Credit Bids and Claims for Overage or Wrongful Foreclosure by Borrowers

INTERESTING NUCLEAR OPTION: “A credit bid submitted by anyone, whether authorized or not, might well be an admission (or at least a question of fact allowing the homeowner to go forward in discovery) that the amount owed was far less than the amount demanded in the Notice of Default and demands for collection. The point is not just that the foreclosure could be overturned or that an overage was created for the benefit of the borrower (because the creditor is only entitled to the amount owed). This issue could lead to the holy grail of discovery requiring the forecloser and other players in the securitization chain to produce the transactions that paid off part or all of the amount due the investor and therefore part or all of the amount due from the borrower.” — Neil F Garfield, http://www.livinglies.me

Editor’s Note: This is a puzzle and I am wondering if it might have some significance. The legislature has clearly enunciated the premise that they do not want any creditor to get a windfall at the expense of the borrower. (see below). The case below is a commercial case in which the object for the Bank was to get a deficiency judgment — something that Arizonians and residents of most states don’t need to worry about. But the rest of the discussion is applicable to residential foreclosures and trustee sales.

The credit bid that is submitted is often under Fair  Market Value. I am wondering if that can be turned around to say that the higher amount of fair market value minus the credit bid might be an overpayment. The credit bid is supposed to be the amount that is owed.

“The primary purpose of the statute is to “prohibit a creditor from seeking a windfall by buying property at a trustee’s sale for less than fair market value.” First Interstate Bank of Ariz., N.A. v. Tatum & Bell Ctr. Assoc., 170 Ariz. 99, 103, 821 P.2d 1384, 1388 (App. 1991). Because of the nature of a trustee’s sale, the statute does not contemplate that the purchase price will necessarily reflect the fair market value of the property. Dewey v. Arnold, 159 Ariz. 65, 70, 764 P.2d 1124, 1129 (App. 1988). For this reason, the statute requires a determination by the court of the fair market value before a deficiency judgment may be awarded. A.R.S. § 33-814(A). The court is directed then to subtract from the amount owed the higher of the sales price or the fair market value. Section 33-814(A) defines fair market value as:

[T]he most probable price, as of the date of the execution sale . . . after deduction of prior liens and encumbrances with interest to the date of sale, for which the real property or interest therein would sell after reasonable exposure in the market under conditions requisite to fair sale, with the buyer and seller each acting prudently, knowledgeably and for self-interest, and assuming that neither is under duress.

There is no requirement of which I am aware that the creditor submit the bid at the amount owed, but there is a question of fact as to why they would bid anything else. Is the credit bid an admission that despite prior declarations of default and demands, the real amount owed was less than what had been used?

If that is the case, then is it possible that the issue of fact can be raised as to exactly what was really owed. If that opens the door to a full accounting it might be an admission that the “creditor” received mitigating payments from co-obligors like insurers and counterparties on credit default swaps.

That in turn would be the basis for an attack on the sale in that the Notice of Default and the redemption rights of the borrower were all affected by lies about the amount owed. If the amount owed was really as low as the bid, then did the forecloser get a windfall? Was the borrower prevented from submitting a meaningful proposal for modification since the “Creditor” withheld information about the real balance due.

Discovery might well lead to the conclusion that the figure used was, as Charles Koppa concluded, the amount reported to the investors after computations made by the Master Servicer. That can of worms would lead to the possibility that what they reported to investors was also a lie and that in fact they had been paid multiple times on behalf of the true “creditor.” Thus the action for overturning a foreclosure under a wrongful foreclosure pleading becomes enhanced. If the amounts received through insurance and other means exceed the debt, then the “creditor” was wrong in foreclosing because there was no balance due that was secured by the mortgage or deed of trust.

http://scholar.google.com/scholar_case?q=%22Appellants+Mike+and+Linda+Chase%22&hl=en&as_sdt=2,10&case=12267603999973988233&scilh=0

From Ken McLeod:

I missed this decision……bolds are mine.  I know it was a judicial sale but the Court did take notice of credit bids being lower that reasonable value of the property

 

