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 In NJ, we have three published opinions (and a few more unpublished opinions) dealing with predatory lending and consumer fraud violations.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.

More BOA

Posted by kevin on December 10, 2013 under Foreclosure Blog | Comments are off for this article

Joseph Smith, the overseer of the $25 billion settlement, issued a recent report pointing out that Bank of America has violated the settlement because it failed to file accurate documents in bankruptcies. What that means is not clear. Did they add up a column of numbers incorrectly or did they submit robo-signed documents. Moreover, it is not clear that there was any real sanction for violations other than a promise to do better.

I have many problems with the $25 billion settlement. Among them is that the overseer seems to be a very qualified guy with a reputation for protecting consumers when he was the Commissioner of Banking in North Carolina. However, as overseer what we see are reports and sanctions that do not even amount to a slap on the wrist.

In the meanwhile, I really have not seen any real reduction in the antics that the lenders/ servicers are up to in foreclosure actions. In NJ, we see an upsurge in servicers stating that they are the lenders notwithstanding the there is ample proof that they are just the servicer. How do they do it? A combination of no meaningful discovery being allowed to borrowers and use of allonges which are endorsed in blank. The servicer puts in a certification that it came into possession of the note prior to the foreclosure filing. The problem is that the allonges, starting in about 2012, all started to look exactly alike as to form. The tranasction and the closing of loan date is on the top of the page followed by an endorsement in blank. Before 2012, I do not recall seeing this allonge form at all. Now, it is standard. So, it could be just a coincidence. Or it could be that the endorsements were all made after 2012 irrespective of when the note was signed by the borrower or sold. What do you think?

Many client and prospective clients tell me of the antics of servicers during the modification process. Being put on hold for long periods of time. Leaving messages and not getting call backs. Documents are lost time and again. Your “point of contact” person is never available. What can you do? Is it negligence on the part to the servicers or bad faith? Can you sue them? Is it a defense against the foreclosure?

The answer is that if you have not been offered a trial modification that you accepted, you are SOL against the servicer and lender. Why? You have no contractual right to a modification. Making Homes Affordable is a deal between the federal government and the banks. You are not the federal government. So, you have no standing to sue. The overseer has standing to do what is listed in the $25 billion settlement which includes wrist slapping. You can complain to people who will not listen whether that be the servicer, the lender, the consumer affairs department in NJ or the courts.

However, if you do get a trial modification and then get jerked around, you have standing and can sue the servicer and lender. In fact, in New Jersey, it may be a consumer fraud violation. In those limited cases, it may be worthwhile to pursue legal action.

PSA- Can Borrower Mention it?

Posted by kevin on November 3, 2013 under Foreclosure Blog | Comments are off for this article

A good proportion of the mortgages in default in New Jersey were sold to investors by means of private securitizations. In such cases, a sponsor will buy about a thousand mortgages from one or more originators, transfer them to related entity called a depositor, who then sells them to a trust. (Multiple transfers are necessary to insure bankruptcy remoteness). The trust is usually a REMIC (real estate mortgage investment conduit) which means that only the investors are taxed. The guiding document is called a Pooling and Servicing Agreement (PSA) which describes in detail what happens, how the various notes and mortgages are transferred into the trust, how and how much the investors are paid, and what the functions of the various parties are.

Unless the securitization is exempt from federal securities laws, the sponsor must register the offering with the Securities and Exchange Commission (SEC). Because of this registration requirement, some of the documents associated with the securitization, including the PSA, can be available on the SEC site. When you get the opportunity to read 100 or so PSA’s, you realize that many require that the note have an endorsement from the depositor to the trustee or in blank with all intervening endorsements so that there is a complete chain of endorsements. This is to comply with the requirements concerning bankruptcy remoteness.

When you compare the your client’s note to the usual requirements of the PSA, you often times find that the endorsement(s) on the note do not come close to complying with the requirements of transfer set forth in the PSA. If the PSA is governed my NY law, it is pretty clear that if the note and mortgage are not transferred to the trust in accordance with the terms of the PSA, then the note and mortgage are not in the trust and the plaintiff, trustee, has no standing to bring the action.

This could be a major problem for lenders. Literally, hundreds of thousands of cases in New Jersey and across the United States could be tossed out of court. But, that has not happened to date. Why? Because an unpublished case in NJ stated that a borrower cannot refer to the requirements for transfer set forth in the PSA because the borrower is not a party to the PSA. Yeah, the lender broke the rules of its own operating agreement, but the borrower, who stands to lose her home, cannot bring it up. Many trial courts in NJ have adopted this position notwithstanding that the case setting forth this rule is an unpublished, and under our Court rules, unpublished opinions have no precedential value. You can draw your own conclusions on this, but it does seem to defy common sense.

More on this in upcoming blogs.

BOA- Another Shoe Drops

Posted by kevin on August 14, 2013 under Foreclosure Blog | Comments are off for this article

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.

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.

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.

Short Term Mortgage Modified in Chapter 13.

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

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

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

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

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

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

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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Mitigation of Damages

Posted by kevin on January 19, 2012 under Foreclosure Blog | Comments are off for this article

This post is geared more for the lawyers; however, we invite all interested readers to follow.

From Contracts I, we learn that a wronged party to a contract is obligated to mitigate damages.  This is black letter law.  How can it apply to foreclosure defense?  Well, I have some ideas which, at least in New Jersey, are untested.  However, when the spigot opens and the lenders start their new wave of foreclosures, I will be testing the theory.

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Seek Help Early

Posted by kevin on December 14, 2011 under Foreclosure Blog | Comments are off for this article

Last week, I argued before the Appellate Division to set aside a default judgment.  My client had good arguments that the loan was predatory, that the plaintiff lacked standing and that the Fair Foreclosure Act may have been violated.  However, the judges focused on the fact that my client never hired a lawyer until more than a year after default judgment had been entered.  I made creative arguments to get around this “bad fact”- arguments that are a little too detailed and, perhaps, too boring to be presented here.

Without going into detail, there is a lesson to be learned irrespective of how the Appellate Division rules.  When you get served with a Notice of Intent to Foreclose or a Complaint, hire an attorney to file an answer.  I know that at the same time these papers are coming in, the servicer is bombarding the borrower with letters about modifications containing statements that the lender wants to work with you to save your house.  That is usually a lot of hot air especially when you look at the dismal percentages on permanent modifications being granted even at this late date.

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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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