Distressed Homeowners' Bill of Rights

Having counseled approximately two hundred Oregon homeowners drowning in negative equity, I have discovered that many, if not most, believe that somehow their lenders can literally swoop down and take not only their home, but all of their bank accounts, savings, retirement funds, and/or daily wages. In truth, the only real power most banks have over a borrower, is the ability to negatively impact their credit, and by extension, their future ability to borrow. On the other hand, one’s credit is a composite of many different data points, not simply a single “black mark” from one distressed property event. To that extent, a credit rating can be strengthened over time, and like a muscle, it builds up through consistent and prudent use over time. In today’s rental marketplace (which is populated by many former homeowners coming out of a distressed property transaction), a credit score impacted by a single distressed housing event has little or no bearing on whether a landlord will rent a home or apartment to them. In an effort to provide some peace of mind, listed below are certain “rights” that all home owners have under Oregon law. These rights cannot be taken away – they can only be voluntarily given away.

The following Bill of Rights assumes the following facts: (a) The home was used and occupied as a principal residence. A “principal residence” or “primary residence” in my vernacular, is the residence you occupy most of the time, and hold out to the city, state and federal governments (e.g. the post office, DMV, utility companies, etc.) as your “home.” A second home is not, by definition, a “primary residence.” (b) There is only one loan on the property and all of the borrowed funds were used to acquire the home. Second trust deeds can sometimes be problematic. If you have a second trust deed as well as a first, all is not lost – it just requires a little more planning, and some smart negotiations with the bank.

Caveat: This summary is not meant to be legal advice, as each person’s factual situation is different. No attorney-client relationship is sought or created by this post.– PCQ

Continue reading “Distressed Homeowners’ Bill of Rights”

In common parlance today, a “default” denotes either nonperformance – or inadequate performance – that falls short of a written rule, guideline, or criterion. It is not something that, by itself, can be judged or evaluated absent the presence of a measuring stick. While a breach of contract is an objective characterization of someone’s failure to perform according to the terms of a legally binding agreement, a breach of ethics, is a subjective characterization of someone’s failure to perform according to the terms of the holder’s belief system.

However, what the lending industry has successfully done is to mix the objective nature of “default,” say under the terms of one’s mortgage, with the subjective inference that the breach is equivalent to a moral failing. Hence, the term “strategic default,” used by Big Banks to stigmatize the folks who don’t perform in accordance with the terms of the note and mortgage or trust deed they signed. [Admittedly, there are those who have no affiliation with the lending industry who are also guilty of this pejorative characterization. Yet, I can forgive most of them, since they’ve never “walked a mile in the other persons’ shoes.” Accordingly, their opinion is the result of unconscious ignorance – not conscious conflation. – PCQ]

So, the purpose of this post is to put the term “default” back where it belongs. In other words, to remove the judgmental conclusion that defaulting under one’s mortgage or trust deed is a morally reprehensible act. Continue reading “In Defense of Borrower Default”

Have Big Banks Become Deer in the Headlights?

“…any assignments of the beneficial interest must be recorded in order for a non-judicial foreclosure to comply with the Oregon Trust Deed Act. The defendant [borrower] presented evidence in Exhibit 104 that by December 4, 2009, and apparently through December 11, 2010, Freddie Mac was the owner of the mortgage and therefore the holder of the beneficial interest in the property. No evidence that this transfer of the beneficial interest was ever recorded was presented by plaintiff [bank], so I am concluding that the recording never occurred.” Honorable Jenefer Stenzel Grant, Circuit Court Judge, Columbia County, Oregon. [Memorandum Opinion, June 23, 2011. Parentheticals mine. PCQ]

Once again, the best and brightest minds in the banking, servicing, and title industries are on yet another conference call, as they continue to hear the distant drumbeat of defeat. In addition, we are joined by Belial’s version of cub reporter Jimmy Olson, honest but naïve, legal intern, Les Guile. The title industry is represented by Liz Pendens, whose has had previous contentious exchanges with Dee Faulting, the feisty representative of the default servicing industry. Damian Faust, Belial’s lead counsel and hatchet man, and its chief schemer and PR man, Kenneth Y. Slick III (aka “K.Y.”) have joined the conversation, as well. Lucy Furr, B.L. Zebub’s loyal secretary, has dutifully transcribed the conversation, presumably scrubbing it for any admissions that might result in a perp walk like Lee Farkas. Regretfully, I cannot reveal how this purloined post has fallen into my hands. – PCQ

