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 .

The free information and forms provided in this ebook are the same one’s that have been used by thousands of other people who have achieved success in the loan modification process. I knew there had to be a way to put all of the information from loanworkout. While doing research for the manual I was overwhelmed with the amount of forprofit ebooks that failed miserably to explain the process of loan modifications.Foreward “One of the serious obstacles to the improvement of our race is indiscriminate charity. While the site has helped over 200 families modify their loans completely free. This ebook is the product of that dream. Moe 5 . you’ll avoid the majority of the nonsense published for-profit on the internet and obtain a loan modification free of charge. 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. I hope that by downloading this free to help consumers modify their loans.” Andrew Carnegie Before writing this ebook I spent a great deal of time posting blogs to loanworkout.

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

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

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

org. Avoid the need to purchase and learn to use the analytic software that performs a forensic loan audit 9 .org and Attorney Safe Solutions have received more positive media attention than any other forensic auditing and loan modification processing company in the entire nation. Free yourself from the hassle of processing the modification yourself 3. it would give you a great advantage over processing a loan modification each and every month to get their questions is the Department of Housing and Urban Development’s page regarding loan modifications. www. consistently high. Nearly one million American consumers turn to www.loanworkout. My hope is that you will come to understand the loan modification process from start to finish in the shortest time span possible. Immediately obtain an auditing and processing infrastructure that is second to none 2.” The only website that outranks www. 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.loanworkout. LoanWorkout. While utilizing Attorney Safe Solutions for your forensic loan auditing and loan modification processing needs is by no means mandatory.Results Oriented Auditing and Processing Since 2007 receives nationwide media attention. The free information website for consumers. consistently ranks number two on a Google search for “loan modification. Rest assured you are dealing with competent professionals 4.

we cannot negotiate the terms of the modification itself. Only a duly licensed attorney in good standing can negotiate the terms of the loan modification. remember. However. you do not have to reinvent the entire wheel. The good news is that we can recommend attorneys that know what they are doing and have a proven track record of success. Our loan modification and processing service includes managing the loan modification process itself from beginning to end. I highly suggest using our back end auditing and processing services as they are second to none. 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. In my experience I have found that many people prefer to simply outsource all of the work if they can afford to do so. 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. Moe 10 . All you supply is the requested documentation in our easy to follow checklist of loan documents and income information.

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

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

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

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

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

Military Duty 22.Death in the Family 18. your file may be flagged as fraudulent.Job Relocation 15.Reduced Income 13. There are two important things to remember about loan modifications: 16 .4.Divorce 20. Abandonment of Property 7. Keep this in mind when you write a hardship letter.Marital Separation 21.Death of Spouse or Co-Borrower 17. Documenting the hardship is very important to the lender’s or servicer’s loss mitigation department and will be verified during the approval process.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. Property Problem 8. Inability to Rent the Property 10.Medical Bills 23. You definitely do not want this to happen for obvious reasons and it will slow down the process or terminate the process completely. Inability to Sell the Property 9.Mortgage Servicing Problems 11. Curtailment of Income 5.Transfer of Ownership Delays 12. Without proper documentation. Loss of Job 6.Incarceration 19.Death of the Borrower 16.Failed Business 14.

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

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

However. counting arrearages if they are added back into the loan. use the benchmark fully amortizing 5. 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. To calculate a qualifying monthly mortgage payment.00% is just too high. do not expect this rate or payment! If the payment at 5.00% rate on whatever the new balance might be. you can still request help with other services such as a deed in lieu of foreclosure. 19 .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. WARNING: this is only for a general qualifying exercise only. then you may not be an appropriate candidate for a modification.

