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S AV IN G TH E DR EA M
A CONSUMER’S GUIDE TO LOAN MODIFICATIONS
by Moe bedard
A comprehensive guide for consumers including all of the instructions, forms and spreadsheets needed to process a successful loan modification
MOESEO.COM CORONA POINTE COURT CORONA, CA 92879
Table of Contents
Chapter 1: Introduction Page 4
Foreword About Loanworkout.org 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
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
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 48 Page 53 Page 60
Chapter 4: Stories from the Front Line of the American Economic Battlefield
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 .
I knew there had to be a way to put all of the information from loanworkout. 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.org in to a simple manual that would be both user friendly and take a consumer through the process from start to finish in one read.” Andrew Carnegie Before writing this ebook I spent a great deal of time posting blogs to loanworkout. While doing research for the manual I was overwhelmed with the amount of forprofit ebooks that failed miserably to explain the process of loan modifications.Foreward “One of the serious obstacles to the improvement of our race is indiscriminate charity. you’ll avoid the majority of the nonsense published for-profit on the internet and obtain a loan modification free of charge. While the site has helped over 200 families modify their loans completely free. Moe 5 .org to help consumers modify their loans. I hope that by downloading this free ebook. This ebook is the product of that dream.
loanworkout. and one home at a time. one loan. Our unique platform of consumer advocate websites such as LoanSafe. While other media outlets tend to focus on the problems on Wall Street. The website includes tips and strategies not only from consumers.org.org Loanworkout. an online social media campaign that has helped over 200 families modify their loans and save their homes completely free of charge. President of Moeseo. but expert advice as well. I highly suggest reviewing the articles at LoanWorkout.org specific to your needs.org is trusted and respected by thousands of homeowners throughout America who visit our sites every day.org is focused on providing real time solutions and tools to educate homeowners in their efforts to obtain loan modifications and short sales. Loanworkout. Moe Bedard is the primary contributor and operator at Loanworkout. 6 .org are the #1 FREE informational mortgage websites for consumers on the internet today.org is a unique consumer oriented website that provides truthful mortgage and housing reporting with a focus on loan modifications and the mortgage servicing industry.About Loanworkout.com.org and LoanWorkout. the bridge between the consumer and Corporate America must be re-built one person.org. In the course of preparing your loan modification or in the course of preparing for other resolution services. and founder of LoanSafe. We realize that in order to maintain homeownership and preserve community growth.
org to educate and connect consumers with their servicers. To date we have assisted over 200 people in saving their homes for free. This is an outcome that is beneficial to all parties involved. No one wins by playing hard ball. Our websites bridge the divide between borrowers and servicers by acting as an intermediary and advocate of mitigating loss for all parties involved. I strive to help consumers modify loans and keep people in their homes. all parties need to come to the table with the common goal of mediating damage in the most efficient and cost effective way 7 . not for profit websites like LoanSafe. We utilize our network of consumer friendly. Maintain Open Lines of Communication Effective communication is the most critical activity during the foreclosure process. Preserve the American Dream Homeownership has and always will be part of the American Dream. In order to effectively create solutions.Moe’s Mission Promote Safe Loan Modification Standards I believe that the loan modification process can beneficial to both the consumer and lender when it is done with a focus on long term affordability. Minimize Loss to All Parties No one wins in foreclosure.org and LoanWorkout.
other ventures or any individual attorney. Real Solutions LoanSafe.possible.Interactive Community for Homeowners That Need Help With a Loan Modification or Facing Foreclosure PredatoryLendingLaw.org and Loanworkout. Whether that be a loan modification.org .org .Predatory Lending Moeseo. The opinions expressed in and throughout this ebook are the opinions of the individual author and may not reflect the opinions of our employers. No advice or information.Loan Modification & Loan Workout News LoanSafe. You should contact an attorney to obtain advice with respect to any particular issue or problem.com and its affiliates and the materials in this ebook are for informational purposes only and not for the purpose of providing legal advice. short sale or deed in lieu of foreclosure. whether oral or written.com . Moe Bedard’s Websites LoanWorkout.com – Corporate Website MHLoanPro.org . obtained by you or through this ebook shall create any kind of promise or business relationship. 8 .Mobile Home Loan Forum The comments by Moe Bedard or Moeseo.org are dedicated to providing real solutions in today’s volatile mortgage and housing markets. it is possible that everyone can come out of the process a winner.
Results Oriented Auditing and Processing Since 2007 LoanSafe.org. consistently ranks number two on a Google search for “loan modification. 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.org each and every month to get their questions answered. Free yourself from the hassle of processing the modification yourself 3.loanworkout.org and Attorney Safe Solutions have received more positive media attention than any other forensic auditing and loan modification processing company in the entire nation. www. Avoid the need to purchase and learn to use the analytic software that performs a forensic loan audit 9 . While utilizing Attorney Safe Solutions for your forensic loan auditing and loan modification processing needs is by no means mandatory.loanworkout. Rest assured you are dealing with competent professionals 4. LoanWorkout. Nearly one million American consumers turn to www. In choosing Attorney Safe Solutions for your resolution services needs you: 1. Immediately obtain an auditing and processing infrastructure that is second to none 2.org receives nationwide media attention. My hope is that you will come to understand the loan modification process from start to finish in the shortest time span possible. consistently high.” The only website that outranks www.loanworkout.org is the Department of Housing and Urban Development’s page regarding loan modifications. The free information website for consumers. it would give you a great advantage over processing a loan modification yourself.
you do not have to reinvent the entire wheel. Moe 10 . However. 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.Attorney Safe’s auditing service includes a review of all of your loan documents and the documents your lender maintains. The good news is that we can recommend attorneys that know what they are doing and have a proven track record of success. Our loan modification and processing service includes managing the loan modification process itself from beginning to end. In either case I wish you the best of luck! Sincerely. While the goal of this manual is to give you all of the information you need to successfully process a loan modification on your own. I highly suggest using our back end auditing and processing services as they are second to none. we cannot negotiate the terms of the modification itself. 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. All you supply is the requested documentation in our easy to follow checklist of loan documents and income information. Only a duly licensed attorney in good standing can negotiate the terms of the loan modification.
Their unique and "truthful" angle on the mortgage crisis garners the trust of millions of consumers who have visited their websites and provides them with the pulse of Main Street.org for an interview or help with your news story or with his own story ideas.org and LoanWorkout. From the New York Times to the LA Times and from Fox Business to Business Week. These websites are the #1 source of free information on mortgages for consumers.org.org has been featured in the media on numerous occasions. To date. Read more about Moe Bedard in the media below: 11 . These websites are trusted and respected by thousands of homeowners throughout America who visit our sites every day. valuable source for journalists because of his unique platform of consumer advocate websites such as LoanSafe.Media Relations LoanWorkout. Loan Safe is where the media goes to get the truth on the mortgage meltdown! Moe Bedard is a trusted. we have donated thousands of hours of our time to save over 200 homes for FREE! Please call (951) 531-0148 or email Moe@LoanSafe. Loanworkout.org is operated by consumer advocates and Moe Bedard.
The Next Real Estate Crisis .Here Comes the Next Mortgage Crisis Fox Business .Why Loan Modifications Often Don’t Work . 2009 Examiner .June 5. 2008 12 .Man Offers Tips Online to Save Your Home AZ Republic .October 4.online support resources . 2008 Contra Costa Times .Struggling borrowers face brick wall on loan workouts . 2008 Press Enterprise .October 3.Mozilo on distressed borrower’s appeal for help: “disgusting” Business Week .Restructuring of mortgage loans gets tougher Bloomberg . 2009 MSNBC .Muzzling Homeowners? CBS/KCAL News .January 14.Will slow and steady win the race? New York Times . 19.• • • • • • • • • • • • • • • • Smart Money .January 13.Corona Man Uses Blog to Save Homes Slate Magazine .Home loan modification . 2008 EuroMoney .Mortgage servicers sucking loans dry? September 2008 Chicago Tribune .Document review could save homes .The Silence of Lenders by Gretchen Morgenson LA Times .Alt-A Mortgages Next Risk for Housing Market as Defaults Surge .Dec. 2008 The Real Deal New York .‘Angel’ of foreclosure defense bedevils lenders .September 12.
