Recently in Foreclosure Defense Category

Florida Appears to be Facing a Housing Shortage--Possibly Evan a Bubble.

April 19, 2013

The buzz in Florida is that there is a shortage of homes available for sale, which is driving up the price of homes. CNBC reports that the National Association of Realtors notes an "acute lack of supply" in some popular markets. Despite these inventory shortages, some markets are staying warm.

One of the driving forces of this market condition is an influx of investors paying above-market prices for homes for use as rentals. In some Florida communities, these well-funded investment entities are bullying others out of the market by paying 45% more for homes than their value, as reported by RealtyTrac. Florida Realtors reports that Investment firms bought over 5,200 Florida properties in 2012 and are determined to buy more this year. RealtyTrac offers a helpful tool for finding Florida foreclosure sales.

Another driving force, is what has been termed as a "shadow inventory," which consists of homes that have become bank or that remain in the foreclosure process, which banks do not put on the market--to avoid taking a hit on the sale value. RealtyTrac reports that more than 111,000 homes in south Florida are in the "shadow inventory." There is a similar effect on homes that have not been foreclosed. Homeowners who bought homes are unable or unwilling to sell because they would be required to bring an exorbitant amount of cash to the sale to satisfy their loan. Florida has over 90,000 pending foreclosures/zombie homes, which represents 30% of all foreclosure actions in America.

As a result of banks' reluctance to take on more distressed properties, banks appear to be offering foreclosure alternatives more often, such as short sales and principal reductions often over $100 thousand.

Proposed Foreclosure Law Designed to Accelerate the Foreclosure Process

February 18, 2013

Earlier this month, the House Civil Justice Subcommittee approved a bill designed to accelerate the foreclosure process in Florida. Republican, Kathleen Passidomo, sponsor of HB 87, frames the bill as a way to speed up the foreclosure process while ensuring due process. But, lenders and borrowers alike are fearful of some of the Bill's provisions.

The current Bill, which is a revision of a bill that died last year in the Senate, provides liability for entities that wrongfully claim to be holders of or entitled to enforce lost notes. Thus, the Bill might provide an incentive for the "foreclosure mills" to have their paperwork in order before filing suit. However, this penalty of perjury is not a new concept to the judicial system. The problem has not been whether there is a penalty for perjury, but rather whether a judge will deem evidence to be fraudulent. Discovery requests that attempt to uncover facts and evidence related to the validity of a lender's evidence are almost always objected to on grounds of relevance. And these objections are rarely overruled when challenged in court. The borrower's only hope is that the evidence (usually related to transfer of a loan) is defective on its face. In which case, the evidence is usually just disregarded as flawed--rather than deemed fraudulent.

The Bill would also require homeowners to show cause as to why a foreclosure judgment should not be entered when the lender appears to have its paperwork in order. This is problematic because some court systems have a knack for disregarding the rules of civil procedure in an attempt to read between the lines and judge a case before the issues have been fully developed. Some fear that allowing judges more discretion, at the expense of bright line rules of procedure, might lead to more wrongful foreclosures.

Passidomo also noted that the Bill attempts to beef up the Uniform Commercial Code's requirements of proof for a lost note. However, this focus on procedures for a lost note is misplaced. These suits hardly ever boil down to establishment of a lost note. The cases are most often solved on grounds of a purported note endorsement, as lenders argue that the notes are negotiable instruments. Improperly viewing these promissory notes as negotiable instruments allows lenders to get around establishing a chain of title for the loan, whether consideration was paid for the promissory note, and so on--essentially any detail that might support whether a plaintiff is actually owner of the note.

In summary, as long as courts are willing to disregard defects in a plaintiff's case--and judges are given more discretion to do so--all the penalties in the world cannot help instill due process in this process. For further detail on the implications of HB 87, read Chip Parker's blog on the subject.

Did You Receive a Proper Notice of Acceleration?

January 8, 2013

Before your mortgage company can file a foreclosure on your Florida home, it must send you a very specific letter known as a "Notice of Intent to Accellerate" or "Default Letter." If your mortgage servicer fails to serve you with a proper notice, your foreclosure is improper and subject to dismissal.

Nearly every residential mortgage is a Freddie Mac/Fannie Mae Uniform Instrument, regardless of whether either Fannie Mae (FNMA) or Freddie Mac (FHLMC) owns the mortgage. The mortgage servicing industry created the "Uniform Instrument" because Fannie and Freddie own 60% of all mortgages, but before they will purchase a mortgage loan from a bank, the security instrument (ie. the mortgage) must meet Fannie or Freddie guideline. So, for the sake of uniformity and ease of servicing by the banks, the same uniform mortgage is used throughout the country in almost every case.

The standard Fannie/Freddie mortgage has all the basic terms already completed. All that is left to do during a closing is fill in information on the lender, the borrower, the dates, the address, the property description, and so on.

