Florida Foreclosure Lawyer

UPDATE: Senate Majority Leader Harry Reid (D-Nev.) supports Bank of America’s decision to halt foreclosures across the nation, according to a release. “I thank Bank of America for doing the right thing,” he said in a statement, calling on other lenders to follow the bank’s lead and expand their foreclosure moratoriums.

Bank of America will stop foreclosures in all 50 U.S. states, CNBC and the Wall Street Journal report.

Last week the bank, the country’s biggest by assets, announced it was halting foreclosures in the 23 states where foreclosures are processed in court, saying it needed to review foreclosure documents for potential errors. Now, the bank has extended that moratorium to all 50 states as it has decided to stop sales of foreclosed properties, blocking a major step in the foreclosure process.

The decision comes as a foreclosure crisis threatens the nation’s housing market and larger economy. Reports of foreclosure processors approving documents without properly reviewing them and bank agents changing locks on the doors of houses that aren’t even in foreclosure — while the residents are inside — pile ambiguity and scandal on the foreclosure system. Delays in the process further cripple the weak housing market.

Already, foreclosure ambiguities have begun to stall sales of foreclosed properties. The New York Times describes the case of a woman who was about to move into a house when Fannie Mae declared the property’s foreclosure might not have been valid, and she was told to wait. While owners of foreclosed homes may be glad to see these proceedings halted, buyers of those homes — and the larger housing market — are suffering.

Analyst Christopher Whalen predicts the country has slogged only a quarter of the way through the massive foreclosure process, which he said could incite a crisis that would touch every corner of the U.S. economy.

In the years leading up to the housing crash, investors hungered for risky mortgages that banks would bundle and re-package into securities. This arcane market drove banks to initiate more and riskier mortgages at break-neck speeds. Consultant Janet Tavakoli has said the massive amounts of shoddy paperwork that accompanied this process are now being exposed, wreaking havoc on the banks and on the economy.

Posted by George Beckus Esq
The Golik Law Firm
904-448-5335

A coalition of as many as 40 state attorneys general is expected Wednesday to announce an investigation into the mortgage-servicing industry, an effort some of them hope will pressure financial institutions to rewrite large numbers of troubled loans.

The move comes amid recent allegations that mortgage-servicers, which include units of major banks such as Bank of America Corp., submitted fraudulent documents in thousands of foreclosure proceedings nationwide.

The banks say the document problems are technical—largely the result of papers approved by so-called robo-signers with little review—and don’t reflect substantive problems with foreclosures. Still, they have drawn criticism from consumer advocates and state and federal lawmakers.

“I think the mortgage-servicing firms need to understand that they face real exposure now, and they would be well advised to take this very seriously, to clean this up by doing loan workouts to keep people in their homes, which up till now they’ve just paid lip-service to,” said Ohio Attorney General Richard Cordray.

Some in Congress have called for a moratorium on all foreclosures until the documentation issue is resolved, though senior Administration officials Monday again declined to endorse that idea. Servicers that have lied to courts by filing incorrect paperwork “need to suffer the consequences for their irresponsible actions,” said Shaun Donovan, the Secretary of the U.S. Department of Housing and Urban Development. But “where we have not found problems with particular servicers…we do have some risk of going too far.”

The attorneys’ general immediate aim is to determine the scale of the document problems and correct them. But several of them have said that the investigation could force the lenders and servicers to agree to mass loan modifications or principal forgiveness schemes. Other possibilities include financial penalties or changes in mortgage servicing practices.

Lenders and servicers have largely resisted reducing principal on mortgages, instead focusing on interest-rate reductions or term extensions. Banks say they are worried about lawsuits from investors, some of whom could lose money in a principal write down.

Former New Jersey attorney general Peter Harvey, now a trial lawyer in New York, said that a settlement with state attorneys general would likely “to give the banks some cover” to make changes that might otherwise result in lawsuits by investors in mortgage-backed securities.

The mortgage servicers had little to say in response to an impending multi-state probe. “We will work with the attorneys general to address the concerns they have expressed,” said Dan Frahm, a spokesman for Bank of America.

“We look forward to cooperating with the attorneys general,” said a spokesman for J.P. Morgan Chase & Co., which has suspended foreclosure sales and evictions in 23 states in response to questions about it use of robo-signers. A spokesman for Citigroup said the company, has “no reason to believe our employees have not been following” proper procedures in processing foreclosures. A spokeswoman for GMAC Home Mortgage Inc, a unit of Ally Financial, Inc, said it continued to review its loan documents.

The number of servicing companies that will be included in the probe hasn’t been determined.

