Citi to Try New Version of Cash for Keys

Editor’s Note: The decision about flight or fight is deeply personal and there is no right answer. The decision you make ought not be criticized by anyone. For those with the fight knocked out of them the prospect of taking on the giant banks in court is both daunting and dispiriting. So if that is where you are, and this Citi program comes your way, it might be acceptable to you. AT THE MOMENT, CITI IS SAYING YOU NEED TO BE 90 DAYS BEHIND IN YOUR PAYMENTS AND NOT HAVE A SECOND MORTGAGE. (A quick call to the holder of a second mortgage or the party claiming to be that holder could result in a double settlement since they are going to get wiped out anyway in a foreclosure. You can offer them pennies on the dollar or simply the chance to avoid litigation.)
Citi, faced with the prospects of increasing legal fees even if they were to “win” the foreclosure battle in court, along with the rising prospects of losing, is piloting a program where they will give you $1,000 and six months in your current residence — and then they take over your house by way of a deed in lieu of foreclosure, which you sign as part of a settlement. Make sure all terms of the settlement are actually in writing and signed by someone who is authorized to sign for Citi.
The deed is simply a grant of your ownership interest to Citi and frankly does little to “cure” the title defect caused by securitization. HOPEFULLY THAT WILL NEVER BE A PROBLEM TO YOU, EVEN THOUGH IT PROBABLY WILL BE CAUSE FOR LITIGATION OR OTHER CONFRONTATIONS BETWEEN PARTIES OTHER THAN YOU WHEN ALL OF THIS UNRAVELS.
The possibility remains that you will have deeded your house to Citi when in fact the mortgage loan was owed to another party or group (investors/creditors).
The possibility remains that you could still be pursued for the full amount of the loan by the REAL holder of the loan.
Yet in this topsy turvy world where up is down and left is right, the Citi program might just take you out of the madness and give you the new start. They apparently intend to offer to waive any claim they have for deficiency which in states where deficiency judgments are allowed at least gives you the arguable point that you gave the house to some party with “apparent” authority. And the hit on your FICO score is less than foreclosure or bankruptcy, under the proposed Citi plan.
In the six months, which can probably be extended through negotiation or other legal means, you can accumulate some cash from what otherwise would have been a rental or mortgage payment. Taken as a whole, even though I would say that you are probably dealing with a party who neither owns the loan nor has any REAL authority to offer you this plan, it probably fits the needs of many homeowners who are just one step away from walking away from their home anyway.
As always, at least consult a licensed real estate attorney or an attorney otherwise knowledgeable about securitized loans before you make your final decision or sign any documents. BEWARE OF HUCKSTERS WHO MIGHT SEIZE THIS ANNOUNCEMENT AS A MEANS TO GET YOU TO PART WITH YOUR MONEY. THERE IS NO NEED FOR A MIDDLEMAN IN THIS TYPE OF TRANSACTION.
February 24, 2010

Another Foreclosure Alternative


HOMEOWNERS on the verge of foreclosure will often seek a short sale as a graceful exit from an otherwise calamitous financial situation. Their homes are sold for less than the mortgage amount, and the remaining loan balance is usually forgiven by the lender.

But with short sales beyond the reach of some homeowners — they typically won’t qualify if they have a second mortgage on the home — another foreclosure alternative is emerging: “deeds in lieu of foreclosure.”

In this transaction, a homeowner simply relinquishes the property, turning over the deed to the bank, in exchange for the lender’s promise not to foreclose. In a straight foreclosure, a lender takes legal control of the property and evicts the occupants; in deeds-in-lieu transactions, the homeowner is typically allowed to remain in the home for a short period of time after the agreement.

More borrowers will at least have the chance to consider this strategy in the coming months, as CitiMortgage, one of the nation’s biggest mortgage lenders, tests a new program in New Jersey, Texas, Florida, Illinois, Michigan and Ohio.

Citi recently agreed to give qualified borrowers six months in their homes before it takes them over. It will offer these homeowners $1,000 or more in relocation assistance, provided the property is in good condition. Previously, the bank had no formal process for serving borrowers who failed to qualify for Citi’s other foreclosure-avoidance programs like loan modification.

