Foreclosure and brainlessness

A recent New York Times article illustrates the nonsensical nature of the foreclosure industry. After landlord Imar Hutchins missed one monthly mortgage payment on his apartment building, the bank immediately filed for foreclosure. Mr. Hutchins lender, then Washington Mutual, refused his payment thirty days later and refused the next series of payments he attempted to make. While Mr. Hutchins was sending checks in the amount of $3500, $7,500 and, finally, $25,000, the lender was proceeding towards a foreclosure judgment.

When Hutchins learned of the action, he was able to set aside the default and is now attempting to settle the case with his lender. But the bank departments not knowing what the other was doing- one negotiating with a very willing borrower and the other steamrolling towards foreclosure- illustrate a common problem many borrowers are currently facing. Borrowers who are attempting to negotiate loan modification need to be aware that their lenders may still file a foreclosure action, even if the loan modification appears to be going well. This may, sadly, be due to the fact that the lender’s litigation department may not know what the loan modification department is doing (if only we’d all communicate just a little more). Or, it may, as some suspect and just as sadly, be because the lender is misleading the borrower- stringing him/her along with promises of modification which are not being made in good faith.

Either way, it is borrower beware. If you are behind on your mortgage, a foreclosure action may be filed against you at any time. It does not matter if the loss mitigation/loan modification officer tells you otherwise.

Wells Fargo loan servicer taken to Court: Loan Modification Supervisor summoned to appear for questioning in homeowner’s bankruptcy case.

Many people are wondering, just what does it take to get a response to a loan modification request sent to a mortgage servicer and how to get a faster response. One woman received an unusual opportunity to question the servicer about the status of her loan modification- under oath.

As explained in a recent New York Times [http://www.nytimes.com/2009/09/04/business/economy/04wells.html?_r=1&scp=1&sq=bankruptcy%20loan%20modification&st=cse] article, an Arizona bankruptcy judge summoned a senior Wells Fargo executive to appear and answer questions, under oath, about a loan modification. The homeowner, who was forced into bankruptcy after losing her job, had been waiting months for a response. After cross examination by the homeowner (I can think of many people who would love the opportunity to question their loan servicer’s representative under oath), the Wells Fargo executive, who initially denied that the homeowner had supplied sufficient documentation, eventually admitted that everything requested had been provided. It turns out, the loan modification was denied months ago. However, Wells Fargo failed to notify the homeowner.

The judge’s decision is yet another example of the growing frustration with mortgage servicers who, for unknown reasons (although we could speculate on them) are slow to offer loan modifications to troubled borrowers. While little was accomplished in that bankruptcy proceeding (no one was sanctioned and, although the executive promised to resume negotiations with the borrower, the situation does not appear positive), by summoning Wells Fargo to court, the judge made a statement to loan servicers, which they will hopefully hear. A small victory of sorts for all those homeowners who have been waiting for months to hear back from the bank.

Want to keep your home? Short pay refinance may be an option

You have probably heard about the short sale process, where the lender allows the home to be sold for less than what is owed on the mortgage. In addition to the complications of needing the lenders approval (banks can take months deciding on whether or not to accept, during which time the buyer simply walks away), a buyer is needed. A short sale also does not help those who want to stay in their homes. Enter another solution: the short pay refinance.

In a short pay refinance works like this: Let’s say you owe 400,000 on your home, you are currently paying 8% interest on an adjustable rate loan and your home is worth about 330,000. You obtain a new mortgage for 330,000 or less than this amount (somewhere in the range of 80-90% of the value of your home) at a rate of 6% fixed for 30 years. Your payment decreases, you are no longer underwater, which gives you more incentive to continue paying your mortgage as you are building equity and there will be no interest rate increase in the future.

In order for a short pay refinance to work, you lender has to be willing to accept the lesser payment on your loan and the new lender needs to qualify you. Generally, a short pay refinance situation will only work if you are current on your mortgage payments but can show that you are having trouble paying. If you have fallen behind, you have much less chance of getting qualified. However, if you are serious about staying in your home, can show the ability to make payments and can find a lender willing to finance the short pay loan, you may be able to convince your current lender to accept the short pay refinance.

