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My statements here relate to general information and not legal advice. Generally we the vast majority of short-sales fail. Whatever the reason told to you, the real reason is that there is trouble amongst the ankle-biters on Wall Street and a challenge to come up with a real creditor who has the right to execute a satisfaction of mortgage as opposed to some self-appointed agent whose status is at best dubious and at worst that of a thief. Then you have the problem that you signed new papers that will at least attempt to waive the rights and defenses you have now. Let’s not forget that the entities with whom you would enter into this “new” agreement probably have no rights, ownership or authority over your mortgage — they are only pretending. Their game plan is that they have nothing to lose and everything to gain because they never advanced any money on the funding of your mortgage.

A short-sale is a sale in which the price on sale is less or short of the amount due under the note “secured” by the mortgage. You will of course remember that one of the points we have been hammering on in these pages is that the security was split off from the note and is therefore no enforceable and has been extinguished by a variety of legal doctrines. Thus while the obligation might survive and perhaps even the note, there is no valid security isntrument. In order to have a successful short-sale you need to have the true creditor/lender or the successor to the true creditor/lender execute a satisfaction of mortgage along with an agreement that they will take the amount tendered in full satisfaction of the loan. Under ordinary circumstances the borrower would and should take a hit on their credit score. In the context of the mortgage meltdown your position should be one that asserts yourself in the superior position — not the bowing begging petitioner looking for a favor. In all probability whoever signs the document has no right to do so — which means that whatever money they get from the proceeds is pure profit and is NOT being applied to reduce the obligation.

So the very first thing you want to do is ask for proof of real documents that can be reviewed by a forensic analyst which will demonstrate they have the power to change the terms, and assuming they can’t produce that, their agreement that any deal you enter into with them will be taken to court in a Quiet Title Action in which they will allow you to get a judgment that says you or the new owner own the house free and clear except for whatever the new deal is with the new lender.

Any failure to agree to such terms is a clear signal you are wasting your time and they are jockeying you into default, which is the only way they collect insurance on your mortgage through the credit default swaps purchased on the pool containing your mortgage. They actually make money if you default because they were allowed to buy insurance many times over on the same debt. So on your $300,000 mortgage they might actually receive (no joke) $9 million if you default. That means they have far more incentive to trick you into default than to REALLY modify your mortgage terms. and THAT means you need to be careful about what they are REALLY doing — a modification or deception. If it’s deception don’t fall into self deception and wish it weren’t so. Go after them with whatever you can. The law is on your side as to title, terms and predatory and fraudulent loan practices.

Your strategy is simple: (1) present a credible threat and (2) demonstrate that you have knowledgeable people (forensic analyst, expert witness, lawyer).

Your tactics are equally simple: (1) Present an expert declaration or affidavit that raises issues of fact regarding the representations of counsel or the pleadings of your opposition, (2) Pursue expedited discovery (ask for things that they should have had before they started the foreclosure process — a full accounting from the real creditor/lender, documentation showing chain of title/possession, documentation regarding the money that exchanged hands from the bond investor all the way down the securitization chain to the homeowner) and (3) ask for an evidentiary hearing on the factual issues.

It would probably be a good idea if you went through a local licensed attorney who really knows this stuff — like a graduate of Max Gardner’s Boot Camps or a graduate of the Garfield Continuum. This attorney can create some credible threats like the fact that you are claiming, under TILA, your right to undisclosed fees on your mortgage, including the SECOND yield spread premium paid in the securitization chain when the pool aggregator sold the “assets” to the SPV pool that sold bonds to investors — investors who were the the sole source of cash advanced to make this nightmare come true. Picking the right lawyer is critical. Anyone who has not studied securitization, anyone who has not been working hard in the area of foreclosure defense AND offense, should not be used because they simply don’t know enough to achieve a satisfactory result.

My rule of thumb is that I don’t like any short-sale unless it has the following attributes:

1. I would treat the short-sale pretty much the same as a modification. Assume they OWE you a reduction, not that you are pleading with them to be good guys. This is a swindler’s game and they are the swindlers. You need to understand that you have a bigger club in your hand than you might think. They are not good guys. If they were good, you would not have been sold the loan product under a false appraisal and various predatory lending violations.
2. Forgiveness of all late fees, late payments etc. No tacking on fees, payments, interest or anything else.
3. Removal of all negative comments from your credit rating.
   
4. A reduction or settlement of the amount of the obligation currently outstanding. And despite the general rule that they will NEVER approve a short-sale where the homeowner gets any money, I think the tide will turn on that if you pursue the right strategy and tactics.
   