B.L. Zebub: “Well gang, it’s certainly been an eventful few months, hasn’t it? Visitors 10, Home Team, zip. I’ve hastily called this phone conference to see if we can’t figure out what’s happening to our industry, and how we can turn things around. I want solid contributions from each of you. No handwringing Liz, and no bickering, Dee. I’m tired of the blame game. Les, if you have a question or two, go ahead and ask. We want to make sure your internship is a memorable one. KY, let’s start with you – and by the way, I enjoyed that “confidential” interview you gave that ended up on the Internet, with not one single redaction. You sounded pretty full of yourself – what were you thinking when you let yourself be interviewed without first having that reporter take a TSA-style enhanced body search by our security team? That hidden tape recorder was your undoing.”

K.Y. Slick: “B.L., believe me, that will never happen again. That “reporter” was the most gorgeous gal I’ve ever seen. She was a perfect ‘10’. I took her at her word when she whispered that I was the most fascinating and mysterious banking exec she’d ever met. Of course, it didn’t help that we’d had a couple of shots of Devil’s Springs Vodka at Lucifer’s Lounge before the interview. Anyway, back to business. My take on this mess, B.L., is that we’re getting pilloried by the press. It seems that whenever there’s a win for the little guy, the press picks it up and splashes it across the front page; but when we are successful in kicking another family out of their home, no one seems to notice. I just don’t get it. My thought is that we should jump-start our PR machine; get them out into the street. Have them follow the U-Haul trailers around town to see if another family has lost their home to a successful foreclosure. Hang out at the courthouses and talk to some of the foreclosure mill attorneys. Find out which cases look promising, and then stand ready near the courtroom when the judge evicts the borrowers from their home. These are human interest stories too – just the other side of the mirror. The press is sure to pick them up. And remember, “Any ink is good ink.” Continue reading “Triage Time At Belial Bank – U.S. Bank vs. Flynn”

Snidely Whiplash, Arch Villain, Rocky & Bullwinkle Cartoon

This post follows on the heels of my discussion of Oregon’s Foreclosure problems, here. At this time, we know two things: (a) The lenders and servicers cannot change our trust deed foreclosure law to accommodate their foreclosure practice; and (b) In fact, they likely don’t have the necessary paperwork to record even if they wanted to comply.

Here are their choices:

Continue to ignore ORS 86.735(1), the successive recording law they sought to repeal, and record only one assignment [which usually issues from a sham corporate officer on behalf of MERS or the originating lender – PCQ]. But even if you’re a Big Bank, it’s pretty hard to ignore two federal judges who have already said that the resulting foreclosure would be invalid. Moreover, as pointed out in my earlier post on the marketability issue, the title companies are now balking at insuring title for the banks’ REO sales if the underlying foreclosure failed to comply with Oregon’s law.
But let’s look at what would happen today if lenders actually continued doing their foreclosures illegally in Oregon? Probably what is going on right now, i.e. a fear that the deeds out from the lenders to good faith buyers who pay fair consideration without knowledge of the problem. [These people are known as “Bona Fide Purchasers” or ”BFPs.” Normally the law gives them great protection. However, it questionable whether BFP protection can trump a void sale. – PCQ] So how will the banks deal with the risk that a couple of years down the road, a former foreclosed borrower might come back and assert ownership to the property due to an invalid foreclosure? Here are some suggestions for the Big Banks to consider: Continue reading “Solutions to the Foreclosure Mess in Oregon”

From the same court that brought us U.S. Bank Association, Trustee v. Ibanez, earlier this year, it now appears we will soon hear from the Massachusetts Supreme Judicial Court again. This time the issue deals with what happens to title after a bank completes a procedurally improper foreclosure.

Ibanez ruled that a foreclosure by U.S. Bank was invalid because at the time of the foreclosure it did not actually own the mortgage foreclosed upon. Thus, the Ibanez ruling set up the next logical issue for the court: If the bank conducts an invalid foreclosure, can it then “launder the title” by transferring it to a “bona fide purchaser” and thereby give that buyer better title than the bank received?