Keep in mind that a short pay refinance has some of the same risks as a short sale. The lender who accepted less money may report this information to the credit bureau, which will effect your credit down the road. The lender must also agree to waive any deficiencies associated with the short payment.

A short pay refinance can be a tough sell to your current lender and will likely require a well documented offer as well as careful negotiation.

FEARING RATHER THAN FACING FORECLOSURE

I learned a great deal about fear from my first rock climbing instructor. When you are hundreds, if not thousands, of feet off the ground, secured by a thin rope and need to convince your mind that nothing will happen to you, the experience alone can teach a great deal about fear, especially when you’re afraid of heights, as I am. But the instructor taught me that there are two types of fear: the one that freezes you (hanging on a rock wall and refusing to go any farther) and the one that makes you more cautious and makes you evaluate your decisions more carefully (double checking your belay loops and, sometimes, your belayer.)

Fear is often associated with foreclosure, and for good reason. The loss of one’s home, legal proceedings against a bank or lender, a.k.a, the big guy with all the power, is enough to freeze anyone in his/her tracks. And many people do. Most people do not fight foreclosure. They simply give up, do not answer the summons and let the bank get its judgment.

This action is equivalent to freezing on the rock wall mid-climb. The situation feels so scary that inaction seems to be the safest thing to do. But, much like in rock climbing, inaction during a foreclosure fails to protect you.

Although it seems so cut and dry (you owe money, the bank can take your house), foreclosures rarely are. The bank has a case to prove and it may not be able to do so. This does not mean that you can stay in your house forever without paying, but it does give you some options for negotiating with the bank. Much like the rock climber who needs to check safety equipment, you, too, should examine your options before deciding that there is nothing you can do.

There is another reason not to go the “do nothing” route. While you may be prepared to walk away from your house, the foreclosure may not end for you at the time of sale. If your house sells for less than what you owe (and, in a foreclosure, this is bound to happen). the lender has the right to obtain a deficiency judgment. The lender also has up to 10 years to collect on that judgment, depending on what steps the lender takes. While a judgment may not be a concern in your present circumstances, it might be a big deal later on when the bank begins collection proceedings. You might be able to avoid this in a successful foreclosure settlement by getting the bank to waive its right to collect a deficiency judgment.

Foreclosure is scary and it may make you feel that you have no options. But, in many cases, you do. Before you walk away from your biggest investment, you need to know what those options are. At the very least, you may need to protect yourself from having your wages garnished or a lien placed on future property. After all, if you are walking away from your home or other property, you need to make sure the door is completely shut when you leave.

LOAN MODIFICATION AND HAGGLING: IS THAT THE BEST YOU CAN DO?

Haggling is such an intrinsic part of many cultures. Visitors to a Chinese marketplace or an outdoor bazaar in Morocco wouldn’t think twice about engaging in some back and forth about the price of an item. Its expected even. The practice isn’t as mainstream in the United States. Or is it. After reading an article about the increase in price haggling in the United States during the current recession (a bitter relief to finally use that word), where haggling was used to negotiate the price for goods such as electronics and furniture as well as services such as doctor visits and dry cleaning, perhaps our Western civilization is finally grasping the concept. And perhaps we should take the concept and apply it to loan modification.

Many people are struggling to convince their lender to modify their current loan, to negotiate a lower interest rate with their credit card company. The following haggling tips may be useful in a successful modification.

Be patient and be nice- You are dealing with an overworked loan officer whose phone is ringing constantly and who is receiving more letters than Santa Claus. Following up patiently yet persistently will help the situation, while demands will likely send your hardship letter to the bottom of the pile.

Set your standards- If you want to keep your house, you still have to pay your lender. If you want to lower your payment by reducing the amount of interest, your lender will probably want to extend the length of your mortgage. Be prepared to accept some sacrifices to achieve your overall goal of keeping your home.