Paragraph 4:  ¶ 4 After MidFirst filed its lawsuit, Palo Desert filed for bankruptcy protection. MidFirst obtained an order lifting the automatic stay in the bankruptcy, and a trustee’s sale was held in March 2010. MidFirst purchased the property at the trustee’s sale for a credit bid[3] of $486,000. MidFirst then moved for summary judgment against the Chases, seeking a deficiency judgment of $1,325,044.09. The Chases argued that there was no deficiency because the “value of the Property far exceeds anything that could be owed on the Loan.” The trial court granted MidFirst’s motion, finding that no genuine issue of material fact existed as to the fair market value of the property. The court stated that the Chases’ “contention that the property is worth more than the credit bid is purely speculative, has no foundation, and is based on a date far in the future, not as of the date of the trustee sale. No reasonable juror could find for [the Chases] on the issue of fair market value based upon the record presented herein.” The trial court also granted MidFirst’s request for attorneys’ fees of $80,550.91.

Paragraph 6:  ¶ 6 The Chases contend, inter alia, that the amount realized at a trustee’s sale does not fairly indicate the fair market value of the property conveyed, and that summary judgment granted to MidFirst solely on the basis of the credit bid was inappropriate.

Paragraph 9: Therefore, because the Chases were entitled to a determination of the fair market value of the property, we hold that the trial court erred in finding that MidFirst was entitled to judgment as a matter of law as to its entitlement to a deficiency judgment in the amount sought in its summary judgment motion. Section 33-814(A) requires that a deficiency judgment equal the amount owed minus either the fair market value of the property on the date of the sale or the sale price, whichever is higher. MidFirst only presented evidence of the credit bid, and no evidence as to the value of the property. On these facts, summary judgment was improper.

 

State by State Foreclosure Procedures

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EDITOR’S NOTE: All non-judicial states have a provision that allows for judicial foreclosure. It is one of the things that is often overlooked. My point has always been that the non-judicial statutes are unconstitutional only if they don’t allow judicial foreclosures and especially if the foreclosing party is allowed to prevail in a case in which the forecloser would otherwise not prevail in a judicial foreclosure. the trustee in non-judicial foreclosure case is a substitute for the court and must act with due diligence — another fact that is often overlooked.

The implication is that the trustee must act some independence for the protection of both the debtor and creditor. That is impossible when the new creditor appearing on the scene essentially files a substitution of trustee in which the “creditor” is appointed as trustee — a very common scenario that is not apparent on its face. The substitute trustee is often not a trustee and doesn’t qualify because it is controlled or even owned (Recontrust owned by BOA) by the new putative creditor.

The reference to “primarily” simply means that the rules of non-judicial foreclosure or the complexities of the case  make it such that a judicial foreclosure is the only way to resolve the issues of the case. Also commercial foreclosures are usually only allowed as judicial. Check the State statutes and see what they provide — the conditions under which non-judicial is permitted and the conditions under which judicial is mandated.

State by State Foreclosure Procedures

This is a general guide only, laws change and you need to check your state statutes for accurate, up to date procedures. Foreclosure type will most often be either judicial or non-judicial, if you have a specific question about a state process, you can ask it on the discussion board. Months to foreclose include the legal minimum required and the probable time length once foreclosure has begun. Deficiency judgments are available in some states if the lender loses money through the foreclosure process, if it is not practical for the lender to enforce a judgment, it will be listed. Homeowner redemption after foreclosure is possible in some states, the time periods are listed where available.

