Modifications — No Way Out

Editor’s Note: The reason they “lost” the note is that it was a strategic decision to claim they lost it. There is a procedure for re-establishing a lost note and until recently the rules were extremely loose — because back in the days when those rules were established you had two parties (the borrower and the bank) instead of hundreds of parties in securitized mortgage backed securities. There is no good procedure for those who wish to make a claim on the note, the mortgage or the underlying obligation and most likely there never will be such a procedure. First and foremost this is because (a) none of the parties initiating foreclosure have lost any money nor are they at risk (thus they have no place “at the table”) and (b) the parties who did lose money are not stepping forward — because to do so would be to accept the role of a holder in due course, which means that all claims for predatory loans, fraud, usury, TILA violations would fall on the investor. Better to write it off completely than expose themselves to treble damages and a dubious paper trail lacking proper recordation of instruments.So they are the empty chair “at the table.”

Which brings us to modification: there is no modification unless ALL the parties to the contract are present and agree with the same formalities as the original instrument. That means the investors, who are the ONLY class of people with a potential claim (unless they were paid by insurance, counterparty, or federal bailout), MUST be present since they are the only decision makers with an arguable position to modify anything. The Obama administration is dead wrong in thinking that these loans can be modified by servicers without further clouding the hopelessly obscured title of EVERYONE who has taken a certificate of title or deed to property that was financed masquerading as a securitized mortgage loan.

Currently modifiers are servicers or other administrative intermediaries. Lawsuits have already been filed against the servicers by investors for modifying contracts upon which the investor relied in putting up the money. Even the investors agree these intermediaries have no right to do so. Of course for every servicer, you have a loan originator, even if they did not originate the particular loan you are dealing with. The game was to originate loans and swap servicing rights in a shell game liked to passing a whiskey bottle around at a frat party (Mike Stuckey, The goal was to confuse the borrowers into thinking they knew who their “new lender” was when the “new Lender” was the original source of funding (the investor) and never was either the originating lender (payee on the note) nor the servicer or successor servicer.
This goal was achieved and then some — government, courts, lawyers and even borrowers were so confused by this myriad of transactions and parties, that they naturally sought the simplest form of relief, directed their correspondence to the wrong “lender” (pretender lender) and now these boneless intermediaries are receiving aid from the Federal government to modify mortgage — contracts to which they are not parties relating to notes they don’t own (and which were paid in full, sometimes several times over), supposedly secured by mortgages or beneficial interests in real property in which, except for the last minute in the process of foreclosure, they do not appear on record (thus depriving the borrower of knowledge as to who claims to the “lender”).

The result, as we have repeatedly described and predicted in these pages, was inevitable……..and kudos to NY Times for getting this right. If you want to test this out, try offering to pay off the mortgage and ask for who is going to accept the money, what are they going to do with it and what evidence they will produce to show they have the authority to execute a satisfaction of mortgage or release and reconveyance. They can’t and they won’t.
June 3, 2009

Promised Help Is Elusive for Some Homeowners

MESA, Ariz. — She had seen the advertisements for the new government program offering relief. She had heard President Obama promise that help was on the way for homeowners like her, people who had lost jobs and could no longer make their mortgage payments.

But when Eileen Ulery called her mortgage company — Countrywide, now part of Bank of America — the bank did not offer to alter her mortgage. Rather, the bank tried to sell her a new loan with a slightly lower monthly payment while asking her to pay $13,000 toward the principal and a fresh $5,000 in fees.

Her problem was that she did not yet present a big enough problem to merit aid.

Yes, she was teetering toward delinquency. She was among millions of homeowners rapidly sliding toward danger for whom the Obama administration had devised an aid program — some already in foreclosure proceedings, others headed that way as they ran out of means to make their payments. But unlike those in imminent peril of losing their homes, Ms. Ulery had never missed a payment.

“I don’t know who this bailout is helping,” she said. “We’ve given these banks all this money and they’re not doing what they say they’re doing. Something’s not working right. They keep saying they’re doing all this, but we don’t see it down here at this level.”

More than three months after the Obama administration outlined a new program aimed at rescuing millions of distressed homeowners by compensating banks that modify mortgages, Ms. Ulery’s experience illustrates the mixture of confusion, frustration and limited assistance that now reigns.

Through many months of wrangling over the fate of the financial system, with hundreds of billions of taxpayer dollars dispensed on bailouts, distressed homeowners have waited for their own rescue amid talk that it was finally on the way. Modifications of so-called subprime and Alt-A mortgages — those made to people with tarnished credit — actually fell by 11 percent in May from April, according to research by Alan M. White at Valparaiso University School of Law.

A Treasury spokeswoman, Jenni Engebretsen, confirmed that homeowners like Ms. Ulery — current on their mortgages yet grappling with a hardship like unemployment — were eligible for loan modifications under the program. She said mortgage servicers had offered to modify more than 100,000 loans since the department announced the program.

