Articles Posted in Loan Modification

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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Admitting it was a “bad boy” handling mortgages in bankruptcy, Chase recently entered a settlement with the federal government to compensate more than 25,000 US homeowners. The settlement is subject to court approval.

The United States Trustee Program, a unit of the Department of Justice whose attorneys at the bankruptcy court oversee the integrity of the system, announced on March 3 it had reached an agreement with Chase forcing it to pay homeowners $50 million in cash, mortgage loan credits and loan forgiveness for “robo-signing” and other improper practices before the bankruptcy court. Chase also agreed to change internal operations and submit to the oversight of an independent compliance reviewer.

Chase admitted it submitted more than 50,000 mortgage “payment change notices” that were signed by persons who had no knowledge of the accuracy of the notices they signed:

  • More than 25,000 of the notices were signed by employees or former employees who had nothing to do with reviewing the accuracy of the notices.
  • The rest of the notices were signed by employees of third party vendors who also were not involved in verifying the accuracy.

Chase also admitted it failed to file the notices in a timely fashion, as well as failing to provide timely escrow statements to homeowners in bankruptcy.

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It happened again this week. The client comes into the consultation smiling broadly. He just needs help with a loan modification, he argues. He doesn’t have any other debts. “Look,” he says, pointing at his credit report, “it’s been charged off!”

Sorry, that’s not what it means. A “charge off” is an accounting entry by the lender declaring that the debt is uncollectible, a determination that helps the lender deduct it as a loss against his taxes.

The “charged-off” account is still a live debt of the borrower until such time as the statute of limitations runs out and that can vary from three to seven years and depends also on the type of debt. In this area — Maryland, Virginia and the District of Columbia — you will need to check the law in the jurisdiction in which you reside.

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:

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.

As a bankruptcy attorney serving homeowners facing mortgage problems in DC, Virginia and Maryland, I try to stay abreast of trends reading the columns of national economists and financial writers.

Financial columnist Ezra Kein’s essay “Digging into finance’s pay dirt” of Sunday, July 25, 2010 points up the seamier side of finance in America – predatory lending to the poor. Klein bases his commentary in part upon reporting by Gary Rivlin in his book “Broke, USA.” Klein writes:

But before they [the working poor] were Wall Street grist [for subprime mortgage lending by mainstream banks], the working poor were good business.

“To me, it was so counterintuitive,” Rivlin says. “People with no money in their pockets are good for business?” But they were profitable. And fringe finance bloomed. By 1996, there were more payday lenders than all the McDonald’s and Burger Kings in the land combined.

It was also a different sort of business. Unlike traditional banking, it wasn’t about finding good credit risks who could repay their loans promptly. Quite the opposite, actually. The central insight was that you wanted people who couldn’t quite stay ahead of the loan. Then you could hit them with late fees and try to get them to refinance with more fees and catches, and generally bleed them and bleed them and bleed them.

Reading the column it struck me that the worst of the economic crisis may have passed, but predation still continues. It has not stopped. It’s going on today, as we speak. Our bankruptcy law firm specializes in helping homeowners in DC, MD and VA, and we’re seeing it in how lenders deal with homeowners seeking modifications.
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1282174_grey_split_foyer_wslab_rock_trim.jpgThis is the advice self-declared mortgage modification “experts” (and even some mortgage servicer employees) are giving desperate homeowners seeking loan modifications, according to clients coming into my office. As a MD bankruptcy attorney, I’ve met clients say they have been told this is the way you get the attention of the banks to get the modification they want (as opposed to merely detailing the hardship in the application statement).

Possibly missing mortgage payments does underscore the financial hardship showing that is a necessary requirement of a loan modification, but it also a high risk strategy: Once you start falling behind on mortgage payments, the lender has the right to declare an “acceleration” of the loan – the whole balance of the loan becomes due and payable immediately.

Then, once the loan is “accelerated,” the lender is not obligated to accept your payments or even to accept your payment of the full amount of the arrears. Often lenders will return any payments to the homeowner with a letter noting that it is not enough to pay off the full balance of the loan. After “acceleration” and a failure by the homeowner to pay off the full loan, foreclosure is the lender’s next step.

Welcome! Today is Inauguration Day for the nation. This also happens to be the inaugural post for this blog. And like the new president’s inaugural address, this is an opportunity for this author to lay out what he intends to do with this blog.

For the past three years, this bankruptcy and foreclosure defense law firm has been seen first-hand the financial storm that has wracked the country, from our vantage-point helping persons in financial distress in Virginia, Maryland and the District of Columbia. Starting in 2005, we saw a spike in the number of clients coming into the office with housing-related debt problems. That was at the height of the easy-mortgage boom and frankly it was shocking to see the type of predatory lending being done — housekeepers or laborers who were put into homes they could never really afford. The real estate and loan brokers took fees at the table, and the borrower exhausted his or her personal savings and defaulted after one or two payments.

Next up were the sub-prime mortgage re-sets in 2006 and 2007 — borrowers who had gotten mortgages with very low interest-only or negative amortization loans that had re-set and spiked to monthly payments beyond what they could afford. In those years, the market had started to level off and drop, so now refinancing and sale became impossible unless the homeowner could bring thousands of dollars to the table. (Compounding the problem were typical prepayment penalty clauses making refinance even more expensive.)

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