Iowa attorney general Thomas Miller, who is leading the effort, said his office might take cues from an investigation brought by Massachusetts attorney general Martha Coakley. She successfully pressured Bank of America Corp. in March to reduce mortgage-loan balances by as much as 30% for thousands of borrowers, using the threat of a lawsuit to get a settlement, though documentation problems were not at issue then.

The primary weapon the states could wield would be their respective laws against unfair and deceptive acts and practices, said Prentiss Cox, a professor of law at the University of Minnesota and former Assistant Attorney General in Minnesota.

Those laws are easier to apply, however, when a lender misleads a borrower than in pursuing problems with foreclosures related to documentation, he said. Individual attorneys general could also bring actions under states’ various foreclosure laws.

Illinois Attorney General Lisa Madigan said she was preparing to introduce legislation meant to tighten foreclosure laws and prevent document errors in the future. She also is pushing federal representatives to resurrect a bill that would allow bankruptcy judges to “cram down,” or cut, a troubled homeowner’s mortgage debt.

“The immediate goal is to stop fraudulent foreclosure and to require that the lenders and servicers are following the law. But that’s the bare minimum. That’s what they have to do to follow the law,” she said.

Nearly a dozen attorneys general nationwide, including Ms. Coakley and Mr. Miller, have called on lenders and servicers to suspend foreclosures until document irregularities are studied and corrected.

Top lawyers from multiple states have gone after mortgage lenders before. In 2008, Bank of America Corp. settled charges brought by 15 attorneys related to accusations of predatory lending in its Countrywide Financial Corp. unit, granting loan modifications worth $8.4 billion to thousands of homeowners.

Mr. Cordray, of Ohio, last week became the first attorney general to sue a mortgage servicer, when he filed suit against GMAC Mortgage LLC. The suit also named as a defendant GMAC employee Jeffrey Stephan, an alleged “robo-signer,” who said that he signed off on thousands of court documents related to foreclosures without reading them first.

GMAC announced that it was suspending foreclosures in the 23 U.S. states where judges are required to sign off on them after news of Mr. Stephan’s activities surfaced. J.P. Morgan Chase & Co.’s Chase Home Mortgage unit suspended judicial foreclosures soon after, and Bank of America followed suit. On Friday, Bank of America widened its foreclosure freeze to all 50 states.

Some attorney generals would like to look beyond the narrow issues raised by the robo-signing. The issue “I’m most engaged in right now is the big servicers who are initiating foreclosures while the borrower is in the modification process,” said Arizona Attorney General Terry Goddard

Posted By George Beckus Esq
The Golik Law Firm
904-448-5335

Even as the Obama administration’s signature foreclosure-prevention program has foundered, Treasury Department officials have known that a key driver in keeping people in their homes in the long run is reducing mortgage principal, senior Treasury advisor Seth Wheeler told the Huffington Post. Wheeler is one of the architects of the administration’s housing plan.

But rather than pressure the mortgage companies to start reducing the amount mortgage-holders owe, the administration simply sat back and hoped servicers would do it on their own.

“When the administration came into office last year, from the get-go, it has certainly been aware of the link between negative equity and challenges in housing,” said Wheeler. “As the administration initially designed the modification program last year, it was aware of negative equity, was aware that some servicers were doing principal reductions.”

But the administration “specifically had designed the program to allow principal reductions without taking a position of where principal reductions would be most advantageous,” he said.

So for the past year, the administration had a policy of “rather than us endorsing a uniform approach to principal reductions, let’s give flexibility to servicers and hope that they do it on their own in the right circumstances,” Wheeler said.

Now that the program has been universally panned, the administration is working on ways to be more assertive on that point, he said.

In the meantime, mortgage delinquency rates and foreclosures have continued to rise. The number of homeowners “underwater” — those owing more on their mortgage than the home is worth — now stands at roughly 11 million, about a quarter of all mortgage holders, according to real estate research firm First American CoreLogic. It’s expected to increase.

“Negative equity is the single most important driver of defaults,” Laurie S. Goodman, senior managing director at Amherst Securities and a top mortgage bond analyst, said Tuesday during a panel discussion at the American Securitization Forum’s annual conference.

Wheeler, who was on the panel, listened for an hour as mortgage experts lambasted the administration’s foreclosure-prevention efforts, saying it’s been inadequate; will ultimately be ineffective in its current form; and doesn’t address the underlying causes driving foreclosures. In short, as it’s currently constructed, it’s destined to fail.

“Clearly negative equity creates — especially for borrowers that have a financial hardship and have a high LTV [loan-to-value ratio], a very high LTV — a complicating factor, and it certainly makes it more challenging to make a modification work for borrowers,” Wheeler told HuffPost.

