TAUNTON, Mass. – A 53-year-old wife and mother fatally shot herself shortly after faxing a letter to her mortgage company saying that by the time they foreclosed on her house that day, she would be dead.
Police said that Carlene Balderrama used her husband’s high-powered rifle to kill herself Tuesday afternoon, shortly after faxing the letter at 2:30 p.m.
The mortgage company called police, who found Balderrama’s body at 3:30 p.m. The auction was scheduled to start at 5 p.m. and interested buyers arrived at the property in Taunton, about 35 miles south of Boston, while Balderrama’s body was still inside, according to Taunton police chief Raymond O’Berg.
Police did not immediately release the name of the mortgage company. O’Berg said Balderrama’s fax read, in part, “By the time you foreclose on my house I’ll be dead.”
O’Berg also said a suicide note found next to Balderrama told her husband, John, and 24-year-old son to “take the (life) insurance money and pay for the house.”
Joe Whitney, who works with Balderrama’s husband, a plumber, said that Balderrama handled the bills and her husband didn’t know about the foreclosure.
“John didn’t even know about it, that’s the surprise,” Whitney told The Boston Globe. “It’s just one of those awful, awful tragic events.”
Posted By George Beckus Esq
The Golik Law Firm
Florida’s troubled homeowners and their lenders will increasingly meet at the bargaining table under a state supreme court order issued today that aims to reduce a foreclosure overload.
The administrative order written by Chief Judge Peggy Quince creates a statewide program that requires mediation on all homesteaded properties before a foreclosure hearing is held.
It guarantees homeowners will have an audience with their lender to discuss whether a loan modification or short sale is an option instead of foreclosure.
It also means lenders will be doing more work on the front end of the foreclosure process, and paying for it.
Today’s order makes lenders responsible for paying a maximum mediation fee of $750 per case, which would help pay for the mediator and cover administrative costs.
Judges hope the mediation requirement will reduce the thousands of foreclosure cases clogging the system — a situation called “horrifying” in an August report issued by Florida’s Task Force on Residential Mortgage Foreclosure Cases.
In Palm Beach County alone, more than 27,550 foreclosures were filed between January and November this year — nine times the amount filed in all of 2004.
“Right now, we have a court system that is going to break with the volume of foreclosures,” said Boca Raton real estate Attorney Marlyn Wiener. “We’re at a meltdown point and have to find new ways to manage the situation.”
Each circuit court will approve its own mandatory program, and will have some leeway in how it is managed.
The main parts of the order, however, are the same statewide.
Every residential homesteaded property foreclosure will be referred to mediation, unless the lender and borrower agree otherwise. There are also waivers in the event a homeowner cannot be located or refuses mediation.
The homeowner must be referred to foreclosure counseling prior to mediation.
The mediation must take place no earlier than 60 days and no later than 120 days after a foreclosure suit is filed.
And the mediation must be provided by a non-profit organization with mediators specially trained and court certified in mortgage foreclosure matters.
“We’re not interested in forcing people to settle, but there seems to be an inability to communicate between the borrower and the lender,” said 11th Circuit Court Judge Jennifer Bailey, chairwoman of the statewide task force.
Judges say they often hear homeowners complain they couldn’t reach their lender, or that their paperwork was repeatedly lost.
Court-ordered mediation may remedy that. But no one thinks it’s a final solution, and some aren’t even sure it’s a good idea.
Sharon Bock, Palm Beach County’s comptroller and clerk of the circuit court, said she’s concerned that while it may alleviate judge workload, it could increase paperwork for her employees.
Foreclosure mediation has been optional in Palm Beach County for at least a year. Bock believes mandatory mediation isn’t a role the court should play.
“This process moves the courts from calling balls and strikes, from creating a level playing field, into the realm of a social service agency, picking sides,” she said.
Real estate attorney Wiener said the order does benefit the homeowner.
“It’s making a judgment call. Who do the courts want to help? If we are going to help, we’re going to help the homeowners,” Wiener said.
A handful of circuit courts began requiring foreclosure mediation earlier this year, including the 19th, which covers Martin, St. Lucie, Indian River and Okeechobee counties.
The Collins Center for Public Policy handles mediation for the 19th Circuit Court.
Of 2,850 mediations the center has handled, about 2,000 resulted in settlements reached out of court.
“I’m optimistic, but this is not a cure all,” said 19th Circuit Court Judge Shields McManus. “There are a lot of investment homes being foreclosed on and there are a lot of cases that don’t settle because the people simply have no way to pay the mortgage.”
Florida by the foreclosure numbers
•13 percent of Florida home loans were in foreclosure through September.
•6 percent of home loans were at least 90 days delinquent in September.
•In November, 53,000 foreclosures were filed on Florida homes.