Citi’s new policy is similar to one announced last fall by Fannie Mae, the government-controlled mortgage company. Fannie is allowing homeowners to return the deed to their properties, then rent them back at market rates.

To qualify for the new program, Citi’s borrowers must be at least 90 days late on their mortgages and must not have a second lien on the home.

That policy may be a significant obstacle for borrowers, since many of the people facing foreclosure originally financed their homes with second mortgages — called “piggyback loans” — or borrowed against the homes’ equity after buying them.

Partly for that reason, Elizabeth Fogarty, a spokeswoman for Citi, said that the bank had only modest expectations for the test. Roughly 20,000 Citi mortgage customers in the pilot states will be eligible for a deed-in-lieu agreement, she said, and of those, about 1,000 will most likely complete the process.

As is often the case with deed-in-lieu settlements, Citi will release the borrower from all legal obligations to repay the loan.

In some states, like New York, New Jersey and Connecticut, banks can legally retain the right to pursue borrowers for the balance of the loan after a foreclosure, a short sale or a deed-in-lieu of foreclosure. That is one reason why housing advocates say borrowers should carefully weigh these transactions with the help of a lawyer or nonprofit housing counselor before proceeding.

Ms. Fogarty said Citi had no specific timetable for rolling out the program nationally.

Among the other major lenders, there is no formalized program for deeds-in-lieu. Bank of America, JPMorgan Chase and Wells Fargo, for instance, generally require borrowers to try a short sale before considering a deed-in-lieu transaction.

A deed-in-lieu is better for banks than a foreclosure because it reduces the company’s legal costs, and it is better for the homeowners because it is less damaging to their credit score.

Banks may also end up with homes in better condition.

J. K. Huey, a senior vice president at Wells Fargo, says her bank usually offers relocation assistance — often $1,000 to $2,500 — as long as the borrower leaves the property in move-in condition after a deed-in-lieu transaction.

“The idea is to help them transition in a way where they can keep their family intact while looking for another place to live,” Ms. Huey said. “This way, they only have to move once, as opposed to getting evicted.”

13 Responses

  1. I am not behind on my mortgage, but, I have bought another house and am living there. Citi would never help me to refinance or anything else. My question is, what can I do with this house. I am upside down on the mortgage so it will not bring what it is worth.

  2. We filed Chapter 7 on behalf of a client that had an investment property that was underwater and the property was discharged in the bankruptcy. Bank of America has been processing the deed in lieu for months with no progress. They have not yet field foreclosure, so I cannot motion for a consent foreclosure. Since the property was discharged, is there any liability to me or my client if I have them just sign a quit claim deed, record it, and mail it to Bank of america?

  3. Lisa B

    Where are you getting the statement from? Most resources are simply a “tracking” of the ORIGINAL loans – and the SERVICER reports to these “tracking” resources. Does not mean your loan is still there and does not mean your loan definitively even made it to that trust (even if it was scratch and dent – it would still show up on original Mortgage Schedule). And, many resources simply continue to track the status of the loan by the original Mortgage Schedule, even though the loan is long gone. In fact, given the default was in 2005, it is impossible for your loan, as a security, to still be there. Even Fannie Mae – who tended to wait longer than usual to remove default loans from trusts, would have long removed your loan (they are removing the loans much quicker now due to new FASB rules).

    Assume CSFB stands for Credit Suisse First Boston. if Credit Suisse purchased and securitized your loan (and CS prospectus are very clear that they purchase loans before securitization), then they have to have your loan on their balance sheet or sold collection rights to a debt buyer.. But your loan cannot be a security because it is “not current”. Only current loans can be securities. The servicer would be holding (in equity/residual tranche – which is not securitized) for an undisclosed debt buyer who purchased the rights to collection via a CDS or outright sale of collection rights by the bank (in this case Credit Suisse). Unless Credit Suisse could not dispose of collection rights – then Credit Suisse is your creditor. The Trust was for securitization – your loan is no longer a security.

    Disclaimer: I am not an attorney and this is not legal advice. This is for educational and informational purposes only.