The Massachusetts case of Bevilacqua v. Rodriguez raises this very question. In that case, following its invalid foreclosure, the bank sold the property to Francis Bevilacqua, a developer, who then built four condominium units on it. In an effort to establish clear title, he then sued the prior owner who had been foreclosed. The owner did not appear and defend in the case. Nevertheless, the Massachusetts Land Court, in 2010, per Judge Keith C. Long [yes, the Ibanez trial judge. – PCQ], held that Mr. Bevilacqua’s effort to use the state’s quiet title statute “…most often used when there is a genuine dispute as to which competing title chain (each with a plausible basis)….” was without merit since Mr. Bevilacqua had “…no plausible claim — just a deed on record derived solely from an invalid foreclosure sale….”

Putting a finer point to this conclusion, Judge Long elaborated as follows:

The first reason it has no merit is the most obvious. By its express terms, G.L. c. 240, § 1 et seq. [Massachusetts’ “try title” statute – PCQ] only applies “if the record title of land is clouded by an adverse claim.” G.L. c. 240, § 1 (emphasis added). Here, there is no cloud, and certainly none that would give Mr. Bevilacqua standing to assert it. A cloud is not created simply on someone’s say so. There must be, at the least, a plausible claim to title by the G.L. c. 240, § 1 plaintiff. See Daley v. Daley, 300 Mass. 17 , 21 (1938) (“[a] petition to remove a cloud from the title to land affected cannot be maintained unless both actual possession and the legal title are united in the petitioner”) (emphasis added). Otherwise, in the classic example, a litigant could go to the registry, record a deed to the Brooklyn Bridge, commence suit, hope that the true owners either ignored the suit or (as here, discussed more fully below) could not readily be located and be defaulted, and secure a judgment. As shown on the face of his complaint, Mr. Bevilacqua has no plausible claim to title since it derives, and derives exclusively, from an invalid foreclosure sale. Continue reading “Mr. Bevilacqua and the “Brooklyn Bridge Problem””

The opinions expressed below are mine alone and do not necessarily reflect the opinions of PMAR, its officers, directors, employees or members. If anyone should feel that any statements of fact are incorrect, you are invited to discuss with me. – PCQ

Oregon’s Trust Deed Foreclosure Law. It is widely known that during the credit/housing boom, lenders frequently sold their loans between one another. When the ownership of a loan is transferred, it is necessary to execute, in recordable form, an “Assignment of Trust Deed.” ORS 86.735(1) governs what must occur before a trust deed may be foreclosed in Oregon; all such assignments must be placed on the public record. This is not a new law and it is not significantly different from the laws of many other states. Oregon’s law has been on the books for decades. Continue reading “Why People Are So Angry At the Lending and Servicing Industries – Part Two”

As the Realtor® industry enters into 2011, there is little question but that short sales are going to be around for a while. It will take at least two more years as excess inventory from all sources – banks, distressed owners (current and non-current with lender), unsold new construction, new condos, and sellers waiting on the sidelines – depletes itself. However, this is not the only factor causing the current glut of real and shadow inventory. Significantly, the employment picture and general overall confidence in the state and national economy must improve substantially. The consumer exuberance during the holidays does not – in my opinion – necessarily translate into good news for the housing market. It says, at best, that the retail segment of our economy enjoyed some good news for a change.

The bottom line for short sale transaction is that for the foreseeable future, they are going to remain a significant part of many Realtors®’ book of business. Avoiding these transactions is a luxury reserved for the very few. For those Realtors®who saw short sales as a good marketing opportunity early on, they are to be congratulated. However, for those thinking about dipping the veritable “toe in the water,” it’s not too late. I say this because the conventional wisdom about short sales a couple of years ago – if any existed back then – is ancient history. Much has changed for 2011:

Banks have come to accept short sales, and in so doing, they have streamlined their protocols in dealing with them;
With the foreclosure fiasco in the fall of 2010, many lenders are seeing their REO inventory inflate, which suggests they may be more receptive to short sale approvals;
With each new short sale, Realtors® are gaining more experience;
Thanks to the Internet and other sources, the public is becoming more educated about short sales;
Today, the typical homeowner confronting a distressed transaction (i.e. short sale, deed-in-lieu, or foreclosure) is generally not the old “sub-primer” or “flipper” of 2004-2007 who acquired their home with easy credit, no money down, and a “liar loan;”
Today’s distressed homeowners are our neighbors and sometimes ourselves. Many had significant equity at one time. Continue reading “2011 – Realtor® Best Practices For Short Sales”

For anyone who has ever negotiated a loan modification, short sale, or deed-in-lieu, you have heard the refrain from the person on other end of the line. It occurs with such frequency that it has to have been scripted: “I’ll have to check with ‘The Investor’ and get back to you.”

