by Moe bedard

A comprehensive guide for consumers including all of the instructions, forms and spreadsheets needed to process a successful loan modification



Table of Contents
Chapter 1: Introduction Page 4

Foreword About Moe’s Mission Results Oriented Auditing and Processing Media Relations

Page 5 Page 6 Page 7 Page 9 Page 11

Chapter 2: How to Process a Loan Modification Yourself

Page 14

The Loan Modification How to Determine if You are a Good Candidate for a Loan Modification Communicating a Hardship Effectively Sample Hardship Letters Financial Worksheet Household Liabilities and Expenses Worksheet Sample Loan Modification Request

Page 15 Page 18

Page 20 Page 21 Page 24 Page 25 Page 26 1

Sample Loan Modification Stacking Order Overall Process Reasons to Conduct a Forensic Loan Audit Qualified Written Request The Forensic Loan Audit

Page 27 Page 29 Page 30 Page 31 Page 33

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

Page 34

Which is Worse, Foreclosure or Bankruptcy? Principle Reductions: Wipe Out Your 2nd Mortgage with Bankruptcy A Deed in Lieu of Foreclosure as a Cure for Your Mortgage Woes Real Estate Short Sales the Right Way The IRS on Short Sales, Foreclosures and Debt Forgiveness Borrowers Who Negotiate Loan Terms with a Mortgage Broker in Spanish Must Receive Their Loan Documents in Spanish

Page 35 Page 40

Page 46

Page 48 Page 53 Page 60

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

Page 65


Deutsche Bank Foreclosures Tossed Out of Ohio Federal Court “They Own Nothing!” True Sale, False Securitizations

Page 66 Page 69

The Judicial Integrity of The United States Court is “Priceless” Page 74 Ohio Homeowner Fights Foreclosure and Lives Payment Free for 11 Years Page 76


Chapter 1: Introduction 4 .

While doing research for the manual I was overwhelmed with the amount of forprofit ebooks that failed miserably to explain the process of loan to help consumers modify their loans.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. 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. 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. I hope that by downloading this free 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. Sincerely. Moe 5 . you’ll avoid the majority of the nonsense published for-profit on the internet and obtain a loan modification free of charge. This ebook is the product of that dream.

Moe Bedard is the primary contributor and operator at 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. specific to your is trusted and respected by thousands of homeowners throughout America who visit our sites every day. In the course of preparing your loan modification or in the course of preparing for other resolution services. and one home at a time. The website includes tips and strategies not only from consumers. the bridge between the consumer and Corporate America must be re-built one person.About Loanworkout. one are the #1 FREE informational mortgage websites for consumers on the internet today. President of Moeseo. and founder of is focused on providing real time solutions and tools to educate homeowners in their efforts to obtain loan modifications and short sales. Our unique platform of consumer advocate websites such as LoanSafe. but expert advice as well. We realize that in order to maintain homeownership and preserve community growth. 6 .org and LoanWorkout. an online social media campaign that has helped over 200 families modify their loans and save their homes completely free of charge. loanworkout. I highly suggest reviewing the articles at

all parties need to come to the table with the common goal of mediating damage in the most efficient and cost effective way 7 .org and LoanWorkout. This is an outcome that is beneficial to all parties involved. not for profit websites like LoanSafe. Preserve the American Dream Homeownership has and always will be part of the American Dream. Minimize Loss to All Parties No one wins in foreclosure. We utilize our network of consumer friendly. In order to effectively create solutions.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 to educate and connect consumers with their servicers. Our websites bridge the divide between borrowers and servicers by acting as an intermediary and advocate of mitigating loss for all parties involved. To date we have assisted over 200 people in saving their homes for free. Maintain Open Lines of Communication Effective communication is the most critical activity during the foreclosure process. I strive to help consumers modify loans and keep people in their homes. No one wins by playing hard ball.

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. obtained by you or through this ebook shall create any kind of promise or business relationship.Interactive Community for Homeowners That Need Help With a Loan Modification or Facing Foreclosure PredatoryLendingLaw. No advice or information.Predatory Lending Moeseo. Moe Bedard’s Websites LoanWorkout. Real Solutions LoanSafe. other ventures or any individual attorney. short sale or deed in lieu of foreclosure. whether oral or are dedicated to providing real solutions in today’s volatile mortgage and housing markets. it is possible that everyone can come out of the process a .Loan Modification & Loan Workout News LoanSafe. Whether that be a loan modification. 8 .org and .com – Corporate Website MHLoanPro.Mobile Home Loan Forum The comments by Moe Bedard or .org .possible. The opinions expressed in and throughout this ebook are the opinions of the individual author and may not reflect the opinions of our employers.

org is the Department of Housing and Urban Development’s page regarding loan modifications. www. My hope is that you will come to understand the loan modification process from start to finish in the shortest time span receives nationwide media attention.loanworkout.” The only website that outranks www. The free information website for consumers.loanworkout. Rest assured you are dealing with competent professionals each and every month to get their questions answered. While utilizing Attorney Safe Solutions for your forensic loan auditing and loan modification processing needs is by no means mandatory. In choosing Attorney Safe Solutions for your resolution services needs you: 1. 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. Nearly one million American consumers turn to www. it would give you a great advantage over processing a loan modification yourself. LoanWorkout.Results Oriented Auditing and Processing Since 2007 LoanSafe. Immediately obtain an auditing and processing infrastructure that is second to none Avoid the need to purchase and learn to use the analytic software that performs a forensic loan audit 9 . Free yourself from the hassle of processing the modification yourself and Attorney Safe Solutions have received more positive media attention than any other forensic auditing and loan modification processing company in the entire nation. consistently high. consistently ranks number two on a Google search for “loan modification.

However. 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. In either case I wish you the best of luck! Sincerely.Attorney Safe’s auditing service includes a review of all of your loan documents and the documents your lender maintains. we cannot negotiate the terms of the modification itself. Our loan modification and processing service includes managing the loan modification process itself from beginning to end. you do not have to reinvent the entire wheel. remember. 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. I highly suggest using our back end auditing and processing services as they are second to none. All you supply is the requested documentation in our easy to follow checklist of loan documents and income information. 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. In my experience I have found that many people prefer to simply outsource all of the work if they can afford to do so. Moe 10 .

org and LoanWorkout. Loan Safe is where the media goes to get the truth on the mortgage meltdown! Moe Bedard is a trusted. Read more about Moe Bedard in the media below: 11 .org for an interview or help with your news story or with his own story To is operated by consumer advocates and Moe Bedard. Loanworkout. These websites are the #1 source of free information on mortgages for consumers. 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. From the New York Times to the LA Times and from Fox Business to Business Week. These websites are trusted and respected by thousands of homeowners throughout America who visit our sites every day. valuable source for journalists because of his unique platform of consumer advocate websites such as has been featured in the media on numerous occasions.Media Relations LoanWorkout. 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.

