FROM THE C REATOR OF LOANSAFE.

OR G

S AV IN G TH E DR EA M

A CONSUMER’S GUIDE
TO LOAN MODIFICATIONS

by
Moe bedard

A comprehensive guide for consumers including all

of the instructions, forms and spreadsheets needed
to process a successful loan modification

MOESEO.COM
1325 CORONA POINTE COURT
CORONA, CA 92879
 Table of Contents

Chapter 1: Introduction Page 4

Foreword Page 5

About Loanworkout.org Page 6

Moe’s Mission Page 7

Results Oriented Auditing and Processing Page 9

Media Relations Page 11

Chapter 2: How to Process a Loan Modification Yourself Page 14

The Loan Modification Page 15

How to Determine if You are a Good Candidate for a Page 18

Loan Modification

Communicating a Hardship Effectively Page 20

Sample Hardship Letters Page 21

Financial Worksheet Page 24

Household Liabilities and Expenses Worksheet Page 25

Sample Loan Modification Request Page 26

1
 Sample Loan Modification Stacking Order Page 27

Overall Process Page 29

Reasons to Conduct a Forensic Loan Audit Page 30

Qualified Written Request Page 31

The Forensic Loan Audit Page 33

Chapter 3: Specific Strategies and Important Information to Page 34

Consider During the Foreclosure Process

Which is Worse, Foreclosure or Bankruptcy? Page 35

Principle Reductions: Wipe Out Your 2nd Mortgage with Page 40

Bankruptcy

A Deed in Lieu of Foreclosure as a Cure for Your Mortgage Page 46

Woes

Real Estate Short Sales the Right Way Page 48

The IRS on Short Sales, Foreclosures and Debt Forgiveness Page 53

Borrowers Who Negotiate Loan Terms with a Mortgage Page 60

Broker in Spanish Must Receive Their Loan Documents in
Spanish

Chapter 4: Stories from the Front Line of the American Page 65

Economic Battlefield

2
Deutsche Bank Foreclosures Tossed Out of Ohio Page 66
Federal Court “They Own Nothing!”

True Sale, False Securitizations Page 69

The Judicial Integrity of The United States Court is “Priceless” Page 74

Ohio Homeowner Fights Foreclosure and Lives Payment Free Page 76

for 11 Years

3
Chapter 1: Introduction

4
 Foreward

“One of the serious obstacles to the improvement of our race is indiscriminate charity.”

Andrew Carnegie

Before writing this ebook I spent a great deal of time posting blogs to
loanworkout.org to help consumers modify their loans. While the site has helped
over 200 families modify their loans completely free, I knew there had to be a way
to put all of the information from loanworkout.org in to a simple manual that
would be both user friendly and take a consumer through the process from start
to finish in one read. This ebook is the product of that dream.

While doing research for the manual I was overwhelmed with the amount of for-
profit ebooks that failed miserably to explain the process of loan modifications.
The free information and forms provided in this ebook are the same one’s that
have been used by thousands of other people who have achieved success in the
loan modification process. I hope that by downloading this free ebook, you’ll
avoid the majority of the nonsense published for-profit on the internet and obtain
a loan modification free of charge.

Sincerely,

Moe

5
 About Loanworkout.org

Loanworkout.org is a unique consumer oriented website that provides truthful

mortgage and housing reporting with a focus on loan modifications and the
mortgage servicing industry. While other media outlets tend to focus on the
problems on Wall Street, loanworkout.org is focused on providing real time
solutions and tools to educate homeowners in their efforts to obtain loan
modifications and short sales. We realize that in order to maintain
homeownership and preserve community growth, the bridge between the
consumer and Corporate America must be re-built one person, one loan, and one
home at a time.

Our unique platform of consumer advocate websites such as LoanSafe.org and

LoanWorkout.org are the #1 FREE informational mortgage websites for
consumers on the internet today.

Loanworkout.org is trusted and respected by thousands of homeowners

throughout America who visit our sites every day. Moe Bedard is the primary
contributor and operator at Loanworkout.org, President of Moeseo.com, and
founder of LoanSafe.org, an online social media campaign that has helped over
200 families modify their loans and save their homes completely free of charge.

In the course of preparing your loan modification or in the course of preparing for
other resolution services, I highly suggest reviewing the articles at
LoanWorkout.org specific to your needs. The website includes tips and strategies
not only from consumers, but expert advice as well.

6
 Moe’s Mission

Promote Safe Loan Modification Standards

I believe that the loan modification process can beneficial to both the consumer
and lender when it is done with a focus on long term affordability.

Preserve the American Dream

Homeownership has and always will be part of the American Dream. I strive to
help consumers modify loans and keep people in their homes. This is an outcome
that is beneficial to all parties involved.

Maintain Open Lines of Communication

Effective communication is the most critical activity during the foreclosure

process. Our websites bridge the divide between borrowers and servicers by
acting as an intermediary and advocate of mitigating loss for all parties involved.
We utilize our network of consumer friendly, not for profit websites like
LoanSafe.org and LoanWorkout.org to educate and connect consumers with their
servicers. To date we have assisted over 200 people in saving their homes for
free.

Minimize Loss to All Parties

No one wins in foreclosure. No one wins by playing hard ball. In order to

effectively create solutions, all parties need to come to the table with the
common goal of mediating damage in the most efficient and cost effective way
7
possible. Whether that be a loan modification, short sale or deed in lieu of
foreclosure, it is possible that everyone can come out of the process a winner.

Real Solutions

LoanSafe.org and Loanworkout.org are dedicated to providing real solutions in

today’s volatile mortgage and housing markets.

Moe Bedard’s Websites

LoanWorkout.org - Loan Modification & Loan Workout News

LoanSafe.org - Interactive Community for Homeowners That Need Help With a

Loan Modification or Facing Foreclosure

PredatoryLendingLaw.org - Predatory Lending

Moeseo.com – Corporate Website

MHLoanPro.com - Mobile Home Loan Forum

The comments by Moe Bedard or Moeseo.com and its affiliates and the materials
in this ebook are for informational purposes only and not for the purpose of
providing legal advice. You should contact an attorney to obtain advice with
respect to any particular issue or problem. The opinions expressed in and
throughout this ebook are the opinions of the individual author and may not
reflect the opinions of our employers, other ventures or any individual attorney.
No advice or information, whether oral or written, obtained by you or through
this ebook shall create any kind of promise or business relationship.

8
 Results Oriented Auditing and Processing

Since 2007 LoanSafe.org and Attorney Safe Solutions have received more positive
media attention than any other forensic auditing and loan modification
processing company in the entire nation. The free information website for
consumers, www.loanworkout.org, consistently ranks number two on a Google
search for “loan modification.” The only website that outranks
www.loanworkout.org is the Department of Housing and Urban Development’s
page regarding loan modifications. Nearly one million American consumers turn
to www.loanworkout.org each and every month to get their questions answered.
LoanWorkout.org receives nationwide media attention, consistently high, organic
Google ranking and millions of visitors to the website for one reason: what it
provides makes a difference in the lives of our members.

My hope is that you will come to understand the loan modification process from
start to finish in the shortest time span possible. While utilizing Attorney Safe
Solutions for your forensic loan auditing and loan modification processing needs is
by no means mandatory, it would give you a great advantage over processing a
loan modification yourself. In choosing Attorney Safe Solutions for your
resolution services needs you:

1. Immediately obtain an auditing and processing infrastructure that is

second to none

2. Free yourself from the hassle of processing the modification yourself

3. Rest assured you are dealing with competent professionals

4. Avoid the need to purchase and learn to use the analytic software that
performs a forensic loan audit

9
Attorney Safe’s auditing service includes a review of all of your loan documents
and the documents your lender maintains, a telephonic interview to identify any
qualitative information that may lead to violations that cannot be tracked with
traditional compliance software systems and a loan audit report that may be
given to the lender to improve the chances of a successful modification.

Our loan modification and processing service includes managing the loan
modification process itself from beginning to end. All you supply is the requested
documentation in our easy to follow checklist of loan documents and income
information. However, we cannot negotiate the terms of the modification itself.
Only a duly licensed attorney in good standing can negotiate the terms of the loan
modification. The good news is that we can recommend attorneys that know
what they are doing and have a proven track record of success.

While the goal of this manual is to give you all of the information you need to
successfully process a loan modification on your own, remember, you do not have
to reinvent the entire wheel. I highly suggest using our back end auditing and
processing services as they are second to none. In my experience I have found
that many people prefer to simply outsource all of the work if they can afford to
do so. In either case I wish you the best of luck!

Sincerely,

Moe

10
 Media Relations

LoanWorkout.org is operated by consumer advocates and Moe Bedard. Their

unique and "truthful" angle on the mortgage crisis garners the trust of millions of
consumers who have visited their websites and provides them with the pulse of
Main Street.

Loanworkout.org has been featured in the media on numerous occasions. From

the New York Times to the LA Times and from Fox Business to Business Week,
Loan Safe is where the media goes to get the truth on the mortgage meltdown!

Moe Bedard is a trusted, valuable source for journalists because of his unique
platform of consumer advocate websites such as LoanSafe.org and
LoanWorkout.org. These websites are the #1 source of free information on
mortgages for consumers.

These websites are trusted and respected by thousands of homeowners

throughout America who visit our sites every day. To date, we have donated
thousands of hours of our time to save over 200 homes for FREE!

Please call (951) 531-0148 or email Moe@LoanSafe.org for an interview or help

with your news story or with his own story ideas.

Read more about Moe Bedard in the media below:

11
• Smart Money - Why Loan Modifications Often Don’t Work - January 14,
2009

• Examiner - Home loan modification - online support resources - January 13,

2009

• MSNBC - ‘Angel’ of foreclosure defense bedevils lenders - Dec. 19, 2008

• EuroMoney - Will slow and steady win the race?

• New York Times - The Silence of Lenders by Gretchen Morgenson

• LA Times - Mozilo on distressed borrower’s appeal for help: “disgusting”

• Business Week - The Next Real Estate Crisis - June 5, 2008

• Press Enterprise - Corona Man Uses Blog to Save Homes

• Slate Magazine - Here Comes the Next Mortgage Crisis

• Fox Business - Muzzling Homeowners?

• CBS/KCAL News - Man Offers Tips Online to Save Your Home

• AZ Republic - Restructuring of mortgage loans gets tougher

• Bloomberg - Alt-A Mortgages Next Risk for Housing Market as Defaults

Surge - September 12, 2008

• The Real Deal New York - Mortgage servicers sucking loans dry? -
September 2008

• Chicago Tribune - Document review could save homes - October 3, 2008

• Contra Costa Times - Struggling borrowers face brick wall on loan workouts
- October 4, 2008

12
Moe Bedard is the owner and operator of loanworkout.org and loansafe.org. Mr.
Bedard is a leading expert and a trusted authority in regards to loan workouts and
loan modifications.