Besides conveying some sense of “Hope for Homeowners” (Isn’t that what these programs were all about?), it evokes an image of the processing agent calling or e-mailing some anonymous “Investor,” perhaps halfway around the world, who will take time out of his busy schedule to crunch the numbers and decide whether your particular distressed housing problem will finally receive some individual attention. You think: “Perhaps ‘The Investor’ will understand and empathize with my hardship?”

Is there anything wrong with this picture? Is it possible there is no “Investor,” and this is just a ruse? Unfortunately, the likelihood of there being an “Investor” who the agent will speak with, is a myth. Why this is perpetuated is beyond me. The ruse is reminiscent of the moment Toto pulled the curtain back in the Emerald City, only to reveal that The Great Oz was a mere mortal, masquerading behind smoke and mirrors. Continue reading “The REMIC Smoothie”

As a follow-up to my recent post, Strategic Defaults vs. Financially Prudent Decisions, I want to address the government and lending industry’s use of the NPV Test in approving or disapproving various distressed housing solutions, such as loan modifications, short sales and deeds-in-lieu of foreclosure.

What is most problematic about the use of the NPV Test is that the methodology need not be disclosed to the borrower-applicant. All data are carefully guarded. The only thing borrowers are told is whether the test results were positive or negative.

However, there are many different types of information that go into NPV Test protocols. While some is purely objective, such as gross or net income, etc., some is subjective, such as the fair market value of the distressed property, the actual amount of the arrears, and penalties, fees, etc. This is information about which people may disagree. Ignoring the risk of simple input error, there is the more serious risk of permitting someone to make independent decisions about certain input data, without having to account for that decision.

Moreover, the MHA NPV analytics are not mandatory. Loan servicers and banks may use their own proprietary models. So even if you thought you understood the government’s NPV protocol, there is no assurance that it will be the one used by your servicer. Continue reading “Transparency in NPV Testing”

I can’t help it. Every time I read something about “strategic defaults” I want to start pulling my hair out. The issue has been most prominent since FNMA began threatening lawsuits against homeowners who engage in what Fannie calls “strategic defaults.” To my knowledge Fannie has never actually explained what a strategic default is, except to say that it occurs when a borrower has the capacity to pay, but elects not to do so.

But who is going to make that call? In an article appearing in DSNew.com, the issue was recently addressed in a letter to FNMA by several U.S. Congressmen:

The legislators also questioned what objective criteria Fannie would use to determine whether a default was truly strategic. [FNMA] has said it will rely on the reports of its servicers to determine borrower intent.

“We have great concern with putting such faith in the servicers,” the lawmakers wrote, citing feedback from their constituents and a number of congressional watchdog groups that call into question servicers’ performance in dealing with huge volumes of defaults and communicating effectively with borrowers.

Oh great! So the loan servicers will now become snitches. This is sure to encourage a free exchange of information from borrowers seeking help. If a servicer feels that one of their customers could actually afford to pay their home loan headed into foreclosure, they can report that fact to FNMA who will, according to the DSNews.com article, sue the borrower for repayment. So how does a borrower’s private, confidential, and personally identifiable financial information become evidence that can be used to establish that their default was “strategic?” (Fannie professes to place a high value on privacy at their website. See link.)

And if a default isn’t “strategic” then what is it? Here is what Sheila Bair, FDIC Chair, says on the FDIC’s loan modification website:

Avoiding foreclosure, when it is financially prudent to do so, reduces the downward pressure on the price of nearby homes and helps communities to maintain the services they provide to neighborhoods. (Underscore mine – PCQ)

Now that helps. Financial prudence is a good litmus test. So if a borrower’s nonpayment and eventual foreclosure is the result of their good faith cost analysis based upon all available choices, it is not a “strategic” default, but a “financially prudent” one. I can accept that.

There is really little question but that economic self-interest is what guides most individuals and companies when making their most important financial decisions. And in fact, economic self-interest is exactly what lenders, servicers, and investors do when deciding to approve or deny almost all borrower-requested modifications, short sales or deeds-in-lieu (known as “pre-foreclosure events”). However, rather than calling it the “financially prudent test” it is called the “NPV Test.” Continue reading “Strategic Defaults vs. Financially Prudent Decisions”