“Get three months behind and you’ll get a modification”: The Big Lie That Servicers and Banks are Still Using

The bottom line is that millions of people have been told that line and most of them stopped paying for three months because of it. It was perfectly reasonable for them to believe that they had just been told by the creditor that they must stop paying if they want relief. Judges have heard this repeatedly from homeowners. So what is the real reason such obvious bank behavior is overlooked?

More to the point — what choice does the homeowner have other than believing what they just heard from an apparently authorized service representative?

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THE FOLLOWING ARTICLE IS NOT A LEGAL OPINION UPON WHICH YOU CAN RELY IN ANY INDIVIDUAL CASE. HIRE A LAWYER.

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In the course of the last ten years I have personally interviewed homeowners, reviewed the documents and or received reports from homeowners that were duped into going to default by that famous line: “You must be three months behind.” It is patently true that every homeowner who had that conversation believed that they were being told to stop making payments. No, it didn’t make any sense; but it also was beyond comprehension that the servicers were in fact aiming at foreclosure instead of workouts that would have preserved the value of the alleged loan, and mitigated the rush into the worst recession seen in modern times.

On cross examination the point is always made that the “representative” did not use the words “Stop paying.” And thus the point is made that the announcement that a three month delinquency was necessary for a modification was simply that: just information. Yet the behavior of millions of homeowners shows that virtually every one of them believed they were told to stop paying in “code” language. If that is not reasonable reliance, I don’t know what is.

However there is much bigger point. The three month announcement was (a) false and (b) an intentional policy to lure people into default and foreclosure. It has been previously reported here and elsewhere that an officer at Bank of America said point blank to his employees “We are in the foreclosure business, not the modification business.”

The legal point here is (a) unclean hands and (b) estoppel. In most cases homeowners ended up withholding three months worth of payments, as they reasonably believed they had been instructed to do, many times faithfully paying on a three month trial or “forbearance” plan, and sometimes even paying for many months beyond the “trial” period, or even years. Then suddenly the servicer/bank stops accepting payments and won’t respond to calls and letters from the homeowners asking what is going on.

Then they get a notice of default, a notice of their right to reinstate if they pay a certain sum (which is most often miscalculated) and then they get served with a foreclosure notice. The entire plan was aimed at foreclosure. And now, thanks to recent court doctrine, homeowners are stuck with intensely complicated instruments and behavior, only to find out that despite all law to the contrary, “caveat emptor” (Let the buyer beware).

The trick has always been to make the non-payment period as long as possible so that (1) reinstatement is impossible for the homeowner and (2) to increase the value of servicer advances. Each month the homeowner does not make a payment the value of fraudulent claims for “servicer advances” goes up. And THAT is the reason why you see cases going on for 10 years and more. every month you miss a payment, the Master Servicer increases its claims on the final proceeds of liquidation of the home.

In the banking world it is axiomatic that a loan “in distress” should be worked out with the borrower because that will be the most likely way to preserve the value of the loan. In every professional seminar I ever attended relating to residential and commercial loans the main part of the seminar was devoted to workouts, modification or settlement. We have had literally millions of such opportunities in which people were instead either lured into default or unjustly and fraudulently induced to drop their request for modification or to go into a “default” period that they thought was merely a waiting period before the modification was complete.

The result: asset values tanked: the alleged loan, the alleged MBS, and the value of the subject property was crushed by servicers looking out for their real boss — the Master Servicer and operating completely against the interests of the investors who are completely ignorant of what is really going on. Don’t kid yourself — US Bank and other alleged Trustees of REMIC Trusts have not taken a single action as Trustee ever and the REMIC Trust never existed, never was an active business (even during the 90 day period allowed), and the “Trust” was never administered by any Trust department of any of the banks who are claimed to be Trustees of the “REMIC Trust”. Both the Trust and the Trustee are window dressing as part of a larger illusion.

My opinion as a former investment banker, is that this is all about money. The “three month” announcement was meant to steer the homeowner from a HAMP modification, which was routinely “rejected by investor” (when no contact was ever made with the investor). This enabled the banks to “capture” (i.e., steal) the alleged loan using one of two means: (1) an “in-house” modification that in reality made the servicer the creditor instead of the investor whose money was actually in the deal and/or (2) a foreclosure and sale in which the servicer picked up all or nearly all of the proceeds by “recovery” of nonexistent servicer advances.

It isn’t that the investors did not receive money under the label of “servicer advances.” It is that the money investors received were neither advances nor were they paid by the servicer (same as the origination or acquisition of the loan which is “presumed” based upon fabricated, forged, robo-signed documents). There is no speculation required as to where the money came from or who had access to it. The prospectus and PSA combined make it quite clear that the investors can receive their own money back in satisfaction of the nonexistent obligation from a nonexistent REMIC Trust that issued worthless and fraudulent MBS but never was in business, nor was it ever intended to be in business.

Servicer advances can only be “recovered” when the property is liquidated. There is no right of recovery against the investors. But the nasty truth is that there is no right of “recovery” of servicer advances anyway because there is nothing to recover. By labeling money paid from a pool of investor money as “servicer advances” we again have the creation of an illusion. They make it look like the Master Servicer is advancing money when all they are doing is exercising control over the investors’ money.

Thus the three month announcement is a win win for the Master Servicer — either they convert the loan from being subject to claims by investors to an “in-house” loan, or they take the full value of the alleged loan and reduce it to zero by making false claims for recovery — but only if there is a foreclosure sale. Either way the investor gets screwed and so does the homeowner both of whom were pawns and victims in an epic fraud.

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