5. How do you know what to ask for?
   
6. First step is on the appraisal. Had you known that the appraisal used in your deal was unsustainable, you probably would have taken a different attitude toward the deal and would have insisted on other terms.
   
7. Assuming you had a zero-down mortgage loan(s) [i.e., including 1st and 2nd mortgage] then you probably, on average have spent some $15,000-$20,000 in household improvements that cannot be recouped, but which were also spent based upon the apparent value of the house. Contrary to the advice you are probably receiving from everyone else including lawyers, loan mod companies, TILA Auditors etc., I think you should push hard, threaten litigation and actually sue if necessary to get money back in your pocket.
   
8. So you look at the current appraisal and let’s say in your community the actual sales prices of homes closest to you are down by 50% from what they were in 2007 or when you went to the “closing” on your loan.
   (1) Write down the purchase price of your home or the original appraisal when you closed the “loan.”
   (2) Deduct the Decline in Appraised Value, which in our example is a decline of 50%. If you had a zero down payment loan, this would translate as the original amount of the note minus the 50% $150,000-$160,000) reduction in value. This leaves $140,000-$150,000.
   (3) Deduct the $15,000-$20,000 you spent on household improvements. This leaves $120,000 to $135,000.
   (4) Deduct your attorney’s fees which will probably be around $15,000, hopefully on contingency at least in part. This leaves $105,000 to $120,000.
   (5) Deduct any other related expenses such as the cost of a forensic audit (which INCLUDES TILA, RESPA, Securities, Title, Appraisal, Chain of Possession, and other factors like fabrication and forgery) that should cost around $2500, and any expense incurred retaining an expert to prepare and execute an expert declaration or expert affidavit that should cost around $1000-$1500. [Caution a declaration from someone who has no idea what is in the document, or who has very little exposure to discovery, depositions, court testimony etc. could be less than worthless. Your credibility will be diminished unless you pick the right forensic analyst and the right expert]. This leaves a balance of $101,000 to $116,000.
   (6) If you did make a down payment or cash payments for “non-standard” options then you should deduct that too. So if you made a 20% down payment ($60,000, in our example) that would be a deduction too so you can recover that loss which resulted from the false appraisal and false presentation of the appraisal by the “lender” who was paid undisclosed fees to lie to you. In our example here I am going to assume you have a zero down payment. But if we used the example in this paragraph there would be an additional $60,000 deduction that could reduce your initial demand for modification to a principal reduction of $40,000.
   (7) So your opening demand should be they accept $101,000 with a settlement probably no higher than $150,000 PLUS take the position that it is none of their business where the money is going or the amount or price or proceeds of sale.
   
9. Judge’s execution of final judgment ratifying the deal and quieting title against he world except for you or the new owner and the new lender who might have a new note and a new mortgage or who might just walk away completely when you present these terms. There are tens of thousands of homes in a grey area where they have not made a payment in years, the “lender” has not foreclosed, or the “lender” initiated foreclosure and then abandoned it. These people should be filing quiet title actions of their own and finish the job of getting the home free and clear from an encumbrance procured by fraud.
10. SILENCE IS GOLDEN: If you do not get a response to correspondence or to service of process of a suit, it indicates that nobody wants to tackle this one. Include in your filing a suit to quiet title and you might just have free and clear title to the home. That means you can either stay there or sell it and keep the proceeds without paying ANY “lender” or “pretender lender.”
    
11. If you want to “up the stakes” then add the damages and rebates recoverable for TILA violations for predatory lending, undisclosed fees etc. That will ordinarily take you into negative territory where the “lender” owes you money and not vica versa. In that case your lawyer would write a demand letter for money damages instead of an offer of short-sale. The other thing here is the typical demand for your current financial information. My position would be that this modification or settlement is not based upon NEED but rather, it is based upon LENDER LIABILITY. And if they are asking for proof of your financial condition on a SISA (stated income, stated asset) or NINJA (No Income, No Job, No Assets) loan then the mere request for financial information is a request for modification. That triggers your unconditional right to ask “who are you and why are you the entity that is attempting to modify or settle this claim?”
    

By the way the “rule of thumb” came from the old common law doctrine that one could beat his wife and children with a stick no greater in diameter than the size of your thumb. In this case don’t let my use of the “rule of thumb” restrain you from using a bigger stick.

Neil F. Garfield, Esq.
ngarfield@msn.com

Filed under: foreclosure | Tagged: damages, lender, modification, NINJA, rule of thumb, short-sale, SISA |