Battles in California Over Mortgage Deficiencies

“We’re a little in the Wild West here,” said Paul Leonard, California office director of the Center for Responsible Lending. “People are struggling with what it means to uphold the terms of your mortgage contract and what it means to walk away. There are no tried and true rules.”

June 21, 2010

Battles in California Over Mortgages

By DAVID STREITFELD

As the housing market continues to sputter, the real estate industry is increasingly split on the responsibilities of overextended and foreclosed homeowners.

On one side are the bankers, who say borrowers should be liable for what they owe. On the other side are real estate agents, who say those who lost their houses should not be so burdened by debt that they cannot move on.

The differences have real financial consequences: bankers want to collect on billions of dollars in outstanding loans; real estate agents want as many people as possible to return to the housing market.

For the first time, the debate is spilling into the realm of law making, with state legislators in California considering a bill that would redefine the obligations of many defaulting homeowners. The efforts to shape the bill demonstrate how much is at stake — in California and the many other states with distressed real estate markets.

The legislation introduced in the winter by the real estate lobby would have largely shielded foreclosed homeowners from debt collectors. But by the time it passed the state Senate on June 3, the banking lobby had succeeded in scaling it back. Now the bill goes to the state Assembly, where a committee will take it up next week, and bankers intend to continue lobbying.

“We’re concerned this could adversely accelerate strategic defaults,” said Rodney K. Brown, chief executive of the California Bankers Association, referring to instances in which borrowers leave their properties without settling with the lender.

For years, a house in California was a machine for building wealth, and few were the families that could resist temptation. They refinanced their loans to pay for vacations, operations, tuition or, frequently, investments in more houses. Many of these households ended up struggling after the crash.

The lenders were often aggressive in making loans and frequently were predatory. The extent to which this absolves the borrowers of responsibility is at the center of the current debate.

The original legislation said borrowers who took cash out of their houses would be shielded as long as they used the money for home improvements. In its current form, the proposed law is not quite so forgiving.

The bill that passed the Senate by a lopsided vote of 30 to 4 would protect former homeowners up to the amount of their original loan. For instance, a family that took out a $500,000 mortgage to buy a house and then refinanced and took cash out, swelling their loan to $600,000, would be released from claims on the original sum but remain vulnerable on the $100,000.

Ellen M. Corbett, the Democratic state senator from San Leandro, Calif., east of San Francisco, who introduced the measure, said it is a matter of fairness.

During the Depression, she said, California legislators decided that losing your house was punishment enough. They did not want lenders endlessly hounding borrowers for the difference between what they owed and what their former house was worth, an amount called the deficiency.

Seventy-five years later, because of that law, anyone who has an original loan and wants to get rid of the house because it has fallen in value can simply walk away without further legal jeopardy. But a homeowner who refinanced, even for the straightforward reason of getting a lower interest rate, could in theory lose the house and be pursued for the deficiency.

“I don’t believe the original intent was to have a two-tier system, where some were protected and some were not,” Ms. Corbett said.

The agents, too, say this is a fairness issue. But there is also self-interest involved.

“Realtors are very worried about this because they think it will destroy the housing market if people end up with these huge deficiency judgments and are never able to buy a house again,” Ms. Corbett said.

To some extent, this is a fight over something that is not happening, at least not yet.

Lenders in California rarely chase foreclosed borrowers for deficiency judgments. Pursuing such cases in court can be an arduous process, and few of those in foreclosure have the assets or incomes to make it worthwhile.

But the threat of such action can come in handy for lenders, servicers and collection agencies. By raising the possibility of a court fight, they can negotiate favorable terms when agreeing to loan modifications and workouts, surrenders of deeds and sales for less than the full amount owed, also known as short sales.

“Using the threat of a deficiency, full-recourse lenders often prevail upon distressed borrowers to sign new, unsecured obligations in exchange for their assent to a proposed short sale or surrender of a deed,” said William A. Markham, a lawyer with Maldonado & Markham in San Diego. “This practice will nearly vanish overnight if the new measure becomes law.”

About a third of the seven million California households with a mortgage have negative equity, a condition known as being underwater, according to the research firm CoreLogic. Many of these families might be content to wait years for a rebound in real estate but others, if at least partly freed from deficiency worries, might walk away.

“This will lead to a surge in the supply of housing, a corresponding decrease in the price, and a welcome hastening of the end of the foreclosure crisis in California,” Mr. Markham said.

State Senator Mimi Walters, a first-term Republican representing Laguna Niguel, north of San Diego, voted against the measure precisely because it could encourage more defaults.

“I’m very sympathetic to what’s going on in the economy and to people that are losing their homes,” said Ms. Walters, a former executive with two Wall Street firms. “But we have to be careful not to overleverage ourselves and to take responsibility when making investments.”

