Forcing Modification on a Reluctant Servicer

DON’T FORGET THAT THERE IS A DIFFERENCE BETWEEN THE SERVICER WITH WHOM YOU ARE DEALING (THE SUBSERVICER) AND THE MASTER SERVICER WHO IS CALLING THE SHOTS ON BEHALF FOR THE INVESTMENT BANKER. DEMAND PROOF OF WHO IS HANDLING THE MODIFICATION, WHO IS ASSIGNED AND WHO THEY CONSULTED.

After interviewing Danielle Kelley on the issue of modification, there is a lot of red meat that can be used to bring relief to the homeowner and sanctions against the servicer that was negligently or intentionally avoiding its responsibilities under HAMP. Danielle points out that according to the DOJ judgment against BOA, there seems to be direct guidelines (which BOA has intentionally breached as a matter of policy) that under HAMP, the servicer is required to submit the proposal for underwriting prior to offering a trial payment plan. This would suggest something that is certain to be attractive to the Judge who neither wants to throw anyone out of their home nor let the borrower off the hook because there is a coffee stain on the documents.

It may be presumed that the servicer HAS submitted the plan for underwriting if they offer a trial modification. That means the borrower has been twice approved for the loan — first at origination and then under the trial modification. No more documents or financial statements, no more “consideration,” and no more denials based upon nothing. If the bank refuses, then the appropriate motion would be to enforce a settlement agreement — which is the way I would entitle it. And the argument would be that if the trial modification is not a gateway to permanent modification after underwriting twice the same borrower and after accepting trial payments, then what is it — a survey?

As we have already seen in a recent case litigated by Danielle Kelley the Judge didn’t buy the argument that the permanent modification is not automatic even if the borrower fulfills all requirements under the trial modification. remember, this borrower has already been qualified in the loan origination. Use that against the bank, saying that you approved them twice and now you want to deny them a modification after they have demonstrated the loan is viable by making the actual payments?

If the situation gets hairy then go into discovery and identify all the actual people who were involved, who they contacted, what computers they used, what software and what criteria they used in approving the trial modification. You will find they contacted nobody and did not actually underwrite the trial modification at all even though they were required to do so before the trial modification was offered by them. That’s their choice. If they want to approve trial modifications the same way they approved loans — without conforming to industry underwriting standards — they have made their election. They do not now have the excuse or basis for denying the permanent modification or demanding that the loan modification process begin all over again.

Once again we are confronted with a bank that doesn’t want the money, doesn’t want the loan reinstated, and who refuses to mitigate their damages, electing instead to push the borrower into foreclosure where both the investor/creditor (who probably knows nothing about the situation because they were never contacted, contrary to the condition precedent in HAMP and the DOJ judgment) and the borrower end up screwed.

This is only now coming out through whistle blowers. I have been predicting that this would be revealed for years and most people thought I was nuts. Maybe I am nuts but I am still right. The servicers and investment bankers have painted themselves into a corner. The truth is that none of them has any authority to negotiate the terms of the modification, nor to pursue foreclosure because not even they know if there is an actual balance left on the old loan receivable which has long since been converted into something else thanks to payment by a third party who expressly waived their right of substitution, subrogation or contribution against the borrower.

This is not theory — it is about the facts. Why would you take a document handed to you by the bank or attached to a pleading or recording be assumed by the attorney for the homeowner to be true and correct. We know it isn’t. So it is the lawyer’s job to probe through discovery down to see what transactions occurred, when they occurred and who were the parties to the transaction, as well as the terms of the transaction. Then the lawyer should compare the actual transactions, (shown by canceled checks, wire transfer receipts or other indicia of payment that can be corroborated through the national payments systems), with the documents proffered by the forecloser who is now pretending to modify when in fact they are steering the borrower into foreclosure, contrary to normal banking practice of maximizing the mitigation of damages such that the bank loses nothing or close to nothing. Listen to any seminar, as late as the last year, on foreclosure defaults and the seminar is all about workouts because that is the best answer for both the bank and the borrower. Now they would rather lose more money than less.  Why?

Workouts are the furthest thing from the bankers’ minds because the dirty secret they are hiding is that at all times they were dealing with investor money, much of which they stole. The assets on the balance sheet, the proceeds of insurance, CDS proceeds, and subservicer continuing payments after default (thus curing the default) all tell the story that has yet to be told in Court. Now with me practicing again with great lawyers like Danielle Kelley, William Gwaltney and Ian White, the story will be told.