Other Important Websites: • • • • • LoanWorkout. In addition to operating LoanSafe.org (The internet’s first blog dedicated to loan workouts and loan modifications).com MHLoanpro.org AttorneySafeSolutions. Moe is also the main contributor to LoanWorkout.org. Mr.com PredatoryLendingLaw. Bedard is a leading expert and a trusted authority in regards to loan workouts and loan modifications.org.org Moeseo.com 13 .Moe Bedard is the owner and operator of loanworkout. 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.org and loansafe.
Chapter 2: How to Process a Loan Modification Yourself 14 .
divorce. If the homeowner can afford their home and but not their current mortgage then they may be eligible for a loan modification. loan modifications were only utilized when a borrower was delinquent and suffered a hardship such as a job loss.The Loan Modification A loan modification is a change to the loan contract which is agreed to by the lender and the homeowner. Illness of a Borrowers Family Member 15 . The earlier the homeowner addresses the issue. The following are a sample of hardships that get loan modifications approved: 1. or illness. The hardship can be temporary in nature or permanent. Now. Usually loan modifications are in the form of a rate reduction and/or fixing the rate for a certain period of time. borrowers can obtain modifications from their lender for unaffordable rate adjustments on adjustable rate mortgages. In the past. The lender modifies the existing loan(s) in order to work with the homeowner because of a hardship. Adjustable Rate Mortgage Reset-Payment Shock 2. A key factor that is required in every loan modification submission is the existence of a hardship. Illness of the Borrower 3. but the borrower must be able to prove the hardship. The purpose is to help make the loan(s) more affordable. the better the chances are of negotiating a fixed rate and a payment that is manageable.
Transfer of Ownership Delays 12. Curtailment of Income 5. Inability to Sell the Property 9. Documenting the hardship is very important to the lender’s or servicer’s loss mitigation department and will be verified during the approval process.Reduced Income 13.Mortgage Servicing Problems 11.Death in the Family 18. Without proper documentation. your file may be flagged as fraudulent.Failed Business 14. Keep this in mind when you write a hardship letter. There are two important things to remember about loan modifications: 16 . Loss of Job 6.Marital Separation 21.Incarceration 19.Military Duty 22.Job Relocation 15. You definitely do not want this to happen for obvious reasons and it will slow down the process or terminate the process completely.Divorce 20.Death of Spouse or Co-Borrower 17.Death of the Borrower 16. Property Problem 8.4.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. Inability to Rent the Property 10. Abandonment of Property 7.
Loan modifications are designed for homeowners who can afford their homes but not their loans. 2. A loan modification should be requested only if no other reasonable options are available and/or the homeowner is experiencing a hardship.1. 17 .
you can qualify based on your documentable total household income. an art to making loan modifications work. As such. Proof must be in the form of bank statements. however. the other spouse’s income can count so long as it is documentable. look for one thing when you submit a modification request. This is the big secret behind getting a loan modification approved. They look for a documentable hardship of course. 1099’s or in some other documentable form as outlined in the submission paperwork you will provide the lender. income from child day care services. Moreover. from a second job paid under the table. 18 . The income you can use to qualify for a modification is different from traditional income calculations used to qualify for traditional loans. if only one of two spouses was on the original loan. To understand what the lender or servicer considers qualified. the difference in the qualification guidelines is typically in your favor. It sounds complicated and it is at first but you will quickly learn important strategies for effectively processing loan modifications. in general. In addition. You must disqualify yourself from your old payments and at the same time qualify yourself on a new payment structure. etc. you can count income from almost any source: Grandma’s SSI. For a modification. so long as it can be proved. There is.How to Determine if You are a Candidate for a Loan Modification Lenders and servicers will. 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). you have to know how lenders calculate your income.
Once you calculate all documentable monthly income from all household sources you then have what you can present to the lender as the new qualifying income. To calculate a qualifying monthly mortgage payment. 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. do not expect this rate or payment! If the payment at 5. WARNING: this is only for a general qualifying exercise only.00% rate on whatever the new balance might be. then you may not be an appropriate candidate for a modification. 19 . counting arrearages if they are added back into the loan. However.00% is just too high. use the benchmark fully amortizing 5. you can still request help with other services such as a deed in lieu of foreclosure.
why they bought the house.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. What follows on the next pages are perfect examples of sample hardship letters. short sales. keep the letter simple and to the point. 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. an income and expense worksheet. In addition. When writing the hardship letter. They do not want to read a ten page letter regarding the loan officer who put them in the loan. The fact is that people personally relate to handwriting more than a typewritten letter and this includes the lender’s or servicer’s loss mitigators. With that said you must keep your hardship letter simple and get to the point quickly. 20 . handwrite the hardship letter. Many modification requests fail because the homeowners can not tell their story in a simple way. Title Company or from an appraiser. a financial worksheet. a sample loan modification request and a sample stacking order for you to use. 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. and modification requests. Loss mitigation departments are overwhelmed with foreclosures.
Thank you for your time and consideration. Borrower’s Signature Co-Borrower’s Signature (if applicable) 21 . Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible. I believe this addresses the situation I currently find myself in along with many other homeowners. can you postpone the next rate change to a future date to allow me to continue making affordable payments or refinance? Any other solutions you could provide would be greatly appreciated. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in Feb. 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.January 23. 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. 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. 2009. Considering my current income. Sincerely. I am finding it very difficult to afford the new payment. I was assured that refinancing would be no problem but that turned out not to be true due to the downturn of the housing industry. 4th 2006) regarding the servicing of Conventional Mortgage Modifications. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home. My mortgage was originally written by another company and bought by Countrywide. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct.
2009. I was researching on the internet and came across the Fannie Mae Announcement #06-18 (Oct. Is it possible to have my current adjustable rate mortgage converted to a fixed rate? If this is not possible.Date: To: Countrywide Mortgage To Whom It May Concern: Due to the recent adjustment to the mortgage I currently have with your company. 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. Borrower’s Signature Co-Borrower’s Signature (if applicable) 22 . Sincerely. 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. there will be no way I can afford the increased payments come February. Hopefully there is way to renegotiate the terms of my current mortgage to avoid default and help stop foreclosure on my home. I have a 3 year fixed rate which is now adjustable and is schedule to adjust again in February. The main problem is that my property is now worth about 5-10% less than what I paid for it which is preventing me from being able to refinance. I/We hope we can solve this problem together. Considering my current income. I am finding it very difficult to afford the new payment. I have had no problem making my payments for over three years now and do not want that to change. My mortgage was originally written by another company and bought by Countrywide. Thank you for your time and consideration. 4th 2006) regarding the servicing of Conventional Mortgage Modifications.
Please be sure to indicate the type of loan you have. Sincerely and Respectfully. (Insert the approximate date of hardship and clarify if your situation is Temporary or will be Permanent. 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.Date Lender Name Address City State. if it is going to adjust. (Borrower’s Signature) (Co-Borrower’s Signature) 23 .) By obtaining a loan modification. This has caused me to become further and further behind. and pay on the loan that has been afforded to me. I hope you will consider working with me/us on this matter. or has already adjusted. The main reason that caused me/us to be late is (insert reason here and don’t be too lengthy or too vague. and that is to appeal to you for a mortgage loan modification. Zip Re: Loan Number(s) To Whom It May Concern: The purpose of this letter to explain the unfortunate set of circumstances that have led to my mortgage delinquency (or proposed delinquency – if not late yet). After exhausting all of my resources. I feel confident that I will be able to maintain my mortgage. especially note if this is what created the hardship). I have but one avenue left.
legal fees. STEP LADDER PROGRAM. the new payment will become unaffordable and difficult for us to maintain. Market Value: • • • • Current Existing Balance: $ [YOUR CURRENT BALANCE] Current Fair Market / New Principal Balance: $ [TODAY’S MARKET VALUE] (Supporting Documents Included) Principal Balance Reduction: $ [REQUESTED REDUCTION AMOUNT] 26 . Hardship: [SUMMARIZE HARDSHIP IN THIS SECTION] EXAMPLE: • We are not looking to relinquish our responsibility.October 10. With our already increased living expenses. we are looking for a Loan Modification and / or Workout Plan equitable to our financial situation. 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. and an Interest Rate that is set to adjust. but rather. etc. escrow deficiency. Amortized in 30 YEARS thereafter. if any. Max Rate after the fourth year at 5%. to capitalize past due amounts.
