Distressed Housing, Distressed Marriage

Over the course of the past two and one-half years, I’ve met with hundreds of folks experiencing the trauma of dealing with huge negative equity in their homes. In lay terms, they’re “underwater” – meaning that the value of their home has dropped below what they paid, and frequently is now less than what they owe. This has become a common phenomenon over the past five years. But frequently, being underwater is not the only problem. If it were, many homeowners would likely remain where they are. However, an additional circumstance, such as one of the feared 3-Ds, Death, Divorce, and Debt, is frequently an accompanying factor that has brought homeowners to my office.

This post will focus on the Scylla and Charybdis of home ownership today: Distressed housing coupled with a distressed marriage. Here are some tips, traps, caveats, and general observations that I’ve gleaned from distressed housing clients contemplating divorce:

I. GENERAL THOUGHTS
• Don’t keep looking in the rear-view mirror – you’ll drive off the road! How and why you got here is a concern that runs a distant second to where you’re now going. In most cases, the clients I’ve met who were anticipating divorce avoided the blame-game, and wanted to make the best of a difficult situation. This is a good thing; a collaborative, realistic and rational approach to a solution is much better than an adversarial one.
• Good information can be liberating. Fear thrives best when allowed to feed on misinformation. Most people are inundated with opinions, rumors, and horror stories about the foreclosure crisis. They need to separate fact from fiction before they can make informed decisions about what to do in their own personal situation. Armed with good information, I’ve seen clients make far better choices for their mutual best interests – even when they are planning to divorce. Continue reading “Distressed Housing, Distressed Marriage”

“Language and speech are the means by which people communicate with one another. However, with the Big Banks, their silence conveys the loudest message.” [Anonymous – sort of.]

In Part One, I analyzed the recent Oregonian article, titled: “Lenders not engaging in Oregon foreclosure mediation program.” The gist of my post addressed the process under SB 1552 by which borrowers were intended to be helped under the law. However, it seems that the Big Banks are refusing to participate in a major component of SB 1552 – the part dealing with “at risk” borrowers who have applied for mediation in an effort to find a “foreclosure avoidance mechanism” such as a modification, forbearance, short sale, deed-in-lieu or some other method to avoid foreclosure. Continue reading “SB 1552 – Why Don’t The Big Banks Wanna Play? [Part Two]”

“It’s one thing to be stubborn when relying on well-reasoned principle; it’s quite another to be stubborn relying on no principle.” Anonymous [Sort of.]

An interesting, though not surprising, article recently appeared in The Oregonian, titled: “Lenders not engaging in Oregon foreclosure mediation program.” Before discussing what’s behind the banks’ decision, it is necessary to understand that SB 1552, Oregon’s mandatory mediation law, is essentially focused on the following two groups:

Folks whose trust deed is being foreclosed non-judicially. That is, a Notice of Default has been recorded in the public records. This event triggers the mandatory mediation law, and requires lenders[1] to offer the borrower an opportunity to meet and mediate, to see if an agreement can be reached on a specific “foreclosure avoidance measure” [e.g. modification, deed-in-lieu, short sale, or any other such mechanism that avoids the foreclosure]. If the borrower timely responds, complies with other criteria, and pays a $200 filing fee, the foreclosing lender must participate. If the lender does not participate, or fails to do so in good faith,[2] it cannot receive the coveted “Certificate of Compliance” from the mediator. This Certificate must be recorded on the public record before the sale can occur. No Certificate, no foreclosure.[3]
Folks who are not in a formal non-judicial foreclosure, but due to their economic circumstances, are “at risk” of default under their note and trust deed. The law does not define at “at risk” borrower. Thus, it could be someone who is still current, but is on the cusp of defaulting due to the high cost of their mortgage payments; or it could be someone who hasn’t paid for a year, but the bank has not yet commenced any foreclosure. Thus, even if a bank routinely forecloses judicially, such as Wells Fargo, before the foreclosure is filed in court, an “at risk” borrower could request that Wells enter into mediation to see if the parties could agree on a foreclosure avoidance solution. But the sticking point in “at risk” mediations is that SB 1552 contains no sanction for lender non-compliance.[4]

The recent Oregonian article focused largely on folks in category No. 2, since clearly, banks that commence non-judicial foreclosures in Oregon must comply. So, with that preface, herewith are some snippets from the Oregonian article:

