Posted by kevin on November 3, 2013 under Foreclosure Blog | 
A good proportion of the mortgages in default in New Jersey were sold to investors by means of private securitizations. In such cases, a sponsor will buy about a thousand mortgages from one or more originators, transfer them to related entity called a depositor, who then sells them to a trust. (Multiple transfers are necessary to insure bankruptcy remoteness). The trust is usually a REMIC (real estate mortgage investment conduit) which means that only the investors are taxed. The guiding document is called a Pooling and Servicing Agreement (PSA) which describes in detail what happens, how the various notes and mortgages are transferred into the trust, how and how much the investors are paid, and what the functions of the various parties are.
Unless the securitization is exempt from federal securities laws, the sponsor must register the offering with the Securities and Exchange Commission (SEC). Because of this registration requirement, some of the documents associated with the securitization, including the PSA, can be available on the SEC site. When you get the opportunity to read 100 or so PSA’s, you realize that many require that the note have an endorsement from the depositor to the trustee or in blank with all intervening endorsements so that there is a complete chain of endorsements. This is to comply with the requirements concerning bankruptcy remoteness.
When you compare the your client’s note to the usual requirements of the PSA, you often times find that the endorsement(s) on the note do not come close to complying with the requirements of transfer set forth in the PSA. If the PSA is governed my NY law, it is pretty clear that if the note and mortgage are not transferred to the trust in accordance with the terms of the PSA, then the note and mortgage are not in the trust and the plaintiff, trustee, has no standing to bring the action.
This could be a major problem for lenders. Literally, hundreds of thousands of cases in New Jersey and across the United States could be tossed out of court. But, that has not happened to date. Why? Because an unpublished case in NJ stated that a borrower cannot refer to the requirements for transfer set forth in the PSA because the borrower is not a party to the PSA. Yeah, the lender broke the rules of its own operating agreement, but the borrower, who stands to lose her home, cannot bring it up. Many trial courts in NJ have adopted this position notwithstanding that the case setting forth this rule is an unpublished, and under our Court rules, unpublished opinions have no precedential value. You can draw your own conclusions on this, but it does seem to defy common sense.
More on this in upcoming blogs.
Posted by kevin on April 25, 2013 under Foreclosure Blog |
New Jersey has not done too well during the mortgage crisis. Unemployment has been higher than the national average. Foreclosures have topped 150,000 since 2008 with a backup of probably another 100,000. The courts have been reluctant to find problems with issues like predatory lending, consumer fraud and the like. The NJ Home Ownership Security Act, a supposed strong consumer protection act, turned out to be a paper tiger because basically, it does not apply to 99.9999% of mortgages. The mediation program has run out of money. At the same time, NJ has the second highest foreclosure inventory in the country and NJ is one of only 4 states where foreclosures were up in the last year.
Amid all this less than sterling news, I came across something positive. Assemblyman Troy Singleton from Mount Laurel proposed a bill (A3915) to create the Mortgage Assistance Pilot Program to be run by the New Jersey Housing and Mortgage Finance Agency (HMFA). The purpose of the program is to allow homeowners who are in default of a mortgage owned by HMFA to lower the prinicpal owed on the mortgage if the property is underwater (more is owed than the property is worth).
The specifics: Principal could be reduced up to 30% and interest could be reset to current market rates. For example, you owe $500,000 at 8% on a property worth $300,000. Under this bill , the principal could be reduced to $300,000 and interest (30 years fixed fully amortized) could come down to the low to mid 3’s. That could be a huge savings.
In return, the homeowner is required to retain ownership the property for 5 years, and upon sale, must share any appreciation with HMFA to the extent of the reduction (If the mortgage principal is reduced by 30%, HMFA gets 30% of the appreciation upon sale.) If the owner sells before the 5 year holding period, another 5% is tacked on HMFA’s share.
Back in 2009, I routinely included equity sharing as part of any settlement proposal that I made to a lender/servicer. It was routinely rejected. Now, it appears that the environment may be ready for such a concept. Besides the usual problems involved in turning a bill into law, my chief concern with A3915 is the scope of the legislation. Since the program only applies to mortgages owned by HMFA, how many homeowners will be able to get relief. If HMFA is going to go out and buy New Jersey mortgages to supplement its inventory, where is the money coming from? My concern is that A3915 will become another NJ HOSA- great on paper but of limited utility. Notwithstanding I commend Assemblyman Singleton for attempting to address a big problem here in NJ.
Posted by kevin on June 5, 2012 under Foreclosure Blog |
To review, a servicer collects the monthly mortgage payments and distributes those payments to the lender, the taxing authority, and the insurance company. It gets a fee for providing this service. Most servicers are affiliated with large banks- too big to fail banks.
The servicer, in many instances, was the original lender or the purchaser from the original lender, who then sold the loans to FANNIE, FREDDIE or a securitized trust.
Since the servicer is involved in the collection and distribution of payments, it is the entity that coordinates foreclosure or bankruptcy activities on the part of the lenders. It was the entity most likely to be involved in robo-signing, issuing questionable certifications or affidavits in foreclosure litigation, and even forging instruments. The AG’s were looking primarily at the servicers, and the AG’s had claims of approximately a trillion dollars or more against these servicers. These AG claims go away based on the settlement. Now, you as a borrower can raise these defenses in a foreclosure action. But you do not have the same clout that a State AG has to pursue litigation. Moreover, you have to deal with state procedural rules which put a time limit on the ability to set aside a judgment based on fraudulent papers. Therefore, your chances of hitting a home run against the servicers are limited.
Imagine if you could get off the hook on your debts by putting up 25 billion to wipe out of trillion dollars of liability. You could pay off a million dollar mortgage for $25,000. How come the government did not give you that deal? It has something to do with a concept known as moral hazard. Many in the banking industry and government think that it sends a bad message to allow people to walk away from their mortgage obligation. Notwithstanding that many got hoodwinked into deals that they could not afford. However, those same people have no problem with bailing out the banks. In other words, a different set of rules apply to the too big to fail banks. Go figure.
Posted by kevin on December 25, 2011 under Foreclosure Blog |
Last week, the Appellate Division came down with a case that may have some implications for borrowers. There were two defendants which collateralized a business loan with New Jersey real estate. They defaulted on the payment of the loan. The bank sued on the note. If it is not a residential first mortgage, the lender has the option to foreclose, sue on the note or do both at the same time.
Ultimately, the parties settled. The settlement agreement was drafted by the lender and was very involved and in legalese. In essence, the borrowers would give up two properties by deeds in lieu of foreclosure. The lender gave one borrower a release and the other a $4,000 credit. The collateral left a balance due in excess of the $4000. So, the bank sued the one borrower for the difference.
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