In an interview, Wheeler said the administration is trying “to understand how to encourage more principal reductions.”

Less than 10 percent of permanent modifications under the administration’s Home Affordable Modification Program have involved principle reductions.

“I won’t take a position on whether there’s been too much or too little, but we are studying if it is being used as effectively as it should be,” Wheeler said. “There could be better outcomes.” Referencing those mortgages that have been sliced and diced and sold to investors, Wheeler said the administration “is encouraging more principal reductions in instances where we find that it would maximize recovery to investors.”

Simply reducing interest rates for five years, which the Obama administration’s program does for homeowners who transition out of three-month trial periods, is “a purely temporary modification [that] ultimately doesn’t solve the problem,” said Micah Green, a partner at Patton Boggs LLP, a Washington law firm that represents a mortgage-investor group of asset managers who hold more than $100 billion in residential mortgage-backed securities.

Without principal reductions, “there is a growing realization within the administration and on Capitol Hill that it’s very difficult to bottom out the housing market,” Green said.

“The interests of investors are totally aligned with those of homeowners,” he added. “Investors are willing to put money on the table and frankly take their losses, which they already have.”

Wheeler acknowledged that, from an economic perspective, principal cuts are the way to go.

“Certainly on both second [lien mortgages] and first [lien mortgages], principal reductions can actually reduce total losses from an economic perspective [and] from a finance perspective,” he said.

The administration is also under pressure because losses on AAA-rated subprime mortgage-backed securities are growing.

These securities were designed so that different classes of investors got different rates of return depending on the risk they were willing to take. Those who agreed to take on the first losses, for example, got higher rates of return.

But increasingly over the past few months, the amount owed to investors has begun to eclipse the value of the mortgage principal in the securities, said Alan M. White, a professor at Valparaiso University School of Law and an expert on mortgage-backed securities and housing issues. Those at the bottom rung — the ones who agreed to take first losses — had already taken their lumps as homeowners fell behind on payments or defaulted. Now it’s investors at the top of the food chain who are recording losses.

White said that is creating a growing sense of urgency among investors to do something now to keep homeowners in their homes so they can keep making their monthly payments, which go to investors.

Despite the fact that many experts — including some in the administration — agree that principal cuts are the best way to resolve the foreclosure crisis, there are impediments.

Wheeler said issues of fairness are complicating efforts. So is moral hazard, a theory that posits that when people enjoy the fruits of their actions without having to suffer any of the consequences they do it more. It’s something Treasury officials have repeated on conference calls with reporters when discussing the administration’s foreclosure-prevention efforts.

“Not just in a general sense,” Wheeler said. Specifically, he pointed out, “there are many analysts on Wall Street who say do not reduce principal because anything you do to encourage borrowers to behave differently, so as to obtain a certain outcome, that could actually encourage more delinquencies.”

But that’s not the real problem, said one mortgage expert. It’s politics.

“They’ve been preoccupied with this whole moral hazard idea. The administration has been obsessed with it,” White said. “It’s more of a political hazard issue.”

White argues that the administration is scared of the political fallout if some homeowners are seen as being bailed out by the government while their neighbors struggle. After hundreds of billions of taxpayer dollars were used to bail out banks and the financial system — a tab that could reach into the trillions — moral hazard should no longer be a concern, White says.

Asked if the housing situation has deteriorated to a point where moral hazard should no longer be an issue, Goodman of Amherst Securities said: “I think so.”

White points out there are ways to ensure only the most deserving homeowners catch a break. On that point, Wheeler agreed.

As White put it: “They’re going to lose the ability to be in denial very soon.”

POSTED BY GEORGE BECKUS ESQ
THE GOLIK LAW FIRM
904-448-5335

As terrible as it is to lose your house to foreclosure, at least it’s a relief to put your biggest financial headache behind you, right?

Wrong.

Former homeowners may still be on the hook if there’s a difference between what they owed on their mortgage and what the bank could sell it for at auction. And these “deficiency judgments” are ticking time bombs that can explode years after borrowers lose their homes.

It can even happen to people who got their bank to approve them selling their home for less than it is worth.

Vanessa Corey, for example, short sold her Fredericksburg, Va., home in April 2008. She and her husband built the house in 2004, but setbacks, both personal (divorce) and professional (housing bust), made it impossible for the real estate agent to keep her home. So she negotiated the short sale and thought that was the end of it.

“My understanding was that the deficiency was negotiated away,” she said. “Then, last November, I got a letter from a lawyer telling me I owed my lender $65,000. I had to declare bankruptcy. There was no way I could pay it.”