But how many loans have been modified? Ms. Engebretsen declined to say, noting that the Treasury was working with mortgage companies to “fine-tune reporting systems.”

A spokesman for Bank of America Home Loans, Rick Simon, confirmed that the bank offered Ms. Ulery refinancing and not loan modification. The bank is now focusing on modifications only for those borrowers “who are already in severe threat of foreclosure,” he said.

“We’re still putting the systems in place to handle people who are current on their loans,” Mr. Simon said, declining to say how many loans Bank of America had modified. “It’s still very, very early in the program.”

Ms. Ulery, 63, is the face of the latest wave of troubled American homeowners, a surge of people in financial danger not because of reckless gambling on real estate, but because of lost income.

Far from being one of those who used easy-money loans to speculate on homes proliferating across the desert soil of greater Phoenix, she has lived in the same modest, stucco-sided condo in suburban Mesa for a dozen years. She bought the two-bedroom home in 1997 for $77,500.

For two decades, she worked as an executive assistant at nearby Arizona State University, bringing home more than $1,000 every other week — enough to pay the bills.

Round-faced, wry and given to staccato bursts of laughter, Ms. Ulery regularly visits yard sales, seeking out plates and patchwork quilts for her collections. She takes pleasure in her two grandchildren and her beagle. She enjoys an occasional glass of wine, favoring a $6 merlot that comes in a screw-top bottle.

“I’m not an extravagant-type person,” she said. “I see these big houses all around, and they’re beautiful, but I’m comfortable in my little condo.”

Like tens of millions of other American homeowners, she added to her mortgage balance as the value of her condo swelled, at one point exceeding $200,000. She refinanced to pay off some credit cards and settle into a 30-year, fixed-rate loan. Later, she took out a home equity line of credit to buy a new Hyundai. She refinanced again in 2007, borrowing $20,000, mostly for a new roof.

Over the years, her monthly payment swelled from about $600 to more than $1,000. With planning and self-control — she tracks her monthly expenses on a color-coded spreadsheet — she always came up with the money. “I’ve never been late,” she said.

But the equation broke down last year, when she lost her job in university budget cuts. Ms. Ulery received six months of severance. She arranged a monthly $1,500 Social Security check. But when the severance ran out in October, her mortgage finally exceeded her limited means.

With so many people out of work, and with her doctor counseling rest for a stress-related illness, she did not pursue another paycheck, negotiating to have her university pension begin earlier. She has been leaning on credit cards.

Across the country, millions of homeowners in similar straits have been sliding into delinquency. Some owe more than their houses are worth.

Ms. Ulery is among that unhappy cohort — her house is worth about $122,000, and she owes $143,000 — but walking away is not for her.

“In my family, we don’t do that,” she said. “You pay your bills. And I wanted my home.”

In March, she heard about the Obama administration program. The Countrywide Web site directed her to a government site,, she said. There, she took a test to determine her eligibility for a loan modification.

Was her home her primary residence? Check. Was she having trouble paying her mortgage? Check again, and so on until the screen told her that she might qualify.

In April, she called the bank. The representative said the bank was not doing modifications for people like her, she recalled. He shifted the conversation: if she handed over $18,000, he could lower her payment to $967 from $1,046. Her interest rate would actually increase slightly, with the drop largely because she was putting down more money.

“I just laughed,” Ms. Ulery said. “It was a really good deal for them.”

To which she poses her own question: What sort of deal is it for the American taxpayer? As she sees it, the same banks that generated the mortgage crisis are now getting public money to fix it, while doing little more than seeking new fees.

“I don’t think the government gets it,” she said. “These are the same people you couldn’t trust before.”

6 Responses

  1. So why, cutting to the chase, are modifications to be avoided? Anybody?

  2. If you think about Florida, how the consumers (Bank of America customers) are protected against lengthy, misleading, confusing and simply abusing practices?
    I tried many venues, but I am still at square 2 that is not much better than square 1: slightly farther but more bitten.
    Thank you.

  3. FIRST, Thank you for all the incredible information you have provided and continue to provide for us….without it, we couldn’t carry on the fight…..okay, now my comment…..
    I stood in front of jjjudjjj sharon waters today answering a demurrer and one of the things she said to me as she sustained Defendant’s demur was that ” Defendant does not have to produce or be holder in due course of the note to foreclose.”

  4. Welcome
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    •Any first appearance document filed by a third-party or non-party to the case
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    •Amendments to any of the documents listed above, including third-party complaints, counterclaims and cross-claims


  5. Today I watched on CSPAN, a hearing where Cris Dodd said they had passed a law that gave the Servers of the loan a save haven, meaning they could not be sued by investors for doing a loan modifications.