The banking lobby says it could accept the bill as is, on one condition: that it apply only to new loans. In its current form, it applies to any existing loan.

“We really don’t want the legislature redoing contracts,” said Mr. Brown of the California Bankers Association. “That sends a bad signal to investors, to markets and to those whom we extended the credit.”

Whatever the fate of this particular bill, the issue of responsibility for debt is unlikely to be resolved anytime soon. New government-mandated modification programs that for the first time will reduce borrowers’ debts will go into effect this fall, sparking another round of debate about who gets help and who does not.

“We’re a little in the Wild West here,” said Paul Leonard, California office director of the Center for Responsible Lending. “People are struggling with what it means to uphold the terms of your mortgage contract and what it means to walk away. There are no tried and true rules.”

12 Responses

  1. # n re Hwang – An overview of motion for relief from automatic stay, real party in interest, and constitutional standing requirements in a California bankruptcy court
    # WHO IS THE REAL PARTY IN INTEREST UNDER FRCP RULE 17 – HWANG CASE – CALIFORNIA BANKRUPTCY MOTION TO LIFT THE AUTOMATIC STAY IN CHAPTER 7 BK
    # Hwang bankruptcy Case – Financial Double Jeopardy – Borrower is entitled to credit for payments made on an instrument – California Commercial Code Section 3602
    # What is a “holder in due course” under California Commercial Code Section 3302 in relation to negotiable instruments (such as a secured mortgage note)?
    # Hwang Bankruptcy Case – Who is a “holder” of a note entitled to enforce it – California Commercial Code Section 3301

  2. Can you write anything about MA? Everything is about CA. We were victims of the worst case you have ever seen.

  3. Did I miss something in the first place at inception the homeowner AND the taxpayer got screwed. I can’t stand the distraction from that core issue. From fraud …..

  4. trespass unwanted

    Good words of wisdom. Wish I had the eye for insight like some on this posting.

    BSE

  5. “State Senator Mimi Walters, a first-term Republican representing Laguna Niguel, north of San Diego, voted against the measure precisely because it could encourage more defaults.

    “I’m very sympathetic to what’s going on in the economy and to people that are losing their homes,” said Ms. Walters, a former executive with two Wall Street firms. “But we have to be careful not to overleverage ourselves and to take responsibility when making investments.”

    Sorry Mimi, but your words ring mighty hollow on the ears of citizens of this country that have seen your Wall Street firms do *precisely* what you caution us against.
    Where was your concern then?

    A scoundrel continually changes the rules of the game when he realizes that he isn’t winning anymore because his opponent has learned to use his own rules against him.

  6. I know nothing, and if I think I know something; I know nothing. I’m not giving legal advice because I don’t know legal things.

    http://www2.tbo.com/content/2010/jun/23/231637/foreclosure-mediation-help-ease-court-backlog/

    last statement in the article says:

    Many potential foreclosure cases have stalled this year because of a federal program to help homeowners get temporary loan modifications. Many experts think more foreclosures are likely to be filed this year as some of those modifications fail to become permanent.

    —————–
    The words are ‘stalled this year’ and the words are ‘temporary loan modifications’ and the words are ‘those modifications fail to become permanent’.

    If you find yourself ‘trusting’ these people again, and signing documents that are ‘supposed’ to help you. At least, make sure they ‘help’ you. You don’t want to ‘stall’ anything, you want to ‘stop’ everything.
    You don’t want a ‘temporary’ solution, you want a ‘permanent’ solution. These modifications are in place for about 6 months or so and then retracted because you ‘didn’t qualify’ for them in the first place, and they foreclose on a situation you were in 6 months ago, but this time the title is not ‘clouded’ and you helped them re-establish themself as the beneficiary entitled to the legal title to your property.

    Why do they need you to modify? They could do that themselves.
    They need a new trust agreement, filed in the public with your name on it.

    You can ask to view the paperwork the day before the signing. You can take your pen and write over what you don’t agree with, you can say if it’s not a permanent modification, you don’t agree to any of the terms established in the document. You can state that by creating the modification they have given up all rights to foreclose on the previous default, and they agree to give you another modification if your income status changes, etc. etc. They either will or won’t do it. But what’s the use of having something agreed upon and taken back later when if there is going to be a disagreement, it might as well happen now. You are not doing yourself a favor by giving up your rights. Write on there ‘as of this signing there is no default, ‘at arm’s length’, ‘all rights reserved’ to preserve something before signing these documents.
    These people don’t know you. They have no way of ‘caring’ about your well being after you leave the signing table. So at least, love yourself enough to care about what you are getting into.
    The economy is changing and will continue to change. The oil spill has a direct impact on the fishermen and people in the Gulf, but an indirect impact on the factories and places that process the seafood, and an indirect impact on the packaging places that make the boxes and plastics for that seafood, and the shipping places that transport that seafood, and the wholesellers that sell that seafood. All of those affected will have less money to spend, so that’s less currency floating around keeping other jobs open. So don’t think that you won’t be affected in the future just because you signed a modification today. Plan your future in whatever you are agreeing to today, ‘if’ you decide to do a modification. I think reading my previous posts should get you to ‘figure out’ how the ‘trust’ (not contract) was breached, and pursue keeping your home ‘without’ entering into another agreement.