Source: RealtyTrac, Mortgage Bankers Association
Posted By George Beckus Esq
The Golik Law Firm
LAS VEGAS — A Las Vegas woman says she was the victim of a horrible mistake that left her with an empty condominium and a lot of questions.
Nilly Mauck lived in her condominium for two years and said she never had problem until a series of strange events eventually led to a company coming into her home and throwing away everything she owned.
As Mauck walks around her now empty condo, she can’t help but remember how things used to look. Every room in the home is empty and Mauck says the reason is a mistake of address numbers. Her address is 1157, which is right next to 1156, a condo that is in foreclosure.
A few weeks ago, the foreclosed home was supposed to get locks changed but Mauck says that’s not what happened. “I came home to pick up something and there was a note on my door from the Brenkus Team of Keller and Williams Realty stating that they accidentally re-keyed the wrong door,” she said.
It was a problem Mauck thought was fixed, until she came home to find a man going into her home. Mauck says everything inside was missing.
She says she later learned her home had been trashed out, a process done to foreclosures where everything left inside is thrown away.
Mauck says she contacted the Brenkus Team. “I said give me $100,000 to $200,000 to replace my things because it will take time and that is being generous. And they said, ‘Ok, that is too much.’ She called me that day and told me they were only willing to give me $5,000,” she said. “My clothes, my wedding dress, baby pictures, wedding photos, my dishes, my towels, my jewelry, anything you could possibly have in your house. I kept asking them, ‘Where did you take my things because I was ready to go and dumpster dive,’ and they had no answer for me.”
She is now staying with friends, because she doesn’t want to go back to her condo. “I do not feel secure because I know someone has access to my door,” she said.
Attorney Michael Joe is a foreclosure specialist with the Legal Aid Center of Southern Nevada. He says a mishap similar to this happened six years ago when Countrywide emptied a condo belonging to Gerald and Katrina Thitchener in a mistaken foreclosure. “A number of people were sued. Countrywide ended up paying over $1 million in damages in that case,” he said.
Joe says proper legal steps and notifications must be followed when homes go into default.
Mauck admits she is behind on her payments, but that doesn’t change the fact they got the wrong house. For now, she is getting an attorney as she learns to live with just the clothes on her back.
Realtor Teri Brenkus with the Brenkus Team could not elaborate on the whereabouts of Mauck’s belongings, but says they are doing what they can to resolve the matter.
The company hired to remove everything from the condo is Rob and Renea’s Home Preservation. They also had no idea where Mauck’s belongings are.
Posted By George Beckus Esq
The Golik Law Firm
15 Fla. L. Weekly Supp. 453a
Mortgages — Foreclosure — Complaint dismissed for failure to state cause of action — Only document presented by plaintiff in support of claim that it owns and holds note and mortgage was mortgage payable to another party — Purported assignment filed in response to motion to dismiss, which did not contain name of assignee or recording information for mortgage, only clouds ownership issue
DEUTSCHE BANK NATIONAL TRUST COMPANY, TRUSTEE FOR GOLDMAN SACHS-FFMLT-2004-FF3, Plaintiff, v. SCOTT POPE, et al., Defendants. Circuit Court, 4th Judicial Circuit in and for Duval County. Case No. 16-2007-CA-008285-XXXX-MA, Division G. March 7, 2008. Lance M. Day, Judge. Counsel: Mark Olivera and Mark S. Kessler, for Plaintiff. Lynn Drysdale, for Mr. Pope.
ORDER GRANTING DEFENDANT, SCOTT POPE’S
MOTION TO DISMISS COMPLAINT
This case came on to be heard on February 11, 2008 on Defendant, Scott Pope’s Motion to Dismiss Complaint. The parties were represented by counsel and the Court having heard argument of counsel and reviewed the file and having been sufficiently advised in the premises, finds:
1. On or about September 18, 2007, Plaintiff, Deutsche Bank National Trust Company, Trustee for Goldman Sachs-FFMLT-2004-FF3 filed the above-styled case claiming a default in the mortgage and mortgage note attached to the Complaint.
2. The only documents attached to the Complaint were a letter from the Law Offices of Marshall C. Watson and a Mortgage payable to First Franklin Financial Corporation along with a prepayment rider, a planned unit development rider and an adjustable rate rider. No note was attached to the Complaint.
3. In response to the Defendant’s motion to dismiss, Plaintiff filed a Notice of Filing. Attached to the Notice was a Corporate Assignment of Mortgage dated March 4, 2004. This assignment was executed by Steve Barnett, a Vice President of Mortgage Operations of First Franklin Financial Corporation on March 4, 2004. This document does not reflect the recording information for the mortgage purportedly assigned and does not provide the name of an assignee. A copy of this assignment is attached hereto. [Editor's note: attachment omitted]
4. Rule 1.210(a) of the Florida Rules of Civil Procedure provides, in pertinent part:
Every action may be prosecuted in the name of the real party in interest, but a personal representative, administrator, guardian, trustee of an express trust, a party with whom or in whose name a contract has been made for the benefit of another, or a party expressly authorized by statute may sue in that person’s own name without joining the party for whose benefit the action is brought. . .