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,
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. 31 .Qualified Written Request To perform the most comprehensive forensic loan audit you should compile all of the loan documents you maintain and get all of the loan documents your lender maintains. The servicing companies also have to suspend all reporting activity to the major credit bureaus and then resolve the issue within sixty days. A Qualified Written Request (QWR) is a written demand to your servicing company. A QWR will be generated by you and submitted to the servicer for every file prior to the completion of the forensic loan document audit. After receiving a QWR. the servicing company has twenty days to respond to the request and forward a copy of all loan documentation on file. Federal RESPA laws require the servicing companies to comply and respond within this specified time frame.
In closing. all fees incurred. 2008 American Home Mortgage Services. Thank you for your time. any and all escrow account disbursements and how payments were applied In addition to the above. Inc Attention: Correspondence Dept. Please forward requested documentation as soon as possible and we look forward to working with you on a solution that benefits our mutual concerns. Please note that all copies need to be clear and legible and all documents should be copied in their entirety. 32 . Heartland. please forward any and all disclosures. Please see below for a list of documents needed. Initial Loan Application and Final Loan Application Executed Notice of Right to Cancel (if refinance) Deed of Trust/All Riders Note and All Addendums/Riders Truth-in Lending Statements Itemization of Amount Financed Good Faith Estimates Estimated and Final Closing Statements (HUD) Appraisal Title Report Grant Deed(s) Copy of Loan Payment History – This must include all payments made. Re: Loan Number: 1234511722 Name : Johnathan Jones Subject Address : 12345 Erehwon Street.August 27. rate sheets etc. associated with the above transaction. Sincerely. 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.
00 on the final HUD-1. 33 . 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. if you are simply overcharged by only $35. 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.125% higher than what was originally disclosed. or if the annual percentage rate (APR) is only 0. 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. and Real Estate/Mortgage Fraud violations.The Forensic Loan Audit A Forensic loan document audit is a comprehensive investigation of the documentation from your existing loan(s). The forensic loan document audit is a significant part of a loan modification request. RESPA (Real Estate Settlement Procedures Act). In some cases.
Chapter 3: Specific Strategies and Important Information to Consider During the Foreclosure Process 34 .
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. especially a mortgage. A foreclosure will remain on your credit report for 7 years. So even if faced with bankruptcy. But a foreclosure was ALWAYS a black cloud and lenders usually wanted three to four years time to pass before considering a borrower for a loan. There are no guarantees that even the hardest efforts to work with your lender will meet with success. 35 . even the best efforts to save your home and your credit fail. Even in the heyday of the subprime loan era you could obtain a loan one day out of 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. either a good credit counselor or a bankruptcy attorney that can walk you through the choices you’ll face. 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. No one will argue that the days of banks lending to anyone with a pulse is over. you’ll need advice from someone. 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. lenders are going look at a foreclosure more seriously than they will a bankruptcy that doesn’t include a house. then it is important to consider the process of bankruptcy. If you are to be prepared for the worst.Which is Worse. If you ever plan on getting any kind of loan. But sometimes. Hoping for the best but preparing for the worst is the mindset anyone in the foreclosure process should maintain.
taken on after the discharge. the filing stays on your credit record for 10 years. for example. If you can obtain a loan it will surely be more expensive than if you did not file for bankruptcy. you may want to consider a Chapter 11 filing. And if the judge finds out you’ve lied or committed fraud. This makes it very difficult to get any type of loan during the bankruptcy process and even afterwards. This let’s you stay in business. the creditor can send it to a collection agency like any other debt. court fines and most student loans. is governed by federal laws and handled by a system of federal bankruptcy courts. you pay back your debts under a plan worked out by the court. Under a Chapter 7 filling. If you don’t pay it back. taxes. pays off your debts and makes sure you stick to the plan. the trustee takes control of your business and its assets. you have to sign a “reaffirmation agreement. The two most common forms of personal bankruptcy are called Chapter 7 and Chapter 13. If you own a business. as long as the court and the people you owe money to approve of the plan to pay off your debts.S. You can also choose which debts you want to have discharged while you keep paying off others. you get to keep certain property (this is where state laws vary). your discharge can be denied. You might want to work out a payment plan so you can keep your car. Not all debts can be wiped clean in bankruptcy.” which says that you promise to pay off that debt. but the rest is turned over to a court-appointed trustee that sells your eligible property or gives it to lenders to satisfy your debts. The trustee collects payments. 36 . state laws regarding consumer debts and the disposition of property also come into play. No matter which course you take. New debts. If the court decides a trustee needs to be appointed. There are also different types of bankruptcy filings. The list includes alimony and child support.While the bankruptcy process in the U. aren’t included. Under a Chapter 13 filing. To do this.
you don’t want a foreclosure on your record when you go looking for a smaller house or a place to rent. If you’re having trouble making payments or even if you are behind by a month or two. You can also try something called a “deed in lieu of foreclosure” which basically means you turn over your house to the lender and walk away without owing anything. This will insure you have time to get prepared before the formal foreclosure process begins. non-profit agency). then you should seek assistance from a legal aid or pro bono attorney. First of all. But you may not be completely off the hook: you may owe taxes on that amount. However. One option is to ask the lender to hold off on foreclosing until you sell.” indicating you’re several months behind. you’ll need to work this out with the lender as well. You may have to consider moving. Either way. There are different limits on filing for Chapter 13. depending on whether you’re trying to get debts discharged. Consult an accountant for more information regarding the tax consequences of short sales. contact and attorney and/or your lender before you get further behind. 37 .If you’ve filed a Chapter 7 bankruptcy and gotten a discharge. lenders will let you off the hook for that amount rather than go through the expense of foreclosing. If your mortgage balance is greater than your house is worth. A good attorney who knows real estate and mortgage law can help you when you are facing foreclosure. 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 cannot afford proper legal representation. You’ll still owe money to the lender even after the house is sold. you have the option of negotiating a short sale with your lender. you need to get honest with yourself about your situation. In some cases. 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. If you can. do this before you are 30 days late or before you receive the official “notice of default. Even if you do lose your house. you are going to have to make a plan and you are going to have to act on that plan.
If you never seek proper legal advice. As an organization fully committed to promoting justice for consumers. Deciding whether foreclosure or bankruptcy is worse for you can be difficult to define. particularly those of modest means.NACA. Getting advice from competent and trustworthy sources and educating yourself about the process of foreclosure and the options at your disposal is the best way to begin to make a sound decision. Great places to look for consumer advocate attorneys: www. What makes this such a difficult question to answer is that no two loans are the same. NACA’s members and their clients are actively engaged in promoting a fair and open marketplace that forcefully protects the rights of consumers.A competent third party is a great choice for most people because they may be able to help smooth out the process and make sure that no laws have been broken by the lender when you received the loan. then you may have legal recourse to sue your lender. A bankruptcy. abusive and predatory business practices. then. no two consumer hardships are identical and hence what is best for you will not be the same for others. Ste 710 38 . If it is found that Truth in Lending Act.net Phone: (202) 452-1989 Fax: (202) 452-0099 1730 Rhode Island Avenue NW. would not be necessary and you can save your home and your credit form a foreclosure.net The National Association of Consumer Advocates (NACA) is a nationwide organization of more than 1000 attorneys who represent and have represented hundreds of thousands of consumers victimized by fraudulent. then you will never truly know what rights you have to properly defend yourself against your lender. RESPA and other predatory lending law violations have occurred. Email: info@naca.