BANKS ARE NOT MITIGATING LOSSES. THEY ARE AVOIDING LIABILITY TO INVESTORS, INSURERS AND THE GOVERNMENT

The only hope for the banks is getting a foreclosure sale that gives the further appearance that the reason the investor, the insurer, the credit default swap counter party, the U.S. Treasury and the Federal Reserve lost money was because of the vast number of defaults on mortgages. But even with the banks tricking and pushing borrowers into “default” [from a script written by BOA officers and lawyers — “you have to be 3 months behind in your payments before we can consider modification” — a criteria ABSENT from HAMP], the number of defaults and the amount the banks are reporting that investors lost don’t add up — and THAT is why you must be relentless in discovery..

The simple truth is that the banks that are dealing with the foreclosures and modifications stand to lose nothing if the loan results in a zero return to mitigate damages. They stand to lose everything if the loan is reinstated because of all that money they took from investors, insurers, CDS counterparties, the U.S. Treasury, and the Federal Reserve. BOA would not have made it a policy to lie, cheat and deceive borrowers until they ended up in foreclosure unless it was in their interest to do so. What reason would that be other than the one postulated by this paragraph?

“Servicer shall promptly send a final modification agreement to borrowers who have enrolled in a trial period plan under current HAMP guidelines (or fully underwritten proprietary modification programs with a trial payment period) and who have made the required number of timely trial period payments, where the modification is underwritten prior to the trial period and has received any necessary investor, guarantor or insurer approvals. The borrower shall then be converted by Servicer to a permanent modification upon execution of the final modification documents, consistent with applicable program guidelines, absent evidence of fraud.” -HAMP

Buying U.S. Foreclosures: A Risky Business

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14 Things Every Canadian Buyer Should Know Before                              Taking the Plunge

Editor’s Comment:  

Canadians and other foreign investors are joining with U.S. investors in buying distressed residential real estate in the U.S. Practically by definition they have no idea about the risks they are taking. They are taking the “knowledge” from 15 years ago and applying it to a market that does not even remotely resemble the old market.

Canada weathered the storm caused by Wall Street antics by simply not playing. Canadian banks saw inherent risks and moral hazards that they wanted no part in playing. While the rest of the world laughed at Canada’s stuffiness, the banks, and its depositors are just fine thank you, although their economy is taking a hit due to a decline in demand for exports. So Canadians with Canadian money that is not debased are coming to America in droves to take advantage of the “oversold” prices of housing. They are buying these properties in droves and unwittingly making themselves part of a corrupt marketplace in which they could lose their money, their title, their property and their right to possession of that property because they bought it from someone who didn’t own it or because they assumed that the old mortgage had been paid off and properly satisfied. This article explains why investors show exercise great care to preserve the value and existence their investments.

1. With the Massachusetts Supreme Court having decided that foreclosure is only valid if the would-be forecloser owns both the note and the mortgage — a black letter law concept that has been in existence since before the American Revolution — the questions are evolving from issues relating to wrongful foreclosures to “what do we do about it, now that we know the foreclosures did not meet the basic elements of a foreclosure action under any analysis?”

2. Some decisions, like Hogan in Arizona appear to create a debatable issue. But read closely, the decision stands for the proposition that it is not necessary to possess the note in order to give the instruction to the Trustee on Deed of Trust to issue a Notice of Default and/or a Notice of sale. It does not state that anyone without proper credentials can present themselves as the creditor. So the auction, if it occurs, is strictly limited to cash bids, since the creditor has neither stepped forward nor made a claim as to the amounts due.

3. In a prescient note, the Hogan court simply states that the borrower neither denied the debt nor the security instrument or the note. If they do so, then the game is on, and the banks and servicers are “out of the money.” They are not creditors, they have only the most tenuous argument to present themselves as sub-servicers, and they have no authority to speak for the Master servicer or the investors from whom money was taken under false pretenses.

4. It is now apparent that this has not escaped attorneys or judges. If there is a denial of the obligation, note, mortgage (Deed of Trust), plus a denial of the default and the amount claimed as due from a party whom the borrower denies is the creditor, the case must move forward into discovery. A motion for summary judgment by the banks and sub-servicers will be routinely denied if it is met with an affidavit from the homeowner or borrower that contains these denials.  Now that borrowers and even homeowners who have already lost their property in foreclosure and eviction are overturning foreclosures, regaining title and possession of the property, the “new” buyer is left with only a claim for money from their title carrier and a potential claim against the bank or servicer that “sold” them the property.