Many homeowners are now in the same boat. And not just those who took out bigger loans than they could afford or who did so called “liar loans” where they didn’t have to verify their income.

Because of falling home prices, borrowers who always paid their mortgage but who have run into unforeseen circumstances — like unemployment or a job transfer — can no longer sell their homes for what they owe. As a result, they are being forced to short sell or foreclose and are getting caught up in deficiency judgments.

“After the banks foreclose, it’s very common now to have large deficiencies with houses not worth the balances owed,” said Don Lampe, a North Carolina real estate attorney.

Lenders mostly declined comment. Although Corey’s lender, BB&T did indicate it was pursuing more deficiency judgments.

“They follow the rise and fall of foreclosures,” said the spokeswoman, who would not discuss Corey’s account.

Can they come after you?

Whether banks can and will pursue deficiency judgments depends on many factors, including what state the borrower lives in and whether there’s a second mortgage or other liens. But if borrowers ignore the possibility of deficiencies, it could haunt them.

“Once they have a judgment, they can pursue you anywhere,” said Richard Zaretsky, a board-certified real estate attorney in West Palm Beach, Fla. “They can ask for financial records, have your wages garnished and, if you fail to respond, a judge can put you in jail.”

In the case of foreclosure, lenders can pursue deficiencies in more than 30 states, including Florida, New York and Texas, according to the U.S. Foreclosure Network, an organization of mortgage law firms.

Some states, such as California, are “non-recourse” and don’t allow deficiency judgments. But, even there, if the if the original loan was refinanced, some or all of it may be subject to claims.

Deficiency judgments on short sales and deeds-in-lieu can happen in many more places. In these cases, extinguishing the debt is often a matter of negotiating with the bank.

But even when lenders are willing, many borrowers may not be aware that they have to ask for release. So, if you are pursuing a short sale, be sure your attorney asks the bank to release you from any further obligation.

“People shouldn’t have a false sense of security that a deficiency judgment may not be later sought,” Zaretsky said.

He expects many will be filed over the next few years, based on the fact that banks have sold many of these accounts to collection agencies and other third parties, at discount.

“The parties who bought those notes wouldn’t have paid money for them unless they had the intention of acting,” Zaretsky said.

Ticking time bomb

What can be scary is that the judgments don’t have to be obtained immediately. Lenders or collection agencies may wait until debtors have recovered financially before they swoop in. In Florida, the bank can wait up to five years to file. Once the court grants a judgment, the lender has 20 years there to collect, with interest.

It doesn’t have to be a large amount of debt for a lender or collection agency to come after borrowers. Richard Varno and his wife short sold their Nashville home back in 2004 after he lost his job.

It wasn’t until 2008, when the second lien holder asked him for $25,000, that he realized he still was liable.

“I told them, ‘Hey, you guys released the title,’” he said. “As far as I know, I’m off the hook.”

He wasn’t. Releasing title does not necessarily end the debt. It’s complicated because of variations in state law, but, generally, a mortgage has two parts: a pledge of collateral, represented by the home, and a promise to pay off the loan.

Lenders may release property liens in order to facilitate short sales without releasing borrowers from their obligations to pay under the promissory notes. The secured debt can convert to an unsecured one after the sale.

Zaretsky had one client who was so relieved to have arranged a short sale that he signed every paper his real estate agent shoved at him, even a confession that clearly stated he still owed the debt.

“He had no idea what he was doing,” said Zaretsky. “All the lender had to do was go to court to convert the confession into a deficiency judgment.”

Lenders are also very inconsistent. One of Zaretsky’s short-sale clients was ready, willing and able to pay, but the bank did not even ask; another lender always reserves the right to pursue the deficiency.

Strategic defaults

Sometimes lenders go after borrowers walking away from their homes if they have other assets, according to Florida real estate attorney Larry Tolchinsky.

“Banks are pulling credit reports to see if it’s a strategic default,” he said. “If you’re behind on all your other payments, you’re okay. But if you’re not, they’ll come after you.”

If borrowers have any doubts about their risks, they should seek legal advice. Or, at least, call non-profit organizations such as NeighborWorks for advice. According to Doug Robinson, a NeighborWorks spokesman, its counselors always try to negotiate away deficiencies when they facilitate short sales or deeds-in-lieu.

“We don’t favor any short-sale contracts that leave any deficiency that can be pursued,” he said.

Robinson himself knows what can happen. He paid off a deficiency after his own New Jersey house went through foreclosure 11 years ago.

POSTED BY GEORGE BECKUS ESQ
THE GOLIK LAW FIRM
904-448-5335