Question [Hardship Letters].  I am trying to do a short sale.  The bank is asking me for a “hardship letter.”  What is it they are looking for?  Do I have to have some life changing event to qualify for help, such as divorce or some financial calamity?

Answer. I rarely, if ever, have seen a borrower’s “hardship” – or lack thereof – become an impediment to their securing a resolution of their distressed housing event through short sale or deed-in-lieu. I view the hardship letter as a sort of “price of admission” in order for the banks to “justify” their providing assistance.  Despite what they might say to the contrary, many banks simply won’t help borrowers unless they are in some form of payment default.  For those folks who may be making a respectable living, but are so strapped on a day-to-day basis because of a large mortgage payment, I believe this fact alone is a valid “hardship.”  If this financial pressure is coupled with a desire or need to downsize, relocate, or other legitimate reasons, it should be included in the hardship letter.  In most cases, folks who got their loans in 2005, 2006, or 2007, were in far stronger circumstance than they are today.  That should be addressed.  For example “When we first got our loan in 2005, we were both fully employed and our combined incomes could support the mortgage payments.  That is not the case today.” Continue reading “Distressed Housing FAQs”

As a follow-up to my last post on difficult short sales (here), it occurs to me that I should mention the small, but persistent complaint of some seller-clients, who are under the mistaken belief that their Realtor® can and will handle the entire transaction for them.  “Two liens? No problem!  We’ll negotiate everything!”  But in fact, if the property is encumbered by two liens with two separate lenders or servicers, it can be a big problem – and if it comes down to a seller/borrower paying a “contribution,” this is something the Realtor® cannot negotiate; it’s up to the seller/borrower to decide if they can afford a contribution, or if they are willing to go on the hook by signing a promissory note.

If the short sale transaction has gotten all the way to closing, and the seller/borrower is having their first discussion with their agent about this, something is wrong.  At the first hint that a seller/borrower contribution may be demanded, the real estate agent should immediately discuss with their client what the options are – and they can be somewhat limited.

How is a short sale agent to know, in advance if there may be a problem?  Answer: Do the numbers. Will there be enough money from the net sale proceeds to pay off the first lienholder?  If not, this means that the first lender has complete control over how much it will contribute to the second.  And the first lender will not permit the borrower/seller contribute anything to the second.  In most cases, the first lienholder will allocate not more than $3,000 or $6,000 to the second, usually depending upon the net proceeds from the short sale.

The next question is “How much is owed to the second?  If it is $100,000 or more, $3,000 or $6,000 may not be sufficient to satisfy the second lender.  This means there could be a deadlock, unless the buyer is willing to bridge the gap by paying the shortfall to the second if the first lender will allow it. Will the Realtor® contribute?  Remember, these payments must be disclosed on the HUD-1 settlement statement, and it is far better to address a “bridging the gap” solution on an Addendum to the Sale Agreement early on in the transaction. Unfortunately, some real estate agents focus on the obtaining the first lender’s consent before ever contacting the second.

Short sellers are fearful enough. They don’t like surprises.  So for those real estate agents offering their services as “short sale experts,” they must first do the numbers, try to foresee the problems in advance, discuss them early on with the client – and never, never, never promise more than you can deliver!

Economist [e·con·o·mist; noun] – An expert in the production, distribution and consumption of goods and services, but is a complete idiot when it comes to making good business decisions for homeowners awash in negative equity. Unabridged Dictionary

The following July 26, 2012 article appearing on a default servicing website,[1] caught my attention the other day: “Economists in Survey Oppose Strategic Default, Principal Forgiveness.”  Herewith, are some of the gems: Continue reading “More Nuts and Dolts”

Following the National Mortgage Settlement, B.L. Zebub, Belial Bank’s once fearless leader, is waffling on whether to jump into the fray, and start writing down the mortgage balances for his Beleaguered Borrowers.  Not that the milk of human kindness flows through his icy veins – he’s just trying to figure out an “angle” so he can game the system and still appear to care about The Little Guy.  For the last three years, Belial Bank has put up incredible loan modification numbers without actually having to modify a single borrower’s loan.  The trick, of course, has been to continually move the goal posts, so while their borrowers may get to the 80, 90, or 95-yard line, they never quite get the ball into the end zone.  Once they get close, Belial either tells them they don’t qualify, or they can’t get a mod because they didn’t get their paperwork in on time.  