5. The only documents presented by the Plaintiff in support of its allegations that it owns and holds the subject note and mortgage do not support this allegation. Plaintiff has failed to provide a copy of the note; and the mortgage attached to the Complaint is payable to a different party. The assignment filed by Plaintiff only acts to cloud the ownership picture further. When exhibits are inconsistent with allegations of material fact as to who the real party in interest is, such allegations cancel each other out. Fladell v. Palm Beach County Canvassing Board, 772 So.2d 1240 (Fla. 2000); Greenwald v. Triple D Properties, Inc., 424 So. 2d 185, 187 (Fla. 4th DCA 1983); Costa Bella Development Corp. v. Costa Development Corp., 441 So. 2d 1114 (Fla. 3rd DCA 1983).
6. No Florida case holds that a separate entity can maintain suit on a note payable to another entity unless the requirements of Rule 1.210(a) of the Florida Rules of Civil Procedure and applicable Florida law are met. Corcoran v. Brody, 347 So. 2d 689 (Fla. 4th DCA 1977).
7. Because of the inconsistencies apparent in the documents filed by Plaintiff, this Court said not address the standing issue at this time.
Based upon the foregoing, it is ORDERED and ADJUDGED
A. Defendant’s Motion to Dismiss Plaintiff’s Complaint is granted for failure to state a cause of action.
B. Plaintiff shall have thirty (30) days from the date of this order to file an amended complaint.
C. Defendant shall have thirty (30) days from the date of service of the Plaintiff’s amended complaint to file responsive pleadings.
Posted By George Beckus Esq
The Golik Law Firm
Kathy Lovelace lost her job and was about to lose her house, too. But then she made a seemingly simple request of the bank: Show me the original mortgage paperwork.
And just like that, the foreclosure proceedings came to a standstill.
Lovelace and other homeowners around the country are managing to stave off foreclosure by employing a strategy that goes to the heart of the whole nationwide mess.
During the real estate frenzy of the past decade, mortgages were sold and resold, bundled into securities and peddled to investors. In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed.
Persuading a judge to compel production of hard-to-find or nonexistent documents can, at the very least, delay foreclosure, buying the homeowner some time and turning up the pressure on the lender to renegotiate the mortgage.
“I’m going to hang on for dear life until they can prove to me it belongs to them,” said Lovelace, a 50-year-old divorced mother who owns a $200,000 home in Zephyrhills, near Tampa. “I’ll try everything I can because it’s all I have left.”
In interviews with The Associated Press, lawyers, homeowners and advocates outlined the produce-the-note strategy. Exactly how many homeowners have employed it is unknown. Nor is it clear how successful it has been; some judges are more sympathetic than others.
More than 2.3 million homeowners faced foreclosure proceedings last year and millions more are in danger of losing their homes. On Wednesday, President Obama will unveil a plan to spend at least $50 billion to help homeowners fend off foreclosure.
Chris Hoyer, a Tampa lawyer whose Consumer Warning Network Web site offers the free court documents Lovelace used to file her request, has played a major role in promoting the produce-the-note strategy.
“We knew early on that the only relief that would ever come to people would be to the people who were in their houses,” Hoyer said. “Nobody was going to fashion any relief for people who have already lost their houses. So your only hope was to hang on any way you could.”
Tom Deutsch, deputy executive director of the American Securitization Forum, a group that represents banks, law firms and investors, dismissed the strategy as merely a stalling tactic, saying homeowners are “making lawyers jump through procedural hoops to delay what’s likely to be inevitable.”
Deutsch said the original note is almost always electronically retained and can eventually be found.
Judges are often willing to accept electronic documentation. And lenders are sometimes allowed to produce other paperwork to establish they are the holder of a loan. Still, assembling such documents to a judge’s satisfaction takes time, which to homeowners is the point.
Lovelace filed her produce-the-note demand last fall after the bank acknowledged that her original mortgage document had been lost or destroyed. Since then, there has been no activity on the foreclosure — no letters from the lender, no court filings.
The law firm handling the foreclosure for the lender refused to comment.
Posted By George Beckus Esq.
The financial tsunami unleashed by Wall Street’s esurient alchemy of spinning toxic home mortgages into triple-A bonds, a process known as securitization, has set off its second round of financial tremors.