NACBA now has more than 2500 members located in all 50 states and Puerto Rico. Candace Lambrecht Administrative Director admin@nacba.NACBA.Washington.org 1501 The Alameda San Jose. In addition. DC 20036 www. DC 20037 39 . with many of those case decisions influenced by NACBA’s participation.S. Suite 800 Washington. Formed in 1992. CA 95126 Phone: (408) 350-1173 Fax: (202) 331-8535 National Association of Consumer Bankruptcy Attorneys 2300 M Street. NACBA provides the most comprehensive educational programs in the country for consumer bankruptcy attorneys with its annual convention seminars. NACBA has also played a critical role in many important court cases affecting the rights of consumer bankruptcy debtors by filing amicus briefs in U.com National Association of Consumer Bankruptcy Attorneys NACBA is the only national organization dedicated to serving the needs of consumer bankruptcy attorneys and protecting the rights of consumer debtors in bankruptcy. Courts of Appeal and the Supreme Court.
you may want to read this. In the case of second mortgages. Wouldn’t it be much easier to save your home if you only had a first mortgage and no other payments? What if you could effectively wipe out $50.000 or $200. if the market turns around. namely auto and student loans and second-home mortgages. a second mortgage reduces your home equity to a very small margin leaving you vulnerable to the whims of your lenders. 40 .000 of what you owe on your mortgage? Also. facing financial difficulties can be particularly challenging. In some areas like the Inland Empire of California. local homeowners have seen values drop 30-50% and many are making a “business” decision to walk away without ever exploring ways to save their home. $100. In cases where real estate values have declined.000. there are strategies that you can use to protect yourself from excessive debt. debtors potentially could reduce the balance of the loan to equal the current value of the property. 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. Current bankruptcy law allows judges to approve the loan modifications of the terms of certain debts. 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.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 most cases. if the value of the property falls below the loan amount. as we are seeing in most markets today.
Cram Down or Strip Down When a judge removes the second mortgage during bankruptcy proceedings it is referred to as “stripping” the lien. The first mortgage is $200. a “cram down” or “strip down. In this case the first lender is secured by the property value.000. you can lien strip the second lender.Stripping the Lien. Here is a Lien Stripping Example: • • • • • Home is worth $200. The homeowner would not even have to pay the lien when they sell the house. 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.000. The second lien is treated as an unsecured creditor.” This can happen if the loan is secured by other collateral that is part of the bankruptcy filing or if the home is not your principal residence or even if the payment structure on the second mortgage falls heavily during the bankruptcy filing period itself. The second lender has nothing securing their lien. They are unsecured because the property has no value left over from the first lien. a deed of trust) for $100. Lenders are only secured up to the value of the property.000. 41 • • • . A second mortgage (or in certain states. In a Chapter 13 bankruptcy.
Now. 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. even voluntary liens. Despite the general rule. after deducting senior liens from the property’s current market value. such as mortgages and security interests. This can be done under the guise of seeking better terms from the lender.. 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. 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. Thus. whether you have taken a second mortgage or just another related lien. Lien stripping is prevented only when the lien is secured “solely” by a personal residence. 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. to secure the unsecured in whole or in part. lien stripping will be allowed. This exception will not apply in the case of a refinancing of a 42 . you should consider offering additional collateral. can be stripped down to the value of the collateral. e. such as a lower interest rate. To the extent that the claim exceeds the value of the collateral. Court decisions have made it clear that when the debtor has given other collateral (in addition to the personal residence. In Chapter 11 or Chapter 13. that portion of the claim is unsecured. such as furniture. could be negated in the case of a Chapter 13 personal bankruptcy filing. Moreover. office equipment) as security for the mortgage. where the lien exceeds the value of the debtor’s property. with the exception of voluntary liens secured only by the debtor’s residence. Congress is currently considering changes to bankruptcy law allowing the modification of home mortgages. THIS IS A POWERFUL tool for homeowners who are underwater! Additional liens on your home beyond your initial mortgage. if you will be taking out a second mortgage or refinancing your home.g. as security for the loan.
While inflated home appraisals may have allowed you to take out an additional mortgage. If your second lien on the whole is unsecured. section 11 USC 1322. Thus. remember that the general rule applies only to a lien secured solely by a personal residence. Within Chapter 13 Bankruptcy law. since in a refinancing the new mortgage pays off the first mortgage. Given current market conditions. can potentially allow you to forego your second mortgage. especially where the amount of the first mortgage is close to the value of the home. depending on the terms of the original loans as well as the details of your filing. For this reason. The mortgage 43 . While there is no assurance of what the courts will decide. under certain circumstances. or negative equity. there are options for home owners with multiple liens on their home. many buyers ended up with net negative financing. lenders often side stepped the 20% down payment rule by allowing the borrower to get private mortgage insurance. In addition. This second loan can be negated through a Chapter 13 filing. The lien stripping program is available for individuals desiring to reorganize their debt using Federal Laws under Title 11 of the United States Code. As a further side step this rule of thumb. This is because most additionally mortgages are unsecured. the second becomes wholly under secured.mortgage. many borrowers took out a second mortgage to cover the 20% payment which led to the additional lien on the home. if you have the option of financing your business through a second mortgage or refinancing your first mortgage. then when the value of your home drops below the first mortgage deed of trust. before they even made their first payment (and often did not have to provide any collateral). it’s possible that your original home loan is now upside-down. especially in the modern context of depressed home values. lien stripping will be not allowed for a mortgage on a building used in a business. When the real estate market was much more active. The exception is predicated on there being two distinct mortgages (a first and a second mortgage). the second mortgage may be the better choice.
the most critical aspect of this process is to carefully qualify each potential client to determine whether bankruptcy is their best alternative and make them aware of its lasting credit impacts.” “While removing junior debt from their properties will help them financially. In an environment where home prices in most markets have fallen at least 30%. Tax liens can’t be avoided in Chapter 7 on the grounds that they impair exemptions.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.removal program can only be used in the context of reorganization. clients must also be capable of staying within their financial plan to fulfill their obligations of their Chapter 13 filing. you may be able to completely remove or “avoid” the second and subsequent junior mortgages from your home and county records. if the 44 . the court will generally require objective evidence that the home is appraised for less than the value of the initial mortgage. If you own a home with more than one mortgage. many borrowers may qualify. Attorney Pernell Agdeppa has much to say about this bankruptcy defense for homeowners: “Homeowners can file a Chapter 13 bankruptcy and can pay the various filing charges/fees (to strip a lien we must file a complaint against the second or junior lien holder(s)). often referred to as Chapter 13(see below). which can be obtained through a county property appraisal or through a third party certified appraisal that is accepted by the court. thus leaving only the first original mortgage! To qualify for this defense.
comments. 45 . the bankruptcy court can determine the amount of the lien that is secured at the time of the filing. emails or any communication made subsequent to downloading this free ebook. You should contact your attorney to obtain advice with respect to any particular issue or problem. No advice or information. Ultimately.tax is dischargeable in the Chapter 7 filing. The comments. threads and material in this ebook are NOT to be taken as legal advice and we highly recommend that anyone facing foreclosure should seek the counsel of an attorney and/or an accountant. working with a qualified tax and real estate attorney or experienced real estate bankruptcy lawyer will help you present your case to the Federal Bankruptcy Court. obtained by you or through or from this ebook shall create any kind of promise or business relationship. We will not be held liable for any material. The comments made and the materials available in this ebook are for informational purposes only and not for the purpose of providing legal advice. Payment of that sum entitles the debtor to the release of the lien. whether oral or written. ALWAYS obtain a second and third opinion on your particular situation from a trusted source. threads. so it’s important to get qualified legal advice in advance regarding any filings. The opinions expressed in and throughout this ebook are the opinions of the individual author and may not reflect the opinions of our employers. other ventures or any individual attorney. posts. The views and opinions in this ebook are likely to change over time. posts.