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

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 was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct.January 23. My mortgage was originally written by another company and bought by Countrywide. 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. Borrower’s Signature Co-Borrower’s Signature (if applicable) 21 . 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. Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible. I am finding it very difficult to afford the new payment. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in Feb. Sincerely. I have had no problem making my payments for over three years now and do not want that to change. 2009. Considering my current income. Thank you for your time and consideration. I believe this addresses the situation I currently find myself in along with many other homeowners. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home. there will be no way I can afford the increased payments come February. 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 was assured that refinancing would be no problem but that turned out not to be true due to the downturn of the housing industry. Sincerely. Thank you for your time and consideration. I/We hope we can solve this problem together. The main problem is that my property is now worth about 5-10% less than what I paid for it which is preventing me from being able to refinance. I am finding it very difficult to afford the new payment. 4th 2006) regarding the servicing of Conventional Mortgage Modifications. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct. Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible.Date: To: Countrywide Mortgage To Whom It May Concern: Due to the recent adjustment to the mortgage I currently have with your company. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in February. Borrower’s Signature Co-Borrower’s Signature (if applicable) 22 . My mortgage was originally written by another company and bought by Countrywide. I have had no problem making my payments for over three years now and do not want that to change. 2009. 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.

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

24 .

25 .

and an Interest Rate that is set to adjust. escrow deficiency. Amortized in 30 YEARS thereafter. With our already increased living expenses. if any. STEP LADDER PROGRAM. but rather. Max Rate after the fourth year at 5%. etc. 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. the new payment will become unaffordable and difficult for us to maintain. legal fees.October 10. to capitalize past due amounts. 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 . 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.

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.


The servicing companies also have to suspend all reporting activity to the major credit bureaus and then resolve the issue within sixty days. 31 . Federal RESPA laws require the servicing companies to comply and respond within this specified time frame. A Qualified Written Request (QWR) is a written demand to your servicing company. the servicing company has twenty days to respond to the request and forward a copy of all loan documentation on file. 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.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. After receiving a QWR.

2008 American Home Mortgage Services. Heartland. Please note that all copies need to be clear and legible and all documents should be copied in their entirety. Re: Loan Number: 1234511722 Name : Johnathan Jones Subject Address : 12345 Erehwon Street. rate sheets etc. associated with the above transaction. Inc Attention: Correspondence Dept. any and all escrow account disbursements and how payments were applied In addition to the above. Please see below for a list of documents needed. In closing. 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. all fees incurred. 32 . We/I understand that under Section 6 of RESPA you are required to acknowledge our/my request within 20 business days and try to resolve any issues within 60 business days. please forward any and all disclosures.             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.August 27. Thank you for your time. Please forward requested documentation as soon as possible and we look forward to working with you on a solution that benefits our mutual concerns. Sincerely.

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. RESPA (Real Estate Settlement Procedures Act). and Real Estate/Mortgage Fraud violations. We have found that over four out of five of the audits performed reveal major TILA (Truth in Lending Act).The Forensic Loan Audit A Forensic loan document audit is a comprehensive investigation of the documentation from your existing loan(s). In some cases. 33 . or if the annual percentage rate (APR) is only 0. Predatory Lending. there may be a violation of the Truth in Lending Act. if you are simply overcharged by only $35. The forensic loan document audit is a significant part of a loan modification request. 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.125% higher than what was originally disclosed.00 on the final HUD-1.

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

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

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

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

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

org 1501 The Alameda San Jose. Candace Lambrecht Administrative Director 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. DC 20037 39 . NACBA provides the most comprehensive educational programs in the country for consumer bankruptcy attorneys with its annual convention seminars. 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. Formed in 1992.NACBA. NACBA now has more than 2500 members located in all 50 states and Puerto Rico. In addition.S. Courts of Appeal and the Supreme Court. 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. DC 20036 www. Suite 800 Washington.Washington.

if the market turns around. debtors potentially could reduce the balance of the loan to equal the current value of the property. you may want to read this. as we are seeing in most markets today. if the value of the property falls below the loan amount. a second mortgage reduces your home equity to a very small margin leaving you vulnerable to the whims of your lenders. facing financial difficulties can be particularly challenging. In some areas like the Inland Empire of California. In most cases.000.000 of what you owe on your mortgage? Also. Current bankruptcy law allows judges to approve the loan modifications of the terms of certain debts. there are strategies that you can use to protect yourself from excessive debt. 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. In cases where real estate values have declined.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.000 or $200. 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. 40 . 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. $100. namely auto and student loans and second-home mortgages. 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. In the case of second mortgages.

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

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

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

you may be able to completely remove or “avoid” the second and subsequent junior mortgages from your home and county records. 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. 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.In my opinion. 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 . thus leaving only the first original mortgage! To qualify for this defense.” “While removing junior debt from their properties will help them financially. 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). Tax liens can’t be avoided in Chapter 7 on the grounds that they impair exemptions.” 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. If you own a home with more than one mortgage.removal program can only be used in the context of reorganization. many borrowers may qualify.