The Silence of Lenders by Gretchen Morgenson LA Times . 2009 Examiner .Alt-A Mortgages Next Risk for Housing Market as Defaults Surge .September support resources . 2008 Contra Costa Times .Here Comes the Next Mortgage Crisis Fox Business .October 3.Corona Man Uses Blog to Save Homes Slate Magazine .January 14.Why Loan Modifications Often Don’t Work .Muzzling Homeowners? CBS/KCAL News .January 13. 2008 The Real Deal New York . 2008 EuroMoney .‘Angel’ of foreclosure defense bedevils lenders . 2008 12 .Will slow and steady win the race? New York Times .October 4.June 5.Man Offers Tips Online to Save Your Home AZ Republic . 2009 MSNBC .Struggling borrowers face brick wall on loan workouts .• • • • • • • • • • • • • • • • Smart Money .Home loan modification .Document review could save homes .Mozilo on distressed borrower’s appeal for help: “disgusting” Business Week .Mortgage servicers sucking loans dry? September 2008 Chicago Tribune . 19.The Next Real Estate Crisis . 2008 Press Enterprise .Restructuring of mortgage loans gets tougher Bloomberg .

org (The internet’s first blog dedicated to loan workouts and loan modifications). Moe is also the main contributor to Moeseo. Bedard is a leading expert and a trusted authority in regards to loan workouts and loan modifications. In addition to operating LoanSafe. 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.Moe Bedard is the owner and operator of and loansafe. Mr. Other Important Websites: • • • • • 13 .

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

The lender modifies the existing loan(s) in order to work with the homeowner because of a hardship. borrowers can obtain modifications from their lender for unaffordable rate adjustments on adjustable rate mortgages. Illness of the Borrower 3. The following are a sample of hardships that get loan modifications approved: 1. but the borrower must be able to prove the hardship.The Loan Modification A loan modification is a change to the loan contract which is agreed to by the lender and the homeowner. Adjustable Rate Mortgage Reset-Payment Shock 2. divorce. In the past. Illness of a Borrowers Family Member 15 . 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. The purpose is to help make the loan(s) more affordable. loan modifications were only utilized when a borrower was delinquent and suffered a hardship such as a job loss. or illness. Usually loan modifications are in the form of a rate reduction and/or fixing the rate for a certain period of time. The hardship can be temporary in nature or permanent. Now. A key factor that is required in every loan modification submission is the existence of a hardship.

Abandonment of Property 7. There are two important things to remember about loan modifications: 16 .Mortgage Servicing Problems 11. Property Problem 8.Reduced Income 13.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. Curtailment of Income 5. your file may be flagged as fraudulent.Death of the Borrower 16.Incarceration 19.Medical Bills 23. Loss of Job 6. Inability to Sell the Property 9. Keep this in mind when you write a hardship letter.Divorce 20.Military Duty 22. You definitely do not want this to happen for obvious reasons and it will slow down the process or terminate the process completely. Documenting the hardship is very important to the lender’s or servicer’s loss mitigation department and will be verified during the approval process.Failed Business 14.Marital Separation 21. Inability to Rent the Property 10.4. Without proper documentation.Death in the Family 18.Job Relocation 15.Death of Spouse or Co-Borrower 17.Transfer of Ownership Delays 12.

A loan modification should be requested only if no other reasonable options are available and/or the homeowner is experiencing a hardship. Loan modifications are designed for homeowners who can afford their homes but not their loans.1. 2. 17 .

To understand what the lender or servicer considers qualified. 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). etc.How to Determine if You are a Candidate for a Loan Modification Lenders and servicers will. As such. You must disqualify yourself from your old payments and at the same time qualify yourself on a new payment structure. in general. The income you can use to qualify for a modification is different from traditional income calculations used to qualify for traditional loans. you can count income from almost any source: Grandma’s SSI. Moreover. For a modification. They look for a documentable hardship of course. In addition. if only one of two spouses was on the original loan. an art to making loan modifications work. Proof must be in the form of bank statements. look for one thing when you submit a modification request. 18 . you can qualify based on your documentable total household income. you have to know how lenders calculate your income. the other spouse’s income can count so long as it is documentable. from a second job paid under the table. income from child day care services. 1099’s or in some other documentable form as outlined in the submission paperwork you will provide the lender. however. the difference in the qualification guidelines is typically in your favor. There is. It sounds complicated and it is at first but you will quickly learn important strategies for effectively processing loan modifications. so long as it can be proved. This is the big secret behind getting a loan modification approved.

use the benchmark fully amortizing 5. counting arrearages if they are added back into the loan. do not expect this rate or payment! If the payment at 5. However.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. 19 . 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. then you may not be an appropriate candidate for a modification. WARNING: this is only for a general qualifying exercise only.00% rate on whatever the new balance might be. To calculate a qualifying monthly mortgage payment. you can still request help with other services such as a deed in lieu of foreclosure.00% is just too high.

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. the memories they have had there and why they want to keep their home. handwrite the hardship letter. Loss mitigation departments are overwhelmed with foreclosures. With that said you must keep your hardship letter simple and get to the point quickly. short sales. keep the letter simple and to the point. You can obtain reliable documentation of your home’s value from a local Realtor. 20 . 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. In addition. When writing the hardship letter. and modification requests. What follows on the next pages are perfect examples of sample hardship letters. a financial worksheet. why they bought the house. Title Company or from an appraiser. an income and expense worksheet. They do not want to read a ten page letter regarding the loan officer who put them in the loan. 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.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. a sample loan modification request and a sample stacking order for you to use.

Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible. 2009. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct. 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. I believe this addresses the situation I currently find myself in along with many other homeowners. I have had no problem making my payments for over three years now and do not want that to change. 4th 2006) regarding the servicing of Conventional Mortgage Modifications. 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. Borrower’s Signature Co-Borrower’s Signature (if applicable) 21 . Sincerely. I am finding it very difficult to afford the new payment. there will be no way I can afford the increased payments come February.January 23. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in Feb. 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. Thank you for your time and consideration. 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. Considering my current income.

Sincerely. 2009. I am finding it very difficult to afford the new payment. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct. Borrower’s Signature Co-Borrower’s Signature (if applicable) 22 . I have had no problem making my payments for over three years now and do not want that to change. Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible. Thank you for your time and consideration. there will be no way I can afford the increased payments come February. Considering my current income. 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/We hope we can solve this problem together. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in February. 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.Date: To: Countrywide Mortgage To Whom It May Concern: Due to the recent adjustment to the mortgage I currently have with your company. 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. 4th 2006) regarding the servicing of Conventional Mortgage Modifications. My mortgage was originally written by another company and bought by Countrywide. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home.

) By obtaining a loan modification. This has caused me to become further and further behind. if it is going to adjust. I am not in the position to refinance due to loss of values in the real estate market. and pay on the loan that has been afforded to me. The main reason that caused me/us to be late is (insert reason here and don’t be too lengthy or too vague. I hope you will consider working with me/us on this matter. and that is to appeal to you for a mortgage loan modification. I feel confident that I will be able to maintain my mortgage. especially note if this is what created the hardship). Sincerely and Respectfully. I have but one avenue left. (Borrower’s Signature) (Co-Borrower’s Signature) 23 . Please be sure to indicate the type of loan you have. (Insert the approximate date of hardship and clarify if your situation is Temporary or will be Permanent.Date Lender Name Address City State. After exhausting all of my resources. or has already adjusted. 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). 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).

24 .

