25 Billion Dollar Settlement-Revisited

Posted by kevin on September 11, 2012 under Foreclosure Blog | Comments are off for this article

A while back, I reviewed the terms of the 25 billion dollar settlement with you. My conclusions were that the settlement was a big victory for servicers who were getting off the hook for a myriad of bad deeds, but that I would have to wait and see about benefits to borrowers in New Jersey.

A report recently came out from the overseer of the settlement who claims that there has been some movement across the country on reductions of principal amounts due on first mortgages. This positive news has been echoed, to a degree, by confirming posts on the listserve of the National Association of Consumer Bankruptcy Attorneys. But most of those posts came from attorneys out West.

I had not heard any news of principal reductions on first mortgages in NJ. But that does not mean that it is not happening. So, I reached out to attorneys on both sides, mediators and HUD counsellors to get an idea of what types of settlements are available. To my disappointment but not surprise, I did not hear much about modifications involving reductions in principal on first mortgages. What the lenders and their servicers are offering are deep discounts on or forgiveness of second mortgages, usually on properties that are underwater.

Big deal! Prior to the settlement, you could negotiate, without too much difficulty, a 10% settlement of underwater seconds (sometimes even lower). The second lender, you see, is not in the driver’s seat. Under New Jersey law, the second lender may sue on the Note. But lenders do not waste their money on a useless judgment if the borrower is out of work or underemployed. Moreover, aggressive pursuit of a money judgment on a second may just force the borrower into bankruptcy. If the second lender does not sue on the note, it has three choices. Buy out the first mortgage- very expensive and makes no sense if the property is underwater. Get wiped out in the foreclosure. Or try to make a deal with the borrower. So, this is one of the few situations in recent residential mortgage foreclosure where the borrower has some leverage.

Well, if it is true that lenders are forgiving seconds, that is pretty good for the borrower who is getting the deal. She is not out the few thousand dollars that would have been paid to take out the second. But is it good for the aggregate of borrowers in NJ who are looking to reduce principal and modify into an affordable loan? I question that. The lenders, cynical as ever, are forgiving 50-100K equity lines where they would have received nothing in a foreclosure. What do the lender get, then? They get credit against, in the case of NJ, the $67 million obligation under the 25 billion dollar settlement. So foregoing $5000 saves them from giving a $50,000 or $100,000 reduction in principal on a first.

Clearly, the lenders are following the letter but not the spirit of the 25 billion dollar settlement.

Short Term Mortgage Modified in Chapter 13.

Posted by kevin on September 4, 2012 under Foreclosure Blog | Comments are off for this article

You have not heard from me for a while. I have been out of work for most of the summer. For years, I have said that I wanted to take the summer off and hang out on the beach. Well, I took the summer off. Unfortunately, I was not on the beach. In June, I had redness and pain in my upper chest. I thought I pulled a muscle lifting weights. It turned out to be a MRSA related abscess which required surgery. I was in the hospital for well over a month and confined to home for a few weeks. But I am getting back to what might be called normal. Went to Court twice last week, and will be attending a mediation tomorrow.

The time off gave me lots of time to think; lots of time to read. Of course, one of the things that I read about and thought about was the whole issue of foreclosure defense. I was not happy with the Guillaume decision. Going into Guillaume, you had a hodge podge of decisions based on the conflicting appellate division decisions. Both the lender bar and the borrower bar wanted a bright line decision. What we got was anything but. Trial judges are allowed to make their own calls. You would think that would give the borrower a 50-50 shot; however, the examples given in the decision , I believe, skewed the issue in favor of lenders. Irrespective of my opinion on the opinion (an Austin Powers moment), I would have been happier with a straight up or down ruling.

I read the daily opinions. I am not happy with the analysis on standing issues. I believe Judge Todd in Raftogianis and Judge Wizmur (Bankruptcy Chief Judge) in Kemp provided the strongest analyses and basically got it right. Lenders, however, have jumped on a stray statement called “dicta” in the Mitchell decision which appears to say that standing could be based on NJSA 46:9-9 assignment of mortgage. This takes us back to the pre-Raftogianis era when people were losing their homes based on questionable MERS assigments usually drafted by the plaintiff’s attorneys. What makes it worse is that the leading case on NJSA 46:9-9 states that the statute only applies to non-negotiable instruments. Of course, Mitchell dealt with a negotiable instrument so—whatever. This is an issue that needs to go up on appeal.

A summer of pondering has led me to at least the following conclusion- a borrower in foreclosure, more than ever before, needs an experienced attorney to wade thru the verbiage (euphemistic term) to present a forceful defense.

In future blogs, I will talk more about the $25B settlement and how it will impact our approach to representation of borrowers.