“The state’s contractor charged with running the mediation program told an advisory committee in Salem on Wednesday that 132 eligible homeowners applied for the program on the grounds that they are at risk of foreclosure. The law allows at-risk borrowers to request a meeting with their lender even before they’ve missed a payment. *** But none of the mortgage servicers responded to the requests within 15 days as required under the law that created the program.”
“When asked by The Oregonian for the reason, the answer was simple: ‘They just don’t want to play,” said Jonathan Conant, who is managing the state mediation program on behalf of the Florida-based Collins Center for Public Policy. He added that the five largest lenders operating in the state have indicated they won’t participate in the mediation process under any circumstances.’”
“Meanwhile, lenders have also stopped filing out-of-court foreclosures. More are proceeding with court-supervised foreclosures, avoiding the mediation program altogether through the traditionally slower and costlier judicial foreclosure process.”
According to the article, here’s what the Lender’s Lobby and Lackeys say:
- “There is just so much coming at these folks in terms of new requirements,” Markee[5] said. ‘Many of them are talking to their legal counsel and other learned people trying to make rational decisions about how to proceed with this issue.’” [Hmm. “Legal counsel and other learned people….” Now there’s a phrase that begs to be parsed. Hopefully, at least one such “learned” person will include someone schooled at the College of Common Sense. Just a small dose would hopefully convince the Big Banks that totally ignoring Oregonians’ pleas for help will backfire. More about this later. – PCQ]
- Markee and Kenneth Sherman Jr., general counsel for the Oregon Bankers Association, both told the advisory committee they couldn’t explain why mortgage servicers hadn’t responded to the requests for mediation. [Sorry guys – But as a fellow lawyer, I don’t believe that for a minute. First, you wouldn’t even talk to The Oregonian without your clients’ OK. Secondly, you wouldn’t be quoted saying anything without first having it vetted by your clients in advance. Third, to say you “don’t know,” really means that your Big Bank clients told you to say you “don’t know.” Fourth, you do know. The real reasons are pretty clear. But if struggling Oregon homeowners were told the real truth, they’d quickly decide that your industry should never be permitted to conduct business in this state again. More about this later. – PCQ]

Before moving on, let’s look at the actual text of the law. What follows is taken from Section 2(7)(a) of SB 1552, the “at risk” provisions. The references to “grantor” refer to the borrower; the “beneficiary” is the lender or servicer that is foreclosing; the “trustee” is the foreclosure trustee who actually conducts the non-judicial foreclosure process; and the “mediation service provider” is The Collins Center for Public Policy, which has been designated by the Oregon Attorney General to coordinate all mediations arising under SB 1552.

“A grantor that is at risk of default before the beneficiary or the trustee has filed a notice of default for recording under ORS 86.735 may notify the beneficiary or trustee in the trust deed or the beneficiary’s or trustee’s agent that the grantor wants to enter into mediation. Within 15 days after receiving the request, the beneficiary or trustee or the beneficiary’s or trustee’s agent shall respond to the grantor’s request and shall notify the Attorney General and the mediation service provider identified in subsection (2)(b) of this section. The response to the grantor must include contact information for the Attorney General and the mediation service provider.” [Emphasis mine.]
“A grantor that requests mediation *** may also notify the Attorney General and the mediation service provider of the request. The Attorney General shall post on the Department of Justice website contact information for the mediation service provider and an address or method by which the grantor may notify the Attorney General.”
“Within 10 days after receiving notice of the request *** the mediation service provider shall send a notice to the grantor and the beneficiary that, except with respect to the date by which the mediation service provider must send the notice, is otherwise in accordance with the provisions of subsection (3) of this section.”
“A beneficiary or beneficiary’s agent that receives a request under paragraph (a) of this subsection is subject to the same duties as are described in [the remaining applicable provisions of SB 1553].”

So when the 2012 Oregon Legislature said that when an “at risk” borrower requests mediation, “…the beneficiary or trustee or the beneficiary’s or trustee’s agent shall respond to the grantor’s request and shall notify the Attorney General and the mediation service provider….” [Emphasis mine.] – what did it mean?

As lawyers, we were taught that when certain legislative action is called for, it can be divided into those that are required versus those that are only permissive [or in legal parlance, those that are “precatory”]. For example, words like “shall” and “must” are mandatory. Compliance is compulsory. Words such as “may,” “should,” “can,” etc. are permissive. An example of a permissive statement in a will, might be: “I hope that my son and daughter will keep the house in the family.” It is purely a wish or desire; it is not a requirement. The will does not say that the son and daughter cannot sell the family home; to the contrary – they can do so without violating the terms of their inheritance.