5. The title companies have already decided this point. They will and they’re routinely writing exceptions into the title policy that actually puts the liability for indemnification on the buyer rather than the title company, if the claim arises out of illegal origination or illegal foreclosures.

6. The Bank will fight the Buyer on the warranty deed recitals until the investor gives up. But the main point, is that investment is US distressed property is buying a lawsuit UNLESS you file a quiet title action and it sticks. Remember, you are giving notice to John Does 1-10,000 through publication who probably don’t read your local paper that publishes legal notices.

7. These investor lenders have a legitimate beef. They gave up money and signed papers that assured them they were getting good loans within 90 days of the transaction in which the investor advanced the money to the investment banker. What they are getting is bad loans pitched over the fence years after the transaction.  In the foreclosures, especially the non-judicial foreclosures, there is no need or opportunity to give notice to the investors that this loan is NOW claimed to be part of the pool they think they own.

8. The investors now have a good reason to enter the picture and assert that they don’t want this bad loan, they didn’t buy it and it wasn’t transferred into the “pool” within 90 days of the investor’s closing with the investment banker. Thus they can argue without any real defense from the banks that the assignments are mere offers that the pools neither accepted nor could accept under the terms of the prospectus and pooling and servicing agreement. But whether they make the claim or simply COULD make the claim, that is the essence of clouded title. And that is how you end up in a lawsuit you never imagined.

9. Add to that the assignment was fabricated, forged and fraudulently presented without any financial transaction backing it up, and the investor wins hands down.

10. Realtors are no help on this since all they want is property moving thus producing commissions. They like to point out that the deed in a short-sale is much better because it is the homeowner who actually signs the deed. And that is true. what they ignore is that the payoff of the old mortgage was taken by a stranger to the transaction who accepted the money and then issued an authorized release and satisfaction of the old mortgage lien when the buyer closes.

11. The banks and sub-services are starting up their own title companies or entering into confidential agreements with the title companies that incidentally were part owners of Mortgage Electronic Registration Systems, Inc (MERS) or the JPM entity they ran for a while when they saw the hand writing on the wall for MERS. But they are only creating the appearance of insurance protection with no intention of honoring the claim or fixing the title problem they reported to the buyer wasn’t there. Now the ttile companies say their title report is only a worksheet and you have no right to rely on it. There are about ten thousands cases in precedent that disagree with this ridiculous assertion.

12. The bottom line is that a buyer who does not negotiate the right provisions in the title policy (it CAN be done) is going to go through (1) euphoria about how brilliant he is to have picked up such a bargain (2) no title and/or (3) two or more mortgages that still encumber the property despite the supposed payoff and recording of release and satisfaction.

13. The final coup de grace is that the buyers who fail to heed these warnings wil find themselves bankrupt when it comes down to selling or refinancing the property or when they find themselves defending  a lawsuit from a former homeowner demanding that the foreclosure be overturned and possession restored. There are thousands of these cases and within the next 2 years there will be tens of thousands of these cases. Your title company is not likely to defend you unless you negotiate that and other terms into the your title policy.

14. BOTTOM LINE: Don’t close without an experienced real property attorney and if he or she is dismissive of these claims then they are just as ignorant as you are.  Move on to an attorney who does understand negotiation of the terms of deed and title policy and leave the paper pushers in the dust. If you want more help, write to me at neil@livingliesblog.com.

It was the absence of information that caused virtually everyone to misread the risks that were inherent in the mortgage meltdown period during which prices were artificially inflated.  The same absence of information is leading Canadians to misinterpret the market and assume risks that are not apparent to them.  It is only through competent professionals that they should complete any real estate transaction in the United States.  In this case competence includes special knowledge of the securitization of mortgages, the current status of corruption in our title system, and the ultimate risk of losing the entirety of their investment, the title they thought they had, and the right to possession of property which they thought had been properly purchased and protected with a title insurance policy.  Canadians would be unwise to accept the assertions of title companies who produce title reports and commitments for title insurance that merely perpetuate the corruption of title in America.  These same entities actually have ownership interests in the private system of recording established by the banks.  Virtually everyone in the marketplace has a conflict of interest that may ultimately dash the hopes on investors and potentially remove their nest egg meant for retirement.

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