actions, this court is in full agreement with Judge Christopher A Boyko for the Northern District of Ohio who recently stressed, ‘That the judicial integrity of the United States District Court is ‘Priceless.’”
The ruling is another HUGE victory for consumer advocate attorneys and homeowners in general.
Jacksonville Legal Aid attorney April Charney remarked to us regarding the two Ohio decisions:
” As to the real ramification of the Ohio decision, aside from slowing the foreclosure trains, is that the fact that there were no “original”
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assignments rendering the sales of the mortgages to the trusts, in violation of the true sale obligations imposed by securities law. ”
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Ohio Homeowner Fights Foreclosure and Lives Payment Free for 11 Years
By Moe Bedard
Let the truth be known. Most homeowners do not respond or fight back when they are facing foreclosure. The lender files the notice of default and the court hearing comes and goes without an appearance from the defendant (homeowner). Four to six months later, the trustee’s sale happens on the court steps and the home owner becomes another foreclosure statistic.
However, there are unique cases of people that just won’t lie down and take it. They fight back to protect their property rights and against injustice.
Richard Davet, a homeowner from Ohio is a man that I consider a modern day hero. He is a role model to hundreds of thousands of other Americans that are facing foreclosure.
In 1996, Mr. Davet was served with a foreclosure notice on his Cuyahoga County, Ohio 1940’s 6 bedroom home. Unlike many homeowners that just take their foreclosure medicine and move on to rent, Richard Davet decided he was going to fight back against NationsBanc Mortgage Corp. and challenge them till the end in an Ohio court of law.
Davet planted his heels firmly and turned his fight into a full time job as he hit the books at the library of Case Western Law School. He began his fight by challenging the lawsuit and then prolonged the suit by flooding the court with motions, objections and affidavits, and he appealed the judge’s rulings at every chance, which bought him 11 years mortgage payment free in his home.
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From the Wall Street Journal:
“Mr. Davet has litigated these same issues over and over again…and in each instance the courts have dismissed his claims,” said Bank of America Corp., Charlotte, N.C., which merged with the owner of NationsBanc.”
“Several years into the case, Bank of America took the unusual step of bringing in lawyers from a big corporate law firm, Jones Day. Five years later, in 2005, a judge granted foreclosure in the amount Mr. Davet owed and set a sale date for the property so that the creditors could take the sale proceeds. But when the property finally went to sale, Mr. Davet set up a shell company to win the auction, for $436,000. He couldn’t pay more than the required $10,000 deposit, but the move delayed his eviction by months.”
“Mr. Davet says it wasn’t a delay tactic and that he was trying to line up investors to buy the property. The house was later sold to another family for $410,000.”
“The eviction finally happened on a snowy day in January of this year. Don Saunders, who lived three doors down from Mr. Davet and is a trustee of the neighborhood association, says it came as a shock in the upscale area.”
Some people would call Mr. Davet a foreclosure fighter and pioneer. Other critics have called him a “deadbeat.” I call him a hero because he is a man of his convictions and has tremendous will power.
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The Wall Street Journal:
“The mortgage company that filed the suit, then NationsBanc Mortgage Corp., had so much trouble with the case that four years into it they brought in lawyers from Jones Day.”
I obtained this quote from the law firm’s website:
“Since 1893, Jones Day has grown, in response to our clients’ needs, from a small, local practice to a truly global firm with more than 2,300 lawyers in 30 offices around the world. Today, Jones Day is one of the most recognized and respected law firms in the world, and we count more than 250 of the Fortune 500 among our clients.”
I think it’s quite amusing that a homeowner from Cuyahoga County, Ohio gave this powerful, 2,300 lawyer and 30 office law firm an 11 year fight.
More form WSJ:
“Mr. Davet continued to try, unsuccessfully, to get the federal court to agree that the state judgment was invalid. Then, a possible lifeline arrived this past October, when a federal judge in Cleveland, Christopher A. Boyko, dismissed 14 foreclosure suits because the plaintiffs that brought them couldn’t prove they owned the mortgages when the suits were filed.”
