Mortgage Law Network

Behind in Your Mortgage? (Part 1)

Doug Jacobs — Sun, 12 Jul 2009 23:57:18 +0000

There are basically four choices for a homeowner who is behind in his house payments.

1. You can get caught up by paying the arrearage. Most mortgage companies want you to do this all at once, but if you can’t afford to come up with that much in cash, you can seek bankruptcy protection (typically a Chapter 13 bankruptcy) to spread the amount you are behind over several years.

2. You can seek, and sometimes receive a mortgage modification. These are pretty hard to get, in spite of the fact that there are federal and state laws to encourage such programs. But the lenders have all sorts of conditions placed on the application process and there is no legal requirement that anyone be granted a modification. Worse, there is no court, judge or administrator to oversee the process.

3. You can do a short sale. This requires the mortgage company to reduce their loan so that you can sell your house to someone for its true value in today’s market.

4. You can walk away and allow the property to be foreclosed.

There are advantages and disadvantages to all of the above, but only 1. and 2. will allow you to keep your home.

Generally if you do want to keep the home, try the mortgage modification program as a first step. If that works realistically (something that actually reduces your payments so you can afford to stay there and doesn’t just delay the inevitable), great. If not, you can try 1. – paying off the arrears.

To pay off the arrears, you either need to have a lump sum of money or to file bankruptcy. I don’t know of any mortgage companies that will allow you to make payments if you’ve gotten behind except under very limited circumstances, and those usually include being completely caught up in 90 days.

By filing a chapter 13 or chapter 11 bankruptcy, you can spread the arrears out over the length of the bankruptcy plan. Thus, a $10,000 arrearage becomes slightly less than $300 a month for 3 years or $166 a month for 5 years. That’s usually a lot more doable than coming up with the $10,000 in cash.

Please see Part 2 for a discussion of what you can do if you are willing to leave the house.

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Reverse Mortgage Fraud Red Flags

Jill Michaux, Kansas Bankruptcy Attorney — Sun, 12 Jul 2009 22:02:31 +0000

Three red flags signaling possible reverse mortgage fraud are 1) pressuring a homeowner to take out a reverse mortgage for financial products, a vacation or home repairs; 2) claims that a reverse mortgage is a government grant that does not have to be repaid; and 3) Claims that a borrower cannot outlive the reverse mortgage or lose his home.

A borrower seeking to incur a reverse mortgage must obtain counseling before taking out the mortgage. The Federal Trade Commission has issued four points of advice for spotting reverse mortgage deceptive claims and practices:

Focus on the key features of the loan, like the interest rate, fees, loan payments, and total cost. If you see a sizable discrepancy between the terms the lender or broker offers and the terms typically offered, consider it a sign of possible deception.
Look at whether the claims being made are broad and unqualified. Some claims may be false or misleading if a marketer does not clearly and prominently indicate that the claims apply only to certain people or to certain products in limited circumstances. For example, it might be deceptive if a marketer makes claims like “reverse mortgages provide income for life,” “consumers can never lose their homes,” or “borrowers can never outlive their reverse mortgage,” but doesn’t disclose that payments may stop and consumers may lose their homes if they move out of the house or violate another condition of the mortgage, like failing to pay property taxes or insurance.
Consider the names, seals, logos, and other representations of the lenders and brokers. Some may look and sound like those of government agencies. The m.o. here is to create the impression that the lender or broker is part of — or affiliated with — a government program rather than an organization offering a loan that the client must pay back.
Ask your clients if they have felt pressured in any way to use a reverse mortgage to buy products or services like long-term care insurance, annuities, investments, home repair, or travel. Some sellers may try to convince a consumer to get a reverse mortgage just to buy the products they’re selling.