25 .

escrow deficiency. 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: Loan No: [SUBJECT PROPERTY] [LOAN NUMBER] LOAN MODIFICATION REQUEST Proposal: [PROPOSE NEW TERMS IN THIS SECTION] EXAMPLE: • A Competitive interest rate of 2% FIXED.October 10. With our already increased living expenses. to capitalize past due amounts. STEP LADDER PROGRAM. etc. Max Rate after the fourth year at 5%. if any. legal fees. Hardship: [SUMMARIZE HARDSHIP IN THIS SECTION] EXAMPLE: • We are not looking to relinquish our responsibility. we are looking for a Loan Modification and / or Workout Plan equitable to our financial situation. 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 . Amortized in 30 YEARS thereafter. and an Interest Rate that is set to adjust. but rather.

Request Details: [INPUT YOUR CURRENT AND PROPOSED DETAILS HERE] EXAMPLE: Current Interest Rate: Requested Fixed Interest Rate Current Loan Type: Requested Loan Type: Amortization Remaining: Requested Amortization: Previous Payment: New Payment: Late Fees / Penalties Late Balance: BALANCE Requested Next Payment Date: 6.00% 2.00% Option Arm, ARM ect… Step Ladder Program 323 Months 30 Years $1000.00 $1075.00 FORGIVEN / WAIVED INCL IN NEW PRINCIPAL 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,



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.


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.


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. the servicing company has twenty days to respond to the request and forward a copy of all loan documentation on file. After receiving a QWR. A Qualified Written Request (QWR) is a written demand to your servicing company. 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 . 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.

Please note that all copies need to be clear and legible and all documents should be copied in their entirety. Inc Attention: Correspondence Dept. any and all escrow account disbursements and how payments were applied In addition to the above. 2008 American Home Mortgage Services. please forward any and all disclosures. rate sheets etc. Re: Loan Number: 1234511722 Name : Johnathan Jones Subject Address : 12345 Erehwon Street. all fees incurred. Heartland. 32 . associated with the above transaction. In closing. Sincerely. 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. 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.August 27.             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. 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.

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. or if the annual percentage rate (APR) is only 0.125% higher than what was originally disclosed. In some cases. and Real Estate/Mortgage Fraud violations.The Forensic Loan Audit A Forensic loan document audit is a comprehensive investigation of the documentation from your existing loan(s). 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. We have found that over four out of five of the audits performed reveal major TILA (Truth in Lending Act). 33 . The forensic loan document audit is a significant part of a loan modification request. RESPA (Real Estate Settlement Procedures Act). Predatory Lending. if you are simply overcharged by only $35. there may be a violation of the Truth in Lending Act.00 on the final HUD-1.

Chapter 3: Specific Strategies and Important Information to Consider During the Foreclosure Process 34 .

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. Hoping for the best but preparing for the worst is the mindset anyone in the foreclosure process should maintain. If you ever plan on getting any kind of loan. you’ll need advice from someone. even the best efforts to save your home and your credit fail. But sometimes. There are different ways to file for bankruptcy and not all of your debts have to be included. If you are to be prepared for the worst. 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. 35 . while a bankruptcy remains for 10 years. 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. lenders are going look at a foreclosure more seriously than they will a bankruptcy that doesn’t include a house. A foreclosure will remain on your credit report for 7 years.Which is Worse. No one will argue that the days of banks lending to anyone with a pulse is over. 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. then it is important to consider the process of bankruptcy. either a good credit counselor or a bankruptcy attorney that can walk you through the choices you’ll face. especially a mortgage. So even if faced with bankruptcy. Even in the heyday of the subprime loan era you could obtain a loan one day out of bankruptcy. There are no guarantees that even the hardest efforts to work with your lender will meet with success.

New debts. the creditor can send it to a collection agency like any other debt. Not all debts can be wiped clean in bankruptcy. If the court decides a trustee needs to be appointed. 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. 36 . you get to keep certain property (this is where state laws vary). You might want to work out a payment plan so you can keep your car. you pay back your debts under a plan worked out by the court. You can also choose which debts you want to have discharged while you keep paying off others. If you don’t pay it back. taxes. To do this. you may want to consider a Chapter 11 filing. you have to sign a “reaffirmation agreement. court fines and most student loans. pays off your debts and makes sure you stick to the plan. This makes it very difficult to get any type of loan during the bankruptcy process and even afterwards. There are also different types of bankruptcy filings. This let’s you stay in business. aren’t included. The list includes alimony and child support. the filing stays on your credit record for 10 years. No matter which course you take. your discharge can be denied. as long as the court and the people you owe money to approve of the plan to pay off your debts. If you own a business. The two most common forms of personal bankruptcy are called Chapter 7 and Chapter 13. for example. Under a Chapter 13 filing.While the bankruptcy process in the U. Under a Chapter 7 filling. The trustee collects payments. state laws regarding consumer debts and the disposition of property also come into play.S. And if the judge finds out you’ve lied or committed fraud. If you can obtain a loan it will surely be more expensive than if you did not file for bankruptcy. is governed by federal laws and handled by a system of federal bankruptcy courts.” which says that you promise to pay off that debt. taken on after the discharge. the trustee takes control of your business and its assets.

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. You can also seek a referral from your local BAR Association or get help from a legitimate credit counselor (from an accredited. lenders will let you off the hook for that amount rather than go through the expense of foreclosing. Either way. do this before you are 30 days late or before you receive the official “notice of default.” indicating you’re several months behind. One option is to ask the lender to hold off on foreclosing until you sell. you’ve got to wait 8 years before you can do it again. you have the option of negotiating a short sale with your lender. But you may not be completely off the hook: you may owe taxes on that amount. There are different limits on filing for Chapter 13.If you’ve filed a Chapter 7 bankruptcy and gotten a discharge. If you cannot afford proper legal representation. In some cases. First of all. non-profit agency). you are going to have to make a plan and you are going to have to act on that plan. This will insure you have time to get prepared before the formal foreclosure process begins. depending on whether you’re trying to get debts discharged. 37 . you don’t want a foreclosure on your record when you go looking for a smaller house or a place to rent. you’ll need to work this out with the lender as well. If your mortgage balance is greater than your house is worth. 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. A good attorney who knows real estate and mortgage law can help you when you are facing foreclosure. 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. then you should seek assistance from a legal aid or pro bono attorney. However. Consult an accountant for more information regarding the tax consequences of short sales. you need to get honest with yourself about your situation. You may have to consider moving. You’ll still owe money to the lender even after the house is sold. Even if you do lose your house. If you can.

Great places to look for consumer advocate attorneys: www.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. then you may have legal recourse to sue your lender. then you will never truly know what rights you have to properly defend yourself against your lender. 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. A bankruptcy. particularly those of modest means. would not be necessary and you can save your home and your credit form a 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. If it is found that Truth in Lending Phone: (202) 452-1989 Fax: (202) 452-0099 1730 Rhode Island Avenue NW.NACA. What makes this such a difficult question to answer is that no two loans are the same. Email: info@naca. Deciding whether foreclosure or bankruptcy is worse for you can be difficult to define. If you never seek proper legal advice. no two consumer hardships are identical and hence what is best for you will not be the same for others. then. 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. abusive and predatory business practices. Ste 710 38 . RESPA and other predatory lending law violations have occurred.

NACBA. DC 20037 39 . In addition.S. Candace Lambrecht Administrative Director admin@nacba. with many of those case decisions influenced by NACBA’s participation. CA 95126 Phone: (408) 350-1173 Fax: (202) 331-8535 National Association of Consumer Bankruptcy Attorneys 2300 M Street. Formed in 1992. 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. NACBA provides the most comprehensive educational programs in the country for consumer bankruptcy attorneys with its annual convention 1501 The Alameda San Jose. Courts of Appeal and the Supreme Court. DC 20036 www. NACBA now has more than 2500 members located in all 50 states and Puerto Rico. Suite 800 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.