STATE TYPE OF FORECLOSURE MONTHS TO FORECLOSE
MINIMUM/EXPECTED
DEFICIENCY JUDGMENT REDEMPTION PERIOD
Alabama Primarily Non-Judicial 1/3 Possible and Practical 12 Months
Alaska Both 3/4 Not Practical None
Arizona Both 3/4 Not Practical None
Arkansas Both 4/5 Possible and Practical None
California Primarily Non-Judicial 4/4 Not Practical None
Colorado Primarily Non-Judicial 2/5 Possible and Practical None
Connecticut Judicial/Strict 5/6 Possible and Practical None
Delaware Judicial 3/7 Possible and Practical None
District of Columbia Non-Judicial 2/4 Possible and Practical None
Florida Judicial 5/5 Possible and Practical None
Georgia Primarily Non-Judicial 2/2 Possible and Practical None
Hawaii Primarily Non-Judicial 3/4 Not Practical None
Idaho Non-Judicial 5/6 Possible and Practical None
Illinois Judicial 7/10 Possible and Practical None
Indiana Judicial 5/7 Possible and Practical 3 Months
Iowa Both 5/6 Not Practical 6 Months,if judicial
Kansas Judicial 4/4 Possible andPractical 6-12 Months
Kentucky Judicial 6/5 Possible and Practical None
Louisiana Judicial 2/6 Possible and Practical None
Maine Primarily Judicial 6/10 Possible and Practical None
Maryland Judicial 2/2 Possible and Practical None
Massachusetts Non-Judicial 3/4 Possible and Practical None
Michigan Both 2/2 Possible and Practical 6 Months
Minnesota Both 2/3 Not Practical 6 Months
Mississippi Primarily Non-Judicial 2/3 Possible and Practical None
Missouri Primarily Non-Judicial 2/2 Possible and Practical None
Montana Primarily Non-Judicial 5/5 Not Practical None
Nebraska Judicial 5/6 Possible and Practical None
Nevada Primarily Non-Judicial 4/4 Possible and Practical None
New Hampshire Primarily Non-Judicial 2/3 Possible and Practical None
New Jersey Judicial 3/10 Possible and Practical 10 Days
New Mexico Judicial 4/6 Possible and Practical None
New York Judicial 4/8 Possible and Practical None
North Carolina Non-Judicial 2/4 Possible and Practical None
North Dakota Judicial 3/5 Not Possible 60 Days
Ohio Judicial 5/7 Possible and Practical None
Oklahoma Primarily Judicial 4/7 Possible and Practical None
Oregon Non-Judicial 5/5 Not Practical None
Pennsylvania Judicial 3/9 Not Practical None
Rhode Island Both 2/3 Possible and Practical None
South Carolina Judicial 6/6 Not Practical None
Tennessee Non-Judicial 2/2 Possible and Practical None
Texas Non-Judicial 2/2 Possible and Practical None
Utah Both 4/5 Possible and Practical None
Vermont Both 7/10 Possible and Practical None
Virginia Non-Judicial 2/2 Possible and Practical None
Washington Non-Judicial 4/5 Not Practical None
West Virginia Non-Judicial 2/2 Possible and Practical None
Wisconsin Judicial varies/10 Not Practical None
Wyoming Non-Judicial 2/3 Possible and Practical 3 Months

 

Foreclosure Strategy: Beware those Short Sales — they might be the beginning rather than the end of legal problems.

The government’s role in this mess has been abdicated to people running agendas that are based on narrow self-interest. One could argue that if the Federal Reserve window was swung open for investment banks to borrow at Fed Funds rates using worthless securities based upon assets (residential real estate), that the same window should be open to the homeowners. But that is not necessary either.

Other than private loan situations and a few other rare exceptions, nearly 100% of all loans “secured” by residential real property were securitized, which means that these loans, false from in their inception, went on a journey to never never land where securities, also false from inception, were sold to investors to fund the transaction. Both sides were based upon fraud involving intentional representations of facts known to be false and upon which the victims at both ends relied most notably the false appraisal of the real estate value and the false appraisal of the ABS or CMO sold to an investor.

If authority is claimed but not real, then the nominal “lender” can execute a satisfaction of mortgage, an agreement to forgo deficiency, and allow the short payment — all to zero effect because the nominal “lender” lacked any right to execute any of those documents. Thus the lender, the “borrower” etc. could have their legal position virtually unchanged by the transaction, but the new buyer has a very substantial change of position, as does the new buyer’s lender both of whom might be taking title or recording a mortgage(s) subject to a mortgage that has not actually been been satisfied. This will produce trouble for title companies and closings.It might also produce claims of fraud against the nominal “lender” by new plaintiffs— the new buyer of the property and the new mortgage lender.

The same logic would also require the conclusion that a “lender” or other buyer who takes title to a residence at a foreclosure sale has received nothing in the way of marketable title and even if the argument is made that the mortgage and note were not extinguished, the “lender” takes title subject to claims of multiple third parties

Either the title company will state an exception in the title policy which basically will mean that the buyer is not insured if a third party enters the picture later, or that the new lender for the new buyer, doesn’t have a mortgage at all because the new mortgage lender did not get the signature of the new buyer.