In addition to operating LoanSafe.org, Moe is also the main contributor to

LoanWorkout.org (The internet’s first blog dedicated to loan workouts and loan
modifications). He writes on the subject of home loan resolutions more than any
other person on earth and has personally been involved in over 300 loan
workouts and mortgage audits.

Other Important Websites:

• LoanWorkout.org

• AttorneySafeSolutions.com

• PredatoryLendingLaw.org

• Moeseo.com

• MHLoanpro.com

13
Chapter 2: How to Process a Loan Modification Yourself

14
 The Loan Modification

A loan modification is a change to the loan contract which is agreed to by the

lender and the homeowner. The lender modifies the existing loan(s) in order to
work with the homeowner because of a hardship. The purpose is to help make
the loan(s) more affordable. Usually loan modifications are in the form of a rate
reduction and/or fixing the rate for a certain period of time. In the past, loan
modifications were only utilized when a borrower was delinquent and suffered a
hardship such as a job loss, divorce, or illness.

Now, borrowers can obtain modifications from their lender for unaffordable rate
adjustments on adjustable rate mortgages. The earlier the homeowner addresses
the issue, the better the chances are of negotiating a fixed rate and a payment
that is manageable.

If the homeowner can afford their home and but not their current mortgage then
they may be eligible for a loan modification. A key factor that is required in every
loan modification submission is the existence of a hardship. The hardship can be
temporary in nature or permanent, but the borrower must be able to prove the
hardship.

The following are a sample of hardships that get loan modifications approved:

1. Adjustable Rate Mortgage Reset-Payment Shock

2. Illness of the Borrower
3. Illness of a Borrowers Family Member
15
 4. Curtailment of Income
5. Loss of Job
6. Abandonment of Property
7. Property Problem
8. Inability to Sell the Property
9. Inability to Rent the Property
10.Mortgage Servicing Problems
11.Transfer of Ownership Delays
12.Reduced Income
13.Failed Business
14.Job Relocation
15.Death of the Borrower
16.Death of Spouse or Co-Borrower
17.Death in the Family
18.Incarceration
19.Divorce
20.Marital Separation
21.Military Duty
22.Medical Bills
23.Damage to Property (natural disaster or unnatural)

Notice that “My Realtor lied to me” and “My loan officer/broker lied to me” is not
on this list. Keep this in mind when you write a hardship letter. Documenting the
hardship is very important to the lender’s or servicer’s loss mitigation department
and will be verified during the approval process. Without proper documentation,
your file may be flagged as fraudulent. You definitely do not want this to happen
for obvious reasons and it will slow down the process or terminate the process
completely. There are two important things to remember about loan
modifications:

16
1. A loan modification should be requested only if no other reasonable
options are available and/or the homeowner is experiencing a hardship.

2. Loan modifications are designed for homeowners who can afford

their homes but not their loans.

17
 How to Determine if You are a Candidate for a Loan Modification

Lenders and servicers will, in general, look for one thing when you submit a
modification request. They look for a documentable hardship of course, but at
the end of the day if they decide to grant your request for a loan modification all
they really want to know is if you can afford the new payment(s). This is the big
secret behind getting a loan modification approved.

There is, however, an art to making loan modifications work. You must disqualify
yourself from your old payments and at the same time qualify yourself on a new
payment structure. It sounds complicated and it is at first but you will quickly
learn important strategies for effectively processing loan modifications.

To understand what the lender or servicer considers qualified, you have to know
how lenders calculate your income. The income you can use to qualify for a
modification is different from traditional income calculations used to qualify for
traditional loans. Moreover, the difference in the qualification guidelines is
typically in your favor.

For a modification, you can qualify based on your documentable total household
income. As such, you can count income from almost any source: Grandma’s SSI,
income from child day care services, from a second job paid under the table, etc.
so long as it can be proved. Proof must be in the form of bank statements, 1099’s
or in some other documentable form as outlined in the submission paperwork
you will provide the lender. In addition, if only one of two spouses was on the
original loan, the other spouse’s income can count so long as it is documentable.

18
Once you calculate all documentable monthly income from all household sources
you then have what you can present to the lender as the new qualifying income.

To calculate a qualifying monthly mortgage payment, use the benchmark fully

amortizing 5.00% rate on whatever the new balance might be, counting
arrearages if they are added back into the loan. WARNING: this is only for a
general qualifying exercise only; do not expect this rate or payment! If the
payment at 5.00% is just too high, then you may not be an appropriate candidate
for a modification. However, you can still request help with other services such as
a deed in lieu of foreclosure, a short sale or postponing as long as possible a
notice of trustee’s sale in an effort to help you transition to more affordable
housing.

19
 Communicating a Hardship Effectively

Effective communication is the single most important aspect of describing

hardship issues. Many modification requests fail because the homeowners can
not tell their story in a simple way. It is easy to forget there is a real human being
analyzing the hardship letter within the lender’s or servicer’s loss mitigation
department who is responsible for determining the existence of a real hardship.
With that said you must keep your hardship letter simple and get to the point
quickly.

Loss mitigation departments are overwhelmed with foreclosures, short sales, and
modification requests. They do not want to read a ten page letter regarding the
loan officer who put them in the loan, why they bought the house, the memories
they have had there and why they want to keep their home. When writing the
hardship letter, keep the letter simple and to the point. In addition, handwrite
the hardship letter. The fact is that people personally relate to handwriting more
than a typewritten letter and this includes the lender’s or servicer’s loss
mitigators. What follows on the next pages are perfect examples of sample
hardship letters, a financial worksheet, an income and expense worksheet, a
sample loan modification request and a sample stacking order for you to use.
Notice as well that on the loan modification request and on the sample stacking
order for a loan modification you will need to include documentation of your
home’s value. You can obtain reliable documentation of your home’s value from
a local Realtor, Title Company or from an appraiser.

20
January 23, 2009

To: Countrywide Mortgage

Account # XXXXXXXXX

To Whom It May Concern:

Due to the recent adjustment to the mortgage I currently have with your company, I am finding it very
difficult to afford the new payment. I have a 3 year fixed rate which is now adjustable and is schedule to
adjust again in Feb. 2009.

Considering my current income, there will be no way I can afford the increased payments come February.
Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop
foreclosure on my home.

Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible,
can you postpone the next rate change to a future date to allow me to continue making affordable
payments or refinance? Any other solutions you could provide would be greatly appreciated.

I have had no problem making my payments for over three years now and do not want that to change. My
mortgage was originally written by another company and bought by Countrywide. I was assured that
refinancing would be no problem but that turned out not to be true due to the downturn of the housing
industry.

The main problem is that my property is now worth about 5-10% less than what I paid for it which is
preventing me from being able to refinance. I was researching on the internet and came across the Fannie
Mae Announcement #06-18 (Oct. 4th 2006) regarding the servicing of Conventional Mortgage
Modifications.

I believe this addresses the situation I currently find myself in along with many other homeowners.

Thank you for your time and consideration.

Sincerely,

Borrower’s Signature

Co-Borrower’s Signature (if applicable)

21
Date:

To: Countrywide Mortgage

To Whom It May Concern:

Due to the recent adjustment to the mortgage I currently have with your company, I am finding it very
difficult to afford the new payment. I have a 3 year fixed rate which is now adjustable and is schedule to
adjust again in February, 2009.

Considering my current income, there will be no way I can afford the increased payments come February.
Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop
foreclosure on my home.

Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible,
can you postpone the next rate change to a future date to allow me to continue making affordable
payments or refinance? Any other solutions you could provide would be greatly appreciated.

I have had no problem making my payments for over three years now and do not want that to change. My
mortgage was originally written by another company and bought by Countrywide. I was assured that
refinancing would be no problem but that turned out not to be true due to the downturn of the housing
industry.

The main problem is that my property is now worth about 5-10% less than what I paid for it which is
preventing me from being able to refinance. I was researching on the internet and came across the Fannie
Mae Announcement #06-18 (Oct. 4th 2006) regarding the servicing of Conventional Mortgage
Modifications. I/We hope we can solve this problem together.

Thank you for your time and consideration.

Sincerely,

Borrower’s Signature

Co-Borrower’s Signature (if applicable)

22
Date

Lender Name

Address

City State, Zip

Re: Loan Number(s)

To Whom It May Concern:

The purpose of this letter to explain the unfortunate set of circumstances that have led to my mortgage
delinquency (or proposed delinquency – if not late yet). After exhausting all of my resources, I have but
one avenue left, and that is to appeal to you for a mortgage loan modification. I believe this would be a
tremendous relief in my situation in that it would allow me/us to affordably keep the home I/we/my
family love(s).

The main reason that caused me/us to be late is (insert reason here and don’t be too lengthy or too vague.
Please be sure to indicate the type of loan you have, if it is going to adjust, or has already adjusted,
especially note if this is what created the hardship). This has caused me to become further and further
behind. I am not in the position to refinance due to loss of values in the real estate market.

(Insert the approximate date of hardship and clarify if your situation is Temporary or will be Permanent.)

By obtaining a loan modification, I feel confident that I will be able to maintain my mortgage, and pay on
the loan that has been afforded to me. I hope you will consider working with me/us on this matter.

Sincerely and Respectfully,

(Borrower’s Signature)

(Co-Borrower’s Signature)

23
24
25
October 10, 2008

Loss Mitigation Department / Legal Department

[INSERT BANK NAME]

[INSERT BANK ADDRESS LINE 1]

[INSERT BANK ADDRESS LINE 2]

REF: Borrowers: [YOUR NAME(S)]

Property: [SUBJECT PROPERTY]

Loan No: [LOAN NUMBER]

LOAN MODIFICATION REQUEST

Proposal: [PROPOSE NEW TERMS IN THIS SECTION] EXAMPLE:

• A Competitive interest rate of 2% FIXED, STEP LADDER PROGRAM. Max Rate after the
fourth year at 5%, Amortized in 30 YEARS thereafter, to capitalize past due amounts, legal
fees, escrow deficiency, if any, etc.

Hardship: [SUMMARIZE HARDSHIP IN THIS SECTION] EXAMPLE:

• We are not looking to relinquish our responsibility, but rather, we are looking for a Loan
Modification and / or Workout Plan equitable to our financial situation. With our already
increased living expenses, and an Interest Rate that is set to adjust, the new payment will become
unaffordable and difficult for us to maintain.