In addition to the uniform paragraphs that exist in nearly every single mortgage in the United States, there are state-specific, special paragraphs, known as non-uniform covenants, which are inserted into the Fannie/Freddie mortgage. The Notice of Intent to Accelerate is a non-uniform covenant because the requirements vary, depending upon the applicable state foreclosure law. The biggest difference between state foreclosure laws is whether a state is judicial or non-judicial, and the uniform mortgage is modified based upon which type of foreclosure process exists in the state where the property is located.

Florida is a judicial foreclosure state, meaning the lender files a foreclosure action in state court. In non-judicial foreclosure states, a third-party trustee sells the property without help from the court. In these non-judicial foreclosure states, it is the borrower who brings a court action to stop the foreclosure.

**This article focuses on the language found in judicial foreclosure states like Florida. Remember, the language is different in non-judicial foreclosure states, like California.**

The requirements of the acceleration notice are spelled out in paragraph 22 (sometimes paragraph 21) of the mortgage. Paragraph 22 is often the only paragraph written in bold typeface--meaning that the text of the paragraph is emphasized as important, and this paragraph uses the word "shall" in spelling out the exactly what your mortgage company must include in the notice of acceleration letter to you.

In pertinent part, "The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration . . ."

Further, the lender shall specify that failure to cure the default may result in foreclosure by judicial proceeding. The notice of acceleration shall also inform the borrower of the right to assert defenses in the judicial foreclosure proceeding that is filed by the lender.

The requirement most frequently violated by the servicer is its failure to clearly state "the action required to cure the default." The problem occurs because the default letter usually states, "To cure your default, you must, on or before [the 30th day], pay [the servicer] the amount of $*** plus any additional monthly payments, late charges and fees which come due."

Even if a payment comes due during that default period, the homeowner should know what that amount is unless it changes monthly, BUT how would a homeowner know what late charges and fees are without specifically being told? Therefore, the homeowner does not know the action required to cure the default.

Sometimes the default letter goes on to say, "You should call us to get an exact figure." The mortgage requires the letter itself to identify "the action." Instructing the homeowner to call the servicer to find out what action is required fails to comply.

In Florida, the notice of acceleration requirements spelled out above, are intended to be the borrower's "Miranda Rights" in the mortgage foreclosure context. This notice of acceleration is the borrower's last--and utmost serious--warning before foreclosure proceedings are begun.

In summary, because the mortgage uses very clear, bolded language including terms such as "shall," and because Florida is a judicial foreclosure state, it clear that these notice of acceleration requirements were intended to be strictly followed. In fact, Florida appellate courts have held that strict compliance with the notice of acceleration requirements of Paragraph 22 is required before the lender can foreclose. However, servicers often fail to provide the notice of acceleration at all, or the notice fails to comply with the strict requirements of the mortgage.

Has your lender provided you with proper notice of acceleration? Likely not. What should you do? Contact a law firm with thousands of hours of experience representing homeowners in foreclosure cases.

Homeowners Must Compete with State Governments for Mortgage Settlement Relief Funds

November 30, 2012

As states have begun allocating funds from the National Mortgage Settlement, news reports are surfacing that indicate some state governments intend to use the funds for unintended purposes. Enterprise Community Partners, a housing nonprofit organization, released a report on the topic in October. The Report indicates that a majority of states are using the funds from the mortgage settlement as intended, but the largest recipients are not.

Of the $25 billion from the Mortgage Settlement, $2.5 billion was designated for direct payments to the states to use in preventing foreclosures, stabilizing communities, and regulating financial fraud. As of October, the funds had been allocated as follows: $966 million was apportioned to housing and foreclosure-related activities (the intended use for the funds), $988 million was diverted to states' general funds for non-housing uses (not the intended use for the funds), and $588 million was not yet allocated.

Attorneys general were instrumental in negotiating the Mortgage Settlement and how the funds were to be allocated. However, governors and legislators have attempted to influence how the funds will be used. Florida was the second largest recipient of funds--$334 million. Until recently, the sum remained in escrow pending the resolution of a dispute between Florida's Attorney General, Pam Bondi, and the Florida Legislature over who has the authority to distribute the funds.

Pam Bondi recently came to an agreement with the Florida Legislature to use $260 million for homeowner relief, the other $74 million has been committed to Florida's general revenue fund. With 78% of the money that was allocated to Florida going to its intended purpose, Florida might appear to have relatively favorable plans for homeowners. On the other hand, California, the largest recipient of funds has decided to apportion all of the funds to its general revenue fund--more specifically, California's governor decided to use the funds to go toward the state's $15.7 billion budget gap.

Pam Bondi stated that $60 million for homeowner relief will go foreclosure-related legal assistance, foreclosure prevention, home buyer or renter assistance, counseling, and other forms of help. But, for those of us doing the math, a concern arises with respect to the $200 million for which Pam Bondi gave the Florida Legislature power to appropriate. Thus, while Pam Bondi might make favorable statements as to how the funds might be allocated, she has given up the power to uphold her statements. The Florida Legislature could follow California's lead by using the funds to supplement budget shortfalls in Florida. The fate of the $200 million remains in the hands of individual Senate members.