After leaving mortgage investors, bank shareholders, and pension fiduciaries awash in losses and a large chunk of Wall Street feeding at the public trough, the full threat of this vast securitization machine and its unseen masters who push the levers behind a tightly drawn curtain is playing out in courtrooms across America.
Three plain talking judges, in state courts in Massachusetts and Kansas, and a Federal Court in Ohio, have drilled down to the “straw man” aspect of securitization. The judges’ decisions have raised serious questions as to the legality of hundreds of thousands of foreclosures that have transpired as well as the legal standing of the subsequent purchasers of those homes, who are more and more frequently the Wall Street banks themselves.
Adding to the chaos, the Financial Accounting Standards Board (FASB) has made rule changes that will force hundreds of billions of dollars of these securitizations back onto the Wall Street banks balance sheets, necessitating the need to raise capital just as the unseemly courtroom dramas are playing out.
The problems grew out of the steps required to structure a mortgage securitization. In order to meet the test of an arm’s length transaction, pass muster with regulators, conform to accounting rules and to qualify as an actual sale of the securities in order to be removed from the bank’s balance sheet, the mortgages get transferred a number of times before being sold to investors. Typically, the original lender (or a sponsor who has purchased the mortgages in the secondary market) will transfer the mortgages to a limited purpose entity called a depositor. The depositor will then transfer the mortgages to a trust which sells certificates to investors based on the various risk-rated tranches of the mortgage pool. (Theoretically, the lower rated tranches were to absorb the losses of defaults first with the top triple-A tiers being safe. In reality, many of the triple-A tiers have received ratings downgrades along with all the other tranches.)
Because of the expense, time and paperwork it would take to record each of the assignments of the thousands of mortgages in each securitization, Wall Street firms decided to just issue blank mortgage assignments all along the channel of transfers, skipping the actual physical recording of the mortgage at the county registry of deeds.
Astonishingly, representatives for the trusts have been foreclosing on homes across the country, evicting the families, then auctioning the homes, without a proper paper trail on the mortgage assignments or proof that they had legal standing. In some cases, the courts have allowed the representatives to foreclose and evict despite their admission that the original mortgage note is lost. (This raises the question as to whether these mortgage notes are really lost or might have been fraudulently used in multiple securitizations, a concern raised by some Wall Street veterans.)
But, at last, some astute judges have done more than take a cursory look and render a shrug. In a decision handed down on October 14, 2009, Judge Keith Long of the Massachusetts Land Court wrote:
“The blank mortgage assignments they possessed transferred nothing…in Massachusetts, a mortgage is a conveyance of land. Nothing is conveyed unless and until it is validly conveyed. The various agreements between the securitization entities stating that each had a right to an assignment of the mortgage are not themselves an assignment and they are certainly not in recordable form…The issues in this case are not merely problems with paperwork or a matter of dotting i’s and crossing t’s. Instead, they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts legislature. To accept the plaintiffs’ arguments is to allow them to take someone’s home without any demonstrable right to do so, based upon the assumption that they ultimately will be able to show that they have that right and the further assumption that potential bidders will be undeterred by the lack of a demonstrable legal foundation for the sale and will nonetheless bid full value in the expectation that that foundation will ultimately be produced, even if it takes a year or more. The law recognizes the troubling nature of these assumptions, the harm caused if those assumptions prove erroneous, and commands otherwise.” [Italic emphasis in original.] (U.S. Bank National Association v. Ibanez/Wells Fargo v. Larace)
A month and a half before, on August 28, 2009, Judge Eric S. Rosen of the Kansas Supreme Court took an intensive look at a “straw man” some Wall Street firms had set up to handle the dirty work of foreclosure and serve as the “nominee” as the mortgages flipped between the various entities. Called MERS (Mortgage Electronic Registration Systems, Inc.) it’s a bankruptcy-remote subsidiary of MERSCORP, which in turn is owned by units of Citigroup, JPMorgan Chase, Bank of America, the Mortgage Bankers Association and assorted mortgage and title companies. According to the MERSCORP web site, these “shareholders played a critical role in the development of MERS. Through their capital support, MERS was able to fund expenses related to development and initial start-up.”
In recent years, MERS has become less of an electronic registration system and more of a serial defendant in courts across the land. In a May 2009 document titled “The Building Blocks of MERS,” the company concedes that “Recently there has been a wave of lawsuits filed by homeowners facing foreclosure which challenge MERS standing…” and then proceeds over the next 30 pages to describe the lawsuits state by state, putting a decidedly optimistic spin on the situation.
MERS doesn’t have a big roster of employees or lawyers running around the country foreclosing and defending itself in lawsuits. It simply deputizes employees of the banks and mortgage companies that use it as a nominee. It calls these deputies a “certifying officer.” Here’s how they explain this on their web site: “A certifying officer is an officer of the Member [mortgage company or bank] who is appointed a MERS officer by the Corporate Secretary of MERS by the issuance of a MERS Corporate Resolution. The Resolution authorizes the certifying officer to execute documents as a MERS officer.”