Market Value:

• Current Existing Balance: $ [YOUR CURRENT BALANCE]

• Current Fair Market / New Principal Balance: $ [TODAY’S MARKET VALUE]
• (Supporting Documents Included)
• Principal Balance Reduction: $ [REQUESTED REDUCTION AMOUNT]

26
Request Details: [INPUT YOUR CURRENT AND PROPOSED DETAILS HERE] EXAMPLE:

Current Interest Rate: 6.00%

Requested Fixed Interest Rate 2.00%
Current Loan Type: Option Arm, ARM ect…
Requested Loan Type: Step Ladder Program
Amortization Remaining: 323 Months
Requested Amortization: 30 Years
Previous Payment: $1000.00
New Payment: $1075.00
Late Fees / Penalties FORGIVEN / WAIVED
Late Balance: INCL IN NEW PRINCIPAL
BALANCE Requested Next Payment Date: 2 Months

Please find the following for you to proceed with the Loan Modification and / or Loan Restructuring
Request:

• Mortgage Statement
• Market Value Documentation
• Hardship Letter
• Financial & Budget Worksheet:
• Income Documentation:
• Bank Statements

Thank you for your assistance in this matter.

Sincerely,

27
28
 Overall Process

Using the forensic mortgage loan document audit as basis for pressuring lenders,
you will move lenders to take immediate action to stop an impending foreclosure
and keep your home safe and place yourself in a better financial situation. This
audit reveals various federal and state violations or errors in the original loan
documents. Our internal auditing statistics show that four out of every five loans
we have audited have significant violations.

In the beginning of the process you will need to send your lender a Qualified
Written Request (QWR). The QWR is a formal demand that the lender must
comply with under federal law to produce copies of your loan documents within a
specified timeframe. Once you have collected all of the required documentation
from your lender you can proceed to perform a forensic loan audit.

Once the audit has been completed and if violations are found a formal request
for a loan modification is sent to the lender along with an abundance of highly
organized financial information that makes the best case possible as to why you
(a) deserve a loan modification and (b) can afford the new payments. This is a
long process that requires patience and negotiation skill.

29
 Reasons to Conduct a Forensic Loan Audit

Obtaining a Forensic Loan Document Audit is essential in every Loan Modification,

Short Sale, and Deed in Lieu resolution. The findings of an audit can significantly
improve your chances for a positive resolution. The following are common
reasons to conduct a forensic loan audit:

1. General Loan Documentation Errors

2. Reverse Engineering
3. Real Estate Settlement Procedures Act (RESPA) Violations
4. Truth in Lending Act (TILA) Violations
5. Home Owner Equity Protection Act (HOEPA) Violations
6. Good Faith Estimate Compliance
7. Misleading Disclosures
8. Overstated Home Values
9. Overstated Income in the Loan Application
10.Lender and/or Broker Misrepresentations
11.Usury Violations
12.Excessive ARM Adjustments
13.Packing
14.Excessive Points & Fees
15.Predatory Lending
16.Forgery
17.Loan Flipping

To include a forensic loan audit with your modification contact

Attorney Safe Solutions today at (951) 531-0148.

30
 Qualified Written Request

To perform the most comprehensive forensic loan audit you should compile all of
the loan documents you maintain and get all of the loan documents your lender
maintains. A Qualified Written Request (QWR) is a written demand to your
servicing company. After receiving a QWR, the servicing company has twenty
days to respond to the request and forward a copy of all loan documentation on
file. The servicing companies also have to suspend all reporting activity to the
major credit bureaus and then resolve the issue within sixty days. Federal RESPA
laws require the servicing companies to comply and respond within this specified
time frame. A QWR will be generated by you and submitted to the servicer for
every file prior to the completion of the forensic loan document audit.

A sample QWR follows on the next page.

31
August 27, 2008

American Home Mortgage Services, Inc

Attention: Correspondence Dept.

Re: Loan Number: 1234511722

Name : Johnathan Jones
Subject Address : 12345 Erehwon Street, Heartland, OH 12345

To Whom It May Concern:

Please accept this letter as a “Qualified Written Request” under Section 6 of the Real Estate Settlement
Procedures Act (RESPA) to obtain copies of ALL documents pertaining to the origination of the above
mentioned Clients’ current mortgage on the referenced subject property. Please see below for a list of
documents needed.

 Initial Loan Application and Final Loan Application

 Executed Notice of Right to Cancel (if refinance)
 Deed of Trust/All Riders
 Note and All Addendums/Riders
 Truth-in Lending Statements
 Itemization of Amount Financed
 Good Faith Estimates
 Estimated and Final Closing Statements (HUD)
 Appraisal
 Title Report
 Grant Deed(s)
 Copy of Loan Payment History – This must include all payments made, all fees incurred, any and
all escrow account disbursements and how payments were applied

In addition to the above, please forward any and all disclosures, rate sheets etc. associated with the above
transaction. Please note that all copies need to be clear and legible and all documents should be copied in
their entirety.

In closing, We/I understand that under Section 6 of RESPA you are required to acknowledge our/my
request within 20 business days and try to resolve any issues within 60 business days.

Please forward requested documentation as soon as possible and we look forward to working with you on
a solution that benefits our mutual concerns.

Thank you for your time.

Sincerely,

32
 The Forensic Loan Audit

A Forensic loan document audit is a comprehensive investigation of the

documentation from your existing loan(s). Attorney Safe Solutions utilizes special
state and federal mortgage loan post compliance software to calculate and
identify violations that will transfer the findings into a detailed report.

The forensic loan document audit is a significant part of a loan modification

request. We have found that over four out of five of the audits performed reveal
major TILA (Truth in Lending Act), RESPA (Real Estate Settlement Procedures Act),
Predatory Lending, and Real Estate/Mortgage Fraud violations.

In some cases, if you are simply overcharged by only $35.00 on the final HUD-1, or
if the annual percentage rate (APR) is only 0.125% higher than what was originally
disclosed, there may be a violation of the Truth in Lending Act. This gives you the
leverage necessary when negotiating with the lender and more than enough
incentive for the lenders to grant you a beneficial loan modification.

33
 Chapter 3: Specific Strategies and Important
Information to Consider During the Foreclosure Process

34
 Which is Worse, Foreclosure or Bankruptcy?

The single most important question consumers ask themselves during the
foreclosure process is whether it is better to lose their house to foreclosure or file
for bankruptcy protection.

A foreclosure will remain on your credit report for 7 years, while a bankruptcy
remains for 10 years. If you ever plan on getting any kind of loan, especially a
mortgage, lenders are going look at a foreclosure more seriously than they will a
bankruptcy that doesn’t include a house.

Even in the heyday of the subprime loan era you could obtain a loan one day out
of bankruptcy. But a foreclosure was ALWAYS a black cloud and lenders usually
wanted three to four years time to pass before considering a borrower for a loan.

No one will argue that the days of banks lending to anyone with a pulse is over.
What this translates to for the consumer is that you should expect to have to wait
at least four years from the time of bankruptcy discharge to obtain a mortgage
with relatively favorable loan terms.

The main goal in trying to perform a loan workout with your lender is to avoid the
catastrophic credit implications of a foreclosure or bankruptcy. But sometimes,
even the best efforts to save your home and your credit fail.

Hoping for the best but preparing for the worst is the mindset anyone in the
foreclosure process should maintain. There are no guarantees that even the
hardest efforts to work with your lender will meet with success. If you are to be
prepared for the worst, then it is important to consider the process of
bankruptcy.

There are different ways to file for bankruptcy and not all of your debts have to
be included. So even if faced with bankruptcy, you’ll need advice from someone,
either a good credit counselor or a bankruptcy attorney that can walk you
through the choices you’ll face.
35
While the bankruptcy process in the U.S. is governed by federal laws and handled
by a system of federal bankruptcy courts, state laws regarding consumer debts
and the disposition of property also come into play. There are also different types
of bankruptcy filings. No matter which course you take, the filing stays on your
credit record for 10 years. This makes it very difficult to get any type of loan
during the bankruptcy process and even afterwards. If you can obtain a loan it will
surely be more expensive than if you did not file for bankruptcy.

The two most common forms of personal bankruptcy are called Chapter 7 and
Chapter 13. Under a Chapter 7 filling, you get to keep certain property (this is
where state laws vary), but the rest is turned over to a court-appointed trustee
that sells your eligible property or gives it to lenders to satisfy your debts. Under a
Chapter 13 filing, you pay back your debts under a plan worked out by the court.
The trustee collects payments, pays off your debts and makes sure you stick to
the plan.

If you own a business, you may want to consider a Chapter 11 filing. This let’s you
stay in business, as long as the court and the people you owe money to approve
of the plan to pay off your debts. If the court decides a trustee needs to be
appointed, the trustee takes control of your business and its assets.

Not all debts can be wiped clean in bankruptcy. The list includes alimony and
child support, taxes, court fines and most student loans. New debts, taken on
after the discharge, aren’t included. And if the judge finds out you’ve lied or
committed fraud, your discharge can be denied.

You can also choose which debts you want to have discharged while you keep
paying off others. You might want to work out a payment plan so you can keep
your car, for example. To do this, you have to sign a “reaffirmation agreement,”
which says that you promise to pay off that debt. If you don’t pay it back, the
creditor can send it to a collection agency like any other debt.

36
If you’ve filed a Chapter 7 bankruptcy and gotten a discharge, you’ve got to wait 8
years before you can do it again. There are different limits on filing for Chapter
13, depending on whether you’re trying to get debts discharged.

If you’re having trouble making payments or even if you are behind by a month or
two, contact and attorney and/or your lender before you get further behind. If
you can, do this before you are 30 days late or before you receive the official
“notice of default,” indicating you’re several months behind. This will insure you
have time to get prepared before the formal foreclosure process begins.

First of all, you need to get honest with yourself about your situation. You need to
take a good hard look in the mirror and decide if you can really afford your home
and if you really want to save it. Either way, you are going to have to make a plan
and you are going to have to act on that plan.

You may have to consider moving. Even if you do lose your house, you don’t want
a foreclosure on your record when you go looking for a smaller house or a place
to rent. One option is to ask the lender to hold off on foreclosing until you sell. If
your mortgage balance is greater than your house is worth, you have the option
of negotiating a short sale with your lender. You’ll still owe money to the lender
even after the house is sold. In some cases, lenders will let you off the hook for
that amount rather than go through the expense of foreclosing. But you may not
be completely off the hook: you may owe taxes on that amount. Consult an
accountant for more information regarding the tax consequences of short sales.

You can also try something called a “deed in lieu of foreclosure” which basically
means you turn over your house to the lender and walk away without owing
anything. However, you’ll need to work this out with the lender as well.

