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 .

org to help consumers modify their 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. you’ll avoid the majority of the nonsense published for-profit on the internet and obtain a loan modification free of charge. 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. Moe 5 . I knew there had to be a way to put all of the information from loanworkout. I hope that by downloading this free ebook.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. Sincerely. 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. This ebook is the product of that dream.” Andrew Carnegie Before writing this ebook I spent a great deal of time posting blogs to loanworkout.

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

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. Minimize Loss to All Parties No one wins in foreclosure. This is an outcome that is beneficial to all parties involved. I strive to help consumers modify loans and keep people in their homes.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. Maintain Open Lines of Communication Effective communication is the most critical activity during the foreclosure process. We utilize our network of consumer friendly. 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 LoanSafe. Preserve the American Dream Homeownership has and always will be part of the American and LoanWorkout. In order to effectively create solutions.

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

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

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. The good news is that we can recommend attorneys that know what they are doing and have a proven track record of success. I highly suggest using our back end auditing and processing services as they are second to none. In my experience I have found that many people prefer to simply outsource all of the work if they can afford to do so. remember. we cannot negotiate the terms of the modification itself. you do not have to reinvent the entire wheel. However. a telephonic interview to identify any qualitative information that may lead to violations that cannot be tracked with traditional compliance software systems and a loan audit report that may be given to the lender to improve the chances of a successful modification. In either case I wish you the best of luck! Sincerely.Attorney Safe’s auditing service includes a review of all of your loan documents and the documents your lender maintains. Moe 10 . All you supply is the requested documentation in our easy to follow checklist of loan documents and income information. Our loan modification and processing service includes managing the loan modification process itself from beginning to end. Only a duly licensed attorney in good standing can negotiate the terms of the loan modification.

org for an interview or help with your news story or with his own story ideas. Loanworkout. From the New York Times to the LA Times and from Fox Business to Business Week.Media Relations LoanWorkout. Their unique and "truthful" angle on the mortgage crisis garners the trust of millions of consumers who have visited their websites and provides them with the pulse of Main 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. Loan Safe is where the media goes to get the truth on the mortgage meltdown! Moe Bedard is a and LoanWorkout. To date. Read more about Moe Bedard in the media below: 11 . we have donated thousands of hours of our time to save over 200 homes for FREE! Please call (951) 531-0148 or email is operated by consumer advocates and Moe has been featured in the media on numerous occasions. valuable source for journalists because of his unique platform of consumer advocate websites such as LoanSafe.

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

org.Moe Bedard is the owner and operator of loanworkout. Other Important Websites: • • • • • and loansafe. MHLoanpro. Moe is also the main contributor to AttorneySafeSolutions. Bedard is a leading expert and a trusted authority in regards to loan workouts and loan 13 .org (The internet’s first blog dedicated to loan workouts and loan modifications). He writes on the subject of home loan resolutions more than any other person on earth and has personally been involved in over 300 loan workouts and mortgage audits. In addition to operating LoanSafe.

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

but the borrower must be able to prove the hardship. Illness of the Borrower 3. The earlier the homeowner addresses the issue. The lender modifies the existing loan(s) in order to work with the homeowner because of a hardship. borrowers can obtain modifications from their lender for unaffordable rate adjustments on adjustable rate mortgages. Illness of a Borrowers Family Member 15 . Now. or illness. The following are a sample of hardships that get loan modifications approved: 1. In the past. Usually loan modifications are in the form of a rate reduction and/or fixing the rate for a certain period of time. A key factor that is required in every loan modification submission is the existence of a hardship. the better the chances are of negotiating a fixed rate and a payment that is manageable. loan modifications were only utilized when a borrower was delinquent and suffered a hardship such as a job loss. The hardship can be temporary in nature or permanent. The purpose is to help make the loan(s) more affordable. divorce. Adjustable Rate Mortgage Reset-Payment Shock 2. If the homeowner can afford their home and but not their current mortgage then they may be eligible for a loan modification.The Loan Modification A loan modification is a change to the loan contract which is agreed to by the lender and the homeowner.

