Articles Posted in Foreclosure

Probably one of the most frequent problems I encounter with new cases clients bring to my office is the lack of documentary evidence.

No one bothers to put down in writing that agreement with the brother-in-law or “friend” about the business they were starting together, the house one was going to buy (by signing on the mortgage) and which the other was going to “own” (by going on the title) and paying the mortgage, the investment they were going to make together, or any other manner of legal arrangements.

Then, when things “go south” and the “owner” does not pay the mortgage or the business fails (or even prospers, in which case you will see fights over profits), the differences in each person’s understanding of what was agreed becomes painfully obvious.

But what’s worse is that the prospective client has nothing in writing to back up his side of the story. It becomes a “he said / she said” dispute hard to win in court. Convincing a judge or jury of the rightness of your position is now just a coin flip.

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A blog post here last month discussed the growing wave of lawsuits by lenders for the balance of mortgage loans left over from foreclosures (and in some cases short sales), known legally as lawsuits for the recovery of “deficiencies.”

As discussed, in most foreclosures the lender bids only a part of his loan to win the collateral (the house) at the auction. In most jurisdictions, including Virginia, Maryland and the District of Columbia, the balance will still be owing and the lender has a right to sue the signer of the mortgage for that balance, and many are beginning to do just that.

So you had a foreclosure on your house a few years ago. How do you know if there is still a balance owing and whether you may be facing a lawsuit? The bad news is, unless the value of the house was more than the loan, you are probably owing something, since lenders will only bid a part of the loan, especially if the house is devalued, and that is the case for houses bought during the peak of the market, around 2007, before the crash.

It’s just another kick in the teeth. After losing homes in foreclosure a few years ago, borrowers may be getting another big surprise soon as mortgage lenders are now gearing up to file lawsuits against homeowners for the balance of the mortgage.

A Washington Post article this past weekend highlighted the rise in so-called mortgage “deficiency” court actions.

Many homeowners who were foreclosed upon don’t know it, but most still owe money to the mortgage lender.

I had to smile when I read the news that the banks were now lobbying to keep former Harvard bankruptcy professor and Senator-elect Elizabeth Warren from getting appointed to the Senate banking committee.

Lobbying is not cheap. It runs into the millions of dollars for a campaign. And, like most good businesspersons, I am sure the banks did some cost-benefit analysis in making this decision.

This action by the financial industry must mean they see a big threat to profits. And consequently, since bank profits and consumer losses are a zero-sum game, it also means her appointment to the committee could mean a big financial win for consumers. Granted, one person alone will not do it all, but the banks perceive she could have a significant effect on the outcome.

Richmond, VA-based Suntrust Mortgage will pay out $21 million to more than 20,000 African-American and Hispanic home loan borrowers to settle a federal government suit charging discriminatory mortgage pricing from 2005 to 2009. The lawsuit charged Suntrust with violating the Fair Housing Act and Equal Credit Opportunity Act.

This settlement comes on the heels of a settlement last December by Countrywide Financial Corp. and subsidiaries for $335 million for similar loans made between 2004 and 2008. Currently under investigation by the Department of Justice is Wells Fargo & Co.

“At the core (of the suit) is a simple story: If you are African-American or Latino, you likely paid more for a SunTrust loan than equally or similarly qualified white borrowers,” Thomas E. Perez, assistant U.S. attorney general for the civil rights division, told the Richmond Times-Dispatch in a May 31, 2011conference call. “You paid what amounted to a racial surtax,” ranging from hundreds to thousands of dollars per borrower,” he told the newspaper.

Homeowners in DC, VA and MD seeking loan modifications to save the family home may see improvements in the currently messy process if a group of state attorney generals and federal officials are successful in on-going settlement talks with major US banks.

“What we’re really trying to do is change a dysfunctional system,” Iowa Attorney General Tom Miller, the point man for a 50-state effort, told the Washington Post in a March news article. “We really want to try and change all that.”

Homeowners who have asked mortgage lenders (or more specifically, the mortgage servicing department of banks who administer the loans on behalf of bond investors) know very well the many and outrageous modification abuses including:

It feels like another kick in the teeth: You lose a home or rental property in a foreclosure or short sale, get a Form 1099-C from the mortgage company, and now you have to pay income taxes on it, too? Like a lot of things in the law, it depends.

It’s a curious, but absolutely-settled principle of tax law, that a debt that is forgiven by a lender becomes taxable income to the borrower. Basically the accounting works like this: When you took out the loan it’s not considered income because you have an obligation to pay it back. When, however, that obligation is removed, you become richer by the amount of debt that you will not have to pay, and the tax law says that must be recognized and you must pay income taxes on it.

Unfair, you may say, but it’s the law. In late 2007, federal lawmakers decided to give SOME relief to taxpayers losing personal residences and changed the law so that the resulting income could be excluded from income tax, if the forgiveness (also known as “cancellation in indebtedness” and

Last Friday, the attorney generals of Arizona and Nevada filed suit against Bank of America alleging state consumer fraud violations for a practice that’s come to be known as “dual tracking” — bank employees are telling homeowners seeking modifications to make a reduced payment while the “modification is pending.”

All the while, the lender is still holding the homeowner in breach of the contract and taking payments until such time as it decides to go ahead and foreclosure. It’s a slimy tactic. If the homeowner knew they were getting nothing for the deal it would have been better to save the money and short sell or surrender the property in bankruptcy.

This bankruptcy law firm has seen a number of similar cases during the past year with homeowners in Maryland, Virginia and DC. We have written about this abuse against homeowners in another posting on this blog.

Fannie Mae and Freddie Mac have complete power to address a large part of the national foreclosure problem by demanding that the mortgage servicers and law firms they hire to execute foreclosures do so correctly and fairly.

At this foreclosure defense law firm, we see a large number of the same abuses discussed at the December 1, 2010, Senate Banking Committee hearing in our Maryland, Virginia and DC cases.

Among the worst abuses, the practice of putting homeowners in a dual-track:

Fannie Mae and Freddie Mac, government-backed businesses who together own or guarantee about half of the outstanding mortgages in the country, were in Washington, DC last week defending themselves before a Senate committee looking into abusive – and in some cases illegal – foreclosure practices that have come to light in recent months.

The excuses voiced by the company’s top officials would be out-and-out laughable, if the consequences of the attitudes they demonstrate weren’t so tragic. The arguments Fannie and Freddie made indicate just how clueless they are to what is actually going on but is well-known by homeowners with mortgage problems and the advocates who defend them. Here’s an excerpt from a Washington Post article which drew from testimony prepared for the Wednesday, December 1, 2010, hearing :

Speaking to the Senate Banking Committee at a hearing on the national foreclosure debacle, Fannie and Freddie executives emphasized that they are not responsible for managing payments by borrowers on home loans or foreclosing on homeowners when they default.

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