Archive for March 5th, 2011

Temporary Loan Modifications Don’t Stop Foreclosure

The story below is another illustration of how temporary loan modifications don’t stop foreclosure. 

Oh, and it’s example 7,845,139 of how banks are crooks and fraudsters. 

Chase Deceives Another Honest Homeowner

Mark Stopa

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Understanding the Need for an Assignment of Mortgage

In recent months, as virtually every assignment of mortgage on record has been showed to be fraudulent, banks and their lawyers have tried to distance themselves from the fraud, and their impact on foreclosure lawsuits, by arguing they are irrelevant.  Their argument, essentially, is that an Assignment of Mortgage is recorded in the public record to alert creditors as to the owner/holder of the note and mortgage (not as a defense for the homeowner) and that the way a note is transferred is via indorsement. 

Before you scoff, I should say that this argument has a lot of legal precedent.  Many non-lawyers are unfamiliar with this concept/argument, so think about it like this.  If John writes a check for $100 payable to Jane, and Jane gives that check to Suzie, can Suzie go to the bank and cash that check?  No – it’s payable to Jane, so unless Jane signs the check and writes “pay to the Order of Suzie” on the back, then Suzie, despite having possession of the check, is out of luck.

Promissory notes, like checks, are negotiable instruments (generally speaking, anyway) under Florida law.  This means that, like Suzie, if a bank tries to foreclose on a note without an indorsement, it is out of luck.  Remember, the mortgage follows the note, not the other way around, so it’s the indorsement on the note (or lack thereof) that is key to establishing a bank’s right to foreclose. 

Banks and their lawyers have taken this argument to an extreme in Florida foreclosure cases, often prosecuting cases without any Assignment of Mortgage whatsoever.  Essentially, they’re relying exclusively on an indorsement to prove standing. 

Whenever this happens, my thought has always been “but the pubic records still show MERS, as Nominee for ABC Corp” (or whoever the company may be) as the mortgage holder of record, and no foreclosure can be completed without that entity being joined in the suit.  I’ve been arguing that to judges and colleagues for many months.  Think about it.  How can Bank of America foreclose on a mortgage when the mortgage holder of record is MERS, as Nominee for ABC Corp, there is no Assignment of record, and neither ABC Corp nor MERS is a party in the lawsuit?  In other words, even if a Foreclosure Judgment were granted, wouldn’t the mortgage in the name of MERS, as Nominee for ABC Corp, still exist, and still act as a cloud on title?  And wouldn’t ABC Corp. as Nominee for MERS still be able to sue on that mortgage?  On both counts, I say yes.  And that’s obviously a huge problem; after all, the purpose of a foreclosure lawsuit is to remove all clouds – here, the very mortgage that is the subject of the foreclosure still remains!

It seems that MERS is catching on to these problems.  In a recent memo, MERS instructs its members (the big banks) that it cannot commence foreclosure lawsuits in MERS’ name.  No suprise there – MERS is usually not a plaintiff anyway.  What I also find fascinating, though, is this quote:

Until further notice, all commitments prepared to insure title through a foreclosure proceeding where MERS is shown to be the record owner of the mortgage will contain a requirement for an assignment of that mortgage from MERS to the holder of the note or the servicer for that note.

(h/t to my friend and colleague, Matt Weidner, for posting the memo).

 What does this mean?  As I see it, MERS is acknowleding, despite the need for an indorsement to prove standing to foreclose, that an assignment of mortgage is also necessary for title purposes.  That’s a significant concession, one that should be argued in foreclosure cases.  I see the argument going like this. 

“Yes, judge, I see the indorsement on the note and the note in the file.  But the public records still show MERS as Nominee for ABC Corp. as the mortgage holder of record (because there is no assignment), and you can’t foreclose under that circumstance – the mortgage still exists.  In other words, nothing would stop MERS as Nominee for ABC Corp., or some other entity, from suing to foreclose on the mortgage because the mortgage still exists in its name..  In fact, MERS has acknowledged the need for an Assignment of Mortgage for title purposes, and if there isn’t clear title after this foreclosure, then what’s the point?”

Mark Stopa

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States Seek Mortgage Modification Overhaul

Below is an interesting article from the New York Times about how state attorneys general are pushing for an overhaul of the mortgage modification system.  I’m glad to see this is being discussed, but I’m not terribly optimistic.  As one analyst opined in the article, “I’ve watched bankers try to find ways around the rules.  They are adept.” 

Here’s the article. …

State attorneys general have presented the nation’s five biggest banks with a list of demands that could drastically alter the foreclosure process and give the government sweeping authority over how mortgage servicers deal with millions of Americans in danger of losing their homes.