    He was trying to figure out why the Banks were still not doing midifications even after they were given a safe haven. He alos acknowledged that this was breaking the contracts between the Servers and investors.
    My question is does this mean that the Servers will now modify loans and write down the principle? What implications does this Have?

    Foreclosure help could hinge on who holds the note

    By Brian Eckhouse (contact)
    Tue, Jun 2, 2009 (2 a.m.)

    Homeowners facing foreclosure may have a new friend on their side, if they’re willing to pay for it — a judge. A new state law, signed by Gov. Jim Gibbons and which takes effect in July, allows homeowner-occupants facing foreclosure to demand a sit-down mediation with lenders, overseen by a retired judge or an attorney.

    It’ll cost homeowners up to $200, but it might help them save their homes.

    At the least, the law allows homeowners who otherwise might have had trouble getting their lenders’ ear, to sit down with them and a mediator to discuss whether foreclosure could be avoided by renegotiating loan terms. And at best for homeowners, the process might stave off foreclosure altogether because of a major technicality.

    One of the more dramatic components of the foreclosure mediation law compels lenders to produce promissory notes, showing that money is owed, and deeds of trust, showing the banks’ security on the loans. If they can’t, then mediators could reduce the loans significantly, allowing struggling homeowners to stay put.

    “It’s a basic consumer protection that most states are looking at,” says Assembly Speaker Barbara Buckley, who wrote the bill. “We don’t want people paying mortgages to people who don’t own the mortgage.”

    Producing mortgages might be problematic for lenders, because deeds of trust and promissory notes are
    sometimes sold to investment banks and third-party companies.

    Bill Uffelman, president of the Nevada Bankers Association, unsuccessfully lobbied Assembly Democrats to exempt lenders from mediation if they demonstrate willingness to renegotiate loan terms.

    Last year — before the law was on the books — Las Vegas Valley resident John Ernestberg attempted to use the “produce the note” tactic as a way to dodge foreclosure.

    It was a last-ditch effort for Ernestberg — and an increasingly popular one that started in Florida and has spread nationwide. Countrywide didn’t produce the document when he asked the company to prove ownership of the deed.

    But a federal judge rejected Ernestberg’s bid in January, noting that Nevada doesn’t require lenders to process foreclosures through the court system, so it couldn’t order Countrywide Home Loans to present the document.

    The “produce the note” strategy dates to at least 2007, when a federal judge in Cleveland tossed out more than a dozen foreclosures processed by a bank that couldn’t prove it was the lender.

    Mediation programs to address foreclosure issues are growing across the country. A nearly year-old mediation program in Philadelphia that requires defaulting homeowners to attend conciliation conferences with their creditors reports having helped more than 75 percent of the participating homeowners.

    Previous to the passage of the Nevada law, lenders here had to file three documents in the foreclosure process: a 90-day notice-of-default and election to sell, a 21-day notice-of-sale and a three-day eviction notice, Uffelman says.

    Upon receiving the 90-day default notice under the new law, homeowners have 30 days to seek mediation.

    If lenders produce the necessary paperwork, there may be no compelling reason to stop foreclosure and modify the loan except for good will. But if lenders can’t present the requisite documents — perhaps the promissory notes have been sold to third parties and/or the deeds of trust have been sold to other financial institutions — mediators would recommend to the program administrator sanctions against lenders, including possible loan modification.

    James Hardesty, chief justice of the Nevada Supreme Court, leads a working group that is developing mediation rules. The group includes judges and attorneys for borrowers and lenders. The Supreme Court will hold public hearings on these rules in the coming weeks, with the hope of initiating the mediation program by mid-July, Hardesty says.

    Despite the new layer of bureaucracy, Hardesty says it won’t cost the state money. Program advocates hope to hire a foreclosure mediation administrator, two assistants and an accountant, but the costs would derive from participants submitting to the foreclosure process. Mediators could be paid up to $85 an hour for their services. More than 360 attorneys statewide have signed up to help.

    For all the efforts to mediate a resolution to a foreclosure, it may come down to whether lenders can produce the necessary documents.

    “From a pure legal perspective, it seems crazy that you can be thrown out of the home without the note handy,” says Andrew Jakabovics, associate director for housing and economics at progressive think tank Center for American Progress. “But at the same time, I doubt we’ll see thousands of zombie homeowners,” referring to owners who will refuse to leave their homes.

    Some banking officials fret that lenders failing to produce deeds of trust could enable homeowners to live mortgage-free indefinitely, but securitization analysts say that, at best, homeowners are only delaying inevitable foreclosure.

    Buckley doubts Nevada mediators would allow mortgage-free living if lenders fail to produce the notes. But at the least, renegotiated and more-affordable loan terms might help homeowners stay in their houses. If homeowner still struggle, lenders can once again begin foreclosure proceedings — and by then, may have secured the necessary paperwork to follow through.

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