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.000 of what you owe on your mortgage? Also. if the market turns around. a second mortgage reduces your home equity to a very small margin leaving you vulnerable to the whims of your lenders. 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. 40 . if the value of the property falls below the loan amount. In the case of second mortgages. $100. In some areas like the Inland Empire of California.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 cases where real estate values have declined.000. you may want to read this. namely auto and student loans and second-home mortgages. there are strategies that you can use to protect yourself from excessive debt. facing financial difficulties can be particularly challenging. as we are seeing in most markets today. 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. debtors potentially could reduce the balance of the loan to equal the current value of the property. 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.000 or $200. In most cases. Current bankruptcy law allows judges to approve the loan modifications of the terms of certain debts.

In this case the first lender is secured by the property value.Stripping the Lien. The second lender has nothing securing their lien. A second mortgage (or in certain states. Lenders are only secured up to the value of the property. They are unsecured because the property has no value left over from the first lien. Here is a Lien Stripping Example: • • • • • Home is worth $200. 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. 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. In a Chapter 13 bankruptcy. The second lien is treated as an unsecured creditor. The first mortgage is $200. The homeowner would not even have to pay the lien when they sell the house.000. you can lien strip the second lender.” 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.000. 41 • • • .000. a deed of trust) for $100.

In Chapter 11 or Chapter 13. Congress is currently considering changes to bankruptcy law allowing the modification of home mortgages. where the lien exceeds the value of the debtor’s property. whether you have taken a second mortgage or just another related lien. such as a lower interest rate. Moreover. e. office equipment) as security for the mortgage.g. that portion of the claim is unsecured. THIS IS A POWERFUL tool for homeowners who are underwater! Additional liens on your home beyond your initial mortgage. as security for the loan. lien stripping will be allowed. such as furniture. Lien stripping is prevented only when the lien is secured “solely” by a personal residence. 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. Court decisions have made it clear that when the debtor has given other collateral (in addition to the personal residence. This exception will not apply in the case of a refinancing of a 42 . after deducting senior liens from the property’s current market value. 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. with the exception of voluntary liens secured only by the debtor’s residence. even voluntary liens. This can be done under the guise of seeking better terms from the lender. To the extent that the claim exceeds the value of the collateral.. can be stripped down to the value of the collateral. 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. you should consider offering additional collateral. could be negated in the case of a Chapter 13 personal bankruptcy filing. to secure the unsecured in whole or in part. 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. such as mortgages and security interests.Now. Despite the general rule. Thus. if you will be taking out a second mortgage or refinancing your home.

While inflated home appraisals may have allowed you to take out an additional mortgage. since in a refinancing the new mortgage pays off the first mortgage. before they even made their first payment (and often did not have to provide any collateral).mortgage. As a further side step this rule of thumb. This second loan can be negated through a Chapter 13 filing. While there is no assurance of what the courts will decide. lien stripping will be not allowed for a mortgage on a building used in a business. lenders often side stepped the 20% down payment rule by allowing the borrower to get private mortgage insurance. the second mortgage may be the better choice. if you have the option of financing your business through a second mortgage or refinancing your first mortgage. the second becomes wholly under secured. In addition. When the real estate market was much more active. can potentially allow you to forego your second mortgage. especially in the modern context of depressed home values. Thus. Within Chapter 13 Bankruptcy law. then when the value of your home drops below the first mortgage deed of trust. section 11 USC 1322. especially where the amount of the first mortgage is close to the value of the home. it’s possible that your original home loan is now upside-down. The exception is predicated on there being two distinct mortgages (a first and a second mortgage). The lien stripping program is available for individuals desiring to reorganize their debt using Federal Laws under Title 11 of the United States Code. This is because most additionally mortgages are unsecured. The mortgage 43 . 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. or negative equity. there are options for home owners with multiple liens on their home. For this reason. many buyers ended up with net negative financing. If your second lien on the whole is unsecured. remember that the general rule applies only to a lien secured solely by a personal residence. depending on the terms of the original loans as well as the details of your filing. under certain circumstances.

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)). often referred to as Chapter 13(see below).removal program can only be used in the context of reorganization.” “While removing junior debt from their properties will help them financially. you may be able to completely remove or “avoid” the second and subsequent junior mortgages from your home and county records. Tax liens can’t be avoided in Chapter 7 on the grounds that they impair exemptions. In an environment where home prices in most markets have fallen at least 30%. the court will generally require objective evidence that the home is appraised for less than the value of the initial mortgage. clients must also be capable of staying within their financial plan to fulfill their obligations of their Chapter 13 filing. which can be obtained through a county property appraisal or through a third party certified appraisal that is accepted by the court. if the 44 . many borrowers may qualify. thus leaving only the first original mortgage! To qualify for this defense. 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. If you own a home with more than one mortgage.In my opinion.” 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.

We will not be held liable for any material. 45 . ALWAYS obtain a second and third opinion on your particular situation from a trusted source. emails or any communication made subsequent to downloading this free ebook. The opinions expressed in and throughout this ebook are the opinions of the individual author and may not reflect the opinions of our employers. the bankruptcy court can determine the amount of the lien that is secured at the time of the filing. The comments. Payment of that sum entitles the debtor to the release of the lien. Ultimately. other ventures or any individual attorney. No advice or information. whether oral or written. comments. The views and opinions in this ebook are likely to change over time. so it’s important to get qualified legal advice in advance regarding any filings. You should contact your attorney to obtain advice with respect to any particular issue or problem. The comments made and the materials available in this ebook are for informational purposes only and not for the purpose of providing legal advice. 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. 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. posts. is dischargeable in the Chapter 7 filing. obtained by you or through or from this ebook shall create any kind of promise or business relationship.

the appraised market value of the property must be less than the outstanding debt from the original agreement. In particular. Standard foreclosure procedures can take years to process in court and are further complicated by personal bankruptcy declarations. 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. the lender will often pursue a deed settlement independent of court proceedings. the lender is then able to assume ownership of the property. If agreed to by both parties.” full rights to the property title to satisfy the conditions of the loan. Lenders also benefit in terms of improved settlement efficiency. the “mortgagee. For a borrower facing foreclosure. the deed agreement can relinquish him or her from underlying debt. a deed in lieu of foreclosure can offer several advantages to the borrower and lender alike. the deed grants the lender. which are relatively common in such cases. Under certain conditions. therefore. In order for the agreement to be reached. Such agreements are a common form of mortgage contract settlements. a deed-in-lieu must be based upon voluntary agreement in good faith. thus removing the foreclosure record from a credit record and reducing the need for a declaration of personal bankruptcy. cost and potential complications that would otherwise be involved in a repossession procedure.A Deed in Lieu of Foreclosure as a Cure for Your Mortgage Woes For home borrowers (mortgagors) facing foreclosure. In general. which greatly reduces the time. creating a more efficient process by limiting court costs and waiting periods involved in standard foreclosure processes. In cases where a borrower lacks sufficient assets for a deficiency judgment. Mortgage contracts that rely upon 46 . a deed is a right granted by a legal contract based upon mutual agreement. a deed in lieu of foreclosure provides an alternative solution to the standard default process.

as well as the deed itself. 47 . In certain situations. Once the agreements are reached. which outlines the terms of the deed. A third party escrow service then executes the agreement. which would normally go into effect in case sale of the property results in an amount less than the debt. an interest rate change of just a few percentage points could double a borrower’s monthly payment. thus releasing both parties from their original contract. under certain circumstances. initial down payment) are particularly vulnerable to shifts in the economic environment. which transfers legal ownership of the property. to proceed with a deed in lieu both parties must agree to and sign both an Agreement in Lieu of Foreclosure. Technically. the lender then classifies the original loan as paid and issues a waiver to deficiency judgment. The recent housing market challenges have reflected a coalescence of these factors.a relatively high monthly payment based upon a variable interest rate (with a limited. which have made deeds-in-lieu a common instrument for borrowers facing foreclosure. a borrower may pay to reduce the debt to ensure they maintain their credit rating.