Military Duty 22. Without proper documentation. your file may be flagged as fraudulent. Keep this in mind when you write a hardship letter.Job Relocation 15.Transfer of Ownership Delays 12. Curtailment of Income 5. There are two important things to remember about loan modifications: 16 . Abandonment of Property 7. 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 Rent the Property 10.Mortgage Servicing Problems 11.Divorce 20.4. Loss of Job 6.Marital Separation 21. Property Problem 8.Medical Bills 23.Damage to Property (natural disaster or unnatural) Notice that “My Realtor lied to me” and “My loan officer/broker lied to me” is not on this list.Reduced Income 13.Death in the Family 18. Documenting the hardship is very important to the lender’s or servicer’s loss mitigation department and will be verified during the approval process.Death of the Borrower 16.Failed Business 14.Death of Spouse or Co-Borrower 17.Incarceration 19. Inability to Sell the Property 9.

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

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

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

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

Considering my current income.January 23. I have had no problem making my payments for over three years now and do not want that to change. I was assured that refinancing would be no problem but that turned out not to be true due to the downturn of the housing industry. The main problem is that my property is now worth about 5-10% less than what I paid for it which is preventing me from being able to refinance. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in Feb. can you postpone the next rate change to a future date to allow me to continue making affordable payments or refinance? Any other solutions you could provide would be greatly appreciated. 2009. 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. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home. Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible. My mortgage was originally written by another company and bought by Countrywide. there will be no way I can afford the increased payments come February. Thank you for your time and consideration. Sincerely. I believe this addresses the situation I currently find myself in along with many other homeowners. I am finding it very difficult to afford the new payment.

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

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

24 .

25 .

and an Interest Rate that is set to adjust. 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. etc. escrow deficiency. With our already increased living expenses. Amortized in 30 YEARS thereafter. STEP LADDER PROGRAM. legal fees. but rather.October 10. if any. we are looking for a Loan Modification and / or Workout Plan equitable to our financial situation. 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 . Max Rate after the fourth year at 5%. to capitalize past due amounts. Hardship: [SUMMARIZE HARDSHIP IN THIS SECTION] EXAMPLE: • We are not looking to relinquish our responsibility.

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.


A sample QWR follows on the next page. Federal RESPA laws require the servicing companies to comply and respond within this specified time frame. the servicing company has twenty days to respond to the request and forward a copy of all loan documentation on file. 31 . After receiving a QWR. A Qualified Written Request (QWR) is a written demand to your servicing company.Qualified Written Request To perform the most comprehensive forensic loan audit you should compile all of the loan documents you maintain and get all of the loan documents your lender maintains. A QWR will be generated by you and submitted to the servicer for every file prior to the completion of the forensic loan document audit. The servicing companies also have to suspend all reporting activity to the major credit bureaus and then resolve the issue within sixty days.

Inc Attention: Correspondence Dept. 2008 American Home Mortgage Services. please forward any and all disclosures. Please note that all copies need to be clear and legible and all documents should be copied in their entirety. Sincerely. rate sheets etc.             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. Please see below for a list of documents needed. Please forward requested documentation as soon as possible and we look forward to working with you on a solution that benefits our mutual concerns. In closing. Re: Loan Number: 1234511722 Name : Johnathan Jones Subject Address : 12345 Erehwon Street. any and all escrow account disbursements and how payments were applied In addition to the above. 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. 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 . Heartland. Thank you for your time. associated with the above transaction.

125% higher than what was originally disclosed. 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. Predatory Lending. RESPA (Real Estate Settlement Procedures Act). The forensic loan document audit is a significant part of a loan modification request. and Real Estate/Mortgage Fraud violations. This gives you the leverage necessary when negotiating with the lender and more than enough incentive for the lenders to grant you a beneficial loan modification. 33 . We have found that over four out of five of the audits performed reveal major TILA (Truth in Lending Act). there may be a violation of the 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). if you are simply overcharged by only $35.00 on the final HUD-1. In some cases. or if the annual percentage rate (APR) is only 0.