a deed-in-lieu must be based upon voluntary agreement in good faith. a deed is a right granted by a legal contract based upon mutual agreement. the lender is then able to assume ownership of the property. which are relatively common in such cases. For a borrower facing foreclosure.” full rights to the property title to satisfy the conditions of the loan. and the property must not be subject to any third party creditor claims or liens. creating a more efficient process by limiting court costs and waiting periods involved in standard foreclosure processes. the lender will often pursue a deed settlement independent of court proceedings. In order for the agreement to be reached. In cases where a borrower lacks sufficient assets for a deficiency judgment. In particular. a deed in lieu of foreclosure can offer several advantages to the borrower and lender alike. the deed agreement can relinquish him or her from underlying debt. which greatly reduces the time. Mortgage contracts that rely upon 46 . Such agreements are a common form of mortgage contract settlements. thus removing the foreclosure record from a credit record and reducing the need for a declaration of personal bankruptcy. the appraised market value of the property must be less than the outstanding debt from the original agreement. Under certain conditions. the “mortgagee. cost and potential complications that would otherwise be involved in a repossession procedure. In general. therefore. a deed in lieu of foreclosure provides an alternative solution to the standard default process.A Deed in Lieu of Foreclosure as a Cure for Your Mortgage Woes For home borrowers (mortgagors) facing foreclosure. Standard foreclosure procedures can take years to process in court and are further complicated by personal bankruptcy declarations. 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 deed grants the lender. Lenders also benefit in terms of improved settlement efficiency.
which outlines the terms of the deed. The recent housing market challenges have reflected a coalescence of these factors. the lender then classifies the original loan as paid and issues a waiver to deficiency judgment. which have made deeds-in-lieu a common instrument for borrowers facing foreclosure. as well as the deed itself. A third party escrow service then executes the agreement. an interest rate change of just a few percentage points could double a borrower’s monthly payment. thus releasing both parties from their original contract. 47 . which would normally go into effect in case sale of the property results in an amount less than the debt.a relatively high monthly payment based upon a variable interest rate (with a limited. to proceed with a deed in lieu both parties must agree to and sign both an Agreement in Lieu of Foreclosure. under certain circumstances. a borrower may pay to reduce the debt to ensure they maintain their credit rating. In certain situations. initial down payment) are particularly vulnerable to shifts in the economic environment. which transfers legal ownership of the property. Once the agreements are reached. Technically.
Because nobody has perfect foresight into their future income status. In today’s market. diligence can help you overcome obstacles to find the best way to address to your current home loan. 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. interest rates and his own personal income (see Business Week). but remember: just as hard work and persistence allowed you to afford a home in the first place. it’s important that you act as your own primary advocate in this situation. you made decisions that you believed would best help you realize your goals. At each point in your financial history. In order to satisfy the requirements of the home loan. McMahon. 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. a short sale might just be the answer to help cure your mortgage woes. which may allow you to sell your home to satisfy the existing loan. it is only natural to re-evaluate your current debt situation when things change unexpectedly. 48 . Understand that.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. Like Mr. don’t fret. given today’s extraordinary market environment. Take the case of well-known TV personality Ed McMahon: his Beverly Hills home faced foreclosure due to unexpected changes in property value. Put your best foot forward because short sales only work when fully agreed to by both the borrower and the lender (your mortgage holder). McMahon has been working to reach an agreement with a third party to clear a short sale to satisfy his mortgage. Mr. or the property market generally. it is imperative that you take a step back from all of the noise to reflect upon your situation.
Your short sale submission package should include: 1. 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 . 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. 2. 4. you must be prepared to provide proof and evidence that you qualify and deserve a short sale by your lender. 3.bank statements. Getting a lender to approve a short sale is primarily a question of economics.explaining the circumstances that make it impossible for them to pay the full amount of the loan.W-2 forms from employers (or a letter explaining the seller is unemployed). and other financial documents outlining income and debt obligations. The bank will need comparable sales data or a broker’s price opinion showing the current estimated of value of your home. with that said. Proof of employment or unemployment . The seller needs to be able to show true financial hardship.A short sale MUST be accepted by your current lender or servicer in order to proceed with the sale of your home. 401’s. Comparative Market Analysis or CMA. Someone with the assets or the income to pay is unlikely to be considered. investment fund. and how much is accessible and why if these funds are not accessible has to be provided in a written statement. Hardship Letter . So. two years of tax returns. Proof of income . Broker Price Opinion or BPO (Mini appraisal). Most lenders will ask if you have an access to a retirement fund. Short sales are considered a privilege and not a right. Closed comparable sales are of course what they are looking for above all. stocks. Be very thorough with your analysis with Closed and then Active listings.
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 . 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. be careful about discrepancies between the seller’s income and the income used to obtain the loan. be very detailed with your analysis and calculate by square footage. views. amenities etc. age. A big gap may indicate mortgage fraud.. frontage and upgrades. medical/disability statements etc. Tip: In preparing the package. 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. 5.sluggish market. unless employment circumstances have drastically changed. size. 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.
If you fail to do this. You must negotiate for the release of both the property lien and the underlying personal debt secured by the note. the lender may agree to cancel the entire deficiency balance. Because of this. it’s crucially important that you present your property in the best possible light. who is in a favorable position of being able to determine whether to accept such an agreement. The decision they make is based upon the opportunity cost of holding onto the property after foreclosure 51 . you can make a solid case to the lender that a short sale might be in both parties’ best interest. In short sales. the difference would be considered canceled or forgiven debt. Third. the lender may not forgive the personal debt and it will become a collection. a short sale can be understood as a negotiation to recognize a changed environment from when the loan was originally signed. it’s important to put yourself in the lender’s position and try to understand their approach. First. By working hard as an advocate for your own cause. just as you would in selling your home directly. 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. just as in any negotiation. If the new note is for less than the balance of the original debt. Second. which is the portion of the mortgage debt not covered by the sale of the home.• FHA and VA may have their own forms and special requirements as well Ultimately. Any offer to buy the property must be evaluated by the lender. Never accept the least common denominator as the only solution to the issue. the lender can attempt to collect the deficiency balance from the seller after the property has closed. the lender has three possible ways to handle the deficiency balance. Negotiating Deficiency is Key When Attempting a Short Sale: With a short sale.
the more likely your bank will be open to accepting a short sale. 52 . therefore.and then determining what to do with the asset. you should not have to pay out of your own pocket for an Attorney or Realtor to assist you with the transaction. Because of this. The higher the offer. putting your value proposition at the center to generate the highest possible offer. Keep in mind that Attorney’s fees or Realtor fees come out of the lender’s net proceeds. it’s important to present the property as a potential investment to other buyers. 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. If they believe that the stated property value is low then it will make it more difficult to clear a short sale.
you may have to include the cancelled amount in income for tax purposes. When that obligation is subsequently forgiven. 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. as well as mortgage debt forgiven in connection with a foreclosure. below. What is Cancellation of Debt? If you borrow money from a commercial lender and the lender later cancels or forgives the debt. 2008 or 2009. This provision applies to debt forgiven in 2007. More information on claiming this exclusion will be available soon. The amount excluded reduces the taxpayer’s cost basis in the home. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The lender is usually required to 53 . 1. When you borrowed the money you were not required to include the loan proceeds in income because you had an obligation to repay the lender.The IRS on Shorts Sales. depending on the circumstances. The questions and answers. qualifies for this relief. Debt reduced through mortgage restructuring. 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. the amount you received as loan proceeds is reportable as income because you no longer have an obligation to repay the lender. 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.
000. your cancelled debt is generally not considered taxable income. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in 54 . more than half your income from the prior three years was from farming.000 and default on the loan after paying back $2. Certain farm debts: If you incurred the debt directly in operation of a farm. Insolvency can be fairly complex to determine and the assistance of a tax professional is recommended if you believe you qualify for this exception. some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. there is a cancellation of debt of $8.report the amount of the canceled debt to you and the IRS on a Form 1099-C.000. 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: If you are insolvent when the debt is cancelled. There are some exceptions. The rules applicable to farmers are complex and the assistance of a tax professional is recommended if you believe you qualify for this exception. The most common situations when cancellation of debt income is not taxable involve: Bankruptcy: Debts discharged through bankruptcy are not considered taxable income. which generally is taxable income to you. 2. If the lender is unable to collect the remaining debt from you. That is. and the loan was owed to a person or agency regularly engaged in lending. You borrow $10. the lender cannot pursue you personally in case of default. Cancellation of Debt. Here’s a very simple example. Is Cancellation of Debt Income Always Taxable? Not always.