Federal Fraud Task Force Seeks to Hold Major Financial Institutions Accountable for Housing Market Crash

October 29, 2012

Mortgage-Backed Securities are commonplace in today's housing market woes. The securities are often blamed as one of the causes of the housing market crash, and thus the crash of the economy. However, the Residential Mortgage Backed Securities Fraud Working Group ("RMBS Fraud Working Group") seeks to hold the major financial institutions accountable for the problems they have caused.

All investments represent an opportunity for the owner of the investment to make a profit on the risk taken in funding the investment--the Risk-Return Tradeoff. For example, a mortgagor/lender takes on the risk that the mortgagee/homeowner might default on his or her loan. In theory, the mortgagor takes on this risk because the mortgagor anticipates the revenue received from interest on all of its loans--on average--will be more than the costs incurred from the occasional homeowners who default. Assuming these mortgage loans were made prudently, the mortgages have value--they can be bought and sold because the income stream will provide revenue over the life of the loan.

Entities purchase these mortgage loans and pool them together to form Mortgage-Backed Securities, as a more marketable way to get investors. As such, it is easier to get someone to invest their money in a security instrument that is made up of many mortgage loans, rather than single mortgage loans--because the risk and reward of investing is made more stable by including many investments into one.

The key to prudent investing is knowledge of the risk--so that you are able to determine whether the reward will be worthwhile. The problem with the Mortgage Backed Securities is that major financial institutions have misrepresented the risk associated with the investments. This turns a great idea into a terrible idea.

Early this month, the New York Attorney General Eric Schneiderman, filed suit against JPMorgan Chase (formerly known as Bear Sterns & Co.) and EMC Mortgage LLC for misleading investors as to the riskiness of the Mortgage Backed Securities. Bear Sterns was obligated to evaluate the riskiness of the mortgage loans, continue to monitor the loans, and report to the investors. However, Bear Sterns allegedly failed to properly evaluate these loans, and securitized billions of dollars of mortgage loans that were likely to default. Investors are alleged to have suffered losses of about $22.5 billion so far, and about 43% of the $30 billion in unpaid principle is at risk of going unpaid.

Schneiderman's suit is intended to be the first suit of many filed by the RMBS Fraud Working Group, which was created by President Obama to uncover and punish the misconduct that lead to the financial crisis. The New York Times provides a more comprehensive account of the suit.

The Banks' Initial Approach to the Recent "National Mortgage Settlement" Appears to Be Less than Helpful to Distressed Homeowners

September 18, 2012

In February 2012, state and federal governments reached an agreement with the country's five largest loan servicers, offering a glimmer of hope for property owners who are facing foreclosure. The effected banks are Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo. This is often referred to as the "National Mortgage Settlement." Borrowers whose homes are owned or serviced by the settling banks may be eligible for benefits such as:

  • Principal reductions for homeowner seeking loan modifications,
  • Refinancing at low interest rates for borrowers whose mortgages exceed home value, and
  • Payments to some borrowers who lost their homes to foreclosure.
Banks were required to offer up to $17 billion in principal reductions and other loan modifications, $3 billion in refinancing relief, and $1.5 billion to homeowners who lost their homes. The settlement also provides for regulation of the settling banks by:
  • Setting standards for servicer staffing and training levels,
  • Setting standards for execution of documents in foreclosure cases,
  • Curbing improper fee charging, and
  • Maintaining a single point of contact.

CNN Money posted a good summary of what is expected of the settlement.

This was promising news for those who have fallen victim to a seemingly hopeless housing crisis. And the Settlement may still have a positive effect in the future, as the Settlement is set to be implemented over the next three years. Ideally, servicers should be identifying homeowners who are eligible for refinancing, principal reductions, and cash payments. The idea was that banks were supposed to offer meaningful relief to those who have been taken advantage of or most in need of keeping their home

However, initial observations indicate the Settlement is not off to a promising start. A common theme appears to be forming where banks are forgiving the second mortgages of homeowners who are in the middle of foreclosure proceedings. This is certainly exciting for the homeowners who are relieved of their second mortgage, but the banks appear to "complying" with the Settlement in a manner that has little effect on the big picture.

Rather, the second-mortgage debts the banks forgive would often go uncollected anyway. The net effect in this situation is that the homeowner is left with having to litigate the foreclosure on the first mortgage, often while attempting to receive a modification. In some cases, the homeowner's best option may be to file bankruptcy anyway. In which case, the foreclosure is stopped and the homeowner has the opportunity to become current on the first mortgage. Also, the homeowner is often able to have the second mortgage "stripped" --meaning discharged in bankruptcy. The Office of Mortgage Settlement posted a detailed progress report on the Settlement.

Why not offer a meaningful principle reduction on the first mortgage!? This would avoid costly litigation, time and patience in seeking a loan modification, and bankruptcy in some cases. The answer is that banks are profit driven entities that will do everything in their best interest--even after a national settlement agreement.

We remain hopeful the Settlement will have promising results in the future. In any event, there is hope--we offer real solutions in defending foreclosures, negotiating loan modifications, and bankruptcy filings--all under one roof.