Ask for freebies- When haggling for an item, you may offer to pay more and ask for another item to be thrown in for free. You’re not going to do that with your mortgage. But there are other ways to sweeten the deal. For example, prior to your asking for loan modification, you didn’t pay your mortgage at all or didn’t pay on time. Your non payment resulted in late fees being added to your mortgage and your late payment was reported to the credit bureau. Both of those items may be removed as part of your mortgage modification.

Accept the offer when the price is right- Your lender is not going to make life easy for you. If your lender believes that you are able to pay your mortgage with some sacrifice, your lender will want you to do so. Be prepared to cut items out of your budget in order to make a monthly payment. Make sure your payment reflects that.

Avoid foreclosure? Move into a smaller house

In what appears to be a not so novel idea, Professor Michael Zelin of Kent State University posed the following as a method to avoid the foreclosure crisis: trade down. Literally.

Zelin's theory is that borrowers who cannot afford their payments move into a smaller home owned by, you guessed it, another borrower who cannot afford the payments, who then, you get the idea. This seems almost a reverse pyramid, but, as Zelin puts it, this is what people are doing anyway in this current climate. Just not in this orderly fashion. Most people who lose their homes to foreclosure either rent a smaller place or move in with family and friends. Trading rent for a mortgage payment is simply a means of paying less per month. If Zelin's idea takes off (and its hard to imagine the bank's endorsing this or assisting with the procedure of moving homeowners in an orderly fashion), homeowners are trading a too high payment for one that is within their budget.

It is estimated that there will be 3 million foreclosures nationwide. Buying a house will not be an option for any of them with their post foreclosure credit scores. Most will live with family and friends. Some will be able to rent. But many will be what is being referred to as the "floating homeless". The banks, in their slower than molasses approach to loan modification, aren't doing enough to reduce these numbers. Perhaps its time to start thinking outside the box.

Foreclosures are often in bank’s best interest.

Yep, you read that right. While many, this blog writer included, are inclined to believe that foreclosure is disadvantageous for the bank, experts suggest that it’s the bank’s best option to deny loan modification and proceed with foreclosure. In several scenarios at least.

There is one type of situation where everyone seems to agree that loan modification is in the bank’s best interest. If the borrower can't sustain the present payments, either because the principle is too high or the interest is, but can make the modified payments.

In the case of a borrower who can’t make the modified payments under any circumstances, it makes sense for the bank to deny loan modification. But, in two other types of cases, there is no obvious answer, although data appears to suggest which way the bank wants to go.

There are borrowers who can catch up on their payments, but at great financial sacrifice, such as using the overwhelming majority of their monthly income to make the mortgage payment, what is sometimes referred to as “house poor”. In other words, bag your lunch, don’t take vacations and hope that there is no medical illness or unexpected event in your life. The quality of life may be lower and the lever of anxiety may be higher for these borrowers, but the bank has little financial incentive to help them.

The second subcategory of borrowers are those who can catch up, but will take a long time in doing so. Unlike the above example, where the borrower can make immediate changes and have the ability to pay, these borrowers may be able to cure over time. Whether it’s the uncertainty or the need to have it happen now, banks don’t appear interested in helping these borrowers.

The bottom line is that there will be no help to a foreclosure situation without at least some self-help from the borrower. The statistics show that a successful loan modification depends on convincing that bank that you can pay the modified amount, but that you cannot pay the present amount under any circumstances.

New foreclosure filings must be now be reported to the county in accordance with the new Miami-Dade law .

As of July 10, 2009, lenders are required to register homes in Miami-Dade county when foreclosure proceedings are filed. Once a property is registered, the Miami-Dade Office of Neighborhood Compliance will inspect the property. If the owners have vacated, the lender will now be responsible for maintaining the property.
Unfortunately, the new law applies only to homes in unincorporated areas of Miami-Dade county. Efforts at a statewide registry failed as the proposal was rejected in the state legislature.

The new law makes an attempt to keep lenders responsible for properties they are about to own. There is hope that this will cause less decline in value as the properties will be

Condo foreclosure reform movement continues in South Florida

In addition to homeowners, Florida condominium associations are also feeling the effects of foreclosure. With many owners facing foreclosure or in the foreclosure process, condominium associations have seen a substantial decline in collection of maintenance fees needed to maintain their operating budgets. Some associations have been forced to raise fees on all owners and cut back on services. In the worst cases, utilities have been shut off and some, like Miami Beach association, Maison Grande, have been forced to to file for Chapter 11 bankruptcy.