However, as any sixth grader knows when his parents tell him that he “must do his homework before being allowed to play outside with his friends,” there is little room left for negotiation. So it is with the use of mandatory words such as “shall” in the “at risk” provisions of SB 1552. Had the Oregon Legislature intended for banks to have a choice in deciding whether or not to respond to an “at risk” borrower’s request to mediate, it could have easily said so by using permissive rather than mandatory words. By changing a single word, the mandate for how Big Banks are to deal with mediation requests from “at risk” Oregon homeowners would be entirely different. For instance, it could have said:

“Within 15 days after receiving the request, the beneficiary or trustee or the beneficiary’s or trustee’s agent may respond to the grantor’s request by notifying the Attorney General and the mediation service provider identified in subsection (2)(b) of this section.”

Clearly, such a simple change was within the power of the drafters of SB 1552. To put a finer point on all this, let’s look at other portions of the “at risk” provisions quoted above:

“A grantor that is at risk of default before the beneficiary or the trustee has filed a notice of default for recording under ORS 86.735 may notify the beneficiary or trustee in the trust deed or the beneficiary’s or trustee’s agent that the grantor wants to enter into mediation. [Emphasis mine.]
“A grantor that requests mediation *** may also notify the Attorney General and the mediation service provider of the request.” [Emphasis mine.]

Clearly, the use of the word “may” in these two instances, is because not all “at risk” borrowers” may want to mediate. And if they choose to mediate, they may not elect to notify the Attorney General. Those that do, can, and those that don’t, need not. These are voluntary choices; not mandatory imperatives.

Voilà! Now we know that the drafters of this legislation understood the difference between “shall” and “may”! They were used differently for a reason. Now was this all that difficult?

Remember, that both the lender and consumer lobbies were at the table when SB 1552 was negotiated. The Big Banks and their high paid lawyers could have pushed back on the choice of “shall” or “may” – but they didn’t. And so, when I hear lawyers, lobbyists and lender lackeys say that the Big Banks need to consult with “legal counsel and other learned people *** to make rational decisions about how to proceed…” I want to gag. Why the handwringing? “Shall” means “shall.” “May” means “may.” It’s not like we’re trying to interpret the First Amendment to the Constitution.

So when the mandatory mediation law says that banks “shall” respond, there is no room to rationally argue that they have a choice of not responding. Ignoring “at risk” Oregon homeowners who want to mediate a foreclosure avoidance solution clearly violates the spirit and intent of the law. And like so many other legal positions taken by Big Banks over the last five years, this too will come back to haunt them. [Continued in Part Two]

[1] This law does not apply to individuals, financial institutions, mortgage bankers, and consumer finance lenders that commenced 250 or fewer foreclosures in the preceding calendar year.

[2] In Big Bank lexicon, the term “good faith” is noticeably absent, so we can expect an argument from the lenders’ lobby and lackeys, as to exactly what that term requires of them.

[3] Note that 1552 only applies to non-judicial foreclosures. Thus, a lender could decide to avoid the mandatory mediation process altogether, and simply file the foreclosure in court, and proceed judicially.

[4] Lest someone say that this was a bonehead mistake, I think not. Legislative negotiations on such a volatile issue can result in an impasse, where the consumer lobby must say to itself, better to have the provision included, even without a built-in enforcement mechanism, than to have nothing at all. I agree. The fact that mandatory mediation is in the law at all, is a minor miracle. I’m comfortable with leaving it up to a judge to determine if it’s OK for the Big Banks to thumb their noses at Oregon’s distressed homeowners. So far, the courts have been lining up pretty consistently behind the Little Guy – Niday being the most recent example.

[5] Jim Markee, a lobbyist representing the Oregon Mortgage Lenders Association.

Compliments of several dedicated consumer attorneys, including Kelly Harpster, consumer attorney par excellence, and Sybil Hebb,lead attorney for the Oregon Law Center, a non-profit law firm for low income Oregonians, I am posting a Frequently Asked Questions publication discussing the recent Niday court ruling [which I have discussed here and here] as well as general issues regarding the infamous MERS company and important Oregon foreclosure information. Although it is not “legal advice,” this post contains information “You can take to the bank.” And after you take it to the bank, you can tell them what to do with it…. PCQ

1) What is MERS?

MERS stands for Mortgage Electronic Registry Systems, Inc. It is a private company that operates an electronic registry designed to track servicing rights and ownership of mortgage loans in the United States. MERS is owned by holding company MERSCORP, Inc. When MERS is named as a beneficiary in a trust deed, a related entity named MERSCORP records transfers

of the loan in a private database. Continue reading “FAQ on Niday Ruling & MERS/Non-Judicial Foreclosures in Oregon”

This is the second post of two, analyzing the recent Oregon Court of Appeals ruling on MERS. The first post can be found here. The Court’s written decision can be found here.