Under the blueprint, banks would be prohibited from starting foreclosure proceedings while a borrower was actively trying to lower the interest rate or ease other terms of the home loan, a process known as a mortgage modification.

Any borrower who successfully made three payments in a trial modification would be given a permanent modification. When a modification was denied, it would be automatically reviewed by an ombudsman or independent review panel.

The proposed changes, which will be discussed by the attorneys general when they meet in Washington early next week, would compel the banks to treat each borrower in default individually.

It was the banks’ attempt to process foreclosures on a large scale that led to robo-signing, in which lawyers and bank officials signed thousands of documents a month after only a cursory review.

The ensuing furor over robo-signing, and other abuses like foreclosures that proceeded with missing documentation, prompted the attorneys general and regulators to begin a broad investigation last fall.

The blueprint from the attorneys general, obtained by The New York Times, is still just a draft, and weeks, if not months, of tough negotiations with the banks remain. Several big banks, including Citigroup, Bank of America and JPMorgan Chase, declined to comment.

The government’s current program to help troubled home borrowers, known as HAMP, continues to face fierce criticism. Both conservatives and liberals have found fault with the program, which aided far fewer homeowners than originally promised.

The latest proposal, delivered to the banks late Thursday, represents an expansion of powers for the newly created Consumer Financial Protection Bureau, which government officials say has taken a more aggressive stance in the talks than some other banking regulators.

The big banks are already wary of the new bureau and its overseer, Elizabeth Warren, a former Harvard law professor who has been sharply critical of the financial services industry and has pushed for a separate financial penalty of $20 billion or more.

“This further cements the C.F.P.B.’s authority in the financial space and puts them at the top of the pyramid when it comes to the mortgage modification fight,” said Jaret Seiberg, a policy analyst at MF Global in Washington. “From the perspective of the banks, this is the last place you want to be.”

On Capitol Hill, many conservatives are also wary of Ms. Warren, a sentiment echoed by Representative Scott Garrett, an influential Republican member of the House Financial Services Committee.

“I have deep concerns that an unconfirmed political appointee is making calls that affect the safety and soundness of our financial institutions,” Mr. Garrett said in a statement. “This is another attempt by the Obama administration to circumvent the rule of law and unilaterally implement its failed housing agenda at the expense of responsible homeowners.”

In addition to the attorneys general and the consumer bureau, the package is backed by the Department of Housing and Urban Development, Treasury, the Department of Justice, and the Federal Trade Commission.

If adopted in anything like its current form, the proposal would probably compel banks to hire many more customer service employees, or slow the foreclosure process even further. Many households are already in foreclosure for more than 500 days.

But a program aimed at reducing the volume of foreclosures would affect far more than the families in distress. It would also help reshape the housing market.

About two million households are in foreclosure, and 2.2 million more are severely delinquent. Housing analysts have been waiting for these properties to make their way back onto the market, where they will swell available inventories and, at least initially, depress prices. Housing prices are already on the verge of falling through the floor established in the spring of 2009.

Giving some of these households loan modifications, allowing families to stay in their houses at least for a while, might help stabilize the market. But it also might prolong the day of reckoning, shifting a housing recovery to 2013 or 2014.

“Do you rip the Band-Aid off and deal with a shorter and sharper housing decline that ultimately puts homes in the hands of borrowers who can afford them for the long term?” said Mike Larson of Weiss Research. “Or do you let this drag on and on?”

Indeed, the big banks are already arguing that the recommendations, especially the consumer bureau’s new powers, will slow the foreclosure process and inhibit lending in the future. Banks would have to provide the agency with their formulas for determining if and when modifications would proceed, as well as quarterly reports on their internal procedures.

Training documents and videos for employees at the servicing centers would have to be reviewed by the consumer bureau and the attorneys general, who would also appoint an independent monitor to examine the banks’ compliance with any eventual settlement.

Among the provisions being proposed, the banks would have to reward their employees for pursing modifications over foreclosures. Late fees would be curtailed. A fund would compensate borrowers who were victims of banks’ misconduct, while mortgage balances would be cut in “appropriate circumstances.”

The initial reaction to the proposed changes by those who work with families in default ranged from quietly optimistic to disbelief that the banks could be compelled to change. Many earlier programs to provide homeowner relief were voluntary and did not achieve expectations.

“If these changes are enforceable and enforced, it will make a significant difference,” said Michael Calhoun, president of the Center for Responsible Lending. But he said it would require the banks to make radical changes: “This is very hands-on, time-intensive, one-off stuff.”

Walter Hackett, a former banker and managing attorney at Inland Counties Legal Services in Riverside, Calif., was less hopeful. “For 20 years I’ve watched bankers try to find ways around the rules,” he said. “They are adept.”

Mark Stopa

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