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Mortgage Modifications - The latest chapter in the “Great Deception”

David Leibowitz, Illinois and Wisconsin Bankruptcy Attorney — Sun, 12 Jul 2009 11:47:01 +0000

Joe Nocera’s article in Saturday’s New York Times demonstrates the futility of the Obama Mortgage Modification program, Home Affordable Modification Plan. It simply has no teeth. It dangles a pitiful carrot at the lenders - a measly $1000 per loan modification - and no stick if the banks don’t take it. Without court ordered modifications of mortgage in chapter 13 - the “dreaded cram-down” that the banks spent another $50,000,000 to defeat in Congress - the banks have no incentive to modify loans. And in general, they are not. Moreover modifications which are being made rarely reduce principal. They might reduce interest or stretch out the term of the loan. But they reduce the so-called “homeowner” to a perpetual renter of the property with little or no hope of ever regaining equity.

You can see my comment as well as the comments of many other thoughtful readers here

Now, years after I’ve been fighting this fight, I’ve finally figured out what really happened. Here’s the first chapter of the story.

Wall Street looked at the trillions of dollars in home equity which had built up in the hands of ordinary Americans and said to themselves, “How come they have all this wealth and we don’t?” So they asked themselves, “How can we get it for ourselves? After all, we are the masters of the universe and we deserve it far more than ordinary people.” So they decided, “Let’s make homeowners an offer they can’t refuse - they’re stupid anyway and don’t know better.”

And so they created ARMS, Option ARMS, HELCOs, 80/20 loans, Pick-a-pay loans, Balloon Mortgages and a wide variety of other mortgages which allowed homeowners to cash out all the equity in their homes, buy houses for no money down, and in general make deals that over time were doomed to fail.

And that’s what they wanted. So far as they were concerned, housing prices never went down. And if they did, no worries, they had credit default swaps to protect them. And they organized a system which pretty much covered up their fingerprints anyway.

Tune in tomorrow for the next exciting chapter in the ‘”Great Deception”

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What Are Those Fees Added To My Mortgage?

Kurt O'Keefe, Detroit Consumer Attorney — Thu, 09 Jul 2009 11:02:14 +0000

Frequently, they are junk fees, so the mortgage servicer can make more money off of you.

Kirsti Marohn of the St. Cloud Times wrote a story explaining how the mortgage servicer benefits from screwing up your records so they can charge added fees onto your mortgage.

Mortgage servicers service your mortgage, but they are hired and fired by the mortgage company.

They are paid according to the contract with the mortgage company. They are to service the mortgage, by figuring out escrow accounts, verifying taxes and insurance are paid, collecting payments, and correctly applying them to principal and interest.

They get a flat rate for those services.

So, if you are a servicer, how do you up that bottom line?

Well, late fees help. According to their contracts, the servicers usually get to keep more dollars from what they do when mortgages are in default.

Unfortunately, that creates a financial incentive for the servicer to put you, and keep you, in default.

Of course, they do not work for you, so you cannot fire them.

When you see fees you do not understand, ask for a written explanation, and exercise your rights under the Real Estate Settlement and Procedures Act and send a letter requesting a complete accounting, certified mail.

If you do not understand the explanations you get, or, you get no explanation, may be time to consult a consumer attorney.

Short Sales and Bank of America

Wendell Sherk, Missouri Attorney — Tue, 07 Jul 2009 04:50:10 +0000

Bank of America has made a splash recently by updating its short sale agreements. The bank is now, intentionally or not, making it simpler for folks to decide to allow a foreclosure or file bankruptcy instead.

Bank of America has reportedly changed its short sale agreements to provide that the homeowner will remain liable for any unpaid balance owed on the mortgage after the sale. It has claimed this is simply to protect their investors and insurers.

In its own way, this is a good thing. In states that allow a mortgage lender to retain a personal claim against a former homeowner to the extent a mortgage is not paid after a sale or foreclosure (called a “deficiency balance”), the disclosure by BofA that the debt will still be subject to collection may provide more information to consumers than other lenders are doing now. It may help homeowners be better informed.