    No one is doing you any ‘favors’ with these documents, and you aren’t doing them any ‘favors’ by signing them. Believe me, there is a reason they want your signature, and you should know how the odds are shifted for ‘the house’ in your gamble of agreeing to a modification.

  7. The Banks and Wall Street are nothing more than the Devils Empire.

  8. I know nothing, and if I think I know something; I know nothing. I’m not giving legal advice because I don’t know legal things.

    The last statement, was placed for you, as a last idea for you to leave with after reading the article. What was the last idea they conveyed, and what is the last idea you should have had, when you finished reading the article.

    Let’s dissect what we were told, but not under penalty of perjury.

    “We’re a little in the Wild West here,” said Paul Leonard, California office director of the Center for Responsible Lending. “People are struggling with what it means to uphold the terms of your mortgage contract and what it means to walk away. There are no tried and true rules.”

    Hmm. Center for Responsible Lending
    Paul Leonard ‘office director’

    ““People are struggling with what it means to uphold the terms of your mortgage contract and what it means to walk away. There are no tried and true rules.””

    What’s the reason for using “People” and then the word ‘your’?
    Wouldn’t it make more sense to say “People” and the word “their”?

    Replace ‘People’ with the word “Lenders”

    ““Lenders are struggling with what it means to uphold the terms of your mortgage contract and what it means to walk away. There are no tried and true rules.””

    Now that makes sense.

    Also makes sense that the statement:
    “We’re a little in the Wild West here,”

    is a statement that Paul Leonard ‘office director’ of Center for Responsible Lending is conveying about himself at the “Center for Responsible Lending and the bankers/Lenders should have done Responsible Lending; but they didn’t and they created this mess and are trying to fix it for them, “NOT FOR YOU”.

    See, someone is delivering a message and the wording was all
    distorted. They ‘tweaked’ the message and in the process it did not make sense.

    Remember blogs like this will be trolled by people who want to help and also people who want to redirect. Both have a right to access the blog and do what it is that they do.
    You are here for a reason, and there is a message that you will hear or feel that will help you in your situation. Neil is bringing it to you, pull what you can from it, and use it to your advantage. Let go things that ‘don’t feel right or don’t sound right, to you’. Each situation is unique, each person is unique, each trust is unique, so each solution is unique.’ There is a solution.
    Light and Love

  9. THE PROBLEM IN CALIFORNIA IS THAT THE BANKS OWN CALIFORNIA. THE POLITICIANS THE JUDGES AND THE LAW ENFORCEMENT.

    CALIFORNIA IS THE POSTER CHILD OF CORRUPTIONS THE WEALTHIEST STATE IN THE UNION IS ON THE VERGE OF BANKRUPTCY AND DOESNT HAVE ANYTHING TO SHOW FOR IT BUT.

    LOS ANGELES DEPARTMENT OF WATER
    ROADS THAT NEED FIXING.
    SCHOOL SYSTEM THAT SUCK
    BRIDGES THAT ARE FALLING APART
    INTERNATIONAL AIRPORTS THAT ARE OUTDATED.

    THE LIST GOES ON
    IF YOUR GOING BANKRUPT AT LEAST HAVE SOMETHING TO SHOW FOR IT.

    EXCEPT FOR OVER INFLATED HOUSES. HOUSES THAT WERE ONCE $300k ARE WENT UP TO $1.5m AND ARE NOW GOING BACK DOWN.

    GOD BLESS AMERICA

  10. I know nothing, and if I think I know something; I know nothing. I’m not giving legal advice because I don’t know legal things.

    The article is, “Truth surrounded by distortion”
    It’s not a contract, It’s not a contract. It’s a ‘trust’.
    Trusts can violate the laws of no perpetual contracts and last forever. They put you in your Homeowners Association HOA via that trust, and can keep you in it forever if they want to. That’s why people need to get them ‘released’ when they have fulfilled the obligation.

    They know we are beginning to realize this is not a contract, it’s a trust. You cannot, I repeat cannot deal with a ‘trust’ the way you deal with a ‘contract’.
    A trust has a settlor, you, who created it. A trustee, and a beneficiary. The beneficiary has to exist or the trust is void.
    The reason for filing an assignment in the public is so one ‘beneficiary’ can transfer their rights to another ‘beneficiary’ and keep the trust alive and active. No assignment, no new beneficiary. No new beneficiary, the trust is void. If your trustee hands his reigns over to a substitute trustee, then your trust has no trustee and no beneficiary (without that assignment), so your trust is void. They do not want people who have already lost their homes under these conditions to ‘discover’ that they still own them if their trust was ‘mishandled’ and all procedures for administerting the trust were done incorrectly. The trustee would owe the debt for what went wrong, not the borrower. Yet someone tells you, you owe, and you believe them because everyone else believes them.