Understand that. Put your best foot forward because short sales only work when fully agreed to by both the borrower and the lender (your mortgage holder). it’s important that you act as your own primary advocate in this situation. or the property market generally. 48 . McMahon.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. which may allow you to sell your home to satisfy the existing loan. First and foremost. Like Mr. McMahon has been working to reach an agreement with a third party to clear a short sale to satisfy his mortgage. In order to satisfy the requirements of the home loan. a short sale might just be the answer to help cure your mortgage woes. it is only natural to re-evaluate your current debt situation when things change unexpectedly. Mr. it is imperative that you take a step back from all of the noise to reflect upon your situation. Because nobody has perfect foresight into their future income status. diligence can help you overcome obstacles to find the best way to address to your current home loan. 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. don’t fret. At each point in your financial history. you may find it initially difficult to find a market clearing transaction to satisfy your lender. given today’s extraordinary market environment. interest rates and his own personal income (see Business Week). One option for home owners is short sale negotiations. you made decisions that you believed would best help you realize your goals. but remember: just as hard work and persistence allowed you to afford a home in the first place. In today’s market.

2.A short sale MUST be accepted by your current lender or servicer in order to proceed with the sale of your home. two years of tax returns. Most lenders will ask if you have an access to a retirement fund. Proof of income . stocks. Broker Price Opinion or BPO (Mini appraisal). Someone with the assets or the income to pay is unlikely to be considered. 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 . Comparative Market Analysis or CMA.W-2 forms from employers (or a letter explaining the seller is unemployed). and how much is accessible and why if these funds are not accessible has to be provided in a written statement. Your short sale submission package should include: 1. So. The seller needs to be able to show true financial hardship. The bank will need comparable sales data or a broker’s price opinion showing the current estimated of value of your home. you must be prepared to provide proof and evidence that you qualify and deserve a short sale by your lender. 4. Closed comparable sales are of course what they are looking for above all. Getting a lender to approve a short sale is primarily a question of economics.explaining the circumstances that make it impossible for them to pay the full amount of the statements. with that said. and other financial documents outlining income and debt obligations. investment fund. Hardship Letter . Proof of employment or unemployment . Be very thorough with your analysis with Closed and then Active listings. Short sales are considered a privilege and not a right. 3. 401’s. 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.

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. frontage and upgrades. amenities etc. unless employment circumstances have drastically changed. age. 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. be careful about discrepancies between the seller’s income and the income used to obtain the loan.. views.sluggish market. 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 . be very detailed with your analysis and calculate by square footage. Tip: In preparing the package. size. 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. medical/disability statements etc. 5. A big gap may indicate mortgage fraud.

You must negotiate for the release of both the property lien and the underlying personal debt secured by the note. Never accept the least common denominator as the only solution to the issue. If the new note is for less than the balance of the original debt. the lender may not forgive the personal debt and it will become a collection. The decision they make is based upon the opportunity cost of holding onto the property after foreclosure 51 . who is in a favorable position of being able to determine whether to accept such an agreement. If you fail to do this. a short sale can be understood as a negotiation to recognize a changed environment from when the loan was originally signed. you can make a solid case to the lender that a short sale might be in both parties’ best interest. Because of this. the lender may agree to cancel the entire deficiency balance. In short sales. Third. Second. it’s important to put yourself in the lender’s position and try to understand their approach. First. the lender has three possible ways to handle the deficiency balance. just as you would in selling your home directly. Any offer to buy the property must be evaluated by the lender. By working hard as an advocate for your own cause. Negotiating Deficiency is Key When Attempting a Short Sale: With a short sale. it’s crucially important that you present your property in the best possible light. which is the portion of the mortgage debt not covered by the sale of the home.• FHA and VA may have their own forms and special requirements as well Ultimately. just as in any negotiation. the lender can attempt to collect the deficiency balance from the seller after the property has closed. 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. the difference would be considered canceled or forgiven debt.

and then determining what to do with the asset. Keep in mind that Attorney’s fees or Realtor fees come out of the lender’s net proceeds. therefore. 52 . Because of this. putting your value proposition at the center to generate the highest possible offer. If they believe that the stated property value is low then it will make it more difficult to clear a short sale. the more likely your bank will be open to accepting a short sale. you should not have to pay out of your own pocket for an Attorney or Realtor to assist you with the transaction. The higher the offer. 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. it’s important to present the property as a potential investment to other buyers.

the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. 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. 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. What is Cancellation of Debt? If you borrow money from a commercial lender and the lender later cancels or forgives the debt. When that obligation is subsequently forgiven. More information on claiming this exclusion will be available soon. are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007. you may have to include the cancelled amount in income for tax purposes. The amount excluded reduces the taxpayer’s cost basis in the home. depending on the circumstances. 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.The IRS on Shorts Sales. qualifies for this relief. The questions and answers. 1. below. Debt reduced through mortgage restructuring. 2008 or 2009. as well as mortgage debt forgiven in connection with a foreclosure. The lender is usually required to 53 . Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). Foreclosures and Debt Forgiveness From the IRS on Shorts Sales. This provision applies to debt forgiven in 2007.

your cancelled debt is generally not considered taxable income. You are insolvent when your total debts are more than the fair market value of your total assets. You borrow $10. Cancellation of Debt.000. some or all of the cancelled debt may not be taxable to you. Insolvency: If you are insolvent when the debt is cancelled.000 and default on the loan after paying back $2. more than half your income from the prior three years was from farming. Here’s a very simple example. the lender cannot pursue you personally in case of default. 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. The most common situations when cancellation of debt income is not taxable involve: Bankruptcy: Debts discharged through bankruptcy are not considered taxable income. Certain farm debts: If you incurred the debt directly in operation of a farm. That is. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception. and the loan was owed to a person or agency regularly engaged in lending. 2. which generally is taxable income to you. There are some the amount of the canceled debt to you and the IRS on a Form 1099-C. The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception. If the lender is unable to collect the remaining debt from you. Is Cancellation of Debt Income Always Taxable? Not always. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in 54 . there is a cancellation of debt of $8.000.