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 . I Lost My Home to Foreclosure. Are There Tax Consequences? There are two possible consequences you must consider: Taxable cancellation of debt income (Note: As stated above. A reportable gain can occur from the disposition of the home because foreclosures are treated like sales for tax purposes. 1.cancellation of debt income. this may result in other tax consequences. Step 2 – Figuring Gain from Foreclosure 55 . 2. enter zero___________. 3. You have no income from cancellation of debt). box 7___________. Subtract line 2 from line 1. of your Form 1040. However.If less than zero. 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. cancellation of debt income is not taxable in the case of non-recourse loans). Enter the total amount of the debt immediately prior to the foreclosure___________. Often some or all of the gain from the sale of a personal residence qualifies for exclusion from income. This amount is taxable unless you meet one of the exceptions in question 2. Enter it on line 21. Other Income. as discussed in Question 3 below. 3. skip this section.
Losses from the sale or foreclosure of personal property are not deductible. report the taxable amount on Schedule D. The amount on line 6 is your gain from the foreclosure of your home. 6. 5. 4. For non-recourse loans. If you do not qualify for this exclusion.000 (up to $500. the borrower 56 .000 at foreclosure. Subtract line 5 from line 4. the home is worth $200. If you have owned and used the home as your principal residence for periods totaling at least two years during the five year period ending on the date of the foreclosure. Can I Claim a Loss on My Tax Return? No.000 ($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. I Lost Money on the Foreclosure of My Home. Capital Gains and Losses. enter the amount of the debt immediately prior to the foreclosure ________. At the time of the foreclosure. enter zero.4. Enter the fair market value of the property foreclosed on. The original purchase price was $170. Enter your adjusted basis in the property (Usually your purchase price plus the cost of any major improvements) ____________. If less than zero.000.000 for married couples filing a joint return) from income. and the mortgage debt canceled at foreclosure is $220. or your gain exceeds $250. you may exclude up to $250.000.000 for married couples filing a joint return). 5.
5. 1. Enter the fair market value of the property from Form 1099-C. you may exclude up to $250. Subtract line 5 from line 4.000__.000 for married couples filing a joint return) from income.(Usually your purchase price plus the cost of any major improvements) ___$170.000__. Enter the total amount of the debt immediately prior to the foreclosure___$220. enter zero___$30.If less than zero. 2. Subtract line 2 from line 1. with liabilities (mortgage. or your gain exceeds 57 . If you do not qualify for this exclusion.If less than zero. skip this section. This amount is taxable unless you meet one of the exceptions in question 2.000__. credit cards. car loans and other debts) totaling $250. Enter the fair market value of the property foreclosed. enter the amount of the debt immediately prior to the foreclosure __$200. The amount on line 6 is your gain from the foreclosure of your home.000. enter zero___$20. You have no income from cancellation of debt).000__.is insolvent. Enter your adjusted basis in the property.000__. 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 (up to $500. box 7 ___$200. Other Income.000__. Enter it on line 21. of your Form 1040. Step 2 – Figuring Gain from Foreclosure 4.Figuring Cancellation of Debt Income (Note: For non-recourse loans. The amount on line 3 will generally equal the amount shown in box 2 of Form 1099-C. 3.000 and assets totaling $230. For non-recourse loans. 6. The borrower figures income from the foreclosure as follows: Use the following steps to compute the income to be reported from a foreclosure: Step 1 .
000 minus $170. I Received a Notice from the IRS on This. because they owned and lived in their home as a principal residence for at least two years. to request a payment agreement with the agency. I Don’t Agree With the Information on the Form 1099-C.000). normally included with the notice. IRS LINKS: 58 . Retain all records related to the purchase of your home and all related debt. What Should I Do? Contact the lender. the borrower would also have taxable debt-forgiveness income of $20.000). The lender should issue a corrected form if the information is determined to be incorrect.000 ($250. 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. In this situation. report the taxable amount on Schedule D. Capital Gains and Losses. What Should I Do? The IRS urges borrowers with questions to call the phone number shown on the notice.000 ($220. Sales and Other Dispositions of Assets. the borrower has a tax-free home-sale gain of $30. But since the borrower’s liabilities exceed assets by $20. under the section “Foreclosures and Repossessions. 7.000 minus $200. Ordinarily. Other examples can be found in IRS Publication 544.000 for married couples filing a joint return).000 ($200.000 minus $230.000) there is no tax on the canceled debt.” 6.$250.000 ($500.
U. LITCs are independent organizations that represent low income taxpayers in tax disputes with the IRS. letter or notice) through normal IRS channels. Capital Gains and Losses Form 1099-C. Schedule D. you can also call the TAS toll-free case intake line at 1-877-777-4778. Find information on LITCs in your area. you may qualify for free or low-cost assistance from a Low Income Taxpayer Clinic (LITC). Individual Income Tax Return Form 1040. Selling Your Home Publication 544. Bankruptcy Tax Guide Form 1040. Installment Agreement Request 59 . Sales and Other Dispositions of Assets Publication 908. TTY/TDD 1-800-829-4059.S. the Taxpayer Advocate Service may be able to help. Cancellation of Debt Form 9465. In some cases. Related Items: • • • • • • • Publication 523. For more information.If you are having difficulty resolving a tax problem (such as one involving an IRS bill.
brother and son a home and we go to the same church!” “Buy this house and I’ll get you the mortgage also. Everything I have told you is in writing in this here paperwork. I think the main underwriting guideline followed by most lenders was the “breathe on the glass” qualification method. We are from the same country and speak the same language! Just sign here.” “You can trust me. I know you cannot speak or read English. we make those silly things right here in house. loan approved! 60 . 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. And if we just say you are a citizen on the loan application I can get the loan from banks that I know do not require proof of citizenship. Don’t even worry if you cannot afford the home or the loan. but that’s not a problem.Borrowers Who Negotiate Loan Terms with a Mortgage Broker in Spanish. 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. If it fogs. Don’t have a social security card? Heck. Would I do you wrong? I sold your sister.
The funny thing is that it was never. 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. California Civil Code 1632 61 . (f) At the time and place where a contract or agreement described in paragraph (1) or (2) of subdivision (b) is executed. If the loan is negotiated in Spanish. If a person described in subdivision (b) does business at more than one location or branch. 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. ever followed. a notice in any of the languages specified in subdivision (b) in which the contract or agreement was negotiated shall be conspicuously displayed to the effect that the person described in subdivision (b) is required to provide a contract or agreement in the language in which the contract or agreement was negotiated. then the loan documents need to be in Spanish. or a translation of the disclosures required by law in the language in which the contract or agreement was negotiated. 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. 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. as the case may be. 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.
Chinese. or Korean. for use primarily for personal. approximately 4. Vietnamese. and Korean. 62 . Chinese.7) of Title 14 of.According to the United States Census of 2000. orally or in writing. contracts that involve real estate and mortgages. in the course of entering into any of the following. rental contract or agreement. (b) Any person engaged in a trade or business who negotiates primarily in Spanish. The law is very clear and it relates to most all contracts and in particular. sublease. Together. Part 4 of Division 3. covering a dwelling. and Chapter 2b (commencing with Section 2981) and Chapter 2d (commencing with Section 2985.3 million speak an Asian dialect or another language other than Spanish. a translation of the contract or agreement in the language in which the contract or agreement was negotiated. shall deliver to the other party to the contract or agreement and prior to the execution thereof. or other term of tenancy contract or agreement. (3) A lease. (2) A loan or extension of credit secured other than by real property. family or household purposes. these languages are spoken by approximately 83 percent of all Californians who speak a language other than English in their homes. of the more than 12 million Californians who speak a language other than English in the home. or mobile home. Vietnamese. an apartment. or other dwelling unit normally occupied as a residence. Tagalog. or unsecured. Tagalog. for a period of longer than one month. 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. The top five languages other than English most widely spoken by Californians in their homes are Spanish.