Issue Two

Can MERS act as a “Nominal Beneficiary” in the trust deed for purposes of avoiding the requirement under ORS 86.735(1) that to conduct a non-judicial foreclosure in Oregon, any successive assignments of the trust deed must be recorded?

Besides the epic battle between Good and Evil, Right and Wrong, Light and Darkness, reduced to its simplest form, the disagreement between Big Banks and Bantam Borrowers is this:

Borrowers maintain that ORS 86.735(1) means what it says, i.e. that before a non-judicial foreclosure may be lawfully commenced, any time the trust deed has been assigned, the event must be recorded in the county records.

Banks argue that since MERS is the “beneficiary” under the trust deed, the only assignment that is necessary to record is the one from MERS to the foreclosing bank. They say that all of the intermediary assignment that may or may not[1] have been electronically “registered” should not have to be recorded, since MERS is the nominal beneficiary for everyone, now and in the future. [This results in what I have referred to as the “Hail Mary Pass” in prior posts on the subject, here and here: When a borrower goes into default, MERS, as the “nominal beneficiary” for the original lender [and all successive transferees of the lender’s promissory note], makes a “single assignment” pass over the heads of the intermediate transferees, and the trust deed lands neatly in the waiting arms of another Big Bank to commence the foreclosure in its own name.] Continue reading “MERS Smackdown! Niday Analyzed – Part Two”

In the first Oregon appellate court ruling on the issue, the Court of Appeals, addressed, head on, whether MERS may be appointed as the “beneficiary” in an Oregon trust deed, for purposes of avoiding the law. The full opinion may be accessed here.

The decision, written by Justice Lynn R. Nakamoto’s was a “textbook” opinion; clear, concise and methodical, demonstrating a good grasp of the legal issues at play.

The Parties. The persons and entities discussed in the case included two banks. One was GreenPoint Mortgage Funding, Inc. (“GreenPoint”) the lender that originated, i.e. funded, the loan at the time of closing. The other bank was GMAC Mortgage, LLC (“GMAC”), the company that was servicing the loan. GMAC, the servicer, was named as a defendant. In a bit of cosmic comeuppance, in May 2012, GMAC filed for Chapter 11 bankruptcy protection. [Apparently, defaulting is OK if you’re a Big Bank, but not if you’re a Bantam Borrower. – PCQ] The plaintiff in the case was the borrower, Rebecca Niday. Mortgage Electronic Registration Systems, Inc. (“MERS”) was also named as a defendant, along with Executive Trustee Services.

The Attorneys. The lawyers on the side of the angels were W. Jeffrey Barnes, who argued the case for Rebecca Niday. With him on the briefs were Elizabeth Lemoine and the Luby Law Firm. David L. Koen and Legal Aid Services of Oregon filed the brief amicus curiae [“friend of the court”] for the Oregon Trial Lawyers Association. Congratulations all!

Factual Background. In August 2006, Ms. Niday obtained a home loan from GreenPoint. She signed a promissory note that obligated her to repay the $236,000 debt. She also signed a trust deed, which, as security for the note to GreenPoint, was recorded in Clackamas County, where her home was located. Continue reading “MERS Smackdown! Niday Analyzed – Part One”

On July 11, 2012, Oregon’s mandatory mediation law will go into effect. For a summary of the law and time lines, go to my posts here and here. In anticipation of this important new law, I’ve developed a glossary of terms [go to this link] for use by those involved in the mandatory mediation process. Hope it helps! – PCQ

Introduction. On 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.”

Background. In 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?”

With the slowdown in real estate and the increasing difficulty in obtaining bank financing, some home sellers have begun to consider carrying the financing themselves with “wrap-around contracts” and “wrap-around trust deeds.”[1]

They work like this:

The seller has one or more existing trust deeds on his/her property. Say the total underlying mortgage debt is $350,000, with a blended (i.e. combined) interest rate of 5.50%. The sellers want, or need to move, perhaps to relocate for other employment, or other important reasons. However, due to the marketplace, they cannot sell their home. On the other side of the equation, buyers who have recently come out of a distressed transaction, such as a short sale, may not be able to qualify for financing – even though they have steady jobs and good income.

Continue reading “Understanding Seller-Carried “Wrap-Around” Transactions”

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!”