Cramdown Loan Modifications & Ethical ShortSales

A recent post from a previous blog, An Open Letter to Countrywide

David - I have not met one lender that was willing to work with homeowners as the current media bull trys to get out there.  All you here is “Call your lender” - “they’d love to work something out” - that is hogwash IMO.  I have not come across one that is willing to “work with a homeowner”.

There are a few loan servicers who will voluntarily workout certain non performing loans at terms which favor the distressed borrower,  but they are the exception to the rule.

Another rule, “A lender will only do what is in its own, self financial interest.”

That’s one reason why I’ve developed a “cramdown” loan modification procedule which can be used to compel lenders to more quickly embrace workout proposals which include preforeclosure short sale, short payoff refinance, or cramdown loan modification. The “cramdown” seeks concessions on par with HOPE FOR Homeowners program.  The basis for “leverage” is the identification of predatory lending practices, and or material violations to state of federal lending law.

I am working with individual homeowners, realtors, mortgage brokers, and other non profit organizations who need to implement successful loss mitigation advocacy.

More INFO on SPOCH’s consumer advocacy

Perhaps one third of the people I counsel who want to save their home from foreclosure are fighting an uphill, and oftentimes losing battle.  But they want to fight. I help, but try to temper their expectations, and have them prepare for and accept the eventuality of relocation.

Then, there are situations in which I have a reasonable expectation conditions are such the homeowner can Fight Foreclosure! and keep the home.

Recently, I spoke with a woman, a casual acquaintance whose home is in the early stages of foreclosure. I asked her to bring whatever documents she had pertaining to the loan’s origination and mortgage foreclosure.

Tearfully claiming she doesn’t want to lose her home, she confessed a “friend/confidant” has convinced her saving the home is impossible and her friend (who happens to own a short sale company) is very close to negotiating a preforeclosure short sale…. “What choice do I have?” she asked, visibly upset and choking back tears..

If the deal is approved, this woman will have to vacate the property and find alternative/affordable housing.  In my state, the foreclosure process can take about a year or more.  If she did nothing, she would still have 8 or 9 months in the house before having to leave.  

For all I know, there will soon be a national or state moratorium on residential foreclosure adding months to the process. 

“Where will you go?” I asked her.

“I don’t know.”

“Doesn’t it make sense to try to Fight Foreclosure! and try to keep the house?”  (I run a non profit housing preservation advocacy, and in 2008 authored Fight Foreclosure! How to Cope with a mortgage you can’t pay, Negotiate with your bank, and Save your home)

“He said he tried but the lender refuses to modify my loan… I don’t have the money to bring the loan current.   The house isn’t worth what I owe.  I screwed up.” she stated.

“Have you talked to an attorney?” 

“No.” 

“What have you done?”

“I gave the papers to my friend (who happens to own a short sale company and deals with people in foreclosure for a living) who is helping me.” 

MY 20+ YEAR ADVOCACY INCLUDED INVESTIGATING ALLEGATIONS OF PREDATORY LENDING PRACTICES, UNTOWARD REALTY TRANSACTIONS, AND MORTGAGE LOAN SERVICING ABUSE FOR THE MORTGAGE BANKERS ASSOCIATION OF AMERICA’S CUSTOMER SERVICE DEPARTMENT. 

 A cursory review of her loan documents indicated predatory characteristics, and I suggested we investigate the loan for compliance to Truth in Lending (TILA), RESPA, HOEPA, etc.   If the loan were determined to be predatory, or made in violation to applicable state or federal lending law it would give her some leverage in seeking a loan modification…  She agreed to ask her lender to provide her loan origination file to me.

Based upon my experience, I concluded she had a chance at keeping her home via a Cramdown Loan Modification.  A chance. 

Missing from the folder she brought were the basic transaction documents needed for the “short sale” of her home:  a listing agreement, contract of sale, buyer’s prequalification, and the preliminary HUD1. 

“I don’t recall signing a contract of sale…” she said, but “he” has all the paperwork.

She promised to provide the requested documents.  Instead, I got a call from her friend and confidant who told me her situation was hopeless, and he was very close to getting a short sale approval…. and didn’t want me to screw things up….

“What’s the rush?” I asked him.

“She is in foreclosure.  The lender has refused a loan mod.  This is her only option.”

“Well, I think the loan may be predatory, and as such, she has a chance to keep her home.”

“Nonsense.  Her loan is from an excellent mortgage company!”

“Really?  Well, I looked at the settlement statement, and I disagree. Furthermore, as you must know, a loan in the early stages of foreclosure won’t get the same attention and workout consideration from the lender as will a