B.L. has perfected this insidious shell game ever since he attended a banking industry seminar entitled “Loan Modification as Performance Art” which blends the best of Kabuki dancing and Liar’s Poker.  From that moment on, as if awakening from a deep sleep, B.L. had an epiphany:  “It’s not what you do that counts – it’s what you appear to do.”  This little known mantra explains why the Behemoth Banks continuously chant to distressed homeowners: “We’re here to help,”  when what they’re really saying is “We’re here to help you out of your home.” 

So once again, B.L. has convened his trusted advisors to discuss the national mortgage settlement, which, he has learned, contains some interesting “incentives” to encourage the Big Banks to take principal write downs on their borrowers’ loans.  B.L.’s plan is not to erase ALL borrower negative equity, but just enough to keep them in the game and on the field.  As a Big Bank Servicer, B.L. knows all too well that he needs his borrowers’ loans to stay in the servicing pool, however non-performing, as long as possible before letting them slip into the Abyss.  Since servicing fees for non-performing loans means Big Money to Big Banks, he needs to find a new gimmick to entice his borrowers.  He has concluded that principal write downs, courtesy of the National Mortgage Settlement, may be just the ticket.  Thus, for those distressed homeowners awash in negative equity, the promise of a principal write-down – however meager – may keep them circling the drain a bit longer before he pulls the plug.

Participating in this hastily convened conference call is B.L.’s legal intern, Les Guile, who was successful at the last meeting in totally alienating the head of Belial’s South American Derivatives Trading Desk, Chase N. Prophett, by suggesting he was “small minded” and “morally vacuous.”  Liz Pendens of the title industry is on the phone, fidgeting, as usual, in anticipation of some new hair-brained idea from B.L. and his cronies. Joining in on the call is Dee Faulting, the Queen of Hearts in default servicing. Dee has just arrived back from a recent default servicing convention where she was awarded the title of “Most Inspirational” for her unwavering willingness to foreclose as many homeowners as possible regardless of the severity of their hardship. Damian Faust, Belial’s chief legal counsel, is back with us, after weathering a storm of protest over the vanity plate, “TBTF,” that he ordered for his new Porsche Carrera.  Kenneth Y. Slick III (aka “KY”), is also on the phone conference.  He is B.L.’s “Idea Man” whose most recent claim to fame was to suggest that Belial institute a $10.00 debit charge fee after Bank of America, following a storm of protest, retracted its $5.00 fee.  B.L.’s loyal secretary, Lucy Furr, has dutifully transcribed this conversation, careful to redact even the hint of profanity, just in case Julian Assange got ahold of the transcript and made it public.  Alas, Lucy failed again, which explains how this purloined post fell into my hands. – PCQ Continue reading “Belial Bank Discusses Principal Write-Downs”

IntroductionOn February 9, 2012, the U.S. Department of Justice issued a press release announcing the “landmark” $25 billion dollar settlement with five of the largest Big Banks.  On February 9, 2012 President Obama told the nation that the $25 billion settlement was:    “…about  standing up for the American people, holding those who broke the law accountable, restoring confidence in our housing market and our financial sector, getting things moving.”

But was it? Were those who broke the law held accountable and if so, how?  The purpose of this post is not to criticize the settlement or those who fashioned it.  Rather, my purpose is to examine a major financial component of the settlement, to determine if, as touted, those who “broke the law” will, in fact, be held “accountable.”