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

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

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

You may have to consider moving. You’ll still owe money to the lender even after the house is sold. If you can. Even if you do lose your house. Either way. There are different limits on filing for Chapter 13. This will insure you have time to get prepared before the formal foreclosure process begins. lenders will let you off the hook for that amount rather than go through the expense of foreclosing. you need to get honest with yourself about your situation. you are going to have to make a plan and you are going to have to act on that plan. One option is to ask the lender to hold off on foreclosing until you sell. you have the option of negotiating a short sale with your lender. If you cannot afford proper legal representation. Consult an accountant for more information regarding the tax consequences of short sales. you’ll need to work this out with the lender as well. contact and attorney and/or your lender before you get further behind. However. 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. If you’re having trouble making payments or even if you are behind by a month or two. you’ve got to wait 8 years before you can do it again. You can also seek a referral from your local BAR Association or get help from a legitimate credit counselor (from an accredited.” indicating you’re several months behind. First of all. A good attorney who knows real estate and mortgage law can help you when you are facing foreclosure. In some cases. If your mortgage balance is greater than your house is worth.If you’ve filed a Chapter 7 bankruptcy and gotten a discharge. non-profit agency). then you should seek assistance from a legal aid or pro bono attorney. do this before you are 30 days late or before you receive the official “notice of default. you don’t want a foreclosure on your record when you go looking for a smaller house or a place to rent. But you may not be completely off the hook: you may owe taxes on that amount. depending on whether you’re trying to get debts discharged. 37 . You can also try something called a “deed in lieu of foreclosure” which basically means you turn over your house to the lender and walk away without owing anything.

then. particularly those of modest Phone: (202) 452-1989 Fax: (202) 452-0099 1730 Rhode Island Avenue NW. Great places to look for consumer advocate attorneys: www. then you will never truly know what rights you have to properly defend yourself against your lender.A competent third party is a great choice for most people because they may be able to help smooth out the process and make sure that no laws have been broken by the lender when you received the loan. If it is found that Truth in Lending Act. abusive and predatory business practices. then you may have legal recourse to sue your lender. What makes this such a difficult question to answer is that no two loans are the same. RESPA and other predatory lending law violations have occurred. Email: info@naca. would not be necessary and you can save your home and your credit form a foreclosure.NACA. A bankruptcy. 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. Ste 710 38 . As an organization fully committed to promoting justice for consumers. no two consumer hardships are identical and hence what is best for you will not be the same for others. NACA’s members and their clients are actively engaged in promoting a fair and open marketplace that forcefully protects the rights of The National Association of Consumer Advocates (NACA) is a nationwide organization of more than 1000 attorneys who represent and have represented hundreds of thousands of consumers victimized by fraudulent. If you never seek proper legal advice. Deciding whether foreclosure or bankruptcy is worse for you can be difficult to define.

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

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

In this case the first lender is secured by the property value. They are unsecured because the property has no value left over from the first lien. In a Chapter 13 bankruptcy. a deed of trust) for $100. The first mortgage is $200.000. you can lien strip the second lender. The second lien is treated as an unsecured creditor. The second lender has nothing securing their lien.000.Stripping the Lien. 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. Here is a Lien Stripping Example: • • • • • Home is worth $200. A second mortgage (or in certain states. a “cram down” or “strip down. Cram Down or Strip Down When a judge removes the second mortgage during bankruptcy proceedings it is referred to as “stripping” the lien. 41 • • • . Lenders are only secured up to the value of the property.000. The homeowner would not even have to pay the lien when they sell 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.

