Posted by kevin on July 25, 2017 under Foreclosure Blog | 
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?’
Posted by kevin on July 16, 2017 under Foreclosure Blog |
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.
Posted by kevin on November 26, 2016 under Foreclosure Blog |
Since the election, interest rates on residential mortgages are up by over 1/2 of 1 percent (0.005 or 50+ basis points, if my math is correct). As a result, refinancings are down significantly. Increased mortgage interest rates will make homes less affordable, so it is likely that home prices will not advance in 2017 like they have from 2012 to 2015.
A WSJ article indicates that since lenders are not going to be making as much money on re-fi’s, they are starting to push more risky adjustable rate mortgages and increasing loan to value ratios. Didn’t that lead to a meltdown in 2008?
At the same time, MHA or, more specifically, the HAMP mortgage modification program is phasing out as of 12-31-2016. With Trump being elected, it does not appear that this program will be renewed. Under HAMP I and HAMP II, interest rates can be reduced to 2%. What I have been seeing, however, is that servicers are trying to push my clients into so-called “proprietary modifications” which are not subject to MHA guidelines. With interest rates rising, the proprietaries are starting at 3% or more, usually, for 5 years, and then are being stepped up to over 5%.
At that rate, it would seem that many consumers will be priced out of mods.
There is still time to get a MHA/HAMP but time is running out
Posted by kevin on September 8, 2016 under Foreclosure Blog |
If I had $10 for every client or potential client that told me that they sent $1500, $3000, $5000, as high as $8000 to a mortgage modifier in California or Florida or wherever and not only never got a mortgage modification but just got a run around by the company that was supposedly representing them. Needless to say, they never got their money back.
The National Mortgage News just ran a story about a man from California who was ordered to pay $2.4 million in restitution and sentenced to 52 months in federal prison over his role in an alleged mortgage modification scam. He operated a series of California based companies that claimed to provide home loan modifications and other debt services to consumers across the country. They would cold call consumers and offer modifications for $2500-4300. Then, after they got their money, they would tell the consumer that they were approved for a modification. That was a lie.
I am not saying that there are not reputable companies on the internet that are performing mortgage modifications. What I am saying is be guided by the old saying, “Let the buyer beware”. Make sure you check out the background of the person you hire to do your modification.
The MHA mortgage program, sometimes called the HAMP program, is due to expire at the end of this year. If you had problems but are back on your feet, you may want to consider looking into a mortgage modification or refinancing under HARP before the program expires.
Posted by kevin on November 29, 2014 under Foreclosure Blog |
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.
Posted by kevin on November 1, 2014 under Foreclosure Blog |
On October 28, 2014, the Consumer Financial Protection Bureau issued a report on mortgage servicers/servicing. It wasn’t pretty.
The report found that servicers are engaging in significant delays which lead to higher payments to the borrower. In addition, the servicers are not, for the most part, properly notifying credit reporting agencies that borrowers are no longer delinquent.
The problem has been exacerbated because major bank, which were subject to the $25 billion dollar settlement, are getting out of the servicing business and selling their portfolios to non-bank servicers such as Ocwen or Greentree.
Higher costs are incurred when servicers keep borrowers in trial modifications for more than three months at interest rates that are higher than the ultimate permanent mod. If the trial mod payment does not cover the fully amortized payment, then the difference is added on to the principal. More trial mod payment, the greater the amount that is added on to principal.
Recently, the CFPB fined Ocwen $2.1 billion for taking advantage of borrowers. The New York attorney general is investigating Ocwen for backdating letters.
I have always been leary about dealing with servicers on modifications, short sales and deeds in lieu. Back in 2011, most attorneys who brought the foreclosures actions would work with me on getting a resolution of the case. Not any more. I make proposals to my adversaries only to be told that I must deal with the servicers. Then, the games begin.
On paper, MHA (formerly called HAMP) has decent guidelines that seem to protect the consumer. However, you have no recourse if the servicer does not follow the guidelines. In addition, you are left swinging in the breeze when servicers sit on your file for 3-4 weeks, and then demand more or updated information, and then continue with this process for months. Currently, I have a modification that started last November and is still not into underwriting.
The CFPB is going in the right direction by holding the servicers’ feet to the fire. A change in the compostion of Congress, which looks likely, may have a negative impact on CFPB’s impact.
Posted by kevin on February 27, 2014 under Foreclosure Blog |
How can Homeowner A get a better deal? “A” is saving $1056 per month on principal and interest payments while “B” is saving only about $264 per month. So, from a cash flow basis, “A” is saving more. Moreover, without the suspense account of $200,000, “A” probably could not meet the monthly nut. It is almost impossible to scrap up another $1056 per month every month. An extra $264 per month is no piece of cake, but it is a lot more do-able than $1056. So, “A” is getting the better deal. Right?
But, let’s look at it another way. “A” has to come up with $200,000 at the end of the term while “B” only has to come up with $50,000. Advantage to “B” but that is potentially 25 years off. If the fair market value of the house is $300,000 and prices increase an average of 5% per year, at the end of 25 years, the house could be worth about a $1,000,000. “B” walks away with more money if he is still able to walk. But “A” still has a health chunk of change. In effect, neither A nor B are out there breaking their backs to earn money to make that balloon payment. Why? Because inflation pays the balloon.
What if prices never go up. Well, at the end of the term, you pay or don’t pay. If you do not pay, you get foreclosed. “A” saves $200,000, “B” saves $50,000 and both are looking for a small apartment in Florida.
How bout looking at it another way. “A” does not pay interest on $200,000 for 25 years at 4%. That is a savings of $116,000 while “B” saves only $29,000.
Enough already. There are many ways to analyse this mod scenario. Some ways seem jaded, but I am sure that the lenders, with the NPV calculations required under HAMP, are looking at your home in the same cold blooded way.
While all the above analyses should be considered by the homeowner who has been presented a modification with a balloon payment, any analysis should begin with same question. How long do I intend to live at my current house? Why? Because the balloon is due at the end of the term or when you sell. If your kids are in their late teens or early 20’s, chances are that they are going to move out in 5-8 years. Why keep a big house if there are only two of you. The problem is, however, how are you going to come up with $50,000 or $200,000 in 8 years. Maybe, the house may increase in value by $50,000 over 8 years, but you are going to need much more than a $50,000 increase because you have to cover the closing costs including the broker’s fee. $200,000, in most cases, is a “bridge too far”.
Bottomline, the longer you intend the stay, the less the balloon payment is an issue.
Posted by kevin on August 14, 2013 under Foreclosure Blog |
Last week, I blogged about the lawsuit against Bank of America pending in Massachusetts. Within a few weeks of that suit, another group of homeowners in Colorado brought a lawsuit in the federal court alleging that BOA and its contractor, Urban Lending Solutions, ran a scheme to deny permanent modifications in contravention of the federal RICO Act.
The RICO Act was initially used to allow federal law enforcement more flexibility in going after organized crime. Over the years, however, its use has been extended to what would be considered business type activities. Moreover, the RICO statute provides for a private right of action (meaning individuals and not just the government can sue under the statute) and allows legal fees to a prevailing plaintiff.
Interestingly enough, the complaint filed in Colorado cites statements made by former BOA employees in the Massachusetts case. It alleges that BOA and Urban Lending Solutions conspired, in some cases, to push borrowers into more expensive “in house” mods rather than HAMP mods. It also alleges that in other cases, BOA advised borrowers to send their financial information to Urban Lending Solutions. Urban became the “black hole” for documents sent by homeowers. Ultimately, the mod applications were denied in a wholesale manner.
BOA and Urban Lending Solutions have denied any culpability. Notwithstanding with 2 federal lawsuits filed in the last two months both alleging widespread fraud in the modification area, regulators and members of Congress are taking notice.
Irrespective of the outcome of these specific cases, it is my opinion that if the courts in Colorado and Massachusetts rule unequivocally that borrowers have standing to sue in HAMP/mod situations, the defense bar (lawyers who represent homeowners) will have a big victory.
Posted by kevin on August 11, 2013 under Foreclosure Blog |
In mid June, 2013, it was reported in the financial news that a lawsuit had been brought against BOA in the US District Court in Massachusetts claiming that BOA routinely denied borrows permanent modifications under HAMP. So what else is new? Well, in this case, the borrowers enlisted the help of 5 former BOA employees who are providing testimony against their ex-employers. BTW BOA vigorously denies these allegations stating they are absurd and patently false. Having been in the trenches for the last 4 years, I wonder???
Now, a program that is basically run by the servicer, who is
1. the agent for the bank;
2. paid by the bank or the trustee in a securitized trust; and
3. in many instances, stands to make more from a foreclosure than a modification of the loan
would never jerk around a borrower. If you believe that, I have a bridge you may want to buy.
The allegations of borrowers echo what defense counsel has heard since HAMP was instituted. Documents are conveniently lost. The borrower cannot speak with the same person twice. Decisions are not made. Permanent mods are denied after the bank or trust has taken numerous trial mod payments.
What makes this Massachusetts lawsuit different is that the borrowers have statements from ex-employees who claim that:
1. they were instructed to inform homeowners that modification documents were not timely received, not received at all, or missing when they were, in fact, received and in a timely manner.
2. employees were rewarded with cash bonus or gift cards for meeting a quota for monthly foreclosures.
3. employees were encouraged to do anything they could to maximize fees to the bank including lying.
Moreover, the employees are from different BOA offices around the country.
Now, I do not know if these employees are telling the truth. However, can they all be lying? Especially in light of a rich history of borrower complaints all over the country. Even in NJ, judges comment about the problems that borrowers face in obtaining a modification.
I look forward to seeing how this litigation shakes out. I hope that the Judge in Massachusetts does not bounce the case on some procedural technicality, but decides it on the merits.
As I say on my website and blog, I believe that on paper, the new re-incarnation of HAMP is vastly better than previous versions. However, that pre-supposes that the servicer is going to play it straight. Unfortunately, the stories of many borrowers (including many of my clients) question that proposition. Maybe if BOA gets slammed for punitive damages in this lawsuit, servicers may think twice before they play it fast and loose.
Posted by kevin on June 1, 2013 under Foreclosure Blog |
The Government’s Making Homes Affordable programs, including the much maligned HAMP modification program, were in effect through December 31, 2013. If you have read previous blogs, you know that I was not a fan of the prior versions of HAMP. Not the least of my criticisms was that HAMP does not apply to GSE loans; that is, Fannie Mae, Freddie Mac etc. However, the latest re-incarnation (which hit the public last fall with handbook at the end of 2012) has some good things to say about it. One major problem, however, was that since the program was ending at the end of 2013, many homeowners would not file in a timely manner.
On May 30, 2013, the feds took some of the pressure off. Jack Lew, the new Treasury Secretary, announced that the HAMP program (along with the short sale- deed in lieu program and the unemployment program, and others) will continue through December 31, 2015. A supplemental directory (gives us the details) is due to be published next week. In addition, on the same day, FHFA announced that the programs for Fannie Mae, Freddie Mac, VA and FHA will also continue through the end of 2015. Even though the GSE programs do not allow principal forgiveness at this time, they are worth looking into.
If you look at the Home Page of my foreclosure website, you will see that our main emphasis is on fighting foreclosure through the litigation process. That was because the Making Homes Affordable programs (including HAMP) stunk the place out. And our experience indicated that aggressive litigation was the best path to securing a respectable modification. Now, as the programs are getting better with age, I am reconsidering a limited change to our approach. Yes, we litigate when necessary. But if you are the proper candidate, we will assist with modification proposals even if no litigation is involved. Be on the lookout for changes to our HOME page.
Posted by kevin on May 4, 2013 under Foreclosure Blog |
Right now, with the new HAMP guidelines, modifications are more available, and fairer, than before. Although my website states that we fight foreclosures (and we do), we are also for the first time encouraging clients to actively engage in the modification process.
That being said, I have been interviewing many prospective clients who are in foreclosure because they defaulted on a modification granted in 2009 or earlier. Here is the scenario. The borrower got an option arm or similar ARM type loan with an initial interest rate of 10% or greater. The loan was either a “no doc” or stated income loan. The borrower was not represented by a lawyer. On its face, there may be TILA violations, consumer fraud violations and predatory lending issues. The borrower defaulted and then the servicer, usually unsolicited, offers a modification which takes all the arrearages and charges (late and attorneys fees and escrow advances) and adds them to the loan. Then, the interest rate is dropped to about 6-8%. They don’t ask for an application, tax returns, paystubs or anything. And it is not negotiable-it is “take it or leave it”- known as a contract of adhesion. Finally, the modification agreement has buried in it a clause that says that if you accept the mod, you waive all defenses on the original note.