Kansas Supreme Court Judge Rosen wasn’t buying MERS’ story. In fact, Wall Street was probably not too happy to land before Judge Rosen. In January 2002, Judge Rosen had received the Martin Luther King “Living the Dream” Humanitarian Award; he previously served as Associate General Counsel for the Kansas Securities Commissioner, and as Assistant District Attorney in Shawnee County, Kansas. Judge Rosen wrote:
“The relationship that MERS has to Sovereign [Bank] is more akin to that of a straw man than to a party possessing all the rights given a buyer… What meaning is this court to attach to MERS’s designation as nominee for Millennia [Mortgage Corp.]? The parties appear to have defined the word in much the same way that the blind men of Indian legend described an elephant — their description depended on which part they were touching at any given time. Counsel for Sovereign stated to the trial court that MERS holds the mortgage ‘in street name, if you will, and our client the bank and other banks transfer these mortgages and rely on MERS to provide them with notice of foreclosures and what not.’ ” (Landmark National Bank v. Boyd A. Kesler)
Lawyers for homeowners see a darker agenda to MERS. Timothy McCandless, a California lawyer, wrote on his blog as follows:
“…all across the country, MERS now brings foreclosure proceedings in its own name — even though it is not the financial party in interest. This is problematic because MERS is not prepared for or equipped to provide responses to consumers’ discovery requests with respect to predatory lending claims and defenses. In effect, the securitization conduit attempts to use a faceless and seemingly innocent proxy with no knowledge of predatory origination or servicing behavior to do the dirty work of seizing the consumer’s home. While up against the wall of foreclosure, consumers that try to assert predatory lending defenses are often forced to join the party — usually an investment trust — that actually will benefit from the foreclosure. As a simple matter of logistics this can be difficult, since the investment trust is even more faceless and seemingly innocent than MERS itself. The investment trust has no customer service personnel and has probably not even retained counsel. Inquiries to the trustee — if it can be identified — are typically referred to the servicer, who will then direct counsel back to MERS. This pattern of non-response gives the securitization conduit significant leverage in forcing consumers out of their homes. The prospect of waging a protracted discovery battle with all of these well funded parties in hopes of uncovering evidence of predatory lending can be too daunting even for those victims who know such evidence exists. So imposing is this opaque corporate wall, that in a ‘vast’ number of foreclosures, MERS actually succeeds in foreclosing without producing the original note — the legal sine qua non of foreclosure — much less documentation that could support predatory lending defenses.”
One of the first judges to hand Wall Street a serious slap down was Christopher A. Boyko of U.S. District Court in the Northern District of Ohio. In an opinion dated October 31, 2007, Judge Boyko dismissed 14 foreclosures that had been brought on behalf of investors in securitizations. Judge Boyko delivered the following harsh rebuke in a footnote:
“Plaintiff’s ‘Judge, you just don’t understand how things work,’ argument reveals a condescending mindset and quasi-monopolistic system where financial institutions have traditionally controlled, and still control, the foreclosure process…There is no doubt every decision made by a financial institution in the foreclosure is driven by money. And the legal work which flows from winning the financial institution’s favor is highly lucrative. There is nothing improper or wrong with financial institutions or law firms making a profit – to the contrary, they should be rewarded for sound business and legal practices. However, unchallenged by underfinanced opponents, the institutions worry less about jurisdictional requirements and more about maximizing returns. Unlike the focus of financial institutions, the federal courts must act as gatekeepers…” (In Re Foreclosure Cases)
While the illegal foreclosure filings, investor lawsuits over securitization improprieties, and predatory lending challenges play out in courts across the country, a few sentences buried deep in Citigroup’s 10Q filing for the quarter ended June 30, 2009 signals that we’ve seen merely a few warts on the head of the securitization monster thus far and the massive torso remains well hidden in murky water.
Citigroup tells us that the Financial Accounting Standards Board (FASB) has issued a new rule, SFAS No. 166, and this is going to have a significant impact on Citigroup’s Consolidated Financial Statements “as the Company will lose sales treatment for certain assets previously sold to QSPEs [Qualifying Special Purpose Entities], as well as for certain future sales, and for certain transfers of portions of assets that do not meet the definition of participating interests. Just when might we expect this new land mine to go off? “SFAS 166 is effective for fiscal years that begin after November 15, 2009.” There’s more bad news. The FASB has also issued SFAS 167 and, long story short, more of those off balance sheet assets are going to move back onto Citi’s books.