BackgroundIn June, 2010, Jeffrey Stephan, a low level employee at Ally Financial, admitted in deposition that he routinely signed hundreds of foreclosure notices daily without reviewing the underlying facts supporting the case.  This astounding practice, which was later revealed to be SOP in most Big Bank foreclosures, introduced a new verb into the American lexicon: “Robo-signing.”  While banking apologists were quick to characterize these acts as “technical paperwork problems,” no amount of spinning could erase the fact that people were being foreclosed out of their homes through the widespread use of fraudulent documents.

Over the following few months, we learned that a variety of laws were routinely being broken: (a) Documents were signed by persons who had no familiarity with the facts leading up to the underlying foreclosure; (b) Affidavits were sworn to as fact, when affiants had no knowledge of what they were swearing to; (c) Forged or falsified documents were regularly submitted into court as a part of judicial foreclosures; (d) notaries routinely violated state notarization laws; and (e) official titles, such as “Assistant Vice President,” were handed out to low level employees or subcontractors, to sign legal documents, as if acting in an official capacity.

Shortly after the revelations, the attorneys general of all 50 states joined together to bring claims against five of the largest banks for their servicing[1] misdeeds: (1) Bank of America Corporation, Charlotte, North Carolina [together with BAC Home Loans Servicing, formerly Countrywide Homes Loans Servicing LP, Calabasas, California]; (2) Wells Fargo & Co., San Francisco, together with Wells Fargo Bank NA, Des Moines, Iowa; (3) JPMorgan Chase & Co., New York, along with JPMorgan Chase Bank NA, Columbus, Ohio;  (4) Citigroup Inc., New York, along with CitiMortgage, O’Fallon, Missouri; and (5) Ally Financial Inc., Detroit [formerly GMAC], along with GMAC Mortgage LLC, Fort Washington, Pennsylvania, and GMAC Residential Funding Co. LLC, Minneapolis.

The complaint filed by the A.G.s included claims of unfair and deceptive loan servicing, foreclosure processing, loan origination practices, violations of the False Claims Act and Servicemembers Civil Relief Act, as well as various charges relating to the treatment of homeowners in bankruptcy. Continue reading “The National Mortgage Settlement – Will The Big Banks Pass The Buck?”

On March 5, 2012, the Oregon Legislature passed a sweeping series of changes to its trust deed foreclosure law, SB 1552.  Once signed by the Governor it will become effective 91 days hence.  What follows is a summary of (a) the new mandatory mediation law that, after the effective date, will apply to the non-judicial foreclosure of all residential trust deeds; and (b) some important changes to the existing laws governing judicial and non-judicial foreclosures.  Between now and the effective date, the Oregon Attorney General’s office will promulgate rules to implement the mediation program.  Until then, all we have for guidance is SB 1552 itself. This summary is for informational purposes only and should not be viewed as “legal advice”.  Those interested in seeing if the new law may apply to their particular situation should consult with their own legal counsel. – PCQ

1. A New Term: “Foreclosure Avoidance Measures” The entire mediation process contemplated by SB 1552 is based upon the idea that prior to a non-judicial foreclosure, the borrower should have an opportunity to try to reach an agreement with the bank  that avoids the foreclosure.  To that end, SB 1552 lists the following events as “foreclosure avoidance measures.”

  • The bank defers or forbears from collecting one or more payments due on the obligation.
  • The bank modifies, temporarily or permanently, the payment terms or other terms of the obligation.
  • The bank accepts a deed in lieu of foreclosure from the borrower.
  • The borrower conducts a short sale.
  • The bank provides the borrower with other assistance that enables the borrower to avoid a foreclosure.

Unless an exclusion applies under Sec. 4, below, a bank that seeks to non-judicially foreclose a residential trust deed must now offer to mediate with the borrower “…for the purpose of negotiating a foreclosure avoidance measure….” Continue reading “Oregon’s SB 1552 Analyzed – Mandatory Mediation and More!”

