Victory for Borrowers

Posted by kevin on January 28, 2015 under Foreclosure Blog | Comments are off for this article

I have had at least 100 clients or potential clients tell me that they have a great foreclosure defense because their mortgage servicer jerked them around unmercifully when they applied for a temporary modification, and refused to give them a permanent mod notwithstanding that they made three or more payments. Up to last week, the client or potential client in NJ was wrong.

Why? Because modifications are governed by the HAMP program (now MHA of which HAMP is one of the options). HAMP is based on a federal statute in which the federal government gives servicers money if they agree to modify mortgages generally in accord with the guidelines established under the statute. The parties to the agreement are the federal government and the sevicer. Even though borrowers are the reason for the statute and a beneficiary of the statute, they are not a party to the agreement. Federal courts held that borrowers cannot sue under HAMP or MHA (no private right of action).

In 2011 and 2012, certain federal courts got their “common sense” cap on, and concluded that notwithstanding that the borrower was not a party to the HAMP agreement, you cannot have servicers taking money with no intention of granting a permanent modification. One of those courts was the 7th Circuit Court of Appeals in the Wigod case.

Foreclosure defense attorneys in NJ have argued that Wigod is good law in NJ, and the failure to grant a permanent modification is tantamount to a violation of the Consumer Fraud Act or a breach of the implied covenant of fair dealing between parties.

Last week, in a published opinion, the Appellate Division in NJ adopted Wigod but limited the application. It held that if the servicer granted a temporary modification, and the borrower makes the required payments, turns over all required documentation, and his or her representations to the servicer are true and accurate, that borrower is entitled to a permanent modification. Failure to grant a permanent mod gives the borrower a cause of action.

Now, this ruling does not handle all cases involving a modification. If you apply for a mod, and send your documents in, but can never get someone on the phone, or your inquiries are pushed from one person to another none of which can make a decision, or your documents are lost three or four times, or the servicer claims that it never received your application notwithstanding that you have a Fed Ex proof of delivery, or you are asked for updated bank statement until or are pulling your hair out, then you get rejected- you are SOL. That stands for s&%! outta luck. Why, it is the temporary mod which establishes a contractual relationship between the borrower and the servicer which triggers Wigod.

The case in NJ is Arias v. Elite Mortgage Group. A victory in today’s foreclosure defense environment.

CFPB- busy for 2015

Posted by kevin on January 13, 2015 under Foreclosure Blog | Comments are off for this article

I have seen a plethora of articles which say that the Consumer Financial Protection Bureau (CFPB) looks to be pro-active in 2015. That is a good sign especially when you consider that the DOJ has done little in way going after the bailed out banks, and the Republicans have taken over the House and Senate.

On the agenda for 2015 are a review of debt collection practices by first parties (the owner of the debt) as opposed to third party collectors. Third party collectors are usually subject to the FDCPA and consumers have a private right of action to go after illegal activity by third parties. However, the FDCPA hardly ever applies to the owner of the debt. Employees of those organizations can engage in the same type of outrageous acts which could land a third party collector in court- but they skate. According to the articles that I have read, the CFPB wants to look into how debts are being reported by first parties to consumer reporting agencies. Moreover, the CFPB wants to review first party dispute resolution policies.

Other areas of concern are payday loans, arbitration clauses in credit agreements, student loans especially in cases dealing with for profit schools, and continued review of mortgage servicers.

I am especially interested in seeing what comes out of the student loan investigations. At this time, private lenders get all the benefits associated with the discharge exception in bankruptcy, but are not required (as with federal loans) to offer income based repayment plans. I do not know if that was an intended consequence of limiting the bankruptcy discharge or just something that fell between the slats. However, that law does present to private lenders a windfall. They get to go after the student and pound them for judgment and interest with little or no downside risk that the loan will be discharged in bankruptcy. While at the same time, the student loan creditor does not have to deal fairly with a student strapped with debt and just starting out.

The sense of urgency at CFPB seems to be fueled in part, however, by the reality that the Republicans have taken over the House and Senate. Senator Shelby, Chair of the Senate Appropriations Committee, and Congressman Hensarling, now Chair of the House Financial Services Committee, are no big fans of Dodd-Frank and the CFPB. They have promised to clip the CFPB’s wings. In fact, Hensarling has just attacked the CFPB for upgrading its offices. So, maybe the flurry of activity at CFPB is just trying to make themselves harder to hit moving targets.