A good attorney who knows real estate and mortgage law can help you when you
are facing foreclosure. If you cannot afford proper legal representation, then you
should seek assistance from a legal aid or pro bono attorney. You can also seek a
referral from your local BAR Association or get help from a legitimate credit
counselor (from an accredited, non-profit agency).

37
A competent third party is a great choice for most people because they may be
able to help smooth out the process and make sure that no laws have been
broken by the lender when you received the loan.

If it is found that Truth in Lending Act, RESPA and other predatory lending law
violations have occurred, then you may have legal recourse to sue your lender. A
bankruptcy, then, would not be necessary and you can save your home and your
credit form a foreclosure.

If you never seek proper legal advice, then you will never truly know what rights
you have to properly defend yourself against your lender.

Deciding whether foreclosure or bankruptcy is worse for you can be difficult to

define. What makes this such a difficult question to answer is that no two loans
are the same, no two consumer hardships are identical and hence what is best for
you will not be the same for others. Getting advice from competent and
trustworthy sources and educating yourself about the process of foreclosure and
the options at your disposal is the best way to begin to make a sound decision.

Great places to look for consumer advocate attorneys:

www.NACA.net The National Association of Consumer Advocates (NACA) is a

nationwide organization of more than 1000 attorneys who represent and have
represented hundreds of thousands of consumers victimized by fraudulent,
abusive and predatory business practices. As an organization fully committed to
promoting justice for consumers, NACA’s members and their clients are actively
engaged in promoting a fair and open marketplace that forcefully protects the
rights of consumers, particularly those of modest means.

Email: info@naca.net

Phone: (202) 452-1989

Fax: (202) 452-0099

1730 Rhode Island Avenue NW, Ste 710

38
Washington, DC 20036

www.NACBA.com National Association of Consumer Bankruptcy Attorneys -

NACBA is the only national organization dedicated to serving the needs of
consumer bankruptcy attorneys and protecting the rights of consumer debtors in
bankruptcy. Formed in 1992, NACBA now has more than 2500 members located
in all 50 states and Puerto Rico.

NACBA has also played a critical role in many important court cases affecting the
rights of consumer bankruptcy debtors by filing amicus briefs in U.S. Courts of
Appeal and the Supreme Court, with many of those case decisions influenced by
NACBA’s participation. In addition, NACBA provides the most comprehensive
educational programs in the country for consumer bankruptcy attorneys with its
annual convention seminars.

Candace Lambrecht

Administrative Director

admin@nacba.org

1501 The Alameda

San Jose, CA 95126

Phone: (408) 350-1173

Fax: (202) 331-8535

National Association of Consumer Bankruptcy Attorneys

2300 M Street, Suite 800

Washington, DC 20037

39
 Principle Reductions: Wipe Out Your 2nd Mortgage with Bankruptcy

Millions of American homeowners are now upside-down on their home mortgage

and they are looking for a way out. In some areas like the Inland Empire of
California, local homeowners have seen values drop 30-50% and many are making
a “business” decision to walk away without ever exploring ways to save their
home. If you have decided to walk away from your home and think you have no
other option but to bail on your upside-down house, you may want to read this.

Wouldn’t it be much easier to save your home if you only had a first mortgage
and no other payments? What if you could effectively wipe out $50,000, $100,000
or $200,000 of what you owe on your mortgage? Also, if the market turns around,
think of all the equity you could build back up years from now?

For homeowners who have taken out a second mortgage on their home, facing
financial difficulties can be particularly challenging. In most cases, a second
mortgage reduces your home equity to a very small margin leaving you vulnerable
to the whims of your lenders. In cases where real estate values have declined, as
we are seeing in most markets today, there are strategies that you can use to
protect yourself from excessive debt. Current bankruptcy law allows judges to
approve the loan modifications of the terms of certain debts, namely auto and
student loans and second-home mortgages. In the case of second mortgages, if
the value of the property falls below the loan amount, debtors potentially could
reduce the balance of the loan to equal the current value of the property.

40
Stripping the Lien, Cram Down or Strip Down

When a judge removes the second mortgage during bankruptcy proceedings it is

referred to as “stripping” the lien, a “cram down” or “strip down.” This can
happen if the loan is secured by other collateral that is part of the bankruptcy
filing or if the home is not your principal residence or even if the payment
structure on the second mortgage falls heavily during the bankruptcy filing period
itself.

Here is a Lien Stripping Example:

• Home is worth $200,000.

• The first mortgage is $200,000.

• A second mortgage (or in certain states, a deed of trust) for $100,000.

• Lenders are only secured up to the value of the property. In this case the
first lender is secured by the property value.

• The second lender has nothing securing their lien. They are unsecured
because the property has no value left over from the first lien. In a Chapter
13 bankruptcy, you can lien strip the second lender.

• The second lien is treated as an unsecured creditor.

• Most likely the second lender will not be able to collect on the mortgage
after the bankruptcy discharge and the homeowners (debtors) still get to
keep the house.

• The homeowner would not even have to pay the lien when they sell the
house.
41
Now, THIS IS A POWERFUL tool for homeowners who are underwater!

Additional liens on your home beyond your initial mortgage, whether you have
taken a second mortgage or just another related lien, could be negated in the
case of a Chapter 13 personal bankruptcy filing.

Liens can be stripped off of the debtor’s assets in Chapter 11 or Chapter 13 when
there is not enough equity in the asset, after deducting senior liens from the
property’s current market value, to secure the unsecured in whole or in part,
where the lien exceeds the value of the debtor’s property. Section 506 of the
Bankruptcy Code acknowledges that a lien is only a secured claim to the extent
there is value in the asset to which it attaches. To the extent that the claim
exceeds the value of the collateral, that portion of the claim is unsecured. In
Chapter 11 or Chapter 13, even voluntary liens, such as mortgages and security
interests, can be stripped down to the value of the collateral, with the exception
of voluntary liens secured only by the debtor’s residence. Moreover, Congress is
currently considering changes to bankruptcy law allowing the modification of
home mortgages.

Despite the general rule, two exceptions may apply so as to allow lien stripping of
a mortgage on a personal residence: loans based on a home plus other collateral.
Lien stripping is prevented only when the lien is secured “solely” by a personal
residence. Court decisions have made it clear that when the debtor has given
other collateral (in addition to the personal residence; e.g., office equipment) as
security for the mortgage, lien stripping will be allowed. Thus, if you will be taking
out a second mortgage or refinancing your home, you should consider offering
additional collateral, such as furniture, as security for the loan. This can be done
under the guise of seeking better terms from the lender, such as a lower interest
rate.

Many (but not all) bankruptcy courts follow a rule that makes a second mortgage
totally unsecured if the first mortgage balance equals or exceeds the value of the
personal residence. This exception will not apply in the case of a refinancing of a
42
mortgage, since in a refinancing the new mortgage pays off the first mortgage.
The exception is predicated on there being two distinct mortgages (a first and a
second mortgage). For this reason, if you have the option of financing your
business through a second mortgage or refinancing your first mortgage, the
second mortgage may be the better choice, especially where the amount of the
first mortgage is close to the value of the home.

In addition, remember that the general rule applies only to a lien secured solely
by a personal residence. Thus, lien stripping will be not allowed for a mortgage on
a building used in a business.

While there is no assurance of what the courts will decide, depending on the
terms of the original loans as well as the details of your filing, there are options
for home owners with multiple liens on their home. This is because most
additionally mortgages are unsecured, especially in the modern context of
depressed home values. While inflated home appraisals may have allowed you to
take out an additional mortgage, it’s possible that your original home loan is now
upside-down. When the real estate market was much more active, lenders often
side stepped the 20% down payment rule by allowing the borrower to get private
mortgage insurance. As a further side step this rule of thumb, many borrowers
took out a second mortgage to cover the 20% payment which led to the
additional lien on the home. Given current market conditions, many buyers ended
up with net negative financing, or negative equity, before they even made their
first payment (and often did not have to provide any collateral).

Within Chapter 13 Bankruptcy law, section 11 USC 1322, can potentially allow you
to forego your second mortgage, under certain circumstances. If your second lien
on the whole is unsecured, then when the value of your home drops below the
first mortgage deed of trust, the second becomes wholly under secured. This
second loan can be negated through a Chapter 13 filing.

The lien stripping program is available for individuals desiring to reorganize their
debt using Federal Laws under Title 11 of the United States Code. The mortgage

43
removal program can only be used in the context of reorganization, often referred
to as Chapter 13(see below).

If you own a home with more than one mortgage, you may be able to completely
remove or “avoid” the second and subsequent junior mortgages from your home
and county records, thus leaving only the first original mortgage!

To qualify for this defense, the court will generally require objective evidence that
the home is appraised for less than the value of the initial mortgage, which can be
obtained through a county property appraisal or through a third party certified
appraisal that is accepted by the court. In an environment where home prices in
most markets have fallen at least 30%, many borrowers may qualify.

Attorney Pernell Agdeppa has much to say about this bankruptcy defense for
homeowners:

“Homeowners can file a Chapter 13 bankruptcy and can pay the

various filing charges/fees (to strip a lien we must file a complaint
against the second or junior lien holder(s)).In my opinion, the most
critical aspect of this process is to carefully qualify each potential
client to determine whether bankruptcy is their best alternative and
make them aware of its lasting credit impacts.”

“While removing junior debt from their properties will help them
financially, clients must also be capable of staying within their
financial plan to fulfill their obligations of their Chapter 13 filing.”

Tax liens can also be stripped off in reorganization proceedings (Chapters 11 and
13) to the extent that the lien does not attach to equity in property. Tax liens
can’t be avoided in Chapter 7 on the grounds that they impair exemptions; if the
44
tax is dischargeable in the Chapter 7 filing, the bankruptcy court can determine
the amount of the lien that is secured at the time of the filing. Payment of that
sum entitles the debtor to the release of the lien.

Ultimately, working with a qualified tax and real estate attorney or experienced
real estate bankruptcy lawyer will help you present your case to the Federal
Bankruptcy Court, so it’s important to get qualified legal advice in advance
regarding any filings.

The comments, posts, threads and material in this ebook are NOT to be taken as
legal advice and we highly recommend that anyone facing foreclosure should seek
the counsel of an attorney and/or an accountant. ALWAYS obtain a second and
third opinion on your particular situation from a trusted source. We will not be
held liable for any material, comments, posts, threads, emails or any
communication made subsequent to downloading this free ebook. The comments
made and the materials available in this ebook are for informational purposes
only and not for the purpose of providing legal advice. You should contact your
attorney to obtain advice with respect to any particular issue or problem. The
opinions expressed in and throughout this ebook are the opinions of the
individual author and may not reflect the opinions of our employers, other
ventures or any individual attorney. No advice or information, whether oral or
written, obtained by you or through or from this ebook shall create any kind of
promise or business relationship. The views and opinions in this ebook are likely
to change over time.