Bottom line says Citi:
“… the cumulative effect of adopting these new accounting standards as of January 1, 2010, based on financial information as of June 30, 2009, would result in an estimated aggregate after-tax charge to Retained earnings of approximately $8.3 billion, reflecting the net effect of an overall pretax charge to Retained earnings (primarily relating to the establishment of loan loss reserves and the reversal of residual interests held) of approximately $13.3 billion and the recognition of related deferred tax assets amounting to approximately $5.0 billion….” [Emphasis in original.]
I’m trying to imagine how the American taxpayer is going to be asked to put more money into Citigroup as it continues to bleed into infinity.
Citigroup is far from alone in financial hits that will be coming from the Qualifying Special Purpose Entities. Regulators are receiving letters from Citigroup and other Wall Street firms pressing hard to rethink when this change will take effect.
Putting aside for the moment the massive predatory lending frauds bundled into mortgage securitizations, inadequate debate has occurred on whether securitization of home mortgages (other than those of government sponsored enterprises) should be resuscitated or allowed to die a welcome death. If we understand the true function of Wall Street, to efficiently allocate capital, the answer must be a resounding no to this racket.
Trillions of dollars of bundled home mortgage loans and derivative side bets tied to those loans were being manufactured by Wall Street without any one asking the basic question: why is all this capital being invested in a dormant structure? Houses don’t think and innovate. Houses don’t spawn new technologies, patents, new industries. Houses don’t create the jobs of tomorrow.
Also, by acting as wholesale lenders to the unscrupulous mortgage firms (some in house at Wall Street firms), Wall Street was not responding to legitimate consumer demand, it was creating an artificial demand simply to create mortgage product to feed its securitization machine and generate big fees for itself. Now we see the aftermath of that inefficient allocation of capital: a massive glut of condos and homes pulling down asset prices in neighborhoods as well as in those ill-conceived securitizations whose triple-A ratings have been downgraded to junk.
There’s no doubt that one of the contributing factors to the depression of the 30s and the intractable unemployment today stem from a massive misallocation of capital to both bad ideas and fraud. Today’s Wall Street, it turns out, is just another straw man for a rigged wealth transfer system.
Posted By George Beckus Esq.
The nation’s massive foreclosure crisis is also, at its heart, a legal crisis. Many homeowners are losing their homes because they lack the ability to navigate the landscape of our lending laws. The Legal Services Corporation (“LSC”), the major federal source of funding for civil representation for the poor, reports that nonprofit legal services programs across the nation are “besieged with requests for foreclosure assistance.” Too few people are ever able to obtain qualified legal guidance. According to our findings:
•In Connecticut, over 60 percent of defendants facing property foreclosure in 2007-08 did not have counsel.
•In New York, 84 percent of defendants in proceedings in Queens County involving foreclosures on “subprime,” “high cost” or “non-traditional” mortgages (which are mortgages disproportionately targeted to low-income and minority homeowners) proceeded without full legal representation. In Richmond County (Staten Island), 91 percent of such defendants were unrepresented, and in Nassau county, 92 percent were unrepresented.
•In Stark County, Ohio, heavily impacted by foreclosures, data suggests that 86 percent of defendants facing property foreclosure did not have counsel in 2008.
Why Having a Lawyer Matters
Foreclosures may be inevitable for many individuals, but not for all. Legal representation can help many homeowners save their homes and, more broadly, help to stabilize neighborhoods at risk.
Many people have legitimate legal defenses that can halt foreclosure actions, or help open the door to alternative solutions, such as mortgage refinancing. But few homeowners and tenants are aware of their legal defenses. Among other important interventions, lawyers can identify violations of state and federal laws, enforce consumer protection laws, and advance defenses that can either inspire lenders to agree on sustainable loan terms, or slow foreclosure proceedings enough to create time in which to obtain alternative housing.
Barriers to Representation
Our nation’s civil legal aid system is ill-equipped to deal with increased demand for legal services. Civil legal aid, always underfunded, has suffered from acute shortages since federal funds were cut by one-third in 1996. Moreover, just as the need for legal representation has reached its apex, the recession has forced state and local governments and private charities to cut their support for legal services.
Further compounding the problem, federal restrictions imposed by the Congress on the Legal Services Corporation as an outgrowth of Newt Gingrich’s “Contract with America,” have undercut homeowners’ efforts to obtain protection from predatory lenders. Abusive lenders enjoy a full arsenal of legal tools, while homeowners relying on restricted legal aid attorneys are barred from joining class actions, claiming attorneys’ fee awards, or relying on their attorneys to advocate before legislatures and administrative bodies. Congress, through the 2008 Housing and Economic Recovery Act, provided one-time funding for lawyers to help foreclosure victims, but then explicitly prohibited the lawyers it had funded from engaging in any litigation.