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

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

thus leaving only the first original mortgage! To qualify for this defense. you may be able to completely remove or “avoid” the second and subsequent junior mortgages from your home and county records. clients must also be capable of staying within their financial plan to fulfill their obligations of their Chapter 13 filing. Attorney Pernell Agdeppa has much to say about this bankruptcy defense for homeowners: “Homeowners can file a Chapter 13 bankruptcy and can pay the various filing charges/fees (to strip a lien we must file a complaint against the second or junior lien holder(s)). In an environment where home prices in most markets have fallen at least 30%. 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. which can be obtained through a county property appraisal or through a third party certified appraisal that is accepted by the court. Tax liens can’t be avoided in Chapter 7 on the grounds that they impair exemptions.removal program can only be used in the context of reorganization. the court will generally require objective evidence that the home is appraised for less than the value of the initial mortgage.” “While removing junior debt from their properties will help them financially. many borrowers may qualify. often referred to as Chapter 13(see below). if the 44 . If you own a home with more than one mortgage.In my opinion.” Tax liens can also be stripped off in reorganization proceedings (Chapters 11 and 13) to the extent that the lien does not attach to equity in property.

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

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

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

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

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

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

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

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

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

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

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

5.000 ($500. you may exclude up to $250. If you do not qualify for this exclusion.000 for married couples filing a joint return) from income. 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. 4. Enter the fair market value of the property foreclosed on. and the mortgage debt canceled at foreclosure is $220.000 for married couples filing a joint return). For non-recourse loans.000 (up to $500. 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. At the time of the foreclosure. Subtract line 5 from line 4. 6.000. Can I Claim a Loss on My Tax Return? No. enter zero. The original purchase price was $170.4. enter the amount of the debt immediately prior to the foreclosure ________. If less than zero. the borrower 56 . Losses from the sale or foreclosure of personal property are not deductible. The amount on line 6 is your gain from the foreclosure of your home. I Lost Money on the Foreclosure of My Home. 5. Capital Gains and Losses. the home is worth $200.000 at foreclosure. or your gain exceeds $250.000. Enter your adjusted basis in the property (Usually your purchase price plus the cost of any major improvements) ____________. report the taxable amount on Schedule D.

This amount is taxable unless you meet one of the exceptions in question 2. Enter your adjusted basis in the property. 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.000__. Step 2 – Figuring Gain from Foreclosure 4.000__. enter zero___$30. 3.000__.000 (up to $500. Enter the fair market value of the property from Form 1099-C.If less than zero. 1.(Usually your purchase price plus the cost of any major improvements) ___$170. You have no income from cancellation of debt). Enter the fair market value of the property foreclosed. Enter the total amount of the debt immediately prior to the foreclosure___$220. car loans and other debts) totaling $250. Enter it on line 21. 6. The amount on line 6 is your gain from the foreclosure of your home.If less than zero.000__.000 and assets totaling $230. For non-recourse loans.000. The borrower figures income from the foreclosure as follows: Use the following steps to compute the income to be reported from a foreclosure: Step 1 . The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C.000__. with liabilities (mortgage. If you do not qualify for this insolvent. enter the amount of the debt immediately prior to the foreclosure __$200. enter zero___$20. Subtract line 2 from line 1. 2. of your Form 1040.Figuring Cancellation of Debt Income (Note: For non-recourse loans. Subtract line 5 from line 4.000 for married couples filing a joint return) from income. skip this section. box 7 ___$200. Other Income. you may exclude up to $250.000__. or your gain exceeds 57 . credit cards. 5.

the borrower has a tax-free home-sale gain of $30.000 ($200. The lender should issue a corrected form if the information is determined to be incorrect. 7.000). Retain all records related to the purchase of your home and all related debt. Capital Gains and Losses.000 ($500.$250. I Received a Notice from the IRS on This.000 minus $170. What Should I Do? The IRS urges borrowers with questions to call the phone number shown on the notice. because they owned and lived in their home as a principal residence for at least two years. normally included with the notice. the borrower would also have taxable debt-forgiveness income of $20. What Should I Do? Contact the lender.000 ($250.000 minus $230. Sales and Other Dispositions of Assets.” 6.000 minus $200. Other examples can be found in IRS Publication 544.000 for married couples filing a joint return). I Don’t Agree With the Information on the Form 1099-C. But since the borrower’s liabilities exceed assets by $20. under the section “Foreclosures and Repossessions.000 ($220. 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. Ordinarily. report the taxable amount on Schedule D.000). to request a payment agreement with the agency. In this situation. IRS LINKS: 58 .000) there is no tax on the canceled debt.