Of course, in most situations where BofA forecloses on a first mortgage, they have not in the past typically pursued collection of this deficiency, even if they were legally entitled to do so. Thus, the change in policy could foretell a change in BofA’s deficiency collection strategy — which in itself will lead to a Pandora’s Box of litigation over how foreclosures were done and whether the lender obtained the best possible prices for their collateral. Or it could be one of the more effective ways to discourage anyone from taking on the burden of trying to complete a short sale that almost entirely benefits BofA and its investors in the first place.

Only time will tell how bad a decision this will be for America’s Bank. But at least consumers are getting better warning about what they’re getting into in working with them. So that’s something, I guess.

Modifying Your Mortgage in California May Get Much Tougher

Doug Jacobs — Tue, 07 Jul 2009 03:17:08 +0000

New legislation introduced, allegedly at the request of California Governor, Schwarzenegger, will make it tougher to get a mortgage modification in California. This legislation, California Senate Bill 94, includes language that says that attorneys can’t be paid for helping a homeowner apply for a modification until the process is completed!

Previous California legislation had similar provisions for non-attorney consultants who helped homeowners apply for mortgage modifications. Those laws were attempts to curtail the predatory companies that appeared over night, took a large retainer and did little for the consumer. But attorneys are already heavily regulated and there are severe penalties for engaging in such activity.

Forcing attorneys to wait to be paid isn’t necessary. Attorneys are used to being paid for the work they do as it is done; not afterwards. Most attorneys, facing several hours of work, request a retainer from the client in order to insure that the costs and fees incurred get paid.

A standard modification can take three to six months to complete. During that time the attorney is working hard on the matter, has to pay his staff, his office rent, his expenses, and his mortgage! Forcing him to wait until the process is over is asking him to lend money to the client.

Not only is this bad business for the attorney, it immediately creates a conflict with the client. Now, the attorney is forced to get a modification (else he won’t be paid), rather than give the client his best advice which might be to walk away from the house or file bankruptcy if the lender won’t offer a workable solution.

All in all, if this becomes law, I think you’ll see an immediate drop in the number to California attorneys willing to attempt a mortgage modification.

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What Is The New Michigan Foreclosure Law?

Kurt O'Keefe, Detroit Consumer Attorney — Mon, 06 Jul 2009 13:44:07 +0000

Effective yesterday, homeowners can get a 90 day delay foreclosure delay after getting the foreclosure notice.

Some of the terms of the new Michigan foreclosure law are:

After the homeowner, (the law applies to principal residences only) gets the written notice:

1. meeting with a housing counselor, and

2. meeting with the mortgage company

Then:

1. if the homeowner meets certain financial requirements, and

2. the mortgage company refuses to modify the loan,

3. the mortgage company MUST judicially foreclose, and cannot foreclose by the faster, less expensive foreclosure by advertisemet.

This is a huge change, in that in judicial foreclosure, the mortgage company must prove it owns the mortgage.

Who holds the note? has been successfully used as a defense to foreclosure in states that require judicial foreclosure, that is, foreclosure through a lawsuit in the courts.

Michigan allows foreclosure by advertisement, four consecutive weekly published notices, almost always in the Legal News, followed by a sale at auction held by the Sheriff for the county in which the propety is located.

The mortgage company has to prove nothing to foreclose by publication.

They can bid up to the amount owed on the mortgage, just by telling the Sheriff how much they are bidding. Anyone else has to come up with the money.

In almost all foreclosures by advertisement, the mortgage company gets the property back, as no one submits a higher bid.

In court, the mortgage company has to file a complaint, alleging that it holds the note or mortgage, and has the right to foreclose.

With all the buying and selling of mortgages, it is often difficult to prove this, and the homeowner can win the foreclosure lawsuit.

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Foreclosed By Mortgage Company That Tricked Me?

Kurt O'Keefe, Detroit Consumer Attorney — Sat, 04 Jul 2009 22:10:33 +0000

You relied on the mortgage broker, who was maybe even a “friend,” and signed papers without reading them, and now you are facing foreclosure by the mortgage company that scammed you.

