Mortgage Meltdown: Don’t wait for the Cavalry

It isn’t coming. Practicality is being trumped by ideology and politics. Help will not arrive in time to help you. You must help yourself. Whether you have a lawyer to help or not, you need to aggressively defend, refuse to cooperate and demand judicial fairness. If you all pile into the court system, the court system will not have the personnel or infrastructure to accommodate you. You force the hand of the judges, clerks and other members of the judicial system to come up with procedures that give you your day in court. You are entitled to be heard in a court of law and they cannot and will not take that away from you. 

It doesn’t matter whether you have a sub-prime mortgage, a standard mortgage, purchased a new home or purchased an existing home. Prices, terms and mortgages were unfairly and fraudulently inflated.  

Even if the nay-sayers were right that it was your own fault for not being educated enough, not being sophisticated enough, being too trustful, and that you should have known better, you will be doing a disservice to yourself, your family, your neighborhood, state and your country by rolling over and letting them take your house. 

The simple fact is that more than 20 million homeowners are going to be subject to severe consequences as a result of the stagflation, recession and depression that is already underway. That means more than 60 million people are going to be negatively impacted by an economy that was torpedoed by industries that were supposed to be properly regulated and were not. 

Write a letter, file a motion and go down to the courthouse and ask the clerk for any file that has a contested foreclosure in it. Copy the motions, copy the discovery requests, and add to them as you see fit. Get copies of discovery from other case files. get friendly with the clerks and enlist their aid.

Find out the rules about serving discovery requests and motions and follow them. When the lender stonewalls the discovery, file Motions to Compel and motions for Contempt.  Make this your second job if you have another one. 

In discovery make sure you get copies of all internal emails, documents, and presentations made to third parties who were prospectively going to purchase or re-market the risk element of the loan. 

Get a hold of the business plan outlined internally on how this plan would work. Find references or emails to appraisers, mortgage brokers, real estate brokers, developers, etc. and include them in your suit if you can. 

Have someone competent audit your mortgage to see if there are differences between disclosures and the actual amounts they charged you. There are usually differences that will put the lender on the defensive. 

Find out the names and contact information of those who were decision-makers (file interrogatories asking for this information) and get every document they have and take their deposition to see what they knew about your deal and others like your deal. Ask them what their instructions were on approving loans. Ask them if they had any personal doubts about the rapidly rising prices of housing. 

File a counterclaim for fraud. Google it up and you’ll find many examples. File a counterclaim for rescission. File a claim for breach of fiduciary duty (lenders have that duty to borrowers). Make it expensive and embarrassing for the lender to foreclose. It is never too late. File an appeal if you can. 

File an emergency petition in Federal Court alleging denial of due process, violation of your civil rights through improper application of state action. Foreclosure may be an appropriate remedy in normal circumstances but not where you were knowingly and intentionally tricked into a deal where you reasonably relied upon the misrepresentations of a group of conspirators giving you the misleading impression, upon which you relied, that the property was worth what you were paying for it and that the mortgage had been reviewed by experts who concluded that your financial circumstances were such that you could pay for it. 

You tried and failed because of factors well-known to the lenders who were selling off the risk to unsuspecting investors and therefore did not care whether you defaulted or not. 

The lenders were motivated strictly by greed without any sense of or actual accountability. They enlisted the tacit and overt agreements in conspiracy with appraisers, mortgage brokers, developers, closing agents and others who all contributed their part in misleading you into a deal that was false, misleading, damaging to your finances, damaging to your health, and damaging to your financial reputation, FICO score etc. 

Their behavior fulfills the requirements of racketeering, fraud, and crimes against local, state and federal government. You are entitled to damages and you are entitled to equitable relief. You not only lost everything you put into that house at closing, you lost the value of the improvements, furnishings, landscaping and appliances you added after closing. 

You are entitled to the benefit of the bargain, to wit: you were promised a house that you could afford and that was worth what you paid for it. The proper remedy is NOT for you to move out and the lender to take over the investment. The proper remedy is for the lender to adjust the mortgage, pay you damages and give you the payment schedule that you could afford. 

Go to your local property appraiser’s office and file forms to get your house deceased in appraised value. It will reduce your taxes and serve as proof of the true value of your house. Fight for the lowest level you can get. Use auction values in your neighborhood and short sales.  

If you want to settle the claim with the lender, get help. But here are some talking points for you. There are others, but this will get you started.

1. Reduction of mortgage note to 80% of current fair market value. Use an arbitrary formula we have come up with in the GTC|Honors program: Take the original purchase price and reduce it 25%.

2. Adjustment of payment to Fed Funds rate plus 1% fixed 30 year amortization

3. Allow lender to participate in increased fair market value at the time of refinance or sale to recover the downward adjustment of the principal on the mortgage note. I would suggest that they get 25% of the increase in value starting with the date of your settlement and ending with 30 days prior to the refinance or sale. If the value increases to an amount higher than the original purchase price, then let the lender participate at a rate of 75% of the increase over the original purchase price up to the amount of the adjustment they agreed to in the settlement without interest accruing on the adjustment. 

4. Get a moratorium on payments for 3-6 months so you can get on your feet again. But you’ll still have to pay for taxes and insurance. 

5. Delete the PMI provision if you have one and if you want to. Don’t delete it if you can afford it.

6. Insert a 60 day grace period for payments under the new plan.

7. Both parties agree to general release of all other claims.

8. No additional financial disclosure required. This is not anew loan. This is the loan you should have received when they first agreed to give you financing. 

9. If you can’t stay in the house because of inability to make even minimum payments, get some payment for damages.

10. In all cases get a letter from the lender that says you are are not and never were in default that you can send into the credit reporting agencies. 

And make sure you keep track of your attorney fees, costs and expenses and get a payment for that from the lender even if you compromise and add it to the back end of the mortgage (tacked on without interest accruing).

Bankruptcy IS an option but it should be avoided if possible. A lot of the rules are stacked against you now after the recent changes. But in bankruptcy you can file an adversary proceeding that will bring up the same issues and you could get favorable treatment. bankruptcy judges are usually quite sophisticated and very sympathetic to those seeking relief. Litigation in federal Court is more complex than state court litigation. Make sure you get help.


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  1. […] Susan_Tenby wrote an interesting post today onHere’s a quick excerptYou not only lost everything you put into that house at closing, you lost the value of the improvements, furnishings, landscaping and appliances you added after c losing…. […]

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