About 100 condo owners from Miami Dade and Broward condominium associations met last week for a second in a series of meetings, hoping to encourage the Florida legislature to address the foreclosure crisis and relieve its impact on the condominium associations. Unfortunately, much like the present foreclosure crisis, there appears to be no immediate relief in sight.

Foreclosure rescue scams continue in South Florida: Seven new companies being investigated

Despite the passing of the Florida Foreclosure Fraud Rescue Act, the Florida attorney general began investigating seven more foreclosure rescue companies, bringing the total number of companies under investigation to 11. The companies are based in Miami-Dade, Broward and Palm Beach county.

A Miami-based mortgage modification outfit, Lincoln Lending Services LLC, targeted Hispanics facing foreclosure, said state officials who sued the company in March. The suit filed by Attorney General Bill McCollum claimed Lincoln Lending and its owner, Rita Gomez, defrauded 10 homeowners and violated the state's deceptive and unfair trade practices law by assessing upfront fees.

The Attorney General is seeking a court order dissolving the companies and obtaining restitution for the consumers who paid money to these companies. Refunds may be hard to come by as the companies telephone numbers are already disconnected and the owners are likely nowhere to be found.

Florida homebuyers face bidding wars while lenders hold back foreclosures to increase competition

Florida real estate investors and first time homebuyers, seeking to make profit or capitalize on the $8,000 tax credit, are facing competition for homes priced under $200,000. It is not uncommon, in fact it is becoming the norm, for homes in this price range to become the object of a bidding war and, in some instances, to sell for more than the asking price.

Despite the encouraging signs of this apparent turnaround- prices leveling off, inventory being reduced, market researches warn that the foreclosure crisis is far from over. For one thing, it will take more than investors and first time homebuyers to bring the market back from its current sluggishness. Another concern is that Florida unemployment keeps rising, which means that more homeowners will likely face foreclosure.

But more disturbing is the suspected practice of lenders in creating an artificial price increase. Some observers suspect that lenders are holding back the supply of foreclosed homes, promoting bidding wars to increase prices now before the flood of new listings further depresses prices. Banks dispute that notion. They say they're overwhelmed with foreclosures and try to market them for sale as quickly as possible. Holding onto foreclosed properties, the banks argue, only costs the bank more money. One can't help but wonder: if the banks realize that foreclosure is not in their best interest, then why are the banks fighting alternatives to foreclosure?

Florida Foreclosure filings decreased but Florida foreclosures remains high in national foreclosure rate

In a previous post, I discussed the decrease in foreclosure filings over the past month. Experts suggested that this was no cause for celebration. It turns out that the experts are correct.

Florida foreclosures are the third highest in the nation, according to realty trac. From January through June, 2009, 3% of Florida homeowners received at least one foreclosure filing. Florida's foreclosure rate is even more disturbing. With 268,064 properties receiving a foreclosure filing in the first six months of 2009, Florida documented the second highest state total number of foreclosure filings. Florida foreclosure activity in the first half of 2009 increased 7 percent from the previous six months and was up nearly 42 percent from the first half of 2008.

It is clear that Florida foreclosures will continue at an alarming rate as more and more homeowners are affecting by foreclosure. As unemployment is expected to rise, it is a certainty that this will lead to more foreclosure filings as well.

Foreclosure law: Foreclosed property prevention program suffers setbacks, falls well short of goals

Since the launching of the foreclosed property prevention program four months ago, only around 13,000home loans have been refinanced, far short of its admittedly lofty goal of helping 2 million homeowners.

It is not surprising that one of the main reasons for this underperformance is the failure of lenders and services to implement the policy goals. For example, under the program, refinancing should be made available to homeowners who owe up to 125 percent of their home value. Instead, Fannie Mae and Freddie Mac, have delayed buying these loans. As a result, lenders are not accepting the loan applications. Another example: while loans with insurance can be refinanced under the program, banks are refusing to accept applications from borrowers with mortgage insurance.