cancellation of debt income. Other Income. skip this section. 2. enter zero___________. A reportable gain can occur from the disposition of the home because foreclosures are treated like sales for tax purposes. The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. I Lost My Home to Foreclosure. Use the following steps to compute the income to be reported from a foreclosure: Step 1 . 3. this may result in other tax consequences. Step 2 – Figuring Gain from Foreclosure 55 . Enter the fair market value of the property from Form 1099-C. You have no income from cancellation of debt). Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income. However. Are There Tax Consequences? There are two possible consequences you must consider: Taxable cancellation of debt income (Note: As stated above. Subtract line 2 from line 1. box 7___________. cancellation of debt income is not taxable in the case of non-recourse loans). 3.Figuring Cancellation of Debt Income (Note: For non-recourse loans.If less than zero. 1. as discussed in Question 3 below. Enter the total amount of the debt immediately prior to the foreclosure___________. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21. of your Form 1040.

or your gain exceeds $250. If you do not qualify for this exclusion. 6.4. The original purchase price was $170. 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. Subtract line 5 from line 4. The amount on line 6 is your gain from the foreclosure of your home. Losses from the sale or foreclosure of personal property are not deductible. the borrower 56 . If less than zero. enter zero. Enter the fair market value of the property foreclosed on. enter the amount of the debt immediately prior to the foreclosure ________. Enter your adjusted basis in the property (Usually your purchase price plus the cost of any major improvements) ____________. you may exclude up to $250.000 for married couples filing a joint return). Capital Gains and Losses. At the time of the foreclosure.000 (up to $500.000 at foreclosure. I Lost Money on the Foreclosure of My Home. the home is worth $200. 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. For non-recourse loans. Can I Claim a Loss on My Tax Return? No. and the mortgage debt canceled at foreclosure is $220.000 for married couples filing a joint return) from income.000. 4. report the taxable amount on Schedule D.000. 5.000 ($500. 5.

000 (up to $500. 3. The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. Enter the fair market value of the property foreclosed. Enter the fair market value of the property from Form 1099-C. enter zero___$30. Enter the total amount of the debt immediately prior to the foreclosure___$220. Subtract line 2 from line 1. of your Form 1040. The amount on line 6 is your gain from the foreclosure of your home.000__.000 for married couples filing a joint return) from income. Subtract line 5 from line 4.000__.000__. If you do not qualify for this exclusion. Other Income. Step 2 – Figuring Gain from Foreclosure 4.000__. Enter it on line 21. or your gain exceeds 57 . 1. You have no income from cancellation of debt). 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 insolvent. car loans and other debts) totaling $250.000 and assets totaling $230. box 7 ___$200. you may exclude up to $250. credit cards. For non-recourse loans. with liabilities (mortgage.000. 5. skip this section.000__.000__.If less than zero.(Usually your purchase price plus the cost of any major improvements) ___$170.Figuring Cancellation of Debt Income (Note: For non-recourse loans. This amount is taxable unless you meet one of the exceptions in question 2. 2. enter the amount of the debt immediately prior to the foreclosure __$200. enter zero___$20.If less than zero. Enter your adjusted basis in the property. 6. 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 .

$250. The lender should issue a corrected form if the information is determined to be incorrect. normally included with the notice.000 ($220.000) there is no tax on the canceled debt.000). Sales and Other Dispositions of Assets. Ordinarily.000 ($200.000 ($250.” 6. 7. the borrower has a tax-free home-sale gain of $30. But since the borrower’s liabilities exceed assets by $20. What Should I Do? Contact the lender. I Received a Notice from the IRS on This.000). the borrower would also have taxable debt-forgiveness income of $20. Retain all records related to the purchase of your home and all related debt. to request a payment agreement with the agency. In this situation. under the section “Foreclosures and Repossessions.000 minus $200. What Should I Do? The IRS urges borrowers with questions to call the phone number shown on the notice. report the taxable amount on Schedule D.000 minus $230.000 for married couples filing a joint return). because they owned and lived in their home as a principal residence for at least two years.000 ($500. 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. IRS LINKS: 58 .000 minus $170. Other examples can be found in IRS Publication 544. I Don’t Agree With the Information on the Form 1099-C. Capital Gains and Losses.

Schedule D. LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). you can also call the TAS toll-free case intake line at 1-877-777-4778. Installment Agreement Request 59 . Sales and Other Dispositions of Assets Publication 908. For more information. the Taxpayer Advocate Service may be able to help. Cancellation of Debt Form 9465. U. Selling Your Home Publication 544. Related Items: • • • • • • • Publication 523. Individual Income Tax Return Form 1040. Find information on LITCs in your area. TTY/TDD 1-800-829-4059. letter or notice) through normal IRS channels.If you are having difficulty resolving a tax problem (such as one involving an IRS bill.S. In some cases. Bankruptcy Tax Guide Form 1040. Capital Gains and Losses Form 1099-C.

brother and son a home and we go to the same church!” “Buy this house and I’ll get you the mortgage also. If it fogs. 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.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. Don’t have a social security card? Heck.” “You can trust me. 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. Everything I have told you is in writing in this here paperwork. Don’t even worry if you cannot afford the home or the loan. I think the main underwriting guideline followed by most lenders was the “breathe on the glass” qualification method. we make those silly things right here in house. Would I do you wrong? I sold your sister. loan approved! 60 . We are from the same country and speak the same language! Just sign here. but that’s not a problem. I know you cannot speak or read English.

The funny thing is that it was never. 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. 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. ever followed. or a translation of the disclosures required by law in the language in which the contract or agreement was negotiated. While this law may not be frequently used as a means of penalizing banks for unscrupulous behavior. If the loan is negotiated in Spanish. then the loan documents need to be in Spanish. California Civil Code 1632 61 . as the case may be. If a person described in subdivision (b) does business at more than one location or branch. The law in particular that relates to non-English speaking borrowers is California Civil Code 1632. 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. 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.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. (f) At the time and place where a contract or agreement described in paragraph (1) or (2) of subdivision (b) is executed. 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.

and Korean. for use primarily for personal. (3) A lease. of the more than 12 million Californians who speak a language other than English in the home. family or household purposes. or Korean. Part 4 of Division 3. The law is very clear and it relates to most all contracts and in particular. Together. or other dwelling unit normally occupied as a residence. Vietnamese. or mobile home. a translation of the contract or agreement in the language in which the contract or agreement was negotiated. or unsecured. (b) Any person engaged in a trade or business who negotiates primarily in Spanish.7) of Title 14 of. contracts that involve real estate and mortgages.3 million speak an Asian dialect or another language other than Spanish. Vietnamese. (2) A loan or extension of credit secured other than by real property. Chinese. Chinese. or other term of tenancy contract or agreement. approximately 4. shall deliver to the other party to the contract or agreement and prior to the execution thereof. Tagalog. for a period of longer than one month. sublease. The top five languages other than English most widely spoken by Californians in their homes are Spanish. in the course of entering into any of the following. 62 . these languages are spoken by approximately 83 percent of all Californians who speak a language other than English in their homes. 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. covering a dwelling. and Chapter 2b (commencing with Section 2981) and Chapter 2d (commencing with Section 2985. orally or in writing. rental contract or agreement. an apartment. Tagalog.According to the United States Census of 2000.