IN THE BEGINNING (when the first buyer/”borrower” bought the property): We have a buyer, a seller (or developer), and a nominal mortgage lender. The “selling forward” (presale of the loan to a third party before closing) by the nominal “lender” negated the validity of the loan closing but not the real estate closing. So the buyer received good title to the property (all other things being equal) and the seller got paid. Since there was no valid mortgage transaction, rescission becomes unnecessary. However fact patterns may vary, as do state laws, so that rescission is probably a good idea as an alternative position to take.

The funding by an undisclosed third party means that the party posing as the lender at the loan closing was by definition part of a deceptive scheme. The statutes help us with that because of the disclosure requirements coming from Federal and state laws. Failure to disclose the real lender is in itself a fatal defect in teh transaction. Hence the New York Judge who ordered that the mortgage be removed from the county records, leaving the homeowner with title, free and clear of the mortgage encumbrance. Going further, he also invalidated all transfers of any interest in the mortgage because the mortgage and note had never really existed.

But even if the mortgage had come into existence, and even if the theory that this was in reality part of an elaborate scheme to trick people into creating negotiable instruments and to trick other people into buying them as “asset backed securities” the loan was paid in full and the mortgage satisfied or extinguished contemporaneously with the original loan transaction. Whether the third party paid the nominal “lender” before or after closing, the note had been paid in full. In order to “purchase” a negotiable instrument and security instrument (mortgage) involving real estate, the transaction would need to be recorded. This is arguably true even in the “notice” states (what’s left of them).

Thus the payment of money by the third party to the nominal lender can only be interpreted as payment (satisfaction) of the note. This is why the allegation that the payments are in default from the “borrower” should be denied. No payments are required, under the terms of the note itself, if the note has been prepaid — whether the prepayment was from the borrower, his mother, or a mortgage aggregator. The affirmative defense of payment obviously is supported by the same logic.

And the filing of a claim to quiet title by the homeowners serving the nominal lander as a defendant/respondent, and John Does 1-100 as people or entities who might claim an interest in the note, will most likely be successful. The “lender” must disclaim any interest in the note. The servicer of the mortgage must admit (and it should be alleged) that they have been receiving payments from the “borrower”, instructions from “lender” and making payments to some third party, none of which should have been demanded, accepted or processed.

The failure to deliver the note or the failure to be able to account for the note in a situation where the intention of a series of parties in a chain of transactions was to transfer the rights or interests in the original “loan” transaction ALWAYS indicates the potential for a third party claim against any one of the parties in the chain at a later time despite adjudication of rights between any two or three of them.

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Here is an article from one of our contributors

Welcome to Wall Street’s Masquerade Ball (every American was invited)

Securities Disguised as Residential Mortgages – and Why Short-Sales Don’t Work among Other Things

Let’s back into this so you can really understand why the reality of what has happened to nearly every American and every homeowner is so bad, the cause of most of our economic problems right now, and yes, most-likely fraudulent.

You lose your job, your job is outsourced to China, you are in a car accident, substantially injured, life happens,etc. All of a sudden, you can’t pay your monthly mortgage payment, along with other debts. You call the financial institution that you send your mortgage payments to. Oh, by the way, this institution is different than who actually lent you the money at closing – and this “servicer” of the loan has maybe changed twice or more since you closed on the loan.

So, you can’t make your payment. The “servicer” now starts calling you almost daily “harrassing” you to “pay up or else.” You indulge them in your perfectly legitimate and understandable situation and, yes, it falls on deaf ears. They tell you something like, “Miss, if you are having a hardship, we will mail you out a hardship package, please fill it out completely and include all the items requested and send back to us. We will see what we can do for you.

So you do just that, you spend about 3 hours of your precious time, diligently filling everything out and collecting all those “necessary” documents. You send it in. Hear nothing back for like 6 weeks. So you call, wait on hold for 40 minutes and finally get someone who barely speaks English… But it sure as hell is frustrating trying to communicate with someone who obviously doesn’t speak your language, not to mention that, in the back of your head, you wonder “how safe it is to be revealing your social security number and all sorts of sensitive, personal information to someone you’re sure is somewhere halfway around the globe and 10 hours ahead/behind us in time. Anyway, sorry for the rant again… back to the real story.