Our underfunded and restricted civil legal aid system is critically important for African-American and Latino communities, which are more likely than other communities to be injured by predatory lending practices and to require the assistance of publicly funded counsel. Insufficient legal resources exacerbates the wealth divide between these communities and the rest of the nation and undermines the legitimacy of our justice system by perpetuating two systems of justice, one for people with means and another, inferior system for the poor.
Posted By George Beckus Esq.
About 25 percent of borrowers helped under the administration’s massive foreclosure prevention plan have already fallen behind on their new mortgage payments, according to government data that raise new questions about the program’s effectiveness.
The delinquency figures reflect the latest troubles of the program, known as Making Home Affordable. Earlier this week, Treasury officials announced a campaign to put new pressure on lenders to do more to move struggling homeowners into loans with easier terms.
So far, more than 650,000 borrowers have been enrolled into the initial, or “trial,” phase of the program and have seen their payments lowered by an average of $640 a month, or 40 percent. But a recent survey of large mortgage servicers published by the Treasury Department found that that more than 25 percent of borrowers in the program were not current on their trial payments.
Moving homeowners from the trial phase into a permanent modification has become the program’s latest stumbling block. Borrowers must make three payments and submit documents proving they qualify for the program to move forward, but a bottleneck has emerged with few homeowners making it through. For example, at a conference last month, J.P. Morgan Chase, which signed up more than 178,000 homeowners, noted that 22 percent of borrowers helped didn’t make their first payment.
If borrowers struggle to keep up with their modified mortgage payments, housing experts said, it could diminish the ultimate impact of the program, which the administration hopes will help up to 4 million borrowers. “I remain disappointed,” said Richard H. Neiman, New York’s superintendent of banks and a member of the Congressional Oversight Panel, which is monitoring the government’s bailout programs. “I am concerned that a quarter of trial mods are not current.”
Some borrowers have reported being confused about the trial modification process, including how their new payment was determined and when they need to begin paying, Neiman said. But the delinquency rate also reflects that some borrowers’ financial conditions have eroded since they received the initial loan modification, he said.
“If the borrower qualified under that reduced income but then subsequently lost the job entirely, they are more likely to fall behind on the payments,” said Andrew Jakabovics, associate director for housing and economics at the Center for American Progress. “Unfortunately, the program doesn’t allow for a second bite at the apple.”
But some government and industry officials say that it is too early to judge the program and unrealistic to expect all borrowers to keep up even after receiving help.
The purpose of the trial phase of the modification process is to give homeowners immediate relief while they submit proof that they qualify for the program and determine whether the reduced monthly payment is sustainable for them, said Meg Reilly, a Treasury spokeswoman. “Modifications may not be the right option for every homeowner,” she said.
In a written response to questions from the Congressional Oversight Panel, Herbert M. Allison Jr., Treasury’s assistant secretary for financial stability, noted that “over 73 percent of borrowers are current,” leaving more than 25 percent of them delinquent.
He also said Treasury has forecast an initial redefault rate of 40 percent on the foreclosure prevention program. That would be an improvement from the industry track record so far, which has seen more than half of borrowers become delinquent a year after their loans were modified, according to government data.
It may be that some modifications were given to borrowers who had no realistic expectation of keeping their home, said Mark A. Calabria, director of financial regulation studies at the Cato Institute. A few borrowers may be using the program to delay foreclosure and to find another way to save their home or just live for free, he said. “There is some positive amount of that,” said Calabria. And some borrowers should be going “straight to foreclosure — they aren’t sustainable under any reasonable circumstances.”
Many initial modifications were given to borrowers after a phone conversation with lenders but without written confirmation of their income or expenses, said Josh Denney, associate vice president of public policy at the Mortgage Bankers Association. The borrower “may have had a more optimistic outlook about how their finances were likely to go, how much income they would have available to make their payment on time,” he said.
The Treasury Department is expected to release data next week showing that the vast majority of borrowers remain stuck in the initial phase of the program.
More than half of the borrowers eligible for a permanent modification by the end of the year have not submitted all of the required documents, from pay stubs to tax returns, including some who have provided nothing, government officials have said.
Housing advocates say in many cases borrowers have submitted the necessary documents, but remain in limbo as they await a decision by the lender.
Posted By George Beckus Esq.
Recently, FDN has been deluged with a rash of cases where the borrowers were not provided with copies of their executed loan documents following closing and which they were provided with only after repeated demand and after a foreclosure issue arose. A disturbing pattern of conduct is emerging in these cases involving what appears to be the creation of fraudulent or altered loan documents with forged borrower initials and forged borrower signatures.