    Think for yourself. What makes sense to you. I walked in truth for the past 10 years. I can feel words that are true, the vibrate a certain way from words that aren’t true. Sometimes I can’t tell you what’s not true about something, but I can tell you, that didn’t sound right, or that doesn’t feel right, or there’s something they aren’t telling you.

    There’s a reason his quote is in the public, and via that news article; it is to get you to believe what you are being told. No one speaks under penalty of perjury in the public. If they don’t speak under penalty of perjury, then what can you believe of what they said?

    Be mindful of what you are being told. If you are told something in the public by the news, it’s a message that they are trying to convey for a purpose that they have.
    Every word makes a different.
    People are struggling with what it means to uphold the terms of your mortgage contract.
    Re-read it as:
    “The people who wrote the trust documents are struggling to collect on their default and violation of the trust. They are hoping the homebuyers think they are the ‘people’ we are talking about and ‘take the blame’ for what was done. If the homebuyer realizes the ‘trust was breached’ and that they are not responsible for the failure of the agreement and that it all falls on the Trustee. The homebuyer may not pay or allow us to make a modification, or keep us from getting the property back. We see they are awake and now we must act like we ‘care’ about them and figure out a way to get our ‘positions’ back without them realizing that we have ‘truly lost our position in the trust’ by securitizing their assets. Lets leak out things about the securitizations and pools and trusts so they can chase those crumbs and we figure out how to recreate and reestablish ourselves as the beneficiary in these documents with a ‘right’ to take their homes.”

    I’m telling you. You have been given a carrot and a stick and tricked into walking in a direction when you can stand still and call it for what it is, and they’d have to prove it’s not, and they can’t.

    But that’s just me talking.
    I know we are awake, but now we have to realize we have ‘blinders’ on. Take them off, and see the world not from their eyes. Look and see it from yours. It’s your home. You created the agreement with your signature. Did they abide by the agreement? “No?” Well then the agreement is void. Don’t fight over a lost note. Either they have it or they don’t. If your understanding is they are supposed to have the original; then stick to it.

    When a judge rules on these things, I have not been in court, but I know there must be ‘signatures’ of agreement to the ruling, and then the person runs out and tries to appeal. Don’t agree to anything. The legal definition of ‘understand’ in a court of law is not ‘yes your honor I ‘know’ what you are saying’. it’s like saying,
    ‘yes your honor I ‘agree’ with what you are saying.’
    Do not agree to things you don’t agree with. Don’t do it. Don’t trust them. Don’t do it.
    They tell you, you need an attorney. Tell them your bible says ‘there shall be no other God before me’. So you can’t be represented by anyone but your Creator. They know what a Creator is, it’s name is mentioned in their constitution.
    Open the eyes, and see the world, not how they are ‘teaching you with their news’. See the world in a different light.
    Everything is a bit of truth, surrounded by distortion.
    Listen for that one word or two word truth and throw the rest of their statement out the window.
    You can do it. I know you can.

    Stay in the language of Love, it will conquer anything they put out there, and keep you in “your” home. Money is not real anyway, so why fight over their idea of what worth is. They’ve destroyed retirement plans. Let it go. What’s real is you, and here, and now, and nothing else. Don’t fight over nonsense.

    They violated the terms. Figure out in one degree of separation, between you and that Deed of Trust, what they did wrong.

    Light and Love

  11. Do you think Phil Graham is rectifying his quest that removed the regulations ? I would bet he is living in his home free and clear. Clinton is helping in Haiti and does not know homeowners exist in the US. Greenspan says he does not understand and will never care to understand. G.W. Bush is in his favorite bar having a beer. Meantime McCann wants to spend billions on a fence between Arizona and Mexico. Not to mention that it was ok to use Mexico’s cheap labor and let these people live here in the US to build homes during the boom. I serious doubt the contractors and developers who worked a joint venture with the banks sponsored any of them legally. Now that the banks and Wall Street made their cash, this government wants to send them back to Mexico. I wonder how homes were illegally taken from these so called illegal immigrants. If I were from Mexico I would stop drinking any Budweiser products. Congress needs to fix their problem instead of pointing fingers at the little people. We are tired of being abused.

  12. “People are struggling with what it means to uphold the terms of your mortgage contract ”

    People are not making the noise its the very scum that built this mess that will be
    “selling the deficiency collection rights” to the scumbag bottom feeders.
    I vote for a ” banker open season” wabbit season!

Leave a Reply

%d bloggers like this: