What’s New

Posted by kevin on March 30, 2018 under Foreclosure Blog | Comments are off for this article

I have not posted in a few months because there was little happening of any interest to borrowers. I continue to read the “advance sheets” which have a few, what are referred to as, “unpublished” appellate decisions in New Jersey over the last couple of months. All borrower appeals were rejected.

A war story. I appeared in court in January to stay a sheriff sale. The background: Loan in 2007, foreclosure by BAC in 2009. Client was offered a modification in 2010, but the offer was withdrawn by BAC because they claimed the modification acceptance arrived late. Perhaps, the fact that the borrower does not speak, read or write English had something to do with that. The robo-signing stay in NJ put the case on hold for 8 months; however, after the stay was lifted, BAC did nothing for two years. The Clerk moved to dismiss but BAC got the case reinstated in 2014. After reinstatement, BAC once again did nothing and the case was dismissed in 2016. All the while, interest and fees are piling up. In late 2016, Bank of America filed a second foreclosure.

I became involved in 2017 just about the time that final judgment was entered. We applied for a loan modification under a so-called proprietary modification plan. That means that it is the lender’s (or servicer’s) in house mod plan. The problem was that the BOA never made public what the guidelines were for obtaining their proprietary plans. The servicer notified me that my client did not have sufficient income to obtain a modification under the investment property modification plan. I called the “point of contact” person and requested information about the plan guidelines so that I could confirm whether, in fact, my client did to qualify, and how much more income he would need to qualify. The reason was that the borrower’s son, who had substantial income, was willing to sign on the loan (which was disclosed to the servicer). Neither the point of contact person nor her supervisor, could tell me how much income was needed to qualify for the investment property mod plan. They could not (or would not) give me a copy of the plan guidelines. At BOA’s suggestion, we appealed the decision but were again rejected.

I served a QWR (qualified written request) to ascertain the plan terms and received a reply that borrower did not have sufficient income to qualify. I served a Notice of Error and the response from BOA is that they did not have to tell us the plan guidelines since it was proprietary. WTF? I once again told the servicer that the son was willing to sign on the loan and provided his income documentation. BOA refused to consider any amendment and refused to put off the sale.

The Judge heard the case, listened to my arguments and said that BOA was under no obligation to offer my client a modification. That is true, but was not the point. The point was that once a servicer or lender publicizes that it has a modification program and invites the borrowing public to apply for such a modification, it should be compelled to make public the terms for qualifying for such a program. Otherwise, we are dealing with an Alice in Wonderland situation. The Judge did not see it that way and my client lost the property.

Draw your own conclusions.

Can I Reinstate My Mortgage?

Posted by kevin on September 7, 2017 under Foreclosure Blog | Comments are off for this article

Many times, borrowers served with a foreclosure complaint have asked, ‘if we are only $18,000 behind on the Note, how can the bank take the position that $500,000 is due?’ The answer is two-fold. First, in a foreclosure, the borrowers are not being sued for what is called a “money judgment”. The object of the foreclosure is to sell the collateral (your home) and pay off the loan. What gives the the lender the right to sell your home? That leads to the second point. Your Note and Mortgage give the lender the right to sell the collateral to pay off the loan. Moreover, the Note and Mortgage give the lender the right to accelerate the loan upon a default. That means even if you are late even one payment and that triggers a default, the entire amount of $500,000 is due at the option of the lender.

Is there anyway to de-accelerate the Note and Mortgage? Well, if your Note and Mortgage give you the right to reinstate, then you have an out. Otherwise, in the “old days”, you were basically at the mercy for your lender. It was the lender’s decision to de-accelerate the mortgage. If the lender consented, they usually tacked conditions on the consent in the form of payments of late fees, penalties and collection costs which sometimes seemed exorbitant under the circumstances.

In New Jersey, that all changed in 1995 with the passage of the Fair Foreclosure Act. That law applies to any residential mortgage, and gives the debtor the right at any time up to the entry of final judgment in a typical foreclosure to cure the default, and de-accelerate and reinstate the mortgage by paying the amounts due as set forth in the statute. The term “residential mortgage” clearly applies to your home. But it also applies to dwelling of up to 4 units one of which is occupied by the debtor of members of his/her family. In addition, the term residential mortgage can apply to a vacation home.

How much must you pay prior to the entry of final judgment? The law says all sums which would have been due in the absence of default. That means all principal, interest and escrow payments that you missed. In addition, the debtor is responsible to pay all late charges, court costs and attorneys fees permitted in foreclosure matters by the New Jersey Court Rules. Payment must be in the form of cash, cashier’s check or certified check. Although not specifically mentioned, a wire transfer into an account designated by the lender should satisfy the condition.

As with any statute, there are terms which are not exactly clear. So, besides the statute, borrowers may have to look at court opinions dealing with the statute. However, the short answer to our question is that under the right circumstances, borrowers have a right to reinstate a residential mortgage in New Jersey.

NJ Supremes Do the Right Thing

Posted by kevin on August 10, 2017 under Foreclosure Blog | Comments are off for this article

Last week, the New Jersey Supreme Court came down with a pro-borrower decision relating to enforcement of a modification agreement. Although this is good news for borrowers, my take is that the decision is driven by the facts of the case and may have limited application especially when applied by trial courts.

In GMAC v. Willoughby, the borrower closed a mortgage loan in February, 2006 and defaulted in June, 2006. Not good facts for a borrower going to court. GMAC foreclosed and received a final judgment. The trial court, however, stayed the sale (scheduled for September, 2009) so that the parties could go to court sponsored foreclosure mediation.

In May, 2010, the parties entered into a settlement. The mediator used the court approved form. The lender’s attorney wrote in the terms which included the borrower would pay $600 down and make trial payments of $1678. Upon payment during the trial period, a permanent modification would be offered which was final upon signing of the permanent mod agreements.

Well all the trial mod payments were made thru the end of May, 2011, but instead of a permanent mod, GMAC sent the borrower a new mod offer with a higher payment required. The borrower refused to sign the new mod, but made the higher payments and protested that the new deal was improper (to no avail). Then, in November, 2011 and then again in May, 2012, GMAC sent the borrower new modification agreements which she initially orally agreed to but she refused to sign the written agreements. However, she continued to make payments. So, GMAC (on behalf of the lender) decided to play hardball. They sent back the August, 2012 payment and the lender foreclosed. The borrower tried to enforce the May 2010 settlement agreement but the trial court said that the May 2010 agreement was provisional and not final, and the property went to sale. Note that the borrower paid over $58,000 on the May, 2010 modification agreement but apparently this fact did not move the trial court. On appeal, the appellate division affirmed the trial court.

Ms. Willoughby took the case up to the Supreme Court. The Supreme Court reversed and ordered the trial court to vacate the sale and reinstate the May 2010 settlement. The legal analysis was straightforward. The Supremes found that the settlement agreement constituted a valid contract. There was an offer and acceptance and the terms were definite. To the extent that any terms were not definite, the Supremes found that since the lender’s attorney filled in the terms, any ambiguity had to be construed against the lender. This is basic statutory construction. Moreover, the agreement stated that it was a final, binding and enforceable agreement. Finally, Ms. Willoughby relied on the finality of the agreement and made over 58K of payments.

I think four factors influenced the Supreme Court’s correct decision. First, GMAC was playing it pretty fast and loose. My experience has been that this is typical of lenders and servicers in many foreclosure situations. Second, the contract terms were pretty straightforward. Third, the borrower paid over 58K, and GMAC not only played games with her but pulled the rug out from under her. Fourth, (and this surprised me), the Supremes put a fair amount of emphasis on the NJ Mediation program as a vehicle for settlement. Reading between the lines, the Supremes seemed offended that the servicer treated the mediation process in such a cavalier manner If this were a straight modification without court sponsored mediation as a vehicle, would the decision be the same.

Factors One and Two should be enough for a victory but, I believe, they did not win the day for Willougby. What clearly was more important was that Willougby, in reliance on the settlement agreement, made over 58K of payments which GMAC glomed. This shows incredible good faith on the part of the borrower (which was totally ignored by the trial and appellate courts). The wildcard in this opinion is that fact that the settlement came out of court sponsored mediation. The opinion spent pages on this fact and the policy behind mediation. Would the decision have been the same if it was a straight modification application made through the servicer? I do not know.

NJ- Still Significant Foreclosure Activity

Posted by kevin on July 25, 2017 under Foreclosure Blog | Comments are off for this article

NJ had 35,000 foreclosures filed in 2016. That is about one half the amount of annual foreclosure actions filed at the height of the mortgage crisis, but it is still significantly higher than the 20,253 foreclosures filed in 2005. And, at the time, 2005 was a record year.

Bankrate lists New Jersey as the worst state when it comes to foreclosures. Statewide the rate of foreclosure is one unit in 515. The national average is one unit in 1636.

There are a myriad of reasons for this dubious honor, but that is not the point of this blog. Readers should be aware that New Jersey still has a foreclosure problem. Individual home owners should be aware that there are steps to be taken if you fall behind on your mortgage.

The first thing that you should do if you are delinquent is not to bury your head in the sand, or hope that things will work out. If you take that approach, I assure you that things will not work out.

There are many factors which go into an analysis of a foreclosure situation. How much is the mortgage? How much is the property currently worth? Is it a single family residence or rental property? If rental, is it rented and for how much? What is your income? What is the monthly principal, interest, taxes and insurance (PITI)? Is the loan interest fixed or variable and what is the current rate? Is there a second mortgage? What other debts do you have? What loan documents do you have? Were you represented by an attorney in the loan transaction? And probably, the most basic factor is what is it you want to accomplish?

Once your situation is analyzed, you can start to put together a strategy. Maybe, you do not want to keep your home that is grossly “underwater”. In that case, a short sale may be an appropriate strategy. Maybe, you are only a few months behind and have significant credit card debt and doctor’s bills. In that case, a Chapter 7 or Chapter 13 bankruptcy may be an appropriate strategy. Maybe you were put into a loan that you could not afford. In that case, litigation (that is, fighting the foreclosure in court) may be the answer. Maybe you could benefit from a modification. Even though the federal HAMP program was phased out as of December 31, 2016, Fannie Mae and Freddie Mac have their own programs which could significantly lower your monthly payment. Moreover, private lenders have what are called “proprietary” mortgage modification programs which may be helpful.

As you can see, there are options available. Moreover, you are not limited to one option. I have had clients who fight the foreclosure in State court and then seek a modification, or a Chapter 13. Others seek a modification and then file Chapter 13, or seek a modification while in Chapter 13.

The key is, seek help early in the process. Even the most experienced foreclosure/bankruptcy attorney may not be able to help you if you call and say, ‘I have a sheriff sale tomorrow. Can you help?’

Mortgage Modifications- Where Are We?

Posted by kevin on July 16, 2017 under Foreclosure Blog | Comments are off for this article

The Making Homes Affordable HAMP mortgage modification program expired on December 31, 2016. If you filed for modification before that date, you application will be considered until December 31, 2017. However, no new applications under HAMP after December 31, 2016. So, where are we at?

Well, the GSE’s (Fannie Mae, Freddie Mac) still have programs and most, if not all, servicers and lenders have their in-house programs.

For example, in December, 2016, Fannie Mae announced its new Flex program which combines features of the Fannie Mae HAMP, Standard and Streamlined modification programs. As with the prior programs, your loan has to be held by Fannie Mae in its own portfolio or sold to investors by Fannie Mae. Servicers can begin implementing the new program as early as March 1, 2017 but must implement the program no later than October 1, 2017. Borrowers who are delinquent or in imminent danger of default qualify. If the borrower is less than 90 days delinquent, PITIA (principal, interest, taxes, insurance, and HOA assessment) is based on 40% of gross income and the reduction in payment must be at least 20% of what the borrower had been previously paying. If more than 90 days delinquent, then the servicer considers only a 20% reduction. The program utilizes waterfalls similar to previous programs and does allow principal forbearance in certain situations. Although geared to primary residences, investment properties and vacation homes can be eligible if the loan is at least 60 days delinquent.

In-house programs exist just as before. They are sometimes called proprietary programs. I have dealt with so-called proprietary programs since 2012. The biggest problem is that the servicer does not publish the program guidelines so you are getting basically a pig in a poke. However, for the most part, the proprietary programs are similar to the HAMP programs in that the servicer will target PITIA payments at a percentage of income. Normally, the target is in the 30-40% of gross income range, but I did have a case with Bank of the West where they targeted PITIA at 50% of gross income. There are waterfalls to get to the target as with the HAMP loans. The biggest difference is that few proprietary modifications will take the loan out to 480 months from filing of the modification application. The worst case scenario is that the modification term is limited to the remaining term of the loan.

There is still a brisk market for mortgage modifications on their own, in conjunction with a foreclosure or in conjunction with Chapter 13 bankruptcy. Since the Dodd Frank modification rules kicked in in 2014, a foreclosing lender cannot start a foreclosure unless it has made a decision of a pending mortgage modification application. If the foreclosure has been filed, and the borrower files a complete mortgage modification application within 37 business days before the sales date, a lender is precluded from going to sheriff sale until it makes a decision on the modification application. That is Dodd Frank. Many servicers will put off the sale if the application is filed less than 37 business days of the sale. I have had situations where the servicer has put off the sale when the application was filed 10 business days before the sale, and I have also had situations where decisions, for whatever reason, have not been made for well over a year after the application is submitted.

So, if you are behind on your mortgage but have a job, you can still qualify for a mortgage modification. It would pay to look into that option.

Update on Realism

Posted by kevin on June 26, 2017 under Foreclosure Blog | Be the First to Comment

About a year ago, I posted, bluntly, that borrowers need to be realistic in today’s foreclosure environment. I suggested that in NJ, there was a demographic element to predatory lending notwithstanding that the standard definitions of predatory lending in a residential setting put the emphasis on lending to someone based primarily on the value of the collateral and not on the ability of the borrower to repay.

In one of the last cases that I have seen in NJ on the issue of predatory lending with a positive result for the borrower, the court considered that the borrower and his family were recent immigrants from South America, who spoke limited English and were unfamiliar with American banking practices, and were forced to use their savings after they were scammed by an unscrupulous representative from a large mortgage originator. Clearly, a demographic element.

Recently, I had a case involving a man who was born in rural Columbia and attended school through the 9th grade. He worked as a subsistence farmer. In his mid-20’s, he moved to the US and worked in a factory by day and a bodega at night. Eventually, the people that owned the bodega retired and he took over. He works basically 7 days a week and makes about $36,000 per year. Over the years, he was able to save about $35,000.

He speaks little English and does not read or write in English. He was able to supply his store because he dealt with Spanish speaking suppliers. He wanted to buy a house in an urban area in NJ for his father and himself. He found a place for $465,000. It was a two family with a tenant in place.

He went to Countrywide for a loan. Countrywide assigned him to a Spanish speaking rep. He turned over his tax returns and bank statements. She filled out the loan application. She listed his income at $15K per month and indicated that he had 18 years of schooling. (When I told him this in our client interview through an interpreter, he was shocked.) Not only did they lend him $372K on a first mortgage, but gave him a line of credit to pay the remainder of the purchase price. His mortgage payments and escrows amounted to over $3700 while his total income including rental income was about $3900. He was forced to use his savings to pay the mortgage, and then went into default.

A classic case of predatory lending and consumer fraud with the demographic element. And how did we fare? The court granted summary judgment to the lender ignoring all arguments about predatory lending and consumer fraud. In addition, the borrower’s motion for discovery was denied.

Since the end of spring, I have turned down 4 , what would have been consider in 2010, strong cases involving instances of predatory lending. It is unfortunate, but a reality. In 2009, when I began to concentrate on foreclosure defense, litigation was a primary tactic. That is why I called this site fightforeclosureNJ.com. Now, litigation is one tactic among many that we consider with new clients. There still are alternatives for many homeowners faced with a mortgage situation; however, we must evaluate your fact situation in light of current court decisions and objectively set realistic goals.

Foreclosure Sales UP

Posted by kevin on August 10, 2016 under Foreclosure Blog | Be the First to Comment

WSJ states that foreclosure sales are up while new foreclosures are down in NJ and NY. NJ has 6.2% of its home mortgages in foreclosure. Although down, that puts NJ #1 in the country. NY comes in at 4.6%. Most of the other states have less foreclosures not because their economy and housing market are in better shape than NJ and NY, but because they have already completed most of their foreclosures.

NJ and NY are called judicial foreclosure states. That means a lender has to file a lawsuit and obtain a judgment before it can foreclose. In non-judicial foreclosure cases, the borrower signs a Deed of Trust instead of a mortgage. If the borrower defaults, the trustee (after performing steps required by state where the property is located), lists the property for sale. The borrower then must file an affirmative lawsuit (in a short period of time) to attempt to put off the foreclosure. The result is that in non-judicial foreclosure states, there is lot less litigation, and houses go to sale much more quickly.

While foreclosures are still up in NJ and NY, foreclosure sales are up also. I can see two reasons for that. First, borrowers who have ask judges to put off sales because of hardship have exhausted the good will of a vast majority of the judges. Second, housing values have gone up over the last three years. When prices were down, mortgage holders put off the sale. They did not want to get stuck with the maintenance of the property while at the same time take a bath on any resale. However, with 30% rise in prices over the last 4 years, mortgage holders can recoup more money and. perhaps, even be made whole.

There are still strategies that will keep you in your house with the goal of getting a modification. But it is getting tougher.

NJ- First in the Nation

Posted by kevin on February 18, 2016 under Foreclosure Blog | Be the First to Comment

Took a break for awhile. Spending lots of time doing modifications and checking into causes of action under Regulation X. Also, just wrapping up a Chapter 13 (5 payments to go). Saved the house, stripped the second mortgage, and got hefty sanctions against the servicer. Now, back to foreclosures.

I lived in NJ for my entire life with the exception of college and law school. So, I have been the recipient of all those barbs about New Jersey for a long time. Enough to give you a complex. So, a couple of months ago, when I saw in a local newspaper that NJ is #1 at something, it gets my attention. Only problem is that it said that NJ had the highest rate of foreclosure cases in the US. 1 out of 171 housing units is subject to a foreclosure filing. That is more than double the national average.

Looking more at the numbers, activity is up 27% over the prior year, but new foreclosures are actually down. That means that the vast majority of the cases are winding their way through the court system.

In the past three days, I have received calls from people who are at various stages of foreclosure. All need help. One just received a Notice of Intent to Foreclose. That is at the beginning of the process. Others are facing sheriff sale in less than 10 days. Those people are at the end of the process.

The facts are that the courts in NJ have trended in favor of lenders in foreclosure matters. The Feb 1 published decision in Curcio is just another indication that borrowers have an uphill battle. The trend is most pronounced at the end of the process. Once a default is entered, it is getting increasingly more difficult to convince a judge to set aside the default and allow the borrower to go forward with his or her case. Forget about situations where default judgment is entered. Your chances of overturning a default judgment or slim- less than 5%.

So, a little advice. If you are behind on your mortgage and get a Notice of Intent to Foreclose, get in to see an attorney. You may have a case that will resonate in the foreclosure court. Or you may have a situation where a Chapter 13 bankruptcy will work. A modification should always be considered, but if you follow the mod path without addressing the foreclosure, you are setting yourself up for a potential fall.

When you are dealing with an attorney, make sure that he or she is looking at an integrated approach which will utilize all your options to get a result that will work for you.

Let’s Get Realistic

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

If you have read my blog over the last few years, you know that I represent borrowers. You know that I have pointed out forcefully what lenders and servicers have done wrong. Moreover, I have pointed out my frustrations with the courts, servicers, and government.

We are in the latter stages of the mortgage crisis. It is not clear that the federal government will continue the MHA- HAMP programs for much longer. However, there are still hundreds of thousands of mortgages that are in default and those cases need to be resolved.

So, you are a borrower. You may have gone into default when your option arm mortgage had an interest rate change. You could not afford the $3500 per month new payment You may have been in default for 2 or 2 1/2 years. Then, you were able to get a modification at $2800. Not a great deal, but it was better than being thrown out on the streets. You paid that for a year, but have not made any mortgage payments or real estate tax payments or insurance payments since the beginning of 2012. That comes out to more than $200,000 of payments that you have not made over the years and you still have a roof over your head.

Whoa! That does not sound too empathetic. But that is how most chancery judges in NJ are going to look at you. Chancery is the old equity court. Equity, they tell us, tries to balance the pro’s and con’s of a case to come out with a just decision. On the one hand, you, the borrower, took 200K, 400K, 600K and did not pay it back. On the other hand, the bank has shoddy paperwork or fudged your income (usually with the borrower’s knowledge). Does that mean you get a free house? That is tough for a judge to swallow.

Many of the procedural defenses such as standing in securitized trusts and violations of the Fair Foreclosure Act are no longer bases for relief. Potential clients call all the time and tell me that they were the victims of predatory lending because they were given a mortgage that they could not afford except by looking to the collateral. That is a primary definition of predatory lending under the federal regs and OCC guidelines, but it generally falls on deaf ears in court. In NJ, we have three published opinions (and a few more unpublished opinions) dealing with predatory lending and consumer fraud violations. One deals with a black family in Newark. The other deals with a Hispanic person on a modification. The third deals with an 83 year old woman who lost her house in a scam involving a contractor that took back a mortgage on her property to finance the installation of new aluminum siding.

What do these cases have in common? They all involve taking advantage of unsophisticated people who did not have a lawyer. Moreover, those unsophisticated people were either minorities or old people. In other words, in practical terms, it appears there is a demographic element to the way the law of predatory lending/consumer fraud is applied in NJ. Now, I do not believe that is a proper interpretation of what predatory lending is, but that is how it applied in NJ.

Each week, I have people call me and state that they are victims of predatory lending and/or they were jerked around by servicers in modification applications or they were scammed by a Florida or California outfit in the modification. They want me to guarantee that if I take their case, they will not be foreclosed on, or guarantee that there will not be a sale after judgment, or guarantee that they will get a modification that they deem affordable. And while you are at it, could you keep your fees low because money is an issue.

Neither I nor any other attorney can make such assurances except as follows: if you repay all arrearages before final judgment, your mortgage will be reinstated. Moreover, if you file bankruptcy, the foreclosure action will be stayed for a limited period of time in a Chapter 7 and could be effectively stayed for 5 years in a Chapter 13 if you make all required payments going forward including your current mortgage payments and all arrearages. Short of that, no guarantees.

What we can do is explain to you your defenses and come up with a strategy to defend the case through trial and possibly appeal. We can review your modification applications or put together a new one. We can analyze whether there are any violations of the Dodd-Frank regulations. We can analyze whether Chapter 13 makes sense for you. And we can tell you the approximate cost for each type of service. But we cannot pull rabbits out of hats no matter how much we would like to.

So, be realistic when you seek legal counsel.

OCC Chastises Servicers???

Posted by kevin on June 19, 2015 under Foreclosure Blog | Comments are off for this article

For what appears to be the up-teenth time, the OCC has imposed sanctions on 6 servicers for assorted violations relating to modifications including failures a)to respond to requests for information, b)to make good faith effort to prevent foreclosure in the first place and c) to track existing modification applications.

Wells Fargo and HSBC got one thump across the buttocks in that they are prohibited from acquiring servicing rights, entering into new servicing contracts, and banned from offshoring servicing rights. In addition, these banks need OCC approval to hire senior mortgage servicing officers.

JPMorgan Chase, US Bank, Santander Holdings and Everbank got slaps on the wrist. They also must get OCC approval to hire senior staff and must also get OCC approval to buy servicing rights, enter into new servicing contracts, outsourcing servicing rights and offshoring servicing rights.

Either the banks/servicers have become immune to punishment or the punishment is too lenient because I have not seen any real downturn in unlawful activities notwithstanding the continued crackdown.

I am reminded of a client that I had in a shareholder dispute. She could not resist blurting out her opinion about witness testimony during the trial. The Judge became more than a little upset. He held her in contempt and fined her $100. The Judge shot me a look right afterwards indicating that he had put the fear of God into her. Well, my client was humbled for the rest of the day. Then, the next day, she started commenting again. The first transgression got a warning. However, I knew that the warning was falling on deaf ears because while my client was yessing the Judge, she was getting her checkbook out of her pocketbook. By the last day of a 6 day bench trial, she was held in contempt 3 or 4 times and warned about a dozen other times. Clearly, $100 was not enough of a fine to change her behavior.

OCC is just chastising these banks. The punishment makes for a good press release but the offenders will find a way around the sanction. So, the laws will continue to be violated to the detriment of the consumer public. Only when some bank or better yet bank executive gets his ass kicked by the regulator with a loss of employment or incarceration will the situation get better. Unfortunately, that ain’t gonna happen.

Stop a Foreclosure

Posted by kevin on May 30, 2015 under Foreclosure Blog | Comments are off for this article

Both Chapter 7 and Chapter 13 will stop a foreclosure.

The Bankruptcy Code says that a bankruptcy “petition filed… operates as a stay, applicable to all entities, of—… any act to… enforce [any lien] against any property of the debtor… .” See Section 362(a)(4). This means that the mere filing of your bankruptcy case will immediately stop a foreclosure from happening.

But What if the Foreclosure Still Occurs?

But what if your bankruptcy case is filed just hours or even minutes before the foreclosure sale, but the foreclosing mortgage lender or its attorney can’t be contacted in time for them to be informed? Or what the lender is contacted in time but messes up on its instructions to its foreclosing attorney so that the foreclosure sale mistakenly still takes place? Or what if the lender refuses to acknowledge the effect of the bankruptcy filing and deliberately forecloses anyway?

As long as the bankruptcy is in fact filed at the bankruptcy court BEFORE the foreclosure is conducted, the foreclosure would not be legal. Or at least would very, very likely be immediately undone. It does not matter whether the foreclosure happened mistakenly or intentionally.

A Foreclosure by Mistake

If a foreclosure happens by mistake after a bankruptcy is filed, or because the lender didn’t find out in time, lenders are usually very cooperative in quickly undoing the effect of the foreclosure. It is usually not difficult to establish that the foreclosure occurred after the bankruptcy was filed, and that usually quickly resolves the issue. If a lender fails to undo such a foreclosure after being presented evidence that the bankruptcy was filed first, the lender would be in ongoing violation of the automatic stay. This would make the lender liable for significant financial penalties, so they usually undo the foreclosure right away.

A Foreclosure Purposely Conducted after Your Bankruptcy is Filed

This almost never happens. If you are harmed by a foreclosure intentionally done after your bankruptcy filing, you can “recover actual damages, including costs and attorneys’ fees, and in appropriate circumstances, may recover punitive damages.” See Section 362(k). Bankruptcy judges are not happy with creditors who purposely violate the law. Enough of them have been slapped that most creditors know better.

Chapter 7 vs. Chapter 13

For purposes of stopping a foreclosure that is about to happen, it does not matter whether you file a Chapter 7 or Chapter 13 case. The automatic stay is the same under both.

But how long the protection of the automatic stay lasts can most certainly depend on whether you file a Chapter 7 “straight bankruptcy” or a Chapter 13 “adjustment of debts.” That’s because even though you get the same automatic stay, each Chapter gives you very different tools for dealing with your mortgage. That’s why your mortgage lender will likely react differently depending on which Chapter you file under and how you propose to deal with the mortgage within each.

The Boat Has Left the Dock Before it Left the Dock

Posted by kevin on April 20, 2015 under Foreclosure Blog | Comments are off for this article

In the past week, I have received telephone calls from 5 homeowners whose homes were in foreclosure. 3 of the owners told me that they had received notice from the sheriff that a sale has been scheduled. In other words, final judgment had already been entered. I quoted them a fee, and when they picked themselves off the floor, I told them that the chances of overturning the judgment were slim and might not justify the expense involved.

If you have had the chance to read this blog (or other blogs dealing with foreclosures), you will know that in NJ, the courts have made it very difficult for borrowers to succeed in litigation. In 2011 just after pro borrower decisions, I was getting positive results in court on a regular basis. This made it easier to negotiate a settlement. One by one, however, defenses have been whittled down by the courts which has made litigation and settlement more difficult.

One of the first areas where the courts hit back at borrowers were in cases dealing with post judgment relief. What does that mean? Well, for the most part, it means that the borrower does not file an answer to the complaint, but waits until final judgment is entered before he or she hires an attorney to contest the foreclosure.

To set aside the final judgment, a borrower must file a motion to vacate the judgment. The test is that the borrower must show excusable neglect plus a meritorious defense. This a a pretty high standard, made even tougher by a series of unpublished decisions that came down from late 2011 to 2013 which further cut off access to the courts in post judgment situations. Add to the high standard to vacate and the tough case law, the penchant of many judges to give lenders more than one bite at the apple in opposing the motion to vacate. Your lawyer winds up writing 2 or more briefs and making as many appearances. And, after all that work, you lose about 90% of these motions on the trial level.

On a practical level, reviewing all the documents, drafting the initial papers, going to court and then writing supplemental briefs with two or more court appearances is time consuming and, thus, costly. It can easily run into $7500-9,000 worth of time. So, I tell clients unless you have that one in a thousand fact pattern, you are probably wasting your money.

So what do you do? If you are behind on your mortgage, you will get a letter of default from the servicer. Then, you will get a Notice of Intent to Foreclose along with the ‘we are your bank and we are here to help’ letter. That is the time that you hire an attorney. It gives you the best chance to get what you want, and it gives an experienced defense attorney the most flexibility in shaping a defense.

Happy Anniversary Follow Up

Posted by kevin on November 29, 2014 under Foreclosure Blog | Comments are off for this article

In my previous blog, I told of a mortgage modifcation application that is pending for over a year. For me, the telling point of the whole episode was when the point of contact person told me that Freddie Mac owned the loan. Brought back chilling memories.

A few years back (before Guillaume), I got a case dismissed on the day of trial for failure to comply with the Fair Foreclosure Act (Notice of Intent requirements). The Judge held open the dismissal so that my clients could go to mediation which is what they wanted. (Note that my other argument was that plaintiff sold the note to Freddie Mac and therefore lacked standing. In chambers, my adversary vehemently denied that charge.)

Well, we were assigned a HUD counselor (who was excellent) and started the process. The mediator was nice but powerless as all mediators are in the NJ program. The mediators basically defer to to the servicer who runs the show other than scheduling. Note that unless something very egregious happens, the judges do not get involved. I have heard stats at meetings that 35% of the parties in mediation get mods. I think they get those numbers from the same place that they get the Obamacare enrollment numbers.

At any rate, at the first session, we are told that Freddie Mac was not ready to proceed. So much for the veracity of my adversary. By session 6 we were still getting nowhere since Freddie Mac said it was not ready to make a decision. In a letter to my clients and the HUD counselor, I suggested that the only way that we would be able to get a reasonable decision was through escalation. That is the fancy term that MHA uses for an appeal. At the 8th or 9th session (about 10 months into the process), Freddie Mac turned my clients down with some bogus rationale. I was terminated by frustrated clients, and the clients then went the escalation route with the counselor where they finally got their mod well after a year into the process.

Traditionally, judges in NJ have been excellent at the arm twisting and sausage making that goes into the settlement process. For some reason, however, State court judges have shown a reluctance to jump into the settlement fray on foreclosures. Why? I do not know. But one thing I do know is that if those judges took their usual hands on attitude toward settlement, there would be a lot more loans being repaid, while at the same time court calendar’s would become more manageable. But what do I know? I’ve only been doing this for 35 years.

Happy Medium

Posted by kevin on October 21, 2014 under Foreclosure Blog | Comments are off for this article

A recent WSJ article indicated that Fannie and Freddie on one side and the major mortgage lenders on the other side are close to an agreement to lower standards to provide mortgages to borrowers with weak credit. The article meanders through many issues- downpayment reduction, mortgage buybacks, fraud, foreclosure, opening credit markets for low income borrowers.

Pre-2008, lending standards were so loose that you could get a mortgage if you had a pulse. Why? A variety of reasons but one reason was that mortgage originators and securitizers were dumping their loans on investors so they had little risk and made lots of money in fees and in selling mortgage backed securities. Of course, as the number of defaults increased, the house of cards collapsed and with it the US economy. We are still mopping up the mess with foreclosures continuing.

Now, the President is pushing the banks to make loans if not to anyone with a pulse, then to people with less than decent credit ratings. Pre-2008, these were called subprime loans. Ed DeMarco, the head of the FHFA which oversees Fannie and Freddie, resisted this and also principal reduction on mods (not good). Now, Mel Watt is in charge of FHFA and supposedly pushing President’s agenda. The problem is how far to you push opening credit- too little and you do not get the economic benefit of an expanded housing market; too much and you get the same problems that you had in 2008.

On the other side you have the banks. They are looking for a safe harbor to make questionable loans. HAMP 1 is based on PITI (principal, interest, taxes, insurance and association fees) of 31% of gross income. HAMP II takes us, for the most part, up to 42%. Would not be surprised if banks are looking for some safe harbor in the 45% range.

My experience in handling foreclosure cases for borrowers over the last 5 years is that 45% is on the road to disaster. When you factor in that taxes rise (especially in States like NJ) 45% can grow to 50% in no time. Is that where we want to be?


Posted by kevin on March 25, 2014 under Foreclosure Blog | Comments are off for this article

It has been a recurring theme in this blog that the courts have done little to level the playing field in foreclosures, and the federal and state governments have done little to bring the big players to justice. It is almost farcical when you read articles in NJ about the US attorney or State attorney general prosecuting individual mortgage brokers when the higher ups on Wall Street and at the big mortgage originators do not get prosecuted, do not go to jail, and do not forfeit their vast fortunes. Maybe in the next life.

Recently, the DOJ inspector general came out with a report on DOJ’s efforts to address mortgage fraud.The time line was 2009-2011. The report stated that even though the President made a big deal about setting out a financial fraud task force headed by Eric Schneiderman, the up to that point carnivorous NY AG, the FBI Criminal Investigation Division rated financial crimes lowest among criminal threats facing the country. Moreover, the FBI rated mortgage fraud as the lowest sub-priority within the financial crimes category.

Last week, Gretchen Morgenson had a sobering article in the NY Times. She cited that inspector general report. She also pointed out that the Justice Department claimed that the task force was a great success with criminal charges lodged against 530 defendants including 172 executives. 73,000 victims who lost over a $1 billion dollars were helped. Of course, those numbers were BS. The number of defendants was revised downward to 107, the number of executives to about 70 and the losses to about $95 million. The article also quoted Senator Kaufman, retired, from Delaware. ( I remember seeing him on C-Span more than once.) He tried valiantly to bring the mortgage fraud issues to the forefront, but he had little support from his fellow senators (or the administration). Kaufman said that not only was mortgage fraud not the top priority of DOJ, it was their last priority.

What happens when people are not punished but rewarded for their bad behavior? More bad behavior not only from the original miscreants, but also eventually from the erstwhile honest people who conclude that crime actually does pay. The Morgenson article ends with the following quote from Senator Kaufman: “The report fits a pattern that is scary for a democracy, that there really are two levels of justice in this country, one for the people with power and money and one for everyone else”.

It is a shame.

2014- NJ- Where We Are

Posted by kevin on January 2, 2014 under Foreclosure Blog | Comments are off for this article

For the US as a whole, foreclosures are at their lowest level in years. Nationwide, home prices are up 13.6% over the prior year. Unemployment is supposedly below 7% but those numbers are fudged so much that, frankly, I do not know what they mean.

New Jersey, however, is not faring as well as the rest of the US. Unemployment is at about 8.4%. Values of single family homes are up only 4.9% in north NJ. Price levels are comparable to those of 2004 and are 20% below the peaks reached in 2006. In Bergen County, prices rose only 3.6% while Passaic did a little better with 8.8% increases in single family residences.

Nearly 7% of NJ homes are slated for foreclosure according to CoreLogic. That is the second highest amount in the country. Only Florida at 7.1% is higher. In New Jersey, 10.6% of homeowners are at least 90 days behind on their mortgages.

New Jersey is a judicial foreclosure state. That means that a lender must file a complaint and then obtain a final judgment before it can schedule a foreclosure sale. This slows the process down considerable. Even in uncontested cases, it can take 180-200 days to get to sale (double that or more if aggressively contested). On the other hand, in non judicial foreclosure states, the process can be over in 45 days. The trustee of the deed of trust (the equivalent to a mortgage in NJ) sends the proper notices. If the loan is not brought current, the trustee can schedule a sale. Courts get involved only when the borrower files a complaint to stop the sale.

Because the process takes longer in judicial foreclosure states, there is a longer backlog. It is anticipated that in NJ foreclosures will continue at the 2013 pace until well into 2015.

What should you do if you are delinquent on your mortgage or on the brink of becoming delinquent. Time to take stock. If you are our of work, you have to get back into the game. No work, no history of income, no way you are going to be able to get a modification. However, a modification is not right for all people. If your house is still underwater, and comparable rental property is available for 60% of your current mortgage payment, well maybe it’s time to deed the property back to the lender. You will never recoup your money on that house.

Be wary of short sales. I rarely see a scenario where a short sale makes sense to a homeowner except in situations where association fees continue to mount. You do a lot of work on behalf or your lender and all you get in return is a 1099 for the shortfall which, in some cases, leads to a tax liability to Uncle Sam.

Finally, remember that although HAMP (actually MHA with HAMP being their modification alternative) is better- much better than it was a few years ago, you are still at the mercy of the servicer. Sometimes, I have seen really good mod offers; other times I just walk away shaking my head. However, just like the lottery, you gotta be in the game to win.

Feel free to contact our offices to discuss your situation.

Enough Blame to Go Around

Posted by kevin on November 18, 2013 under Foreclosure Blog | Comments are off for this article

Millions and Millions of dollars were made by mortgage brokers, originating lenders, servicing companies and Wall St, firms selling residential mortgaged backed securities (“RMBS”) . Wall St made even more money by slicing and dicing the RMBS and turning them into collateralized debt obligations (“CDO”). But the assistance of one industry was necessary for the successful sale of RMBS’s and CDO’s. Who could they be? The rating agencies. You see, without an A rating or better, the best instititutional salesmen on Wall St could not unload these securities. So, without the likes of Standard & Poor, Moody’s Investors and Fitch Ratings, we may not have had the real estate bubble and the Great Recession.

In previous blogs, we have pointed out the that government has been slow on the draw going after Wall St investment houses and the Too Big to Fail Banks. But at least they have gotten off a few shots. On the other hand, governmental action has been almost non-existent against the rating agencies.

With the statute of limitations running out, we may be seeing some push back. In the last week, the liquidators of two failed Bear Stearns hedge funds filed suit against S&P, Moody’s and Fitch accusing them of fraudulently misleading investors about the quality of their ratings. The liquidators are looking for over a billion dollars in damages.

The complaint was filed in the New York Supreme Court (in NY, this is the trial level court). The liquidators are looking at the ratings in light of the types of mortgages that were in the mix, the lack of analysis by the rating agencies as proof of a lack of due diligence, and statements made by the employees of the rating agencies in emails where they joked about the quality (or lack thereof) of the mortgages that were part of a deal.

The liquidators filed bare bones complaints in early summer to beat the statute of limitations, and this past week added a 140+ page complaint.

What does this mean if you are a borrower in NJ? Unfortunately, at this time, not much. Many judges do not want to hear the details about the confluence of misdeeds by brokers, mortgage originators, rating agencies, sponsors of trusts, trustee who refuse to bounce back bad mortgages, and servicers who jerk around homeowners who want to get a modification so they can continue to live in their homes. They are granting summary judgment (defenses of borrower thrown out without the need for a trial) to lenders in foreclosure cases with increasing frequency. I have not tried a case in well over 18 months- not from lack of effort on my part. But, perhaps the case against the rating agencies, together with all the news about large banks settling with the SEC or Justice Department for billions of dollars, may cause one or more appellate panels to find consumer fraud or predatory lending; to question whether those allonges that all started to look alike about a year ago are not examples of fraudulent robo-signing; and to force plaintiffs to prove their cases with competent, credible evidence based on personal knowledge. We did get decisions like that back in 2010 and 2011. Let’s go back to the good old days.

Why the Housing Crisis?

Posted by kevin on September 18, 2013 under Foreclosure Blog | Comments are off for this article

If you listen to the various commentators, there were numerous reasons for the housing bubble. Some blame the government. the Community Reinvestment Act, enacted during the Carter administration, encouraged (or better yet, demanded) that banks lend money to people who would not traditionally qualify for a mortgage loan. That law basically lay dormant during Reagan and Bush I. However, as the economy picked up in the second Clinton administration, the feds started to push this law.

Going hand in hand with the Community Reinvestment Act was the Federal Housing Enterprises Financial Safety and Soundness Act (which was eventually anything but), a 1992 Act which gave HUD authority to administer GSE’s (Fannie Mae and Freddie Mac) affordable housing provisions. The law established a quota of loans to borrowers who were at or below median income in their area and required to be bought by the GSE’s. These loans were commonly called sub-prime mortgages. The initial quota was 30%. By 2008, however, the percent of subprimes on the books of the GSE’s was over 70% of all subprime loans.

Others blame Wall St and how it is structured. Prior to the 1980’s, investment houses were mostly partnerships with unlimited liability. One reckless partner could bring down the whole firm, so risk was managed by the partners keeping an eye on each other. But Wall St realized that it needed more capital than its partners could generate to be involved in bigger trades, bigger deals. It needed OPM- other people’s money. To accomplish this, the firms became corporations, went public and brought in piles of money. The new owners were the shareholders. The old owners had shares and managed the firm. The money that the old owners took out changed from profits to yearly compensation. Pay was tied into performance. Bigger profits, bigger pay and bonuses. However, with bigger profit comes bigger risk. In the past, the unlimited liability aspect of the partnerships checked risk. But now the investment firms were corporations dealing with OPM, so risk was no longer a primary factor. The investments firms borrowed heavily to make the big deal or trade. That’s fine as long as everything is going up, but a disaster when the bottom falls out.

A third factor was, related to the structure of Wall Street but accomplished by the government, was the repeal of the Glass Steagall Act. This Act came about in the 1930’s. It separated commercial banking from investment banking. Restrictions were put on commercial banks because they were take deposits from the public. That gave them lots of capital but restricted what they could do with it. Investment banks could not take deposits; and therefore, had less capital. However, investments banks could get involved in more and riskier deals or trades for their own account. By the 1990’s, commercial banks were looking at the investment banks and saying, ‘imagine what we could do with all out money if we had the investing flexibility of the investment banks’. Investment banks were looking at the commercial banks and saying,’ if we only had the capital that commercial banks have, imagine what we could do’. The solution? Get rid of Glass Steagall. We all know that Democrats and Republican agree on very little. But they had no trouble, during the second term of Clinton, coming together to repeal Glass Steagall. 90 Senators voted for the repeal. Do I hear, Campaign Contributions?

Finally, on the private sector side, was the emergence of private mortgage securitizations. In short, Wall St bundled a thousand or so mortgages and put them into a trust. Certificates of participation in the trust were sold to investors. Bad loans were mixed with pretty good loans and good loans, but somehow the trusts all got triple A ratings- even if they were dogs. Wall St used its massive marketing apparatus to sell these securitizations around the world. Hell, you got 50-100 basis points better than Treasuries on an investment that was triple A. Investors fell for it. The big wigs at the investments houses saw the incredible profits coming out of these securitizations and push for more.

Now, just so that political blame can be shared, the Bush II administration had to see the warning signs of a housing bubble but took no aggressive steps to stop it. Yes, they half-heartedly tried to rein in the GSE’s but backed off when certain congress people started to scream that lower income people were being hurt.

Well, in late 2007, the bubble burst. Rates on adjustable mortgages spiked up. People could not afford to pay and went into foreclosure. This led to a drop in housing prices. Then, more people faced foreclosure. They could not refinance because the value of their homes now did not justify a re-finance. So, they went under. Prices continued to fall. Investors then refused to invest in private securitizations. This eventually lead to the bailout of Bear Stearns followed by the bankruptcy of Lehman Bros, and then the financial crisis and recession.

As I said before, there is enough blame to go around; however, my assessment is that government policy was the dominant factor in this whole mess- not say 90%, but at least 60%.

Keep an eye on what the government does now that Fannie and Freddie are making money again. Any shift in policy to make loans more available may be the first step toward the next bubble.

Turning the Screws on Borrowers

Posted by kevin on May 24, 2013 under Foreclosure Blog | Comments are off for this article

Over the last two weeks, there have been two unpublished appellate division opinions which tighten the screws on the borrowers in default judgment situations. One case, Walsh, involved Aurora Loan Services, which was the servicing arm of Lehman Brothers. Right off the bat, you know that Aurora probably did not lend the money to the borrower but why quibble over details. Interestingly enough, the panel consisted of only two judges. I guess they knew there would not be a tie. The borrower was pro se but did raise some interesting issues which the undermanned panel swatted away like a mosquito on an August evening. Basically, default judgment was entered and the sheriff sale was put off 11 times. Walsh argued lack of standing. The court said that standing was not jurisdictional and that failure to prove standing does not equal a void judgment under Rule 4:50.

Oddly enough, the second case, Cole, also involved a two judge panel, a default judgment with 11 adjourned sheriff’s sales and a standing argument. (Note that both opinions seem to infer that the mediation was protracted to the detriment of the lender when anyone who has been through the mediation process knows that it is the lender who drags out the process.) In this case, we had a Fremont loan (another notorious predatory lender examined and sanctioned by the feds). The MERS assignment of mortgage (which Judge Todd in Raftogianis said is at best a distraction and does not transfer the mortgage loan) was executed after the complaint was filed. No problem says the panel because no answer was filed, and the process was delayed to the detriment of the lender.

Two points: First, most of the recent default judgment cases have said that standing is not jurisdictional. None of the cases, however, mention two NJ Supreme Court cases (Baby T and Watkins) which both state that if the plaintiff does not prove standing, the court does not have the right to decide the substantive issues of the case. Sure sounds like the NJ Supremes are saying that standing is jurisdictional, or something close to it. I argued this in Polanco and was ignored by that panel. My client did not want to take this issue up to the Supreme Court because of the expense. I could not afford to work pro bono on that appeal so the case died on the appellate level. Why are the courts avoiding the clear language in two Supreme Court cases which appear to say the opposite of what is now a commonplace holding in foreclosure cases? I have my theories, but…

The second point is the more practical point; that is, the standard to vacate a default judgment in a foreclosure case in NJ is now almost insurmountable. I did it in Bagley with a very favorable set of facts. But there have not been many decisions like Bagley that have come down the line in the last couple of years. And those more recent cases have a chilling effect on defense counsel. For an attorney, the days of financially rolling dice on these cases are over. Borrowers are going to have to subsidize this type of litigation. Or better yet, avoid the issue in its entirely by hiring counsel when you get a Notice of Intent.

Blessing in Disguise?

Posted by kevin on April 4, 2013 under Foreclosure Blog | Comments are off for this article

In a prior blog, I informed you that the mediation program was being cut back because it ran out of funds. Bad thing, right? Well, my grandmother used to tell me that God closes one door only to open another. I am hoping that is the case with the mediation program.

As my website states, we fight foreclosures. Why? Because we like to fight? We hate the lenders? We live to litigate? No, because by pushing back, we hope to get a better settlement.

There is certainly room for settlement. Properties all over NJ are underwater, particularly in urban areas in Passaic, Hudson and Essex Counties. People from all over NJ got mortgages that they could not afford based on inflated property values that may or may not have been legit in 2006, but certainly bear no resemblence to reality in 2013. In other words, you may owe $500,000 on a house that is worth only $300,000. If the lender throws you out on the street in a foreclosure, then the lender has to sell the property. No one today will pay more than $300,000 (and probably less) for a property whose fair market value is $300,000. It is irrelevant that $500,000 is owed. Moreover, many of my clients don’t want to make a deal where they owe twice what the house is worth because it will take 20 years to dig out. So, why don’t the lenders make a deal based on fair market value? (I have theories on that which I will share with you in future blogs- but let’s stick with this point.)

One of the reasons for lender intransigence is that their lawyers perceive that the courts are not beating them over a head with a hammer to be reasonable. Up until now, the judges have been pretty much invisible in settlement negotiations. Now, I am not blaming the judges entirely. Chancery judges got hit with a tsunami of foreclosure lawsuits with little help. They were buried. The mediation program pretty much sidestepped the judges, who historically have been the architects of settlement in the NJ court system. Mediators try hard but the lenders know that they have no teeth. So, in effect, the lenders or, more appropriately, their servicers have taken over the process and not for the benefit of the borrowers.

Now, mediation is in trouble. There is no funding for lawyers helping borrowers or HUD counselors. Pretty soon there will be no money for mediators. How can that be good? I’ll tell you. If no one else is left, the judges will be forced to step into the fray. Just yesterday at a discovery conference, a judge in Bergen nearly floored me when he said that he is available for settlement conferences. Believe me, I have not heard that often in the last 3 years. In the Guillaume case, the Supreme Court said that, historically, chancery judges have the power and flexibility to make case by case determinations relating to the Fair Foreclosure Act. Why not use that power, experience and flexibility to effect reasonable, practical settlements?

Maybe the right door will open.

Slippery Slope

Posted by kevin on March 17, 2013 under Foreclosure Blog | Comments are off for this article

For the better part of 3 years, legal scholars and commentators of mortgage crisis have commented the the Federal government (and many state governments including NJ) has not prosecuted criminally one major bank or Wall Street investment house notwithstanding that there have been numerous incidents of outright fraud in the origination of loans, and the sale of loans to both GSE’s and in private securitization. Frontline had a show on this about a month ago. Lanny Breuer, the head of DOJ criminal division, tapped danced around the issue, and pointed out all the mortgage brokers that were indicted. Little guys without the funds to put together a defense. Yet, the higher ups at the investment houses and the “too big to fail” banks have skated.

Finally, about 2 weeks ago, Eric Holder admitted to a Senate committee that “too big to fail” is, in fact, “too big to jail”. What a disgrace. People, who are not in foreclosure because they continue to work hard and pay their mortgage every month, have lost 40-50% of their pension money and more than 50% of the value of their homes. Why? Because the too big to fail banks broke the law. But nothing is being done. Small monetary fines in relation to the money lost is but a slap on the wrist, and gives these banks and Wall Street no incentive to change their ways.

It no better on the State level. The NJ Supremes held that lenders had to strictly comply with Notice of Intent requirements but waffled on the remedy issue thereby reversing the trend of cases which were decidedly pro-borrower.

Now, there have been a series of cases (Polanco, Russo and this week DeCastro) where three appellate panels have ruled that a foreclosure plaintiff can sell your house without proving that it owns or holds the underlying note if the defendants did not answer the complaint in a timely manner. In Polanco, the plaintiff was listed as a securitized trust. However, research indicated that the trust did not exist. In three sets of submissions to the court, the plaintiff was challenged to prove standing, but did not address the issue. Plaintiff restricted its argument to the fact that the borrower had not responded to the court proceeding until hit with a sale notice. Technically true because the borrower opted to deal with the servicer. Polanco got what they call “double tracked”. The servicer led him down the primrose path and then rejected a short sale after ok’ing it, while plaintiff’s attorneys moved forward to judgment. Dual tracking was declared improper by the Justice Department in the $25 billion settlement. The new HAMP guidelines specifically say you can’t double track. Little consolation for Polanco and his family, though.

In Russo and DeCastro, the appellate panels stated that lack of standing (right person to sue) is not a meritorious defense under Rule 4:50 while deals with setting aside default judgments. Note the in two separate rulings, however, the NJ Supremes said that if a plaintiff does not prove standing, then the court cannot decide the substantive issues of the case. Unless it is explained to me a little better, it would seem that the current foreclosure rulings are at odds with established NJ Supreme court rulings.

I am disappointed by the comments of Breuer and Holder and the decisions of the appellate division especially in regard to standing. I am one of those lawyers (and citizens) that believe that the courts are there to protect the weak from the strong- not the other way around. Clearly, that is not happening. Doing foreclosure work for 3 years now, I get the vibe that the courts want to just get over this mortgage problem. But it should not translate into lowering standards of proof for the plaintiff at the expense of borrower’s homes.

What is the practical lesson? If you find yourself in arrears on your mortgage, try to work out a modification. If you need a lawyer’s help in this regard, get it. If you are served with a Notice of Intent to Foreclose or Complaint, seek out help right away from a lawyer who is active in foreclosure defense. Don’t sit your rights.

He Who Hesitates Is Lost

Posted by kevin on March 5, 2013 under Foreclosure Blog | Comments are off for this article

If you receive a notice of intent to foreclose, and do not run to a lawyer, you are a fool. If you get served with a foreclosure complaint but do nothing because you are working with the servicer to get a modification, you are a fool. If you get papers from your adversary saying that they are submitting their final judgment package to the Foreclosure Unit and do nothing, you are a fool. And if you wait until you get notice of a sheriff’s sale before you run to a lawyer (and expect him to pull a rabbit out of his hat for limited fees), you are a fool who will soon be without a house.

The message has been that the majority of chancery judges do not like contested foreclosure cases. The average case does not get to trial for two years. The Administrative Office of the Courts wants foreclosure cases to go to trial within 12 months of the date of the filing of the complaint. If the defendant is not served right away, that could mean that you are going to trial in 6-8 months. Now, some judges are routinely limiting discovery and setting trial dates that are 8 months from trial.

So, do yourself a favor. If you are behind on your mortgage, contact your servicer to see if you can work something out. If not, and you receive a notice of intent to foreclose, at least interview a few attorneys with background in foreclosure defense. Better yet, hire one of those attorneys. If you get served with a complaint, hire counsel immediately and file your answer in a timely manner.

Nowadays, foreclosure cases can be filed electronically through JEFIS. So, that means that the papers can get into the system that much faster. Servicers are regulating the number of foreclosure cases that are filed at any given time so as to not overstress their staffs and, more importantly, not to overstress the Clerk’s office in Trenton. In other words, the process is being speeded up.

If you do not file your answer on time, and the plaintiff enters a default, then you must file a motion to set aside the default in order to file an answer. That means that you have to go before a judge who may not like contested cases. In the old days the policy was that people should have their day in court. Today, I am not so sure if that policy wins the day.

So, remember the old adage, “He who hesitates is lost.”

In future blogs, I will give you examples of recent cases where borrowers took it on the chin for sitting on their hands.

Surpirse-Banks Profit at Expense of Borrowers and Taxpayers

Posted by kevin on December 31, 2012 under Foreclosure Blog | Comments are off for this article

With the advent of the mortgage crisis and subsequent recession, the Federal Reserve increased purchases mortgaged backed securities. The purpose was to reduce interest rates and, hopefully, to get the economy moving by keeping interest rates low. Interest rates on mortgages have fallen to under 3.4% on a fixed rate 30 year loan. However, in a recent WSJ article, it states that according to some economists, interest rates should be down to about 2.8% based on the historic price relationships between mortgage rates and yields on MBS’s. Who is gloming the difference? You guessed it, our friendly bankers.

Traditionally, according to the WSJ article, the spread between the bank’s cost of obtaining money and the rate they charge has been about half a percent or 50 basis points. In 2008, the spread increased to 1% or 100 basis points. In October, when the Fed launched its new round of buying MBS’s, the spread increased to 1.6%. Now, supposedly, it is at 1.3%. So, at the height of the spread, the banks were making a 200% profit on the spread. Now, the profit on the spread is down to a meager 160%.

Why? The article appears to say that the banks expenses are up in today’s mortgage industry so they cannot pass the benefit of the Fed action to the borrowers. But it also says that the more volume is moving through an industry whose workforce has shrunk significantly. Wait a minute. More volume means more work, and, theoretically, more revenue. Less workforce means less expense. So, the banks need to take a larger spread because income has increased and expenses have decreased. Or is it, the banks need a bigger spread because they are not getting the volume of loan applications because they refuse to hire adequate staff.

Well, thank goodness the Fed has come along again to provide profits to the Banks with no guarantee of a pass through to the public. It is just like 2009 when the banks used the TARP money to buy government securities (a risk free arbitrage) and refused to lend money out to small business but instead gave out record bonuses

I can understand that there might be some added expense in underwriting a given loan since one aftereffect of the mortgage crisis is that banks must actually perform underwriting that complies with the law (as opposed to giving anyone with a pulse a mortgage). That takes more time. But the bulk of the additional time is spent by the borrower or the mortgage broker who has to put together all those extra pieces of paper and jump through all those additional hoops in order to get a re-fi.

I am not the only one who thinks that the banks are making a windfall at the expense of the Fed, and, ultimately, the taxpayer. A Fed study indicates that banks earn more on mortgages today than from 2005-8, and that commercial banks reported record income from mortgages for the third quarter of 2012.

What does this mean? Well, the sad fact is that the government continues down the wrong path in trying to put an end to the housing crisis which will probably drag on for another 3-5 years. What the Fed is doing now (did in TARP and in the Obama bailout) is like giving gifts to recalcitrant children with the hope that they behave properly. That is not a winning strategy for overwhelmed parents or overwhelmed central banks.

For the borrower, understand that your mortgage lender is not your friend no matter how many mailings you receive that your lender understands your problem and wants to help. If you have a problem with your loan that is going to end in bankruptcy or foreclosure, understand that your lender is your adversary and conduct yourself appropriately. That means getting proper, experienced legal representation early on in the game. Develop a realistic strategy and follow though.

Foreclosures down? Don’t bet on it

Posted by kevin on October 12, 2012 under Foreclosure Blog | Comments are off for this article

RealtyTrac reported that foreclosure activity around the country dropped to the lowest point since July, 2007. True or false? Good news or not good news?

When you delve deeper into the numbers, you see that the biggest decreases were in so-called “non-judicial” states. In those states, the lender is not required to file a lawsuit to obtain a foreclosure judgment. What happens is the borrower, at closing, signs a Deed of Trust. Under the terms of that document, upon default, the trustee is allowed to foreclose after proper notice. The process is very quick and certainly not owner/borrower friendly.

In states requiring judicial foreclosure, foreclosures are actually up. For example, Florida shows a 24% increase in foreclosures. RealtyTrac says that you could expect an increase in the judicial foreclosure states especially where the courts temporarily halted foreclosures during the robo-signing controversy.

Well, New Jersey is a judicial foreclosure state and foreclosures were put on a hold for about a year beginning in late December, 2010 because of the robo-signing scandal. Inventory of mortgages in default increased. Then, lenders put a hold on foreclosures pending the Supreme Court decision in Guillaume. That happened in late February. At that time, the talk among the foreclosure bar (that means attorneys active in foreclosure practice) estimated that New Jersey was backed up over 75,000 foreclosures. You can rest assured that the lenders are not going to walk away from these properties.

So, why do we not see a deluge of foreclosure activity in New Jersey. Well, my opinion is that the lenders realize that the real estate market is weak. If they flood the market with thousands of foreclosed homes, the market will only get weaker. Better to sit on properties and spread out the process so that the lender can get a better price on each foreclosed home.

Sorry to be the bearer of not so good news.

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.

NJ Supreme Court Fair Foreclosure Act Decision

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

Since November, we have awaited anxiously for the NJ Supreme Court decision US Bank, NA v. Guillaume. This was touted to be the definitive ruling on the Notice of Intent to Foreclose (NOI) requirements under the Fair Foreclosure Act (FFA). Well, the decision was released this week.

The FFA requires the mortgage lender to send to the mortgage debtors an NOI prior to filing a foreclosure complaint relating to a residential mortgage. The NOI statute states that the notice must contain 11 different points of information. One of the critical points of information is the name and address of the Lender. However, the FFA does not say what the penalty should be if the mortgage lender fails to comply with the NOI requirements.

There have been 5 major cases dealing with the NOI requirement before Guillaume. The first decision indicated that substantial compliance was good enough (in other words, you did not have to include all 11 items of information). Under this case, the plaintiff could leave out the name and address of the lender. Decisions 2-5 said that you had to strictly comply; that is, you had to include the name and address of the lender. One case seems to suggest that dismissal of the complaint was not necessary for a violation (Frankly, it is not clear to me what that court was saying on this issue). Two cases said that dismissal without prejudice was appropriate but not necessary. The fifth case said dismissal with prejudice was mandatory. Dismissal was the remedy favored by borrowers.

Because the decisions on the remedy for a violation of the NOI requirements were not uniform, judges were coming down with different decisions based on the same facts. Whether the case was dismissed, in effect, depended on which judge was assigned the case. This is not good.

In Guillaume, the borrowers sat on their rights for the better part of 16 months, a default judgment had been entered against them, and a sheriff’s sale had been scheduled. That is when the Guillaumes finally retained an attorney. (Message to all readers-that is a big mistake.) On a motion to set aside the default judgment, it was argued that the plaintiff failed to comply with the NOI requirements. The trial court refused to dismiss, and told the plaintiff to send out a revised notice which included the name and address of the lender. Two revised notices were sent but both were deficient. Still the trial court would not vacate the default or dismiss the case. The appellate level decision in Guillaume said substantial compliance was good enough. If plaintiff gave the name of the servicer, it satisfied the purpose of the statute. That decision did not even mention the 5 major cases on the issue.

The case went up to the Supreme Court. The lenders, in effect, put all new foreclosures on hold, pending the decision of the Supreme Court. Attorneys for both sides were happy that the Supreme Court was finally going to decide what the remedy for a FFA violation was. Good or bad, we would have a definitive decision and be able to advise our clients.

The Supreme Court held that a lender must strictly comply with the NOI requirements- in other words, the notice had to include the name and address of the lender. That was definitive. Then, the Court said that since the Legislature did not provide a remedy, they would consider the appropriate remedy. So far, so good. Then, the Court said that foreclosures are decided by chancery judges. In the old days, chancery courts were called courts of equity. Traditionally equity allowed judges wide flexibility in making their rulings based on the specific facts before them. So in keeping with this tradition,, the Supreme Court said that if there was an NOI violation, the judges were free to shape their own remedies as long as they did not abuse their discretion.

What does that mean in practical terms? Judge A could decide to dismiss. Judge B could decide to stay the case for 30 days so that a new NOI could be sent. Judge C could decide something different. As long as the given judge does not abuse his or her discretion, the ruling cannot be overturned on appeal. No clarity.

So, we waited a decade to get a definitive decision on the NOI requirement, and did not get a definitive decision. That is disappointing.

Appellate Argument- appears good result

Posted by kevin on February 3, 2012 under Foreclosure Blog | Comments are off for this article

Appeal dealt with whether trial judge improperly refused to set aside default judgment.  Clients were older, African American couple- hard working, nice people who got taken for ride.  ARM with max interest of over 14%.  Had predatory lending, consumer fraud, HOEPA, common law fraud issues in addition to standing.  Trial judge did not see it our way, so filed an appeal.

On our website, we say that we are not a modification company- we fight foreclosures in court.  Why? Because we believe that our clients are going to get a better shot in front of a judge or judges (appellate level) than they are going to get with a servicer on a HAMP modification.  Yes, it is more work and more money, but we believe that ultimately, the borrower who fights gets a better result.

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Fannie/Freddie v. the Banks

Posted by kevin on September 7, 2011 under Foreclosure Blog | Comments are off for this article

A few weeks ago, things were looking good for the “too big to fail” predatory banks.  The feds (FDIC) were ready to make a deal.  Most of the State AG’s were backing off.  The carnivore, Schneiderman, was dumped from the leadership group of AG’s.  In NJ, the big lenders got the OK to continue foreclosing with new and improved certifications (looked eerily like the old and unimproved certifications to me).  A couple of zigs and a couple of zags, and the banks could get out of this mess.  Then, last Friday the Federal Housing Finance Agency, the overseer of FANNIE MAE and FREDDIE MAC, filed lawsuits against every major lender in sight claiming fraud and demanding upwards of $50B.

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Educated Consumer Can Save her Home

Posted by kevin on September 6, 2011 under Foreclosure Blog | Comments are off for this article

If you have been checking into this blog with any frequency, you know that we are providing both facts and comments on what is happening in foreclosure defense, especially in New Jersey.  We are giving you cutting edge information- what the law is and where it is going; what settlement strategies are bearing fruit; how the trial courts are reacting to issues and how the appellate courts are reacting to the trial courts.

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