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.)
In 2007, with major banks failing and foreclosures spreading nationwide, the first loan modification programs were announced by the lenders and the government. There was a lot of fanfare and publicity, but — as we all know now — they have not worked and the problem is as grave as ever. One of the main problems has been that ALL the mortgage modification programs to date have been completely voluntary on the part of lenders. It’s clear they have not performed as advertised — foreclosures are still high, the housing inventory is climbing, and home values are still dropping, particularly in the suburbs further out from Washington, DC.
Solutions to address the situation have also evolved. In the beginning, little could be done except put the homeowners in Chapter 7, stop the foreclosure to give them extra time in the home before surrendering, while getting rid of personal liability on the debt. Other tactics have included suing the lenders, where applicable, under predatory lending law (Truth In Lending, Real Estate Settlement Procedures Act, fraud, etc.) and enjoining the foreclosure, although this is cumbersome and expensive, and there is no guarantee the client could afford the loan after it was done. Some attorneys have been able to tie up foreclosures by challenging the lender’s legal standing, particularly when the loan has been converted to a bond for investors and has been sold and re-sold so many times the documentation is incomplete. Realtors have touted the “short sale,” but again, since they require the lender’s voluntary approval, it is not as successful as it is made to appear. (Estimates are that only 3-5% get to closing.) More voluntary modifications are taking place, but almost all are temporary and do not involve principal reductions.
As the new administration comes into office, hopes are high that we may see real change when it comes to government steps to address the foreclosure crisis. Among the measures under consideration is a bill to force modifications on lenders in Chapter 13 bankruptcy. Let’s hope. Keep an eye on this blog as we track the evolving solutions and comment on them to help home owners save the dream they have.