Unfortunately. as amended (15 U.C.). 63 . 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. Sec. This is a serious problem that needs serious attention in today’s foreclosure and predatory lending climate.S. the assignment shall be deemed rescinded and the assignor shall promptly repurchase the contract from the assignee. pursuant to the Federal Truth in Lending Act. Notwithstanding that the contract was assigned without recourse. 1601 et seq. Regulation M and Regulation Z refer to any rule. Upon a failure to comply with the provisions of this section. This is a prime example of a confidence scheme. 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. respectively. 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.The fact is that many people are taken advantage of and many are swindled by unscrupulous brokers and lenders. consumer leasing or consumer lending. the consumer shall make restitution to and have restitution made by the person with whom he or she made the contract. There are certain laws that act as umbrellas of protection for the American consumer. When the contract for a consumer credit sale or consumer lease which has been sold and assigned to a financial institution is rescinded pursuant to this subdivision. regulation. and shall give notice of rescission to the assignee. the person aggrieved may rescind the contract or agreement in the manner provided by this chapter.
So what does this all mean? It means this spells T-R-O-U-B-L-E for banks. Just think how many loans and real estate deals were made this way. Imagine how much liability is on the line and the potential litigation that can be brought just based on this one law. Contracts should always be in the language of the consumer so as to insure a well informed consumer can make decisions that are in their family’s best interest. 64 .
Chapter 4: Stories from the Front Line of the American Economic Battlefield 65 .
which identifies them as the original mortgage holder. Judge Boyko issued an order requiring the Plaintiffs in a number of pending foreclosure cases to file a copy of the executed Assignment demonstrating the plaintiff (Deutsche Bank) was the holder and owner of the Note and Mortgage as of the date the complaint was filed. 66 . This judgment is an example of the enormous task ahead in sorting out the mortgage mess. there must be a simple means of identifying what banks own and what they do not own.Deutsche Bank Foreclosures Tossed Out of Ohio Federal Court . on October 31. 2007 dismissed 14 Deutsche Bank-filed foreclosures in a ruling based on lack of standing for not owning/holding the mortgage loan at the time the lawsuits were filed. Apparently Deutsche Bank submitted several affidavits that claim that they were in fact the owner of these mortgage notes. it also represents a serious roadblock. or as an assignee. but none of these affidavits mention assignment or trust or successor interest. the Judge ruled that in every instance. The Court’s amended General Order No. Thus. 2006-16 requires the plaintiff (Deutsche Bank) to submit an affidavit along with the complaint. 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. trustee or successor-interest. While the decision is great for homeowners in distress (due to providing a new escape hatch out of foreclosure). If the toxic mortgage fiasco is to be cleaned up. or the court would enter a dismissal. Boyko of the Eastern Ohio United States District Court.“They Own Nothing!” By Moe Bedard and Aaron Krowne Judge Christopher A.
broke this news to us via email and made these comments in regards to the Ohio Federal Court ruling (emphasis ours): “This court order is what I have been saying in my cases. This means that many securitized trusts don’t really. April Charney. This means that the loans are being held by the originating lenders after the alleged “sale” to the trust despite what it says per the pooling and servicing agreements and despite what the securities laws require. thus. but a securitized trust cannot take an equitable assignment of a mortgage loan. many of the trusts try to argue equitable assignment that predates the filing of the foreclosure. 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.Jacksonville Area Legal Aid Attorney.” 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. Summarizing the problem Charney concludes: 67 . Regarding this mess Charney further explains: “In my cases. It also means that the securitized trusts own nothing. clouding the recovery picture considerably.” These loans are clearly in default at the time of any eventual transfer of the ownership of the mortgage loans to the trusts. legally own these bad loans.
“This opinion. To paraphrase Jim Cramer. once circulated and adopted by State and Federal Courts across the country. http://iamfacingforeclosure. it turns out—that they actually owned some “real estate” in these deals. already in shambles purely due to rising underlying delinquencies. at first in judicial foreclosure states. will stop the progress of foreclosures. across America.com/article/20071113_Boyko/01.html 68 . “They own nothing!” Original Story from IamFacingForeclosure.com. Investors in these securities might have assumed— wrongly. dead in their tracks. Doubt is cast on where the full write-downs will eventually land. and this uncertainty can only be expected to further harm the market value of MBS and MBS-based synthetic securities.” 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).
bringing much more visibility to the issue.True Sale. and rightfully so. Just because Deutsche Bank may have a chance to “get its ducks in a 69 . maybe not stolen… but apparently we were on the right track. Even Nigel and the Haterz gave us credit where credit is due: “It may be a Casey fantasy. Perhaps they will be much more expensive. Gretchen Morgenson did a great New York Times piece yesterday. Calculated Risk’s Tanta did a total of three blog posts of follow-ups largely intended to serve as rebuttals to our opinions. Tanta had numerous objections with our conclusions and apparently those of April Charney (who is actually an attorney that specializes in this legal field). We wanted to reply to some of these objections here. First. 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. but it is true in real life. and our lawyers aren’t budging. 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.” Well. I Am Facing Foreclosure broke a story that was respected enough and accurate enough to be stolen by the New York Times. It wasn’t long after we posted it here that dozens of bloggers and forums were circulating in the news and around cyberspace.
” This. It would be very interesting to see where these nonperforming loans have been booked until now. we suspect investors will. This point aside. again. does not seem like a small issue. there is something more profound to be learned from this ruling. April further directed us to an article By Tim Reason regarding true sale in securitizations from 2003.row” and since the foreclosures were not dismissed with prejudice. As such. Not being legal gurus ourselves. She had this to say: “First of all. it is not a fair assumption that “nobody could find the original assignments. This is an epidemic across the country. is that the fact that there were no “original” assignments rendering the sales of the mortgages to the trusts. easily dismissible to us. aside from slowing the foreclosure trains. 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. this is not grounds to disregard the implications of the ruling. 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. While Tanta might not see this ruling as a big deal or game-changer. we went back to April Charney for further comment and clarification. in violation of the true sale obligations imposed by securities law. 70 .” “As to the real ramification of the Ohio decision.
“These all-but-liability-proof legal opinions underline the fact that the parties to a securitization transaction are knowingly assuming a serious legal risk. 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. the problems were swept under the rug and everyone got back on the merry-goround a second time for the housing bubble. But hey. the Europeans.What we gleaned is that the “true sale” issue (specifically as it comes to securitization) has never been settled.’ Indeed. while profits were high and defaults were low. Instead. a lawyer could not responsibly do so.” he wrote in a letter to Congress. in the Enron case). One would think from the Reason article that securitizations would have fallen out of favor after the tech stock collapse. the securitization complex chugged merrily along. Reason’s article contains this ominous explanation on the subject: “Kenneth Kettering. given the absence of controlling case law. where they were used for various sorts of accounting deception and producing synthetic AAA-ratings (including. the Chinese. associate professor at New York Law School. Echoing (and reinforcing) the pay-to-play ratings complex that emerged at the same time. what’s a few trillion between friends? This time around. securitization was scaled-up to a greater extent than ever before. “No competent lawyer ever gave a simple flat opinion that the asset transfers involved in a securitization transaction constitute a ‘true sale.” Somehow we suspect that nobody explained this state of affairs to the various pension funds. and all of the other parties exposed to questionable securitized MBS pools. 71 . despite the fact that the fundamental issues of ownership were not settled. the Canadians. famously.
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.e. it isn’t going to go over well for the investor class. The injunction would stay any foreclosure proceedings by the trustee. perhaps a claim for slander of title since the trustee did not have the rights to initiate the foreclosure process. and if this Deutsche Bank ruling is indicative of future rulings. We followed up with California mortgage attorney Nathan Fransen about this landmark case and its implications: “California is a non-judicial foreclosure state. like last time? The conflagration seems unlikely to blow out quite so easily this time around. true sale challenges could be counted on to be rare and occur only in the occasional large-scale corporate bankruptcy cases. This means the banks do not file a complaint in court to foreclose on the property. the challenges are threatening to proliferate right along with the exploding number of foreclosure cases across the country. This requires them to provide notices in strict accordance to the applicable laws. when a creditor or the bankrupt company itself wanted to “raid” the assets of a securitization to satisfy obligations. Previously.” “Typically the sale is followed up by an unlawful detainer proceeding to evict the former owners. i..” “There are other claims worth exploring that are derivatives of all this. For example. The sale is a private action that effectively terminates ownership rights by the borrower. Claims under California Business and Professions Code Section 17200 (UDAP 72 .But now these fundamental issues are getting their day in court again. Will there be another muddle-through. Now. They simply execute a Trustee Sale. 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.
far from a trivial matter of paperwork. 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).statute) may also be available.” So saith the lawyers. Original Story: “Don’t do it Casey’s way!” www. Hence we take it that. 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.IamFacingForeclosure.com/blog 73 . or packing their bags. Boyko’s decision is serious business.