You can’t afford the mod but you take it because the alternative is that you are out on the streets. Inevitably, you default. The bank recites the original loan and modification. You take the position that the loan was unconsicionable so you have defenses. The lender says, “not so fast”, the original predatory, unconscionable deal cannot be considered by the court based on waiver of defenses claue in the modification agreement. In other words, the lender gets a free pass after they sucked you in on a bad loan to begin with.
So far, I have been able to argue around this point on motions to set aside default or default judgment. And, I have fashioned some arguments that attack the lender’s position that the underlying loan is off the table. However, I am convinced that if the borrower just argues that the waiver of defenses in the modification agreement is void because it is a contract of adhesion, many New Jersey judges will hold against you..
In New York, however, NYCRR Section 419.11 states that servicer shall not require a homeowner to waive legal claims and defenses as a condition of a loan modification. Now, this is just a regulation and not a statute, but it does give the borrower’s attorney in New York a stronger footing to argue against waiver clauses in modifications. (Remember, Regulation Z dealing with Truth in Lending is a regulation and not a statute but courts routinely accept it.
So, contact your State senator or assemblyman and tell him or her that New Jersey should adopt a statute that outlaws waiver of defense claims in modification agreements. In the meanwhile, I am scouring cases from around the country that hold that such contracts of adhesion are void because they violate public policy.
Lenders routinely lobby State and federal representatives. It is about time that consumers do the same.
Posted by kevin on December 17, 2012 under Foreclosure Blog |
I meet with people every week who complain that they spent months getting jerked around by servicers and still could not get an affordable, permanent modification on their mortgage loan. They turn to a mortgage modification company with equally poor results. They read in newspapers or blogs that modification companies are scamming the public because they take fees up front and do not get the mod. The prospective client believes they were ripped off because the government tells them that a reputable mod company will get you a permanent mod and not charge you if they fail. In fact, some state statutes require that.
After working in foreclosure defense since 2009, I can tell you that no modification company can live up to those standards unless they represent only the top tier of their customer base. Why? Because the mod companies have little or no control over the process. They are, in effect packagers of information. They are stuck with your situation as far as arrearages, whether you have a job and what your income is, and the value of your property. Then, they are stuck with the critieria and decisions of the servicers over whom they have absolutely no control.
If you spend 8 months of your time trying to get a mortgage mod and don’t get it, how could you expect that the modification company will get the process completed successfully in a couple of weeks? Moreover, how can you reasonably expect the mod company to do thousands of dollars of work for you for free or for a nominal fee on the outside chance that you get a permanent mod. I certainly would not want to roll dice based on a situation over which I have little or no control.
That being said, I would assume that there are legitimate modification companies out there. I also assume there are a lot of less than reputable mod companies out there who prey on desperate people in bad situations. But how can you know who is legit? Mod companies are not rated in Consumer Reports or Angie’s List. So, my advice is to be skeptical. Do not give a mod company a large upfront payment (I heard of people who have paid upwards of $8,000). Make sure that the money you fork over is in line with the work that is being performed. Ask for their statistics (produced not in-house but by third parties) of getting permanent mods . Check on line and with the BBB about complaints. Understand that even a good, honest mod company is not a magician.
Be realistic about what you can get. If you are out of work or get paid off the books, the chances of getting a mortgage mod are slim or none. Do not expect that a mod company can do any better.
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.
Read more of this article »
Posted by kevin on September 15, 2011 under Foreclosure Blog |
Almost every client that I interview has a story about how he or she was jerked around unmercifully by a servicer. Some servicers suggest that payments not be made so that the borrower can apply for a HAMP. Others “lose” paperwork more than once. Others take 7-8 payments instead of the required 3 and then deny a permanent modification.
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Posted by kevin on August 1, 2011 under Foreclosure Blog |
Settlements have been all over the lot in the last 12 months. About a year ago, we were starting to see reduction in principal in cases that were open for long periods of time because they were aggressively fought. It reinforced our position that the best way to stop foreclosure was to fight foreclosure. Then, the AG’s and federal regulators started pushing principal reductions. Some of the “too big to fail” banks balked, and then we stopped seeing “reduce principal” offers.
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