45
 A Deed in Lieu of Foreclosure as a Cure for Your Mortgage Woes

For home borrowers (mortgagors) facing foreclosure, a deed in lieu of foreclosure

provides an alternative solution to the standard default process. In particular, the
deed grants the lender, the “mortgagee,” full rights to the property title to satisfy
the conditions of the loan. Such agreements are a common form of mortgage
contract settlements. In general, a deed is a right granted by a legal contract
based upon mutual agreement; therefore, a deed-in-lieu must be based upon
voluntary agreement in good faith.

In cases where a borrower lacks sufficient assets for a deficiency judgment, the
lender will often pursue a deed settlement independent of court proceedings.
Under certain conditions, a deed in lieu of foreclosure can offer several
advantages to the borrower and lender alike. If agreed to by both parties, the
lender is then able to assume ownership of the property, creating a more efficient
process by limiting court costs and waiting periods involved in standard
foreclosure processes. Standard foreclosure procedures can take years to process
in court and are further complicated by personal bankruptcy declarations, which
are relatively common in such cases. For a borrower facing foreclosure, the deed
agreement can relinquish him or her from underlying debt, thus removing the
foreclosure record from a credit record and reducing the need for a declaration of
personal bankruptcy. Lenders also benefit in terms of improved settlement
efficiency, which greatly reduces the time, cost and potential complications that
would otherwise be involved in a repossession procedure.

In order for the agreement to be reached, the appraised market value of the
property must be less than the outstanding debt from the original agreement,
and the property must not be subject to any third party creditor claims or liens.
Deeds-in-lieu are often initiated either by personal financial difficulties on the
part of the borrower or changes in the macroeconomic environment that shift
interest rates and/or underlying home values. Mortgage contracts that rely upon

46
a relatively high monthly payment based upon a variable interest rate (with a
limited, initial down payment) are particularly vulnerable to shifts in the economic
environment; an interest rate change of just a few percentage points could
double a borrower’s monthly payment, under certain circumstances. The recent
housing market challenges have reflected a coalescence of these factors, which
have made deeds-in-lieu a common instrument for borrowers facing foreclosure.

Technically, to proceed with a deed in lieu both parties must agree to and sign
both an Agreement in Lieu of Foreclosure, which outlines the terms of the deed,
as well as the deed itself, which transfers legal ownership of the property. In
certain situations, a borrower may pay to reduce the debt to ensure they
maintain their credit rating. Once the agreements are reached, the lender then
classifies the original loan as paid and issues a waiver to deficiency judgment,
which would normally go into effect in case sale of the property results in an
amount less than the debt. A third party escrow service then executes the
agreement, thus releasing both parties from their original contract.

47
 Real Estate Short Sales the Right Way

If you find yourself in a difficult real estate situation where your home and loan is
upside-down, don’t fret, a short sale might just be the answer to help cure your
mortgage woes. In today’s market, it is imperative that you take a step back from
all of the noise to reflect upon your situation. At each point in your financial
history, you made decisions that you believed would best help you realize your
goals. Because nobody has perfect foresight into their future income status, or
the property market generally, it is only natural to re-evaluate your current debt
situation when things change unexpectedly. One option for home owners is short
sale negotiations, which may allow you to sell your home to satisfy the existing
loan.

First and foremost, it’s important that you act as your own primary advocate in
this situation. Put your best foot forward because short sales only work when fully
agreed to by both the borrower and the lender (your mortgage holder).
Understand that, given today’s extraordinary market environment, even high
profile individuals are often in a position where there is a gap between what they
can afford and what they believed they could afford in the future. Take the case
of well-known TV personality Ed McMahon: his Beverly Hills home faced
foreclosure due to unexpected changes in property value, interest rates and his
own personal income (see Business Week).

In order to satisfy the requirements of the home loan, Mr. McMahon has been
working to reach an agreement with a third party to clear a short sale to satisfy
his mortgage. Like Mr. McMahon, you may find it initially difficult to find a market
clearing transaction to satisfy your lender, but remember: just as hard work and
persistence allowed you to afford a home in the first place, diligence can help you
overcome obstacles to find the best way to address to your current home loan.

48
A short sale MUST be accepted by your current lender or servicer in order to
proceed with the sale of your home. Short sales are considered a privilege and
not a right. So, with that said, you must be prepared to provide proof and
evidence that you qualify and deserve a short sale by your lender. Getting a
lender to approve a short sale is primarily a question of economics. You have to
provide hard numbers to show that the amount of money a bank will realize on
the short sale is better than the amount it may recoup from foreclosing on the
property and selling the property.

Your short sale submission package should include:

1. Hardship Letter - explaining the circumstances that make it impossible for them
to pay the full amount of the loan. The seller needs to be able to show true
financial hardship. Someone with the assets or the income to pay is unlikely to be
considered.

2. Proof of employment or unemployment - W-2 forms from employers (or a

letter explaining the seller is unemployed).

3. Proof of income - bank statements, two years of tax returns, and other financial
documents outlining income and debt obligations. Most lenders will ask if you
have an access to a retirement fund, investment fund, 401’s, stocks, and how
much is accessible and why if these funds are not accessible has to be provided in
a written statement.

4. Comparative Market Analysis or CMA, Broker Price Opinion or BPO (Mini

appraisal). The bank will need comparable sales data or a broker’s price opinion
showing the current estimated of value of your home. Be very thorough with your
analysis with Closed and then Active listings. Closed comparable sales are of
course what they are looking for above all, but if you cannot find any homes sold
in the last three months in the exact same complex or street or block due to the

49
sluggish market, be very detailed with your analysis and calculate by square
footage, age, size, views, frontage and upgrades, amenities etc..

5. Listing Agreement or Proof of Listing and The Listing Agreement in a Short Sale:
Any offer is contingent primarily upon the Lender’s approval and secondarily on
the buyer’s acceptance. The Listing has to be executed and advertised on the
Multiple Listing Service (MLS) prior to sending your package for short sale
consideration to the Loss Mitigation Specialist.

Tip: In preparing the package, be careful about discrepancies between the seller’s
income and the income used to obtain the loan. A big gap may indicate mortgage
fraud, unless employment circumstances have drastically changed.

Other Items you want to include in your short sale package:

• Cover Letter

• Authorization to Release Information

• Two Months Bank Statements

• Supporting Hardship Info – HOA liens, medical/disability statements etc.

• Repair Estimate for the Property

• Contract

• Net Sheet

• First mortgage holder may ask for a payoff amount from the 2nd

• Second mortgage holder may ask for a payoff amount from the 1st

• Lender may ask for an Initial Title Report

50
• FHA and VA may have their own forms and special requirements as well

Ultimately, a short sale can be understood as a negotiation to recognize a

changed environment from when the loan was originally signed. Any offer to buy
the property must be evaluated by the lender, who is in a favorable position of
being able to determine whether to accept such an agreement. Because of this,
it’s crucially important that you present your property in the best possible light,
just as you would in selling your home directly. Never accept the least common
denominator as the only solution to the issue. By working hard as an advocate for
your own cause, you can make a solid case to the lender that a short sale might
be in both parties’ best interest.

Negotiating Deficiency is Key When Attempting a Short Sale:

With a short sale, the lender has three possible ways to handle the deficiency
balance, which is the portion of the mortgage debt not covered by the sale of the
home. First, the lender can attempt to collect the deficiency balance from the
seller after the property has closed. Second, the lender may require the seller to
sign an unsecured promissory note for the deficiency balance as a condition of
agreeing to the short sale. If the new note is for less than the balance of the
original debt, the difference would be considered canceled or forgiven debt.
Third, the lender may agree to cancel the entire deficiency balance. You must
negotiate for the release of both the property lien and the underlying personal
debt secured by the note. If you fail to do this, the lender may not forgive the
personal debt and it will become a collection.

In short sales, just as in any negotiation, it’s important to put yourself in the
lender’s position and try to understand their approach. The decision they make is
based upon the opportunity cost of holding onto the property after foreclosure

51
and then determining what to do with the asset. If they believe that the stated
property value is low then it will make it more difficult to clear a short sale.
Because of this, it’s important to present the property as a potential investment
to other buyers, putting your value proposition at the center to generate the
highest possible offer. The higher the offer, the more likely your bank will be open
to accepting a short sale. It is wise to consult with an Attorney or Real Estate
Agent who is familiar with short sale negotiation and has significant experience
working with lenders. Keep in mind that Attorney’s fees or Realtor fees come out
of the lender’s net proceeds; therefore, you should not have to pay out of your
own pocket for an Attorney or Realtor to assist you with the transaction.

52
 The IRS on Shorts Sales, Foreclosures and Debt Forgiveness

From the IRS on Shorts Sales, Foreclosures and Debt Forgiveness

The Mortgage Forgiveness Debt Relief Act of 2007 generally allows taxpayers to
exclude income from the discharge of debt on their principal residence. Debt
reduced through mortgage restructuring, as well as mortgage debt forgiven in
connection with a foreclosure, qualifies for this relief.

This provision applies to debt forgiven in 2007, 2008 or 2009. Up to $2 million of

forgiven debt is eligible for this exclusion ($1 million if married filing separately).
The exclusion doesn’t apply if the discharge is due to services performed for the
lender or any other reason not directly related to a decline in the home’s value or
the taxpayer’s financial condition.

The amount excluded reduces the taxpayer’s cost basis in the home. More
information on claiming this exclusion will be available soon.

The questions and answers, below, are based on the law prior to the passage of
the Mortgage Forgiveness Debt Relief Act of 2007.

1. What is Cancellation of Debt?

If you borrow money from a commercial lender and the lender later cancels or
forgives the debt, you may have to include the cancelled amount in income for
tax purposes, depending on the circumstances. When you borrowed the money
you were not required to include the loan proceeds in income because you had an
obligation to repay the lender. When that obligation is subsequently forgiven, the
amount you received as loan proceeds is reportable as income because you no
longer have an obligation to repay the lender. The lender is usually required to

53
report the amount of the canceled debt to you and the IRS on a Form 1099-C,
Cancellation of Debt.

Here’s a very simple example. You borrow $10,000 and default on the loan after
paying back $2,000. If the lender is unable to collect the remaining debt from you,
there is a cancellation of debt of $8,000, which generally is taxable income to you.