It is possible you do not even know what documents were submitted by the mortgage broker to get the loan that you now cannot pay.

The brokers knew what numbers the mortgage company needed to see to issue a mortgage.

They also knew how much they would get paid for closing that mortgage.

So, guess what? They put people into mortgages that gave them more money, which, of course, were the higher interest rate mortgages the mortgage company wanted. Not the lower interest rate mortgage you, their customer, wanted.

That and many more tricks were pulled when mortgage money was flying out the window.

Now the other shoe has fallen and foreclosures are way up again.

So, you get the foreclosure notice, check your mortgage closing papers, and find out you were scammed.

What can you do?

First, get the facts. Find as many of those mortgage documents as you can. Anything in writing from you or to you from the beginning.

What were you being told? Write down whatever you can remember; it is usually not the same as what you will find in the papers.

What do you remember about the closing on the mortgage? Who was there?

Were you rushed through? It is amazing how many of my clients were given 4:00 p.m. closing appointments, often on a Friday, and told they had to get out of the room by 5:00 p.m.

Were you allowed to read the papers before you signed them? Sometimes, the closing agent just flips through a stack of papers, showing only the bottom few inches where the date and signature go.

Although I have many clients who did not even sign many of the papers.

These are just some of the things to look for, once you have all the facts, find an experienced consumer attorney. There may be legal defenses you can use to stop the foreclosure.

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My Mortgage Company Won’t Discharge My Mortgage. What Can I Do?

Peter Orville, New York Consumer Attorney — Tue, 30 Jun 2009 15:02:20 +0000

Once you have paid off your mortgage in full, the mortgage company is under an obligation, at least in New York State, to discharge your mortgage within thirty days. Unless you request otherwise, the mortgage company should present a satisfaction of mortgage to the county clerk’s office for recording within thirty days.

Your mortgage company is also required to give you a certificate of discharge within thirty days after your mortgage is paid off. If they fail to do so, they will be liable to you for $500. If they haven’t given you the certificate within sixty days, you are entitled to $1,000, and if not within ninety days, you can get $1,500.

If the mortgage company refuses to comply with these requirements, you may have to bring a lawsuit to compel them to discharge it. You will need to make sure that you have evidence showing that your mortgage has been paid. Before you bring a suit against the mortgage company, you should send them a written request, asking for the certificate of discharge.

What Is A Short Sale?

Kurt O'Keefe, Detroit Consumer Attorney — Tue, 30 Jun 2009 11:47:24 +0000

When your home is not worth as much as you owe on it, and you sell it for less than the amount that would pay the mortgage, or mortgages, that is a short sale.

Last month, the Obama Administration announced changes in the making homes affordable program related to short sales.

You are short of the funds needed to pay the liens, or mortgages, on the home.

Title to your real estate can only be transferred, or sold, is if the mortgage companies sign off, or agree.

You cannot force them to take less than you owe them.

But, in this market, sometimes the mortgage company will agree to take less than the balance. That way, they at least get some money, and avoid the cost of foreclosing, taking the property back, fixing it up, hiring a realtor to sell it, and so on.

The mortgage company may release their lien to allow the sale to close, but may insist on you signing a note to pay the difference.

That is, if you owe $150,000, and sell your home for $100,000 net closing costs to the mortgage company, they may require that you sign a contract to pay them the $50,000 difference.

Consumer attorney David Leibowitz has posted on this situation, in which you may still want to file bankruptcy.

Some times the first mortgage company will take the money and run, and release you from paying the balance. Be sure you know the tax consequences of a short sale.

Ooops, what if you owe a second mortgage?

Ruth Simon of the Wall Street Journal did a story last month on short sales and second mortgages.

Second mortgage companies have to sign off for a sale to go through, of course, they will not normally do so without getting money.

So, the first mortgage company agrees to give them something out of the sale proceeds so that the sale goes through.

But, that second mortgage company can sign off its lien and still chase you for the balance.

If you are unsure about what happens after a short sale, consult an experienced attorney.

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