However.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). is that the fact that there were no “original” 74 . if they do not receive timely payments.’” The ruling is another HUGE victory for consumer advocate attorneys and homeowners in general. Judge Rose has thrown out another batch of foreclosures. And. aside from slowing the foreclosure trains. Jacksonville Legal Aid attorney April Charney remarked to us regarding the two Ohio decisions: ” As to the real ramification of the Ohio decision. the entities have the right to seek foreclosure on the accompanying mortgages. this court is in full agreement with Judge Christopher A Boyko for the Northern District of Ohio who recently stressed. 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. with regard the enforcement of standing and other jurisdictional requirements pertaining to foreclosure actions. ‘That the judicial integrity of the United States District Court is ‘Priceless.
in violation of the true sale obligations imposed by securities law.assignments rendering the sales of the mortgages to the trusts. ” 75 .
He is a role model to hundreds of thousands of other Americans that are facing foreclosure. He began his fight by challenging the lawsuit and then prolonged the suit by flooding the court with motions. The lender files the notice of default and the court hearing comes and goes without an appearance from the defendant (homeowner). Richard Davet decided he was going to fight back against NationsBanc Mortgage Corp. In 1996.Ohio Homeowner Fights Foreclosure and Lives Payment Free for 11 Years By Moe Bedard Let the truth be known. and he appealed the judge’s rulings at every chance. However. They fight back to protect their property rights and against injustice. there are unique cases of people that just won’t lie down and take it. a homeowner from Ohio is a man that I consider a modern day hero. the trustee’s sale happens on the court steps and the home owner becomes another foreclosure statistic. Ohio 1940’s 6 bedroom home. Unlike many homeowners that just take their foreclosure medicine and move on to rent. which bought him 11 years mortgage payment free in his home. and challenge them till the end in an Ohio court of law. 76 . Richard Davet. objections and affidavits. Davet was served with a foreclosure notice on his Cuyahoga County. Four to six months later. Most homeowners do not respond or fight back when they are facing foreclosure. Mr. 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.
Jones Day. says it came as a shock in the upscale area. Davet says it wasn’t a delay tactic and that he was trying to line up investors to buy the property.C.. Other critics have called him a “deadbeat. N. Charlotte.” said Bank of America Corp. Davet and is a trustee of the neighborhood association. 77 . who lived three doors down from Mr. Davet owed and set a sale date for the property so that the creditors could take the sale proceeds. which merged with the owner of NationsBanc.000. Mr.” “Several years into the case. Don Saunders. Five years later.000.000 deposit. but the move delayed his eviction by months. a judge granted foreclosure in the amount Mr. He couldn’t pay more than the required $10. for $436.” “The eviction finally happened on a snowy day in January of this year.. in 2005. The house was later sold to another family for $410.” I call him a hero because he is a man of his convictions and has tremendous will power. But when the property finally went to sale.” Some people would call Mr. Davet set up a shell company to win the auction. Bank of America took the unusual step of bringing in lawyers from a big corporate law firm.” “Mr. Davet a foreclosure fighter and pioneer.From the Wall Street Journal: “Mr. Davet has litigated these same issues over and over again…and in each instance the courts have dismissed his claims.
Ohio gave this powerful. Christopher A. Today. local practice to a truly global firm with more than 2. and we count more than 250 of the Fortune 500 among our clients. dismissed 14 foreclosure suits because the plaintiffs that brought them couldn’t prove they owned the mortgages when the suits were filed. More form WSJ: “Mr.” I think it’s quite amusing that a homeowner from Cuyahoga County. Davet continued to try. in response to our clients’ needs. from a small. when a federal judge in Cleveland. had so much trouble with the case that four years into it they brought in lawyers from Jones Day. Jones Day is one of the most recognized and respected law firms in the world. to get the federal court to agree that the state judgment was invalid. Jones Day has grown. then NationsBanc Mortgage Corp. a possible lifeline arrived this past October. unsuccessfully. 2.300 lawyer and 30 office law firm an 11 year fight. The companies involved in the transaction may 78 . Then.” “Such a problem can occur when mortgages are turned into securities and sold to investors. Boyko..300 lawyers in 30 offices around the world.” I obtained this quote from the law firm’s website: “Since 1893.The Wall Street Journal: “The mortgage company that filed the suit.
Supreme Court.” There are numerous debates circulating in the blog-sphere and forum arena on the internet in regards to foreclosure defense actions and the recent Ohio rulings. he will set his sights on the U.” to the new owners.” “Other judges have since followed Judge Boyko’s lead. this time citing the Boyko ruling. Davet filed a second federal appeal. that the Law can be worked by a “pro se” party. which was not securitized. It’s unclear whether the latest salvo will work. Mr. the originating lender continued to legally own the mortgage — and would thus need to be the plaintiff in a foreclosure suit. 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. Davet says. In essence. It is not that the party managed to live 11 years for free. free is then 79 .” “Earlier this month. If the Bank had to bring in the awesome gun of Jones Day.not have checked that each mortgage was legally transferred. In Mr. If it doesn’t. then the Law can work. We reported on the recent Judge Boyko ruling and other similar rulings that are coming out of Ohio. the mortgage. which he believes he inspired. changed hands multiple times and wasn’t actually owned by NationsBanc until three years after the company filed suit. The Ohio attorney general has asked numerous judges to dismiss or delay foreclosures based on similar grounds. however. or “assigned. Mr. Here are some of the interesting comments circulating on the internet: “It is heartwarming to see.S. Davet’s case.
and I’ve seen a lot (but hardly all). “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. and allows you to foreclose. which the bank 80 . and having the ownership of the property which a mortgage affords. which allows you to sue for the repayment of the debt. The entire legal process stemmed from NationsBanc’s allegedly erroneous tacking on of 90 separate sets of late fees. Which must have had some validity to take this long. “ comment by bboy “As both a corporate and general practice lawyer.these rights of ownership are important! Too many lenders are ripping us off with unjustified fees. I’m with JC and bboy. and you can’t foreclose for fees. A delay in the foreclosure could only occur if the Court’s gave merti to his arguments. I think the borrower here was actually doing the law and financing a great service.” “There is a big difference between having the Note.an abstract. I’ve also had a mortgage closing business back in the mid ’80’s when things went belly up. but am really appalled at the name calling and lack of analysis of most of the other responders. you have no right to foreclose it. Take it from there . Kudos to the system for making a grant effort and doing correctly. If you don’t “own” the mortgage.” Comment by laserhaas.
As for his central argument of note ownership.” Comment by Cleveland Esq. Mr. “When I worked for a federal judge in Ohio I saw my fair share of “jailhouse lawyer” lawsuits from prisoners and their persistent and baseless motions. 2. “As a corporate lawyer who has a little bit of familiarity with the ins and outs of large banks. he could certainly face disciplinary actions. 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. If he was a licensed attorney. In this situation. Davet’s actions remind me of those days. NationsBanc apparently did not even own the mortgage in question (presumably the first mortgage) until 3 years after it initiated the initial foreclosure action. his unwillingness to pay legal fees may evince his cheap character. this failure to maintain records properly left the borrower subject to allegedly erroneous late fees that made payment of his mortgage impossible. This case should act as a wake up call to the mortgage servicers of the nation: your sole value added to the process is to KEEP TRACK OF THE PAPERWORK. I am curious to see if Ohio is willing to hinder securitizations by forcing the loan originator to hold onto the note. Many of these banks have a HORRIFIC record of maintaining accurate and complete records on borrowers.subsequently was largely unable to conclusively document were connected to payments actually made late. Of course. 81 . 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.
” Comment by hunting 82 .All in all. maybe. Mr. just maybe. By requiring lenders to actually DOCUMENT their claims. Davet’s lawsuit shows that the legal system does work. this case will lead to better customer service and an end to frivolous fees.
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