“Such a problem can occur when mortgages are turned into securities and sold to investors. The companies involved in the transaction may
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not have checked that each mortgage was legally transferred, or “assigned,” to the new owners. In essence, the originating lender continued to legally own the mortgage — and would thus need to be the plaintiff in a foreclosure suit. In Mr. Davet’s case, however, the mortgage, which was not securitized, changed hands multiple times and wasn’t actually owned by NationsBanc until three years after the company filed suit.”
“Other judges have since followed Judge Boyko’s lead. The Ohio attorney general has asked numerous judges to dismiss or delay foreclosures based on similar grounds.”
“Earlier this month, Mr. Davet filed a second federal appeal, this time citing the Boyko ruling, which he believes he inspired. It’s unclear whether the latest salvo will work. If it doesn’t, Mr. Davet says, he will set his sights on the U.S. Supreme Court.”
There are numerous debates circulating in the blog-sphere and forum arena on the internet in regards to foreclosure defense actions and the recent Ohio rulings. We reported on the recent Judge Boyko ruling and other similar rulings that are coming out of Ohio. These cases and many like them are at the forefront of the foreclosure legal battle and will remain a hot topic as the foreclosure crisis continues with no apparent end in sight.
Here are some of the interesting comments circulating on the internet:
“It is heartwarming to see, that the Law can be worked by a “pro se” party. If the Bank had to bring in the awesome gun of Jones Day, then the Law can work. It is not that the party managed to live 11 years for free, for if you count the billable hours to learn the law, free is then
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an abstract. A delay in the foreclosure could only occur if the Court’s gave merti to his arguments. Which must have had some validity to take this long. Kudos to the system for making a grant effort and doing correctly. “ comment by bboy
“As both a corporate and general practice lawyer, I’m with JC and bboy, but am really appalled at the name calling and lack of analysis of most of the other responders. I’ve also had a mortgage closing business back in the mid ’80’s when things went belly up, and I’ve seen a lot (but hardly all).”
“There is a big difference between having the Note, which allows you to sue for the repayment of the debt, and having the ownership of the property which a mortgage affords, and allows you to foreclose. If you don’t “own” the mortgage, you have no right to foreclose it, and you can’t foreclose for fees. Take it from there - these rights of ownership are important! Too many lenders are ripping us off with unjustified fees. I think the borrower here was actually doing the law and financing a great service.” Comment by laserhaas.
“Judges like this one clamor for more pay as they waste mountains of tax dollars pampering a pro se debtor tying up the court for how long? ELEVEN YEARS?!?” Comment by Increased judicial salaries? HA!!!
I agree with JC–if you read the article carefully you will note two things:
1. The entire legal process stemmed from NationsBanc’s allegedly erroneous tacking on of 90 separate sets of late fees, which the bank
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subsequently was largely unable to conclusively document were connected to payments actually made late.
2. NationsBanc apparently did not even own the mortgage in question (presumably the first mortgage) until 3 years after it initiated the initial foreclosure action.
“When I worked for a federal judge in Ohio I saw my fair share of “jailhouse lawyer” lawsuits from prisoners and their persistent and baseless motions. Mr. Davet’s actions remind me of those days. If he was a licensed attorney, he could certainly face disciplinary actions.
Of course, his unwillingness to pay legal fees may evince his cheap character.
As for his central argument of note ownership, I am curious to see if Ohio is willing to hinder securitizations by forcing the loan originator to hold onto the note.” Comment by Cleveland Esq.
“As a corporate lawyer who has a little bit of familiarity with the ins and outs of large banks, I am wholly unsurprised that someone who actually READ the terms of their mortgage papers would be able to drag out a process this long. Many of these banks have a HORRIFIC record of maintaining accurate and complete records on borrowers. In this situation, this failure to maintain records properly left the borrower subject to allegedly erroneous late fees that made payment of his mortgage impossible.
This case should act as a wake up call to the mortgage servicers of the nation: your sole value added to the process is to KEEP TRACK OF THE PAPERWORK. Don’t expect every borrower to be instantly cowed by a lawsuit or a foreclosure notice–there are folks out there (even non-lawyers) who can read and will use the boilerplate in the contracts (together with common law contracts doctrines) to stymie your efforts to go after ‘deadbeat’ borrowers.
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All in all, Mr. Davet’s lawsuit shows that the legal system does work. By requiring lenders to actually DOCUMENT their claims, maybe, just maybe, this case will lead to better customer service and an end to frivolous fees.” Comment by hunting