Can I sell my home (i.e. my “primary residence”)  for less money than I owe to my bank? The short answer is that “it depends.”  If there is only one lender and the short sale price clearly represents the current fair market value of the property, the answer – in Oregon, at least – is most likely “Yes.”  If there are two lenders, the issue becomes more complicated, but in many cases, the answer is still “Yes.”   Short sales have been with us for several years now.  However, it hasn’t been until the last year, or so, that banks have finally come around to understanding that actually, short sales represent a far better alternative than foreclosure in almost all cases.   The reasons, for bank and borrower, are the same: time and money.
  1. While all distressed transaction will negatively impact one’s credit, short sales can be completed faster than foreclosures.  This means that credit repair can begin sooner with a short sale.
  2. Lenders are finally realizing that short sales eliminate the title risk that can occur when they take properties back via non-judicial foreclosure.
  3. In some cases, second position lenders can retain deficiency claims after being foreclosed by the first position lender.  The short sale process brings this issue to a head before closing, thus giving borrowers the ability to actually negotiate the matter.  Negotiation in advance is a far preferable alternative than having the home foreclose and then waiting to hear from a collector seeing repayment at some unknown time in the future.  Remember: The statute of limitations for commencing legal action on a promissory note is six years.  This means that the collection company has plenty of time to wait for the borrower to get back on their feet.
  4. Typically, if a homeowner wanted to do a deed in lieu of foreclosure, the bank will require that they first try to complete a short sale.  So distressed homeowners should commence a short sale sooner rather than later, even if they believe it will be unsuccessful. The deed in lieu should be Plan B; the short sale Plan A.
  5. Most people with significant negative equity are distressed; the short sale process is the fastest way to get past this unpleasantness, since it can be completed sooner than the other two alternatives, foreclosure and deed in lieu of foreclosure.
  6. Many big banks have significant REO inventory.  This means they are incurring millions of dollars of carrying costs that will continue until they can re-sell the home.  Short sales do not increase REO inventory since they get the home off their books and into the open market sooner. This savings of time and money is even more significant if the lender is foreclosing judicially, since there is a six-month right of redemption following the sale.  (The “right of redemption” is the period, provided by statute, that foreclosed borrowers have to repurchase their home after the sale.  This statutory right only has value when the foreclosed borrower had equity, which is rarely the case today.)  Nevertheless, this right of redemption means that the property must remain in the banks’ REO inventory even longer following a foreclosure.
  7. Banks are starting to realize that short sales yield better prices than REOs.  According to a recent Bloomberg article, short sale proceeds were 15% higher than foreclosure or REO sale proceeds.  (And according to the article some lenders are actually paying delinquent borrowers to pursue non-foreclosure solutions. To read the entire article, go to this link.
  8. Nonpayment of one’s mortgage is the only way to invite a foreclosure.  But if a distressed homeowner first stopped making their loan payments in 2012, the foreclosure will not likely be completed until 2013.  We don’t yet know whether the government will extend the 2007 Mortgage Forgiveness Debt Relief Act (which cancels the income tax on debt forgiveness) now set to expire on December 31, 2012.  Since a short sale can usually be completed in six months, there is still plenty of time this year to close it before December 31.
  9. For homeowners wanting to relocate for employment or other reasons, they will generally find the short sale a faster solution than a deed in lieu or a foreclosure, and frequently it can be handled even after they have moved.
  10. Although some are faster than others, generally, most short sales, once started, actually do result in a successful closing.  In other words, unlike loan modification, which can be an exercise in futility, short sales do produce results.

Senior Supervisor, Bank Hardship Letter Department

Have you ever been curious about what “test” the Big Banks apply when deciding to allow short sales?  I have.  What follows is my analysis only.  Readers are free to disagree; but remember, a couple of anecdotal stories overheard at a cocktail party, do not a trend make.  There are rules and there are exceptions to those rules.  I’m interested in the rules. – PCQ

First, we know that the Big Banks all base their borrower assistance programs on the concept of “deservedness.” Now, with the help of a sleeper agent working “deep cover” at the highest levels of a Big Bank, we have discovered the following purloined paperwork (including this candid staff photo taken at work), describing, in depth, the inner workings at one lender’s Hardship Letter Department:

You get our help only if you deserve it. To be deserving, you must have a “hardship.” We get to define the meaning of “hardship.” It must relate to something unplanned or beyond your control[1]:  Such as illness, death, divorce, job loss, financial inability to pay, mandatory relocation, etc.  Pregnancy cannot be “unplanned” or “beyond your control” according to the Planned Parenthood folks, so it won’t get you into our “deservedness” line.