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

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

(f) At the time and place where a contract or agreement described in paragraph (1) or (2) of subdivision (b) is executed. The law in particular that relates to non-English speaking borrowers is California Civil Code 1632. The reality is that this never happens and many borrowers are going into foreclosure when they have a legitimate defense and can fight back against this form of predatory lending. California Civil Code 1632 61 . 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. then the loan documents need to be in Spanish. 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 a person described in subdivision (b) does business at more than one location or branch. or a translation of the disclosures required by law in the language in which the contract or agreement was negotiated. The funny thing is that it was never. ever followed. I anticipate that with the flood of toxic mortgages we will see more and more cases of lenders modifying terms of their loans or being severely penalized for completely ignoring the letter of the law. The law is very clear and it states that if a contract is negotiated in a foreign language then that contract needs to be written in that foreign language. If the loan is negotiated in Spanish. 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. as the case may be.

or unsecured. of the more than 12 million Californians who speak a language other than English in the home.7) of Title 14 of. or Korean. Part 4 of Division 3. orally or in writing. 62 . (2) A loan or extension of credit secured other than by real property.According to the United States Census of 2000. and Chapter 2b (commencing with Section 2981) and Chapter 2d (commencing with Section 2985. Tagalog. (3) A lease. these languages are spoken by approximately 83 percent of all Californians who speak a language other than English in their homes. an apartment. a translation of the contract or agreement in the language in which the contract or agreement was negotiated. which includes a translation of every term and condition in that contract or agreement: (1) A contract or agreement subject to the provisions of Title 2 (commencing with Section 1801) of. family or household purposes. Chinese. or other dwelling unit normally occupied as a residence. or other term of tenancy contract or agreement. for use primarily for personal. contracts that involve real estate and mortgages. or mobile home. covering a dwelling.3 million speak an Asian dialect or another language other than Spanish. The top five languages other than English most widely spoken by Californians in their homes are Spanish. rental contract or agreement. Chinese. Vietnamese. shall deliver to the other party to the contract or agreement and prior to the execution thereof. The law is very clear and it relates to most all contracts and in particular. for a period of longer than one month. Together. (b) Any person engaged in a trade or business who negotiates primarily in Spanish. Vietnamese. and Korean. approximately 4. sublease. in the course of entering into any of the following. Tagalog.

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

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

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

” 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. 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. legally own these bad loans. clouding the recovery picture considerably. Summarizing the problem Charney concludes: 67 . thus. 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. Regarding this mess Charney further explains: “In my cases.Jacksonville Area Legal Aid Attorney. This means that many securitized trusts don’t really.” These loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. but a securitized trust cannot take an equitable assignment of a mortgage loan. 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. April Charney. It also means that the securitized trusts own nothing. many of the trusts try to argue equitable assignment that predates the filing of the foreclosure.

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

Just because Deutsche Bank may have a chance to “get its ducks in a 69 .” Well. We wanted to reply to some of these objections here. but it is true in real life. Perhaps they will be much more expensive. It wasn’t long after we posted it here that dozens of bloggers and forums were circulating in the news and around cyberspace. False Securitizations By Moe Bedard and Aaron Krowne A story we broke this past Tuesday in regards to the Ohio Federal Court Deutsche Bank ruling has been getting a tremendous amount of attention.True Sale. 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. Gretchen Morgenson did a great New York Times piece yesterday. bringing much more visibility to the issue. and rightfully so. Calculated Risk’s Tanta did a total of three blog posts of follow-ups largely intended to serve as rebuttals to our opinions. First. Tanta had numerous objections with our conclusions and apparently those of April Charney (who is actually an attorney that specializes in this legal field). We don’t believe the issue is settled. we want to establish that even Tanta seems to agree with us on one critical point: foreclosures are going to be more expensive for investors in mortgagebacked securities than they might have hoped. and our lawyers aren’t budging. maybe not stolen… but apparently we were on the right track.

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

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

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

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

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

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

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

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

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

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

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

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

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

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