2. Is Cancellation of Debt Income Always Taxable?

Not always. There are some exceptions. The most common situations when
cancellation of debt income is not taxable involve:

Bankruptcy: Debts discharged through bankruptcy are not considered taxable

income.

Insolvency: If you are insolvent when the debt is cancelled, some or all of the
cancelled debt may not be taxable to you. You are insolvent when your total
debts are more than the fair market value of your total assets. Insolvency can be
fairly complex to determine and the assistance of a tax professional is
recommended if you believe you qualify for this exception.

Certain farm debts: If you incurred the debt directly in operation of a farm, more
than half your income from the prior three years was from farming, and the loan
was owed to a person or agency regularly engaged in lending, your cancelled debt
is generally not considered taxable income. The rules applicable to farmers are
complex and the assistance of a tax professional is recommended if you believe
you qualify for this exception.

Non-recourse loans: A non-recourse loan is a loan for which the lender’s only
remedy in case of default is to repossess the property being financed or used as
collateral. That is, the lender cannot pursue you personally in case of default.
Forgiveness of a non-recourse loan resulting from a foreclosure does not result in
54
cancellation of debt income. However, this may result in other tax consequences,
as discussed in Question 3 below.

3. I Lost My Home to Foreclosure. Are There Tax Consequences?

There are two possible consequences you must consider:

Taxable cancellation of debt income (Note: As stated above, cancellation of debt

income is not taxable in the case of non-recourse loans).

A reportable gain can occur from the disposition of the home because
foreclosures are treated like sales for tax purposes. Often some or all of the gain
from the sale of a personal residence qualifies for exclusion from income.

Use the following steps to compute the income to be reported from a foreclosure:

Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip
this section. You have no income from cancellation of debt).

1. Enter the total amount of the debt immediately prior to the

foreclosure___________.

2. Enter the fair market value of the property from Form 1099-C, box
7___________.

3. Subtract line 2 from line 1.If less than zero, enter zero___________.

The amount on line 3 will generally equal the amount shown in box 2 of Form
1099-C. This amount is taxable unless you meet one of the exceptions in question
2. Enter it on line 21, Other Income, of your Form 1040.

Step 2 – Figuring Gain from Foreclosure

55
4. Enter the fair market value of the property foreclosed on. For non-recourse
loans, enter the amount of the debt immediately prior to the foreclosure
________.

5. Enter your adjusted basis in the property (Usually your purchase price plus the
cost of any major improvements) ____________.

6. Subtract line 5 from line 4. If less than zero, enter zero.

The amount on line 6 is your gain from the foreclosure of your home. If you have
owned and used the home as your principal residence for periods totaling at least
two years during the five year period ending on the date of the foreclosure, you
may exclude up to $250,000 (up to $500,000 for married couples filing a joint
return) from income. If you do not qualify for this exclusion, or your gain exceeds
$250,000 ($500,000 for married couples filing a joint return), report the taxable
amount on Schedule D, Capital Gains and Losses.

4. I Lost Money on the Foreclosure of My Home. Can I Claim a Loss on My Tax

Return?

No. Losses from the sale or foreclosure of personal property are not deductible.

5. Can You Provide Examples?

A borrower bought a home in August 2005 and lived in it until it was taken
through foreclosure in September 2007. The original purchase price was
$170,000, the home is worth $200,000 at foreclosure, and the mortgage debt
canceled at foreclosure is $220,000. At the time of the foreclosure, the borrower

56
is insolvent, with liabilities (mortgage, credit cards, car loans and other debts)
totaling $250,000 and assets totaling $230,000.

The borrower figures income from the foreclosure as follows:

Use the following steps to compute the income to be reported from a foreclosure:

Step 1 - Figuring Cancellation of Debt Income (Note: For non-recourse loans, skip
this section. You have no income from cancellation of debt).

1. Enter the total amount of the debt immediately prior to the

foreclosure___$220,000__.

2. Enter the fair market value of the property from Form 1099-C, box 7
___$200,000__.

3. Subtract line 2 from line 1.If less than zero, enter zero___$20,000__.

The amount on line 3 will generally equal the amount shown in box 2 of Form
1099-C. This amount is taxable unless you meet one of the exceptions in question
2. Enter it on line 21, Other Income, of your Form 1040.

Step 2 – Figuring Gain from Foreclosure

4. Enter the fair market value of the property foreclosed. For non-recourse loans,
enter the amount of the debt immediately prior to the foreclosure __$200,000__.

5. Enter your adjusted basis in the property.(Usually your purchase price plus the
cost of any major improvements) ___$170,000__.

6. Subtract line 5 from line 4.If less than zero, enter zero___$30,000__.

The amount on line 6 is your gain from the foreclosure of your home. If you have
owned and used the home as your principal residence for periods totaling at least
two years during the five year period ending on the date of the foreclosure, you
may exclude up to $250,000 (up to $500,000 for married couples filing a joint
return) from income. If you do not qualify for this exclusion, or your gain exceeds

57
$250,000 ($500,000 for married couples filing a joint return), report the taxable
amount on Schedule D, Capital Gains and Losses.

In this situation, the borrower has a tax-free home-sale gain of $30,000 ($200,000
minus $170,000), because they owned and lived in their home as a principal
residence for at least two years. Ordinarily, the borrower would also have taxable
debt-forgiveness income of $20,000 ($220,000 minus $200,000). But since the
borrower’s liabilities exceed assets by $20,000 ($250,000 minus $230,000) there
is no tax on the canceled debt.

Other examples can be found in IRS Publication 544, Sales and Other Dispositions
of Assets, under the section “Foreclosures and Repossessions.”

6. I Don’t Agree With the Information on the Form 1099-C. What Should I Do?

Contact the lender. The lender should issue a corrected form if the information is
determined to be incorrect. Retain all records related to the purchase of your
home and all related debt.

7. I Received a Notice from the IRS on This. What Should I Do?

The IRS urges borrowers with questions to call the phone number shown on the
notice. The IRS also urges borrowers who wind up owing additional tax and are
unable to pay it in full to use the installment agreement form, normally included
with the notice, to request a payment agreement with the agency.

IRS LINKS:

58
If you are having difficulty resolving a tax problem (such as one involving an IRS
bill, letter or notice) through normal IRS channels, the Taxpayer Advocate Service
may be able to help. For more information, you can also call the TAS toll-free case
intake line at 1-877-777-4778, TTY/TDD 1-800-829-4059.

In some cases, you may qualify for free or low-cost assistance from a Low Income
Taxpayer Clinic (LITC). LITCs are independent organizations that represent low
income taxpayers in tax disputes with the IRS. Find information on LITCs in your
area.

Related Items:

• Publication 523, Selling Your Home

• Publication 544, Sales and Other Dispositions of Assets

• Publication 908, Bankruptcy Tax Guide

• Form 1040, U.S. Individual Income Tax Return

• Form 1040, Schedule D, Capital Gains and Losses

• Form 1099-C, Cancellation of Debt

• Form 9465, Installment Agreement Request

59
Borrowers Who Negotiate Loan Terms with a Mortgage Broker in Spanish, Must
Receive Their Loan Documents in Spanish

Hablas Espanol? Su casa es mi casa!

“Just sign right here on this mortgage and real estate contract. I
know you cannot speak or read English, but that’s not a problem.
Everything I have told you is in writing in this here paperwork.”

“You can trust me. We are from the same country and speak the
same language! Just sign here. Would I do you wrong? I sold your
sister, brother and son a home and we go to the same church!”

“Buy this house and I’ll get you the mortgage also. Don’t have a social
security card? Heck, we make those silly things right here in house.
And if we just say you are a citizen on the loan application I can get
the loan from banks that I know do not require proof of citizenship.
Don’t even worry if you cannot afford the home or the loan. How can
the bank come after you if you’re not a citizen?”

How many times do you think this happened over the last few years? The sad
truth is A LOT!

It seems as if lenders forgot to follow the law in their hastiness to make as many
loans as possible over the last decade. I think the main underwriting guideline
followed by most lenders was the “breathe on the glass” qualification method. If
it fogs, loan approved!

60
There is a little known law in the state of California that was set in place to
protect non-English speaking borrowers against predatory lenders. The funny
thing is that it was never, ever followed.

While this law may not be frequently used as a means of penalizing banks for
unscrupulous behavior, I anticipate that with the flood of toxic mortgages we will
see more and more cases of lenders modifying terms of their loans or being
severely penalized for completely ignoring the letter of the law.

The law in particular that relates to non-English speaking borrowers is California

Civil Code 1632.

(f) At the time and place where a contract or agreement described in paragraph
(1) or (2) of subdivision (b) is executed, a notice in any of the languages specified
in subdivision (b) in which the contract or agreement was negotiated shall be
conspicuously displayed to the effect that the person described in subdivision (b)
is required to provide a contract or agreement in the language in which the
contract or agreement was negotiated, or a translation of the disclosures required
by law in the language in which the contract or agreement was negotiated, as the
case may be. If a person described in subdivision (b) does business at more than
one location or branch, the requirements of this section shall apply only with
respect to the location or branch at which the language in which the contract or
agreement was negotiated is used.

The law is very clear and it states that if a contract is negotiated in a foreign
language then that contract needs to be written in that foreign language. If the
loan is negotiated in Spanish, then the loan documents need to be in Spanish.

The reality is that this never happens and many borrowers are going into
foreclosure when they have a legitimate defense and can fight back against this
form of predatory lending.

California Civil Code 1632

61
 According to the United States Census of 2000, of the more than 12 million
Californians who speak a language other than English in the home, approximately
4.3 million speak an Asian dialect or another language other than Spanish. The top
five languages other than English most widely spoken by Californians in their
homes are Spanish, Chinese, Tagalog, Vietnamese, and Korean. Together, these
languages are spoken by approximately 83 percent of all Californians who speak a
language other than English in their homes.

(b) Any person engaged in a trade or business who negotiates primarily in

Spanish, Chinese, Tagalog, Vietnamese, or Korean, orally or in writing, in the
course of entering into any of the following, shall deliver to the other party to the
contract or agreement and prior to the execution thereof, a translation of the
contract or agreement in the language in which the contract or agreement was
negotiated, which includes a translation of every term and condition in that
contract or agreement:

(1) A contract or agreement subject to the provisions of Title 2 (commencing with

Section 1801) of, and Chapter 2b (commencing with Section 2981) and Chapter 2d
(commencing with Section 2985.7) of Title 14 of, Part 4 of Division 3.

(2) A loan or extension of credit secured other than by real property, or

unsecured, for use primarily for personal, family or household purposes.