All of this points to a serious lack of accountability. The banks are simply refusing to follow the requirements of the program and offering no explanations for why they will not do so. In the case of loans with mortgage insurance, however, the answer appears pretty obvious.

It is also pretty clear that, unless banks are under far more pressure to negotiate with homeowners, they simply will not do so.

Florida foreclosure filings decline by 50% in June: experts warn that the numbers are misleading.

On July 17, 2009, the Miami Herald reported that new foreclosure filings in South Florida dropped 50% from May to June. While this may sound encouraging, lenders took back nearly double the number of homes in foreclosure actions and experts warn that the foreclosure crisis is far from over.
Despite all efforts by the Obama administration to make loan modification available to borrowers, all reports point to only a small number of homeowners receiving loan modifications. One of the main reasons is, in theory, due to the fact that lenders still do not understand the loan modification process. Lenders are also completely overwhelmed by the number of homes in foreclosure, which further slows down the process.
Even though the overall picture remains discouraging, there is hope for homeowners facing foreclosure. Loan modification, although difficult to obtain, is a viable option. At the end of the day, the bank does not want to own all of these homes. The foreclosure process is time consuming and expensive for lenders and the end result is that the home is sold at auction for a fraction of its previous sales price. The bank may receive all cash on the sale, but will still have a significant loss. It may be better for the bank to continue receiving payments from the homeowner in foreclosure, even if those payments are lower as a result of loan modification.
Loan modification is a difficult process, especially for homeowners attempting to do it themselves. Homeowners need to call their lenders repeatedly and incessantly, up to several times per day, to even reach a representative who can begin the loan modification process. The loan modification process is extremely time consuming and difficult, especially for a homeowner who is trying to keep his/her job at the same time. Hiring a foreclosure defense law firm or foreclosure lawyer with experience in negotiating loan modifications may be the best route for homeowners facing foreclosure. Anyone with questions regarding loan modification or foreclosure is encouraged to contact an foreclosure attorney.
The information included in this article has been prepared by Lori Barkus, Esq. for information purposes only and is not intended to be a substitute for legal advise from your own legal counsel. Transmission of such information is not intended to create, and receipt does not constitute, an attorney-client relationship between Lori Barkus, Esq. and the receiver. No information in this article should be acted upon any person, entity or firm without first obtaining proper legal advise. Be advised that the act of sending electronic mail or any telephone communication with Lori Barkus, Esq. or Lori Barkus P.A. does not in and of itself create an attorney-client relationship.
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Facing foreclosure? What not to do

You’ve been served with a foreclosure action. Like many people, you are probably receiving lots of advice and unsolicited mail and telephone calls urging you to take one action or another. Foreclosure is overwhelming enough and now you have to decide what to do. Depending on your situation, there may be options for you and picking the best one is a matter of understanding the facts and circumstances and reviewing them with someone who is knowledgeable about both the law and the foreclosure process. If you make the wrong first move, your foreclosure action may be over before you have a chance to decide. Below some common mistakes made by homeowners facing foreclosure.

1. Do nothing: Remember when you were a little kid and you’d hide under the covers when you were scared? Many people have that same reaction as adults. If they ignore a problem, it will go away. In the case of foreclosure, the only thing that will go away if you ignore it is your house and the possibility of your keeping it or avoiding a judgment of foreclosure against you.
2. Go to court without representation: Some people decide that they will wait until there is a court date. At that point, they figure they will show up, tell the judge their story and he/she will not allow this to happen. This does not work because, while a judge may sympathize with your situation, the judge is required to follow the law. In order to prevent a foreclosure, you need to have a legal defense.
3. Fall victim to a scam: Unfortunately, there are people out there seeking to take advantage of homeowners who have been served with a foreclosure action. In a previous post, I discussed some of the more prominent foreclosure scams. Beware of any non lawyer who charges an upfront fee, anyone who offers to help by taking title to your home, or placing your home “in trust” while you work with the bank or any phone offers promising to stop foreclosure. Sadly, these scams exist and many who are already in an unfortunate situation have become victims.