  4. …oh yea, piggyback loan @ $6500.
    If 1st lien is in foreclosure, is piggyback second automatically included since both loans were as one deal to close escrow? or, are both loans, now split between two different servicers, considered two separate mortgages? Are there two separate notes or just one?

  5. Question: does the first lien holder of a 1st mortgage hold the note of the piggyback loan? ( both closed at closing) How is piggyback loan applied to the 1st lien and/or who gets that money? and, i paid $36,173.01 cash down payment (20%) on $147,000 (sale of house), why would the bank need the piggyback second loan? (1st lien ARM @10.69%, 2nd lien@8%
    2nd was thrown in @ closing) (GFE show 1st lien only @ 8.5%, no 2nd lien there)(closing cost @$7000)

  6. Treasury Department’s Mortgage Modification Programs

    Minority Staff Report U.S.
    House of Representatives 111th Congress
    Committee on Oversight and Government Reform

    “These federally-imposed mortgage modifications are a questionable use of taxpayer resources and they have failed”

    “In its current form, HAMP both hurts homeowners who might otherwise spend their trial-period mortgage payments on rent”

    “HAMP has failed”

    “HAMP may actually hurt more homeowners than it helps”

    “These homeowners would have been better off if they had defaulted earlier and spent the payments on more affordable housing options”.

    HAMP – Treasury Department’s Mortgage Modification Programs – A Failure Prolonging the Economic Crisis


  7. Anonymous,

    I think I understand your point, but please help me understand this: My loan has been in default since 2005. By your explanation, it has long since been charged-off or sold to a distressed debt buyer. However, the current February 2010 statement to certificate holders from the CSFB-HEAT still accounts for MY loan in “Group 2”. How can that be?

    In fact, the statement accounts for 100% of the loans, showing 41% of them as Delinquent. Do they have to “account” for 100% of the loans, no matter what – and the owner of the collection rights can only be found through discovery?

    What piece of the puzzle am I still looking for?

  8. One final thought (OK maybe not final) – distressed debt buyers, and fraudulent profit, is the root cause of the foreclosure fraud. Need to know what debt buyer purchased the collection rights – and for what price. Need to establish that distressed debt is not a part of mortgage-backed securities. The mortgage loan, in default, is charged-off and collection rights GONE from the securitized trust. Servicers are no longer servicing default loans on behalf of the original earmarked trust. Your loan is gone from securitization once it is in default. Servicers are then servicing for the non-disclosed distressed debt buyer – and maybe that distressed debt buyer was the actual bank – in the case of CitiMorgage (servicer) – the actual bank is CitiGroup, Inc. – or possibly another large bank – or undisclosed private debt buyer. One thing for sure – the default loan is NO LONGER a mortgage-backed security – the security is dead.

  9. CitiMortgage is a mortgage servicer. Ask them who they are servicing for and whether or not the default (non-performing) loan is still considered a “mortgage-backed security”.

    Dave, title companies are in for a rude awakening – may not be today – but it is coming.

  10. That’s exactly what it is …a “scam” to get you to give up for..$1000. After you have spent $10K on “useless” attorneys! Forget it, tell them you own the house and unless they give at least…$40K will ..”strip it bare”. They will cough up then, my friend just hit them with that and Chase paid…him the “40K to leave it in nice condition , true it was a $900K house. A “smelly $1000. is an insult. Screw em’, tear em’ up I say!

  11. That’s funny, I have been trying to get Citi to do a cash for keys and they said it is not possible and they will not do such thing tried today and that was my reply, Just banks lies again?

  12. Wells Fargo asked me for a “Deed in Lieu” right after they defaulted the loan in 12/06. They asked again in July 07, as we argued over the servicing. I don’t see any bank doing this to aid a homeowner. It would appear to be a ruse to avoid litigation by getting the HOME OWNER to give up.

  13. Unfortunately, if Citi is only the pretender lender and the notes and mortgages were securitized, Citi technically does not have the right to be making this call … another line of action leading to clouded title. You are right about the follow-up lawsuits by lenders. I am now contacting title companies whose higher-ups I am friends with to see how they’re going to handle the onslaught of claims for issuing policies on securitized mortgages that break the chain of title. Hmmm.

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