So, you finally get someone on the line and ask them if they received your fax of all the documents you most diligently put together and faxed to them at their request. You faxed everything in 6 weeks ago and haven’t heard a thing! The person politely tells you that for some reason, they have no record of receiving anything from you and “are you sure that you sent it to the right number?” – Now you’re head turns about 3 shades of red as your carotid artery starts to bulge and you consider popping a Nitro pill to stave off a sure-fire myocardial infarction. But that’s beside the point.

Anyway, back to the real story. So, you send it again, wait another 3 weeks, call again and, “MIRACLE!” They got it, thank God, now we can at least get a solution to our current challenges…right.  The foreigner on the other end politely tells you that it will be a few weeks before the “committee” can review it and come up with a decision on your “situation.” (You feel like telling them to go stick it but refrain since “good, polite Americans” don’t do that sort of thing). Son of a gun… I just went off on a quick rant again. Sorry.

Anyway, back to the real story. So, 4 weeks go by and you hear nothing. You think, “What the heck?” Does this company have their heads so far up their rear ends that they can’t even return a call and respond to my really dire “situation?” Then you remember that you were talking to some person who didn’t really care and by now, they might have taken your Social Security Number, borrowed another $100,000 (on your credit) to go shopping at their country’s version of Best Buy and they’re probably watching the CNN “Mortgage Meltdown” coverage on some 100 inch Big Screen Plasma on a brand new leather couch with a Universal Remote Control that even God would be jealous of. Shoot. Sorry for the rant right there.

Anyway, back to the real story… So, you call again, wait another 25 min. on hold and finally get someone on the line. You explain the whole nightmare and they tell you that “yes, we did receive your package and yes, it did come back from the committee, and “could you please wait for a supervisor?” – and yes, the wait on hold charade starts again… but I know, you can’t relate.

Anyway… supervisor comes on the phone like 10 minutes later and tells you that “unfortunately, there’s nothing we can do for you at this time. But if you’d like, you can go to our website and get the “I can’t make a friggin payment because I’m really out of a job” hardship form, fill it out and fax it in, we’ll see what we can do for you.”

Another rant and rave. Sorry. But really folks, this is the madness that everyday, hard-working AMERICANS are going through with their mortgage loans and the crazy lender/servicers can barely answer the phones much less speak intelligibly with a real solution or option!!!!

So, here’s the real story and WHY all those forms, short-sale efforts and all that work to modify your loan won’t do a bit of good. The company you’re calling is just the SERVICER! They don’t own your mortgage OR your note. They have no substantial right to do anything with the note/debt. The mortgage is still recorded in the name of the FIRST mortgage company that gave you the money at closing AND the note (the real evidence of the debt) was sold BEFORE you ever made a payment INTO a Securitization Trust which then SOLD that POOL of NOTES as a Security to 100’s or 1000’s of Investors ALL OVER THE COTTON-PICKIN’ WORLD.

So, the moral of the story is “THE SERVICER CAN’T MAKE A DECISION ON YOUR LOAN BECAUSE YOU REALLY GOT INTO A COMPLEX SECURITIZED INSTRUMENT SCHEME WHEN YOU SIGNED ALL THOSE CLOSING DOCUMENTS WHICH IS WHY THAT SAME DAMN SERVICER CAN’T APPROVE ANY REMEDY FOR ANY HARD-WORKING AMERICAN IN A REAL JAM!”

Want a little context to what I’m saying? Read below for some good ol’ fashioned 3rd party verification. Then, call me and we’ll try to help you a bit. I speak Indian, Chinese and Pig Latin by the way – just in case it’s needed to help you out on your loan.JK.

Mortgage Meltdown: Deficiency Judgments

Theoretically it is possible for any lender in a foreclosure to pursue what is called a “deficiency Judgment.” This is the amount they lost after selling the property to a third party. The amount they “lost” includes all their interest, penalties, legal fees, court costs, and other out of pocket expenses. 

Most mortgage lenders do not seek or obtain deficiency judgments on residential property. Generally speaking they are futile and uncollectible and the foreclosure is enough to put a big black mark on your credit history.

For one thing, they open themselves up to a night mare of counterclaims because of all the violations and breaches they committed during the closing process. For another reason, they would be digging themselves deeper into a hole they are already in — that they went for the sale and foreclosure without owning the mortgage and note and without proper authority to do as because in the rush to sell all these mortgages, most of the people didn’t know what they were doing or care. They just wanted the money that was rushing in. 

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