In several cases from California and other western states, the “income” page of the loan application has been altered, including such forms as closing the loops on a number “3” so that the borrowers’ income which was put down as $3,000.00 per month was changed to $8,000.00 per month. Another situation has occurred where a number “1” placed in front of the income figure so that for example $4,000.00 per month becomes $14,000.00 per month. The borrower’s initials on these altered pages have been forged, and forged signatures have come up on Prepayment Riders, Adjustable Rate Riders, and Option ARM Riders. In more than one case, the box which the borrower marked on the loan application for “fixed rate” was “whited out”, and the “Adjustable” or “ARM” box was checked. All of these alterations were done post-closing without prior knowledge or consent of the borrower, and in situations where the loan was sold as part of the securitization process.
As readers are aware from prior postings on this blog and others, the mortgages which were the most attractive (or necessary) for the “lenders” to provide to the aggregators and investment bankers were Option ARMs with prepayment penalties. It has become more than obvious that the lenders and their agents went to any extreme and engaged in any conduct, even illegal and felonious actions, in order to provide the “right” type of loan to the aggregator or investment banker. The innocent borrowers are only learning of this when they are threatened with or sued for foreclosure.
The arrogance of the lenders and their counsel has also extended to the Courts. In one case in Florida, the foreclosing party (Wells Fargo as the alleged “trustee” for holders of asset-backed bonds) moved for summary judgment claiming that the borrower’s mortgage had been assigned to the foreclosing party. No Assignment had been filed with the Court. When called on this by FDN attorney Jeff Barnes, Esq., the attorneys for the foreclosing party filed an alleged “Assignment” which contained no name or identity of any Assignee, yet the attorney still attempted to proceed with summary judgment! Needless to say, the summary judgment was denied, and the Court was not amused with the conduct of the attorney for the foreclosing party. The borrower has since moved for his own summary judgment which will be heard by the Court in the coming months.
In another case in Massachusetts, the borrower entered into a forbearance agreement with the lender. The agreement called for payments to be made by certain dates. Although the borrower made the payments by the dates required, the lender refused to accept the payments, sent the checks back to an incorrect address, and then claimed a “default”, thus manufacturing a fraudulent basis for instituting a foreclosure. To add insult to injury, the lender also claimed that the payment due date had been changed (which it was not) to further the lender’s intent to fraudulently manufacture an alleged default. The intervention of FDN attorney Jeff Barnes, Esq. stopped the post-foreclosure possession action (which was taking place between New Year’s Eve and the first week of January). The borrower has sued to vacate the foreclosure and restore possession of the property.
Posted By George Beckus Esq.
The holidays are supposed to be a time to help those in need. And in the parts of the country that remain mired in a prolonged housing crisis, many thousands of people remain at risk of losing their homes to foreclosure and thus are in need of help. A handful of judges have begun to come to homeowners’ rescue. Now these judges aren’t replacing their robes with a sheriff’s badge and chasing the evil lenders out of town. But they are acting aggressively toward lenders in a handful of cases that the WSJ’s Amir Efrati details in today’s Law Journal.
This is as it should be, at least in most cases, says Raymond Brescia, an assistant professor at Albany Law School who has written about the role of the courts in the financial crisis. Brescia believes judges can play an important role in helping to solve the country’s housing problems — as long as they don’t cross the line.
No doubt, the overwhelming majority of foreclosure cases before U.S. courts are in essence rubberstamped by the judges in favor of the mortgage companies, in part because the foreclosures are largely uncontested by the borrowers.
However, there is a category of cases in which judges have begun to act in a way that might be interpreted as aggressive, in that they demand lenders and mortgage companies follow the rules to the letter if they want to win in court. “I don’t think that’s a crazy idea,” Brescia says. “To expect plaintiffs to prove their case is what the judicial system is founded on.”
Furthermore, Brescia points out, judges long have had the power to sanction parties to a suit whose tactics appear abusive or who appear not to negotiate in good faith. So judges who have sanctioned lenders for not showing a good faith effort to work with troubled borrowers are acting within the historic powers and traditions of the court, he says.
Yet, there may be another category of judges, Brescia says, in which the judge decides he or she will favor borrowers regardless of the merits of the case. That runs counter to the traditional, legitimate role of the court and in fact might only trigger a backlash from legislators or regulators to rein in activist jurists. To decide to help borrowers without considering the specifics of the case “will undermine the integrity of the judiciary and that’s not going to help anybody,” says Brescia.
The WSJ’s story today says that at least one judge has been admonished for appearing to favor borrowers. In September, a Florida state appeals court ruled that a lower-court judge, Valerie Manno Schurr, erred in routinely delaying foreclosure sales by several months and making clear that she didn’t want to see people lose their homes. Her reasoning put concern for the homeowners ahead of the law, the appeals court said.
Judge Manno Schurr didn’t respond to the WSJ’s requests for comment.
Posted By George Beckus Esq