Sec. 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. 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. These laws are broad in scope. the consumer shall make restitution to and have restitution made by the person with whom he or she made the contract.C. 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. Regulation M and Regulation Z refer to any rule. This is a prime example of a confidence scheme. 1601 et seq. as amended (15 U. Unfortunately. respectively. 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. Upon a failure to comply with the provisions of this section. Notwithstanding that the contract was assigned without recourse.The fact is that many people are taken advantage of and many are swindled by unscrupulous brokers and lenders. consumer leasing or consumer lending.S. and shall give notice of rescission to the assignee. the person aggrieved may rescind the contract or agreement in the manner provided by this chapter. There are certain laws that act as umbrellas of protection for the American consumer. 63 . pursuant to the Federal Truth in Lending Act. regulation. the assignment shall be deemed rescinded and the assignor shall promptly repurchase the contract from the assignee.). This is a serious problem that needs serious attention in today’s foreclosure and predatory lending climate.

Imagine how much liability is on the line and the potential litigation that can be brought just based on this one law. 64 . 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. Just think how many loans and real estate deals were made this way.So what does this all mean? It means this spells T-R-O-U-B-L-E for banks.

Chapter 4: Stories from the Front Line of the American Economic Battlefield 65 .

or the court would enter a dismissal. This judgment is an example of the enormous task ahead in sorting out the mortgage mess.“They Own Nothing!” By Moe Bedard and Aaron Krowne Judge Christopher A. Apparently Deutsche Bank submitted several affidavits that claim that they were in fact the owner of these mortgage notes. Boyko of the Eastern Ohio United States District Court. 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. 2006-16 requires the plaintiff (Deutsche Bank) to submit an affidavit along with the complaint. the Judge ruled that in every instance. 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. 66 . If the toxic mortgage fiasco is to be cleaned up. or as an assignee. 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). Thus.Deutsche Bank Foreclosures Tossed Out of Ohio Federal Court . which identifies them as the original mortgage holder. but none of these affidavits mention assignment or trust or successor interest. there must be a simple means of identifying what banks own and what they do not own. The Court’s amended General Order No. it also represents a serious roadblock. on October 31. trustee or successor-interest.

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. 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. many of the trusts try to argue equitable assignment that predates the filing of the foreclosure. clouding the recovery picture considerably. thus. This means that many securitized trusts don’t really. 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 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. legally own these bad loans. Summarizing the problem Charney concludes: 67 . Regarding this mess Charney further explains: “In my cases.Jacksonville Area Legal Aid Attorney. April Charney. but a securitized trust cannot take an equitable assignment of a mortgage loan.” These loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts.

it turns out—that they actually owned some “real estate” in these deals. 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. To paraphrase Jim“This opinion. Investors in these securities might have assumed— wrongly.html 68 .” 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). once circulated and adopted by State and Federal Courts across the country. will stop the progress of foreclosures. across America. at first in judicial foreclosure states. Doubt is cast on where the full write-downs will eventually land. “They own nothing!” Original Story from IamFacingForeclosure. dead in their tracks.

” Well. 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. Calculated Risk’s Tanta did a total of three blog posts of follow-ups largely intended to serve as rebuttals to our opinions. We don’t believe the issue is settled. First. Gretchen Morgenson did a great New York Times piece yesterday.True Sale. I Am Facing Foreclosure broke a story that was respected enough and accurate enough to be stolen by the New York Times. 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 mortgagebacked securities than they might have hoped. and rightfully so. Just because Deutsche Bank may have a chance to “get its ducks in a 69 . and our lawyers aren’t budging. Even Nigel and the Haterz gave us credit where credit is due: “It may be a Casey fantasy. It wasn’t long after we posted it here that dozens of bloggers and forums were circulating in the news and around cyberspace. 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. bringing much more visibility to the issue. maybe not stolen… but apparently we were on the right track. Perhaps they will be much more expensive. but it is true in real life.

does not seem like a small issue. there is something more profound to be learned from this ruling. again. in violation of the true sale obligations imposed by securities law. our point is that while Tanta may agree with us on this one point.” 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. 70 . we went back to April Charney for further comment and clarification. easily dismissible to us.” “As to the real ramification of the Ohio decision. his overall argument appears to be throwing the baby out with the bath water. we suspect investors will. Not being legal gurus ourselves. it is not a fair assumption that “nobody could find the original assignments. April further directed us to an article By Tim Reason regarding true sale in securitizations from 2003. This point aside. As such. She had this to say: “First of all. This is an epidemic across the country.” This. While Tanta might not see this ruling as a big deal or game-changer. this is not grounds to disregard the implications of the ruling. is that the fact that there were no “original” assignments rendering the sales of the mortgages to the trusts. aside from slowing the foreclosure trains.row” and since the foreclosures were not dismissed with prejudice. It would be very interesting to see where these nonperforming loans have been booked until now. 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.

“These all-but-liability-proof legal opinions underline the fact that the parties to a securitization transaction are knowingly assuming a serious legal risk. the Europeans. securitization was scaled-up to a greater extent than ever before. where they were used for various sorts of accounting deception and producing synthetic AAA-ratings (including. the problems were swept under the rug and everyone got back on the merry-goround a second time for the housing bubble.” Somehow we suspect that nobody explained this state of affairs to the various pension funds. One would think from the Reason article that securitizations would have fallen out of favor after the tech stock collapse. the Chinese. But hey. famously. given the absence of controlling case law. while profits were high and defaults were low.’ Indeed. 71 . the securitization complex chugged merrily along. Instead. associate professor at New York Law School. and all of the other parties exposed to questionable securitized MBS pools. a lawyer could not responsibly do so. in the Enron case). what’s a few trillion between friends? This time around. despite the fact that the fundamental issues of ownership were not settled. the Canadians.” he wrote in a letter to Congress. Reason’s article contains this ominous explanation on the subject: “Kenneth Kettering. 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. Echoing (and reinforcing) the pay-to-play ratings complex that emerged at the same time.What we gleaned is that the “true sale” issue (specifically as it comes to securitization) has never been settled.

Claims under California Business and Professions Code Section 17200 (UDAP 72 . like last time? The conflagration seems unlikely to blow out quite so easily this time around. Previously. the challenges are threatening to proliferate right along with the exploding number of foreclosure cases across the country. it isn’t going to go over well for the investor class.” “There are other claims worth exploring that are derivatives of all this.e. Will there be another muddle-through. and if this Deutsche Bank ruling is indicative of future rulings. 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. They simply execute a Trustee Sale. This requires them to provide notices in strict accordance to the applicable laws. The injunction would stay any foreclosure proceedings by the trustee. true sale challenges could be counted on to be rare and occur only in the occasional large-scale corporate bankruptcy cases.” “Typically the sale is followed up by an unlawful detainer proceeding to evict the former owners. perhaps a claim for slander of title since the trustee did not have the rights to initiate the foreclosure process. This means the banks do not file a complaint in court to foreclose on the property. when a creditor or the bankrupt company itself wanted to “raid” the assets of a securitization to satisfy obligations.But now these fundamental issues are getting their day in court again. Now. 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. i. The sale is a private action that effectively terminates ownership rights by the borrower. For example.. We followed up with California mortgage attorney Nathan Fransen about this landmark case and its implications: “California is a non-judicial foreclosure state.

Original Story: “Don’t do it Casey’s way!” www. Boyko’s decision is serious business.IamFacingForeclosure. 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). 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 73 . far from a trivial matter of paperwork. Hence we take it that.statute) may also be available. or packing their bags.” So saith the lawyers.