(3) A lease, sublease, rental contract or agreement, or other term of tenancy

contract or agreement, for a period of longer than one month, covering a
dwelling, an apartment, or mobile home, or other dwelling unit normally
occupied as a residence.

The law is very clear and it relates to most all contracts and in particular,
contracts that involve real estate and mortgages.

62
The fact is that many people are taken advantage of and many are swindled by
unscrupulous brokers and lenders. Unfortunately, many of the unscrupulous
brokers that employ the tactic of verbally explaining detailed contracts in a
foreign language but demanding their clients sign contracts written in English are
people of the same race that speak the same language in an effort to gain the
confidence of the non-English speaking borrower. This is a prime example of a
confidence scheme.

This is a serious problem that needs serious attention in today’s foreclosure and
predatory lending climate. There are most likely many other states that have
similar laws and these non-English speaking borrowers have a just defense against
a foreclosure action or unlawful loan.

There are certain laws that act as umbrellas of protection for the American
consumer. These laws are broad in scope. Regulation M and Regulation Z refer to
any rule, regulation, or interpretation promulgated by the Board of Governors of
the Federal Reserve System and any interpretation or approval issued by an
official or employee duly authorized by the board to issue interpretations or
approvals dealing with, respectively, consumer leasing or consumer lending,
pursuant to the Federal Truth in Lending Act, as amended (15 U.S.C. Sec. 1601 et
seq.).

Upon a failure to comply with the provisions of this section, the person aggrieved
may rescind the contract or agreement in the manner provided by this chapter.
When the contract for a consumer credit sale or consumer lease which has been
sold and assigned to a financial institution is rescinded pursuant to this
subdivision, the consumer shall make restitution to and have restitution made by
the person with whom he or she made the contract, and shall give notice of
rescission to the assignee. Notwithstanding that the contract was assigned
without recourse, the assignment shall be deemed rescinded and the assignor
shall promptly repurchase the contract from the assignee.

63
So what does this all mean? It means this spells T-R-O-U-B-L-E for banks.

Just think how many loans and real estate deals were made this way. Imagine
how much liability is on the line and the potential litigation that can be brought
just based on this one law. Contracts should always be in the language of the
consumer so as to insure a well informed consumer can make decisions that are
in their family’s best interest.

64
Chapter 4: Stories from the Front Line of the American
Economic Battlefield

65
 Deutsche Bank Foreclosures Tossed Out of

Ohio Federal Court - “They Own Nothing!”

By Moe Bedard and Aaron Krowne

Judge Christopher A. Boyko of the Eastern Ohio United States District Court, on
October 31, 2007 dismissed 14 Deutsche Bank-filed foreclosures in a ruling based
on lack of standing for not owning/holding the mortgage loan at the time the
lawsuits were filed.

Judge Boyko issued an order requiring the Plaintiffs in a number of pending

foreclosure cases to file a copy of the executed Assignment demonstrating the
plaintiff (Deutsche Bank) was the holder and owner of the Note and Mortgage as
of the date the complaint was filed, or the court would enter a dismissal.

The Court’s amended General Order No. 2006-16 requires the plaintiff (Deutsche
Bank) to submit an affidavit along with the complaint, which identifies them as
the original mortgage holder, or as an assignee, trustee or successor-interest.

Apparently Deutsche Bank submitted several affidavits that claim that they were
in fact the owner of these mortgage notes, but none of these affidavits mention
assignment or trust or successor interest.

Thus, the Judge ruled that in every instance, these submissions create a “conflict”
and they “do not satisfy” the burden of demonstrating at the time of filing the
complaint that Deutsche Bank was in fact the “legal” note holder.

While the decision is great for homeowners in distress (due to providing a new
escape hatch out of foreclosure), it also represents a serious roadblock. If the
toxic mortgage fiasco is to be cleaned up, there must be a simple means of
identifying what banks own and what they do not own. This judgment is an
example of the enormous task ahead in sorting out the mortgage mess.
66
Jacksonville Area Legal Aid Attorney, April Charney, broke this news to us via
email and made these comments in regards to the Ohio Federal Court ruling
(emphasis ours):

“This court order is what I have been saying in my cases. This is

rampant fraud on every court in America or nonjudicial foreclosure
fraud where the securitized trusts are filing foreclosures when they
never own/hold the mortgage loan at the commencement of the
foreclosure.”

These loans are clearly in default at the time of any eventual transfer of the
ownership of the mortgage loans to the trusts. This means that the loans are
being held by the originating lenders after the alleged “sale” to the trust despite
what it says per the pooling and servicing agreements and despite what the
securities laws require. This means that many securitized trusts don’t really,
legally own these bad loans. Regarding this mess Charney further explains:

“In my cases, many of the trusts try to argue equitable assignment

that predates the filing of the foreclosure, but a securitized trust
cannot take an equitable assignment of a mortgage loan. It also
means that the securitized trusts own nothing.”

This decision confirms that investors in the mortgage debacle may very well own
nothing—not even the bad loans they funded! It seems their right to the cash
flow from the underlying properties does not extend to ownership of the
properties themselves; thus, clouding the recovery picture considerably.

Summarizing the problem Charney concludes:

67
 “This opinion, once circulated and adopted by State and Federal
Courts across the country, will stop the progress of foreclosures, at
first in judicial foreclosure states, across America, dead in their
tracks.”

We agree with the remarks Charney makes pointing out that this decision will
have major adverse implications for the prospects of an amicable financial
workout for the various investor contingents in mortgage-backed securities
(MBSs). Doubt is cast on where the full write-downs will eventually land, and this
uncertainty can only be expected to further harm the market value of MBS and
MBS-based synthetic securities, already in shambles purely due to rising
underlying delinquencies. Investors in these securities might have assumed—
wrongly, it turns out—that they actually owned some “real estate” in these deals.

To paraphrase Jim Cramer, “They own nothing!”

Original Story from IamFacingForeclosure.com.

http://iamfacingforeclosure.com/article/20071113_Boyko/01.html

68
 True Sale, False Securitizations

By Moe Bedard and Aaron Krowne

A story we broke this past Tuesday in regards to the Ohio Federal Court Deutsche
Bank ruling has been getting a tremendous amount of attention, and rightfully so.
It wasn’t long after we posted it here that dozens of bloggers and forums were
circulating in the news and around cyberspace.

Calculated Risk’s Tanta did a total of three blog posts of follow-ups largely
intended to serve as rebuttals to our opinions. Gretchen Morgenson did a great
New York Times piece yesterday, bringing much more visibility to the issue. Even
Nigel and the Haterz gave us credit where credit is due:

“It may be a Casey fantasy, but it is true in real life. I Am Facing

Foreclosure broke a story that was respected enough and accurate
enough to be stolen by the New York Times.”

Well, maybe not stolen… but apparently we were on the right track.

Tanta had numerous objections with our conclusions and apparently those of
April Charney (who is actually an attorney that specializes in this legal field). We
wanted to reply to some of these objections here. We don’t believe the issue is
settled, and our lawyers aren’t budging.

First, we want to establish that even Tanta seems to agree with us on one critical
point: foreclosures are going to be more expensive for investors in mortgage-
backed securities than they might have hoped. Perhaps they will be much more
expensive. Just because Deutsche Bank may have a chance to “get its ducks in a
69
row” and since the foreclosures were not dismissed with prejudice, this is not
grounds to disregard the implications of the ruling. As such, our point is that
while Tanta may agree with us on this one point, his overall argument appears to
be throwing the baby out with the bath water.

While Tanta might not see this ruling as a big deal or game-changer, we suspect
investors will.

This point aside, there is something more profound to be learned from this ruling.
Tanta’s core criticism (as we understand it) is that finding the assignments was
simply a matter of due diligence that Deutsche Bank was attempting to evade
from. Not being legal gurus ourselves, we went back to April Charney for further
comment and clarification. She had this to say:

“First of all, it is not a fair assumption that “nobody could find the
original assignments.” The “original” assignments from the
originating lender to the trust don’t exist to be found until after the
foreclosure actions are filed and the loans are already supposedly in
default. It would be very interesting to see where these
nonperforming loans have been booked until now. This is an
epidemic across the country.”

“As to the real ramification of the Ohio decision, aside from slowing
the foreclosure trains, is that the fact that there were no “original”
assignments rendering the sales of the mortgages to the trusts, in
violation of the true sale obligations imposed by securities law.”

This, again, does not seem like a small issue, easily dismissible to us.

April further directed us to an article By Tim Reason regarding true sale in

securitizations from 2003.

70
What we gleaned is that the “true sale” issue (specifically as it comes to
securitization) has never been settled. One would think from the Reason article
that securitizations would have fallen out of favor after the tech stock collapse,
where they were used for various sorts of accounting deception and producing
synthetic AAA-ratings (including, famously, in the Enron case). Instead, the
problems were swept under the rug and everyone got back on the merry-go-
round a second time for the housing bubble. Reason’s article contains this
ominous explanation on the subject:

“Kenneth Kettering, associate professor at New York Law School,

argues that the securitization industry owes its very existence to the
willingness of rating agencies to rate ABS securities based on
“extravagantly hedged” true-sale opinions. “No competent lawyer
ever gave a simple flat opinion that the asset transfers involved in a
securitization transaction constitute a ‘true sale.’ Indeed, given the
absence of controlling case law, a lawyer could not responsibly do
so,” he wrote in a letter to Congress. “These all-but-liability-proof
legal opinions underline the fact that the parties to a securitization
transaction are knowingly assuming a serious legal risk.”

Somehow we suspect that nobody explained this state of affairs to the various
pension funds, the Chinese, the Europeans, the Canadians, and all of the other
parties exposed to questionable securitized MBS pools. But hey, what’s a few
trillion between friends?

This time around, securitization was scaled-up to a greater extent than ever
before, despite the fact that the fundamental issues of ownership were not
settled. Echoing (and reinforcing) the pay-to-play ratings complex that emerged at
the same time, the securitization complex chugged merrily along, while profits
were high and defaults were low.

71
But now these fundamental issues are getting their day in court again, and if this
Deutsche Bank ruling is indicative of future rulings, it isn’t going to go over well
for the investor class. Will there be another muddle-through, like last time?

The conflagration seems unlikely to blow out quite so easily this time around.
Previously, true sale challenges could be counted on to be rare and occur only in
the occasional large-scale corporate bankruptcy cases, i.e., when a creditor or the
bankrupt company itself wanted to “raid” the assets of a securitization to satisfy
obligations. Now, the challenges are threatening to proliferate right along with
the exploding number of foreclosure cases across the country.