When you seek our help, we expect you to prepare and sign, under oath and penalty of perjury, a “Hardship Letter,” describing in detail, your tale of woe, beginning from early childhood and continuing through adulthood.  We ask that it be hand written on cheap bond notebook paper (blue lines only – and no fancy yellow legal pad paper!), with a No. 2 pencil and shaky hand.

Before writing your Hardship Letter, we recommend watching one or more of the following sad movies to serve as your cinematic Muse and help conjure up the appropriate melancholy [in no specific order]: Titanic, Schindler’s List, Steel Magnolias, and Ordinary People.  For the distressed older Baby Boomers, we suggest Love Story and Old Yeller. Continue reading “Do You Know Who Just Read Your Hardship Letter?”

“[The defendant banks] categorize [the plaintiff borrowers] as ‘strategic defaulters’ who are riding out their admitted default by raising frivolous legal challenges while continuing to live in the subject property rent-free until foreclosure of the Deed of Trust, knowing that they will be immunized by the OTDA from any deficiency judgment upon eventual foreclosure. – Hon. Janice M. Stewart, Magistrate Judge

[And the point is…? What seems to be forgotten is that this was the bargain the Big Banks cut with Oregon’s consumers in 1959:  In exchange for a fast-track foreclosure process, no judicial oversight, and no post-auction rights of redemption, Big Banks willingly agreed that their Bantam Borrowers would not be held liable for any deficiencies following the foreclosure of their homes. This arrangement was just fine for nearly 50 years.  Having received exactly what they wished for, Big Banks can hardly be heard to now complain.  Come on guys! Buck Up!  Ooops, pardon the pun…I couldn’t help myself! – PCQ]

Background of James v. ReconTrust and B of A et. al. In June, 2007, Mr. and Mrs. James obtained a purchase money loan for their home in Wilsonville, Oregon.  The loan was obtained through Northwest Mortgage Group (“NWMG”).  Their deed of trust identified NWMG as the “Lender,” and MERS as the “Beneficiary.”  As is the situation in most of today’s trust deeds, MERS is described as “acting solely as a nominee for Lender and Lender’s successors and assigns….”  At some later point in time, presumably shortly after the loan was made, NWMG endorsed the James’ promissory note to Countrywide Bank (which ultimately became BAC Home Loans Servicing, L.P. (“BACHLS”) and then merged into Bank of America, N.A. on July 1, 2011). Since the original lender, NWMG’s, loan was fully repaid, it was no longer the “Lender” under the Note and Trust Deed – Countrywide was.  As a part of Countrywide’s securitization business, the Note and Trust Deed were ostensibly transferred to a Fannie Mae investment trust.  Countrywide was fully repaid.  However, the Note was never transferred to Fannie Mae, and no assignment of the James’ Trust Deed to Fannie was ever recorded in the country records, as required under ORS 86.735(1).  Accordingly, the gist of the James’ legal argument was that BAC Home Loan Servicing [fka, Countrywide] no longer held a security interest in their home, and therefore lacked the authority to foreclose. [Note: As discussed below, this argument is made possible because MERS was appointed in the Trust Deed to act as the “nominal beneficiary” of record, such that – according to the banks – there was no further need to publicly record subsequent assignments of the trust deed. – PCQ] In April 2010, the James became delinquent on their home loan.  The following bank pre-foreclosure events occurred: Continue reading “MERS Musings – James v. ReconTrust, Bank of America, et. al. Analyzed [Part One]”

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”