And. aside from slowing the foreclosure trains. this court is in full agreement with Judge Christopher A Boyko for the Northern District of Ohio who recently stressed. is that the fact that there were no “original” 74 . Judge Rose has thrown out another batch of foreclosures. with regard the enforcement of standing and other jurisdictional requirements pertaining to foreclosure actions. the entities have the right to seek foreclosure on the accompanying mortgages. Jacksonville Legal Aid attorney April Charney remarked to us regarding the two Ohio decisions: ” As to the real ramification of the Ohio decision.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). However.’” The ruling is another HUGE victory for consumer advocate attorneys and homeowners in general. 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. ‘That the judicial integrity of the United States District Court is ‘Priceless. if they do not receive timely payments.

assignments rendering the sales of the mortgages to the trusts. in violation of the true sale obligations imposed by securities law. ” 75 .

Mr. The lender files the notice of default and the court hearing comes and goes without an appearance from the defendant (homeowner). 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. They fight back to protect their property rights and against injustice. and he appealed the judge’s rulings at every chance. He began his fight by challenging the lawsuit and then prolonged the suit by flooding the court with motions. He is a role model to hundreds of thousands of other Americans that are facing foreclosure.Ohio Homeowner Fights Foreclosure and Lives Payment Free for 11 Years By Moe Bedard Let the truth be known. Ohio 1940’s 6 bedroom home. objections and affidavits. Four to six months later. the trustee’s sale happens on the court steps and the home owner becomes another foreclosure statistic. and challenge them till the end in an Ohio court of law. Richard Davet decided he was going to fight back against NationsBanc Mortgage Corp. 76 . Richard Davet. which bought him 11 years mortgage payment free in his home. Davet was served with a foreclosure notice on his Cuyahoga County. there are unique cases of people that just won’t lie down and take it. However. Unlike many homeowners that just take their foreclosure medicine and move on to rent. a homeowner from Ohio is a man that I consider a modern day hero. Most homeowners do not respond or fight back when they are facing foreclosure. In 1996.

in 2005. 77 .” I call him a hero because he is a man of his convictions and has tremendous will power. Don Saunders.” “Several years into the case. which merged with the owner of NationsBanc..” “The eviction finally happened on a snowy day in January of this year. for $436.C. Davet and is a trustee of the neighborhood association.From the Wall Street Journal: “Mr. a judge granted foreclosure in the amount Mr. Davet a foreclosure fighter and pioneer.000 deposit. Charlotte. says it came as a shock in the upscale area. The house was later sold to another family for $410. He couldn’t pay more than the required $10. But when the property finally went to sale.” Some people would call Mr. Mr..” said Bank of America Corp. Davet has litigated these same issues over and over again…and in each instance the courts have dismissed his claims. Five years later. Davet set up a shell company to win the auction. who lived three doors down from Mr. N. but the move delayed his eviction by months. Other critics have called him a “deadbeat. Bank of America took the unusual step of bringing in lawyers from a big corporate law firm. Davet owed and set a sale date for the property so that the creditors could take the sale proceeds.000.000. Davet says it wasn’t a delay tactic and that he was trying to line up investors to buy the property. Jones Day.” “Mr.

unsuccessfully. 2. in response to our clients’ needs.300 lawyers in 30 offices around the world. had so much trouble with the case that four years into it they brought in lawyers from Jones Day. then NationsBanc Mortgage Corp.” I obtained this quote from the law firm’s website: “Since 1893.” “Such a problem can occur when mortgages are turned into securities and sold to investors. Then. Davet continued to try.300 lawyer and 30 office law firm an 11 year fight. dismissed 14 foreclosure suits because the plaintiffs that brought them couldn’t prove they owned the mortgages when the suits were filed. Jones Day is one of the most recognized and respected law firms in the world. More form WSJ: “Mr. Ohio gave this powerful. local practice to a truly global firm with more than 2. Boyko. Christopher A.The Wall Street Journal: “The mortgage company that filed the suit. and we count more than 250 of the Fortune 500 among our clients. Jones Day has grown. when a federal judge in Cleveland. from a small. The companies involved in the transaction may 78 . to get the federal court to agree that the state judgment was invalid. a possible lifeline arrived this past October.” I think it’s quite amusing that a homeowner from Cuyahoga County.. Today.

Davet’s case. he will set his sights on the U.” to the new owners. 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. for if you count the billable hours to learn the law. free is then 79 . In essence. It is not that the party managed to live 11 years for free. changed hands multiple times and wasn’t actually owned by NationsBanc until three years after the company filed suit. Mr. Davet says. which he believes he inspired. however. We reported on the recent Judge Boyko ruling and other similar rulings that are coming out of Ohio. then the Law can work. In Mr. this time citing the Boyko ruling. the originating lender continued to legally own the mortgage — and would thus need to be the plaintiff in a foreclosure suit. It’s unclear whether the latest salvo will work. Supreme Court. The Ohio attorney general has asked numerous judges to dismiss or delay foreclosures based on similar grounds. If it doesn’t.” 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.” “Other judges have since followed Judge Boyko’s lead. the mortgage.S.not have checked that each mortgage was legally transferred. Mr. that the Law can be worked by a “pro se” party. If the Bank had to bring in the awesome gun of Jones Day. Davet filed a second federal appeal. or “assigned. Here are some of the interesting comments circulating on the internet: “It is heartwarming to see. which was not securitized.” “Earlier this month.

The entire legal process stemmed from NationsBanc’s allegedly erroneous tacking on of 90 separate sets of late fees.” Comment by laserhaas. I think the borrower here was actually doing the law and financing a great service. which the bank 80 . but am really appalled at the name calling and lack of analysis of most of the other responders. “ comment by bboy “As both a corporate and general practice lawyer. and having the ownership of the property which a mortgage affords. and you can’t foreclose for fees. Kudos to the system for making a grant effort and doing correctly. Which must have had some validity to take this long. If you don’t “own” the mortgage. I’ve also had a mortgage closing business back in the mid ’80’s when things went belly up. you have no right to foreclose abstract. I’m with JC and bboy. Take it from there . and allows you to foreclose.” “There is a big difference between having the Note. A delay in the foreclosure could only occur if the Court’s gave merti to his arguments.these rights of ownership are important! Too many lenders are ripping us off with unjustified fees. and I’ve seen a lot (but hardly all). which allows you to sue for the repayment of the debt. “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.

Mr.” Comment by Cleveland Esq. Davet’s actions remind me of those days. “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. 2. If he was a licensed attorney. In this situation. Of course. “As a corporate lawyer who has a little bit of familiarity with the ins and outs of large banks.subsequently was largely unable to conclusively document were connected to payments actually made late. Many of these banks have a HORRIFIC record of maintaining accurate and complete records on borrowers. he could certainly face disciplinary actions. 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. this failure to maintain records properly left the borrower subject to allegedly erroneous late fees that made payment of his mortgage impossible. I am curious to see if Ohio is willing to hinder securitizations by forcing the loan originator to hold onto the note. NationsBanc apparently did not even own the mortgage in question (presumably the first mortgage) until 3 years after it initiated the initial foreclosure action. 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. his unwillingness to pay legal fees may evince his cheap character. 81 . 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. As for his central argument of note ownership.

Davet’s lawsuit shows that the legal system does work. this case will lead to better customer service and an end to frivolous fees.All in all.” Comment by hunting 82 . just maybe. Mr. maybe. By requiring lenders to actually DOCUMENT their claims.

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