We followed up with California mortgage attorney Nathan Fransen about this

landmark case and its implications:

“California is a non-judicial foreclosure state. This means the banks

do not file a complaint in court to foreclose on the property. They
simply execute a Trustee Sale. This requires them to provide notices in
strict accordance to the applicable laws. The sale is a private action
that effectively terminates ownership rights by the borrower.”

“Typically the sale is followed up by an unlawful detainer proceeding

to evict the former owners. The way in which the logic of this court
could be used is by filing a complaint and Preliminary Injunction in a
court in the county where the property is located. The injunction
would stay any foreclosure proceedings by the trustee. A declaratory
judgment could also be obtained that would declare the rights of the
trustee invalid and thus prevent them from taking future actions
against the homeowner.”

“There are other claims worth exploring that are derivatives of all
this. For example, perhaps a claim for slander of title since the trustee
did not have the rights to initiate the foreclosure process. Claims
under California Business and Professions Code Section 17200 (UDAP
72
 statute) may also be available. The leverage that a consumer
attorney could use from this type of an action may very well make the
difference between a homeowner staying in their home, or packing
their bags.”

So saith the lawyers. Hence we take it that, far from a trivial matter of paperwork,
Boyko’s decision is serious business. This is a tangible ray of hope for distressed
homeowners and a huge headache for securitized mortgage investors (we’re not
even sure it’d be proper to use the term “holders” or “owners” anymore).

Original Story: “Don’t do it Casey’s way!”

www.IamFacingForeclosure.com/blog

73
 The Judicial Integrity of the United States Court is “Priceless” – 27 More
Foreclosures Dismissed

By Moe Bedard

In a decision piggy-backing on Judge Boyko’s recent Deutsche Bank ruling

(announced on this site Tuesday), Judge Rose has thrown out another batch of
foreclosures, making the following summary remarks:

“This court is well aware that entities who hold valid notes are
entitled to receive timely payments in accordance with the notes.
And, if they do not receive timely payments, the entities have the
right to seek foreclosure on the accompanying mortgages.

However, with regard the enforcement of standing and other

jurisdictional requirements pertaining to foreclosure actions, this
court is in full agreement with Judge Christopher A Boyko for the
Northern District of Ohio who recently stressed, ‘That the judicial
integrity of the United States District Court is ‘Priceless.’”

The ruling is another HUGE victory for consumer advocate attorneys and
homeowners in general.

Jacksonville Legal Aid attorney April Charney remarked to us regarding the two
Ohio decisions:

” As to the real ramification of the Ohio decision, aside from slowing

the foreclosure trains, is that the fact that there were no “original”
74
assignments rendering the sales of the mortgages to the trusts, in
violation of the true sale obligations imposed by securities law. ”

75
 Ohio Homeowner Fights Foreclosure and Lives Payment Free for 11 Years

By Moe Bedard

Let the truth be known. Most homeowners do not respond or fight back when
they are facing foreclosure. The lender files the notice of default and the court
hearing comes and goes without an appearance from the defendant
(homeowner). Four to six months later, the trustee’s sale happens on the court
steps and the home owner becomes another foreclosure statistic.

However, there are unique cases of people that just won’t lie down and take it.
They fight back to protect their property rights and against injustice.

Richard Davet, a homeowner from Ohio is a man that I consider a modern day
hero. He is a role model to hundreds of thousands of other Americans that are
facing foreclosure.

In 1996, Mr. Davet was served with a foreclosure notice on his Cuyahoga County,
Ohio 1940’s 6 bedroom home. Unlike many homeowners that just take their
foreclosure medicine and move on to rent, Richard Davet decided he was going to
fight back against NationsBanc Mortgage Corp. and challenge them till the end in
an Ohio court of law.

Davet planted his heels firmly and turned his fight into a full time job as he hit the
books at the library of Case Western Law School. He began his fight by challenging
the lawsuit and then prolonged the suit by flooding the court with motions,
objections and affidavits, and he appealed the judge’s rulings at every chance,
which bought him 11 years mortgage payment free in his home.

76
From the Wall Street Journal:

“Mr. Davet has litigated these same issues over and over again…and
in each instance the courts have dismissed his claims,” said Bank of
America Corp., Charlotte, N.C., which merged with the owner of
NationsBanc.”

“Several years into the case, Bank of America took the unusual step of
bringing in lawyers from a big corporate law firm, Jones Day. Five
years later, in 2005, a judge granted foreclosure in the amount Mr.
Davet owed and set a sale date for the property so that the creditors
could take the sale proceeds. But when the property finally went to
sale, Mr. Davet set up a shell company to win the auction, for
$436,000. He couldn’t pay more than the required $10,000 deposit,
but the move delayed his eviction by months.”

“Mr. Davet says it wasn’t a delay tactic and that he was trying to line
up investors to buy the property. The house was later sold to another
family for $410,000.”

“The eviction finally happened on a snowy day in January of this year.

Don Saunders, who lived three doors down from Mr. Davet and is a
trustee of the neighborhood association, says it came as a shock in
the upscale area.”

Some people would call Mr. Davet a foreclosure fighter and pioneer. Other critics
have called him a “deadbeat.” I call him a hero because he is a man of his
convictions and has tremendous will power.

77
The Wall Street Journal:

“The mortgage company that filed the suit, then NationsBanc

Mortgage Corp., had so much trouble with the case that four years
into it they brought in lawyers from Jones Day.”

I obtained this quote from the law firm’s website:

“Since 1893, Jones Day has grown, in response to our clients’ needs,
from a small, local practice to a truly global firm with more than
2,300 lawyers in 30 offices around the world. Today, Jones Day is one
of the most recognized and respected law firms in the world, and we
count more than 250 of the Fortune 500 among our clients.”

I think it’s quite amusing that a homeowner from Cuyahoga County, Ohio gave
this powerful, 2,300 lawyer and 30 office law firm an 11 year fight.

More form WSJ:

“Mr. Davet continued to try, unsuccessfully, to get the federal court

to agree that the state judgment was invalid. Then, a possible lifeline
arrived this past October, when a federal judge in Cleveland,
Christopher A. Boyko, dismissed 14 foreclosure suits because the
plaintiffs that brought them couldn’t prove they owned the
mortgages when the suits were filed.”

“Such a problem can occur when mortgages are turned into securities
and sold to investors. The companies involved in the transaction may
78
 not have checked that each mortgage was legally transferred, or
“assigned,” to the new owners. In essence, the originating lender
continued to legally own the mortgage — and would thus need to be
the plaintiff in a foreclosure suit. In Mr. Davet’s case, however, the
mortgage, which was not securitized, changed hands multiple times
and wasn’t actually owned by NationsBanc until three years after the
company filed suit.”

“Other judges have since followed Judge Boyko’s lead. The Ohio
attorney general has asked numerous judges to dismiss or delay
foreclosures based on similar grounds.”

“Earlier this month, Mr. Davet filed a second federal appeal, this time
citing the Boyko ruling, which he believes he inspired. It’s unclear
whether the latest salvo will work. If it doesn’t, Mr. Davet says, he will
set his sights on the U.S. Supreme Court.”

There are numerous debates circulating in the blog-sphere and forum arena on
the internet in regards to foreclosure defense actions and the recent Ohio rulings.
We reported on the recent Judge Boyko ruling and other similar rulings that are
coming out of Ohio. These cases and many like them are at the forefront of the
foreclosure legal battle and will remain a hot topic as the foreclosure crisis
continues with no apparent end in sight.

Here are some of the interesting comments circulating on the internet:

“It is heartwarming to see, that the Law can be worked by a “pro se”
party. If the Bank had to bring in the awesome gun of Jones Day, then
the Law can work. It is not that the party managed to live 11 years for
free, for if you count the billable hours to learn the law, free is then
79
an abstract. A delay in the foreclosure could only occur if the Court’s
gave merti to his arguments. Which must have had some validity to
take this long. Kudos to the system for making a grant effort and
doing correctly. “ comment by bboy

“As both a corporate and general practice lawyer, I’m with JC and
bboy, but am really appalled at the name calling and lack of analysis
of most of the other responders. I’ve also had a mortgage closing
business back in the mid ’80’s when things went belly up, and I’ve
seen a lot (but hardly all).”

“There is a big difference between having the Note, which allows you
to sue for the repayment of the debt, and having the ownership of the
property which a mortgage affords, and allows you to foreclose. If
you don’t “own” the mortgage, you have no right to foreclose it, and
you can’t foreclose for fees. Take it from there - these rights of
ownership are important! Too many lenders are ripping us off with
unjustified fees. I think the borrower here was actually doing the law
and financing a great service.” Comment by laserhaas.

“Judges like this one clamor for more pay as they waste mountains of
tax dollars pampering a pro se debtor tying up the court for how
long? ELEVEN YEARS?!?” Comment by Increased judicial salaries?
HA!!!

I agree with JC–if you read the article carefully you will note two
things:

1. The entire legal process stemmed from NationsBanc’s allegedly

erroneous tacking on of 90 separate sets of late fees, which the bank

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subsequently was largely unable to conclusively document were
connected to payments actually made late.

2. NationsBanc apparently did not even own the mortgage in

question (presumably the first mortgage) until 3 years after it
initiated the initial foreclosure action.

“When I worked for a federal judge in Ohio I saw my fair share of

“jailhouse lawyer” lawsuits from prisoners and their persistent and
baseless motions. Mr. Davet’s actions remind me of those days. If he
was a licensed attorney, he could certainly face disciplinary actions.

Of course, his unwillingness to pay legal fees may evince his cheap
character.

As for his central argument of note ownership, I am curious to see if

Ohio is willing to hinder securitizations by forcing the loan originator
to hold onto the note.” Comment by Cleveland Esq.

“As a corporate lawyer who has a little bit of familiarity with the ins
and outs of large banks, I am wholly unsurprised that someone who
actually READ the terms of their mortgage papers would be able to
drag out a process this long. Many of these banks have a HORRIFIC
record of maintaining accurate and complete records on borrowers.
In this situation, this failure to maintain records properly left the
borrower subject to allegedly erroneous late fees that made payment
of his mortgage impossible.

This case should act as a wake up call to the mortgage servicers of

the nation: your sole value added to the process is to KEEP TRACK OF
THE PAPERWORK. Don’t expect every borrower to be instantly cowed
by a lawsuit or a foreclosure notice–there are folks out there (even
non-lawyers) who can read and will use the boilerplate in the
contracts (together with common law contracts doctrines) to stymie
your efforts to go after ‘deadbeat’ borrowers.
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All in all, Mr. Davet’s lawsuit shows that the legal system does work.
By requiring lenders to actually DOCUMENT their claims, maybe, just
maybe, this case will lead to better customer service and an end to
frivolous fees.” Comment by hunting

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