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

creating a more efficient process by limiting court costs and waiting periods involved in standard foreclosure processes. the lender is then able to assume ownership of the property. If agreed to by both parties. Under certain conditions. the deed agreement can relinquish him or her from underlying debt. the “mortgagee. which are relatively common in such cases. a deed is a right granted by a legal contract based upon mutual agreement. a deed in lieu of foreclosure can offer several advantages to the borrower and lender alike. a deed in lieu of foreclosure provides an alternative solution to the standard default process. For a borrower facing foreclosure. thus removing the foreclosure record from a credit record and reducing the need for a declaration of personal bankruptcy. In cases where a borrower lacks sufficient assets for a deficiency judgment. a deed-in-lieu must be based upon voluntary agreement in good faith. In order for the agreement to be reached. In general.” full rights to the property title to satisfy the conditions of the loan. cost and potential complications that would otherwise be involved in a repossession procedure. Mortgage contracts that rely upon 46 . Such agreements are a common form of mortgage contract settlements. the lender will often pursue a deed settlement independent of court proceedings. which greatly reduces the time. 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. therefore. the deed grants the lender.A Deed in Lieu of Foreclosure as a Cure for Your Mortgage Woes For home borrowers (mortgagors) facing foreclosure. the appraised market value of the property must be less than the outstanding debt from the original agreement. Lenders also benefit in terms of improved settlement efficiency. and the property must not be subject to any third party creditor claims or liens. In particular. Standard foreclosure procedures can take years to process in court and are further complicated by personal bankruptcy declarations.

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

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

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

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

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

and then determining what to do with the asset. Because of this. therefore. putting your value proposition at the center to generate the highest possible offer. 52 . 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. If they believe that the stated property value is low then it will make it more difficult to clear a short sale. Keep in mind that Attorney’s fees or Realtor fees come out of the lender’s net proceeds.

The amount excluded reduces the taxpayer’s cost basis in the home.The IRS on Shorts Sales. 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. The exclusion doesn’t apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition. The lender is usually required to 53 . This provision applies to debt forgiven in 2007. 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. More information on claiming this exclusion will be available soon. When that obligation is subsequently forgiven. 1. as well as mortgage debt forgiven in connection with a foreclosure. The questions and answers. 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. Debt reduced through mortgage restructuring. the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. are based on the law prior to the passage of the Mortgage Forgiveness Debt Relief Act of 2007. below. qualifies for this relief. 2008 or 2009. you may have to include the cancelled amount in income for tax purposes. depending on the circumstances. What is Cancellation of Debt? If you borrow money from a commercial lender and the lender later cancels or forgives the debt.

the lender cannot pursue you personally in case of default. If the lender is unable to collect the remaining debt from the amount of the canceled debt to you and the IRS on a Form 1099-C. 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 rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception. some or all of the cancelled debt may not be taxable to you.000. 2. There are some exceptions. more than half your income from the prior three years was from farming. That is. Here’s a very simple example. You are insolvent when your total debts are more than the fair market value of your total assets.000. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in 54 . Cancellation of Debt. The most common situations when cancellation of debt income is not taxable involve: Bankruptcy: Debts discharged through bankruptcy are not considered taxable income. there is a cancellation of debt of $8. which generally is taxable income to you. and the loan was owed to a person or agency regularly engaged in lending. your cancelled debt is generally not considered taxable income.000 and default on the loan after paying back $2. Is Cancellation of Debt Income Always Taxable? Not always. Certain farm debts: If you incurred the debt directly in operation of a farm. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception. You borrow $10. Insolvency: If you are insolvent when the debt is cancelled.

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

000. you may exclude up to $250. Losses from the sale or foreclosure of personal property are not deductible.000.4. If you do not qualify for this exclusion. the home is worth $200. Subtract line 5 from line 4. If less than zero. the borrower 56 . or your gain exceeds $250. Enter your adjusted basis in the property (Usually your purchase price plus the cost of any major improvements) ____________.000 (up to $500. At the time of the foreclosure. and the mortgage debt canceled at foreclosure is $220. I Lost Money on the Foreclosure of My Home.000 at foreclosure.000 ($500. Can I Claim a Loss on My Tax Return? No. 6. The original purchase price was $170. For non-recourse loans. 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. enter the amount of the debt immediately prior to the foreclosure ________. 5. enter zero. The amount on line 6 is your gain from the foreclosure of your home. report the taxable amount on Schedule D.000 for married couples filing a joint return). 5. Enter the fair market value of the property foreclosed on. Capital Gains and Losses. 4. Can You Provide Examples? A borrower bought a home in August 2005 and lived in it until it was taken through foreclosure in September 2007.000 for married couples filing a joint return) from income.

with liabilities (mortgage. Enter the fair market value of the property foreclosed. 5. Enter your adjusted basis in the property. car loans and other debts) totaling $250.000 for married couples filing a joint return) from income. you may exclude up to $250. 6. enter zero___$20. Subtract line 2 from line 1.000.Figuring Cancellation of Debt Income (Note: For non-recourse loans. Subtract line 5 from line 4.000__. The amount on line 6 is your gain from the foreclosure of your home.000__. If you do not qualify for this exclusion. enter zero___$30. For non-recourse loans. Enter the fair market value of the property from Form 1099-C. You have no income from cancellation of debt). 1. enter the amount of the debt immediately prior to the foreclosure __$200. 3. Enter it on line 21. of your Form 1040. Other Income.000 (up to $500.000 and assets totaling $230. 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 . This amount is taxable unless you meet one of the exceptions in question 2. credit cards. skip this section.000__.000__. The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. 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. or your gain exceeds 57 .000__.(Usually your purchase price plus the cost of any major improvements) ___$170. Step 2 – Figuring Gain from Foreclosure 4.If less than zero. Enter the total amount of the debt immediately prior to the foreclosure___$220. box 7 ___$ insolvent.000__.If less than zero. 2.

In this situation. report the taxable amount on Schedule D.000).000) there is no tax on the canceled debt. Sales and Other Dispositions of Assets. Retain all records related to the purchase of your home and all related debt. I Received a Notice from the IRS on This. What Should I Do? The IRS urges borrowers with questions to call the phone number shown on the notice. to request a payment agreement with the agency. Capital Gains and Losses. But since the borrower’s liabilities exceed assets by $20.000 for married couples filing a joint return). Other examples can be found in IRS Publication 544.000 minus $200.” 6.000 ($200. 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. The lender should issue a corrected form if the information is determined to be incorrect. I Don’t Agree With the Information on the Form 1099-C.000 ($220. the borrower would also have taxable debt-forgiveness income of $20. IRS LINKS: 58 . Ordinarily. 7. under the section “Foreclosures and Repossessions.000 minus $230. the borrower has a tax-free home-sale gain of $30.000 ($250.000 minus $170. because they owned and lived in their home as a principal residence for at least two years.$250. normally included with the notice. What Should I Do? Contact the lender.000).000 ($500.

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

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

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

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

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

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

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

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

broke this news to us via email and made these comments in regards to the Ohio Federal Court ruling (emphasis ours): “This court order is what I have been saying in my cases. This 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. thus. many of the trusts try to argue equitable assignment that predates the filing of the foreclosure.Jacksonville Area Legal Aid Attorney. clouding the recovery picture considerably. This means that many securitized trusts don’t really. legally own these bad loans.” These loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. Regarding this mess Charney further explains: “In my cases. This is rampant fraud on every court in America or nonjudicial foreclosure fraud where the securitized trusts are filing foreclosures when they never own/hold the mortgage loan at the commencement of the foreclosure. April Charney. Summarizing the problem Charney concludes: 67 . but a securitized trust cannot take an equitable assignment of a mortgage loan. It also means that the securitized trusts own nothing.” This decision confirms that investors in the mortgage debacle may very well own nothing—not even the bad loans they funded! It seems their right to the cash flow from the underlying properties does not extend to ownership of the properties themselves.

at first in judicial foreclosure it turns out—that they actually owned some “real estate” in these deals.” 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). http://iamfacingforeclosure. To paraphrase Jim Cramer. dead in their tracks. will stop the progress of foreclosures. “They own nothing!” Original Story from IamFacingForeclosure. once circulated and adopted by State and Federal Courts across the country. Investors in these securities might have assumed— wrongly. and this uncertainty can only be expected to further harm the market value of MBS and MBS-based synthetic securities.html 68 . already in shambles purely due to rising underlying delinquencies. across America.“This Doubt is cast on where the full write-downs will eventually land.

Gretchen Morgenson did a great New York Times piece yesterday. First. False Securitizations By Moe Bedard and Aaron Krowne A story we broke this past Tuesday in regards to the Ohio Federal Court Deutsche Bank ruling has been getting a tremendous amount of attention. and our lawyers aren’t budging. maybe not stolen… but apparently we were on the right track. 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. Just because Deutsche Bank may have a chance to “get its ducks in a 69 . Perhaps they will be much more expensive. We don’t believe the issue is settled. bringing much more visibility to the issue. Calculated Risk’s Tanta did a total of three blog posts of follow-ups largely intended to serve as rebuttals to our opinions. I Am Facing Foreclosure broke a story that was respected enough and accurate enough to be stolen by the New York Times. Even Nigel and the Haterz gave us credit where credit is due: “It may be a Casey fantasy.” 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).True Sale. but it is true in real life. We wanted to reply to some of these objections here. and rightfully so. It wasn’t long after we posted it here that dozens of bloggers and forums were circulating in the news and around cyberspace.

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

the Chinese. associate professor at New York Law School. Echoing (and reinforcing) the pay-to-play ratings complex that emerged at the same time. the Canadians. “No competent lawyer ever gave a simple flat opinion that the asset transfers involved in a securitization transaction constitute a ‘true sale.” he wrote in a letter to Congress. 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. “These all-but-liability-proof legal opinions underline the fact that the parties to a securitization transaction are knowingly assuming a serious legal risk.What we gleaned is that the “true sale” issue (specifically as it comes to securitization) has never been settled. what’s a few trillion between friends? This time around. the problems were swept under the rug and everyone got back on the merry-goround a second time for the housing bubble. securitization was scaled-up to a greater extent than ever before. famously. despite the fact that the fundamental issues of ownership were not settled. while profits were high and defaults were low. the Europeans. One would think from the Reason article that securitizations would have fallen out of favor after the tech stock collapse. where they were used for various sorts of accounting deception and producing synthetic AAA-ratings (including. Instead.” Somehow we suspect that nobody explained this state of affairs to the various pension funds. 71 . a lawyer could not responsibly do so. and all of the other parties exposed to questionable securitized MBS pools.’ Indeed. Reason’s article contains this ominous explanation on the subject: “Kenneth Kettering. But hey. given the absence of controlling case law. the securitization complex chugged merrily along. in the Enron case).

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

far from a trivial matter of paperwork. Hence we take it that. Boyko’s decision is serious business. or packing their bags.” So saith the lawyers. The leverage that a consumer attorney could use from this type of an action may very well make the difference between a homeowner staying in their home. Original Story: “Don’t do it Casey’s way!” www.statute) may also be 73 . 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).IamFacingForeclosure.

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

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

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

but the move delayed his eviction by months. Don Saunders. Davet has litigated these same issues over and over again…and in each instance the courts have dismissed his claims.From the Wall Street Journal: “Mr.” Some people would call Mr. for $436. which merged with the owner of NationsBanc. He couldn’t pay more than the required $10.000 deposit. Davet says it wasn’t a delay tactic and that he was trying to line up investors to buy the property.” I call him a hero because he is a man of his convictions and has tremendous will power. in 2005. Davet owed and set a sale date for the property so that the creditors could take the sale proceeds. Five years later. Davet a foreclosure fighter and pioneer. Other critics have called him a “deadbeat. Davet set up a shell company to win the auction.C.” said Bank of America Corp. Davet and is a trustee of the neighborhood association. says it came as a shock in the upscale area. N..000. The house was later sold to another family for $410.000. Jones Day.” “Several years into the case. Bank of America took the unusual step of bringing in lawyers from a big corporate law firm. Mr. who lived three doors down from Mr. a judge granted foreclosure in the amount Mr.” “Mr.. Charlotte. 77 . But when the property finally went to sale.” “The eviction finally happened on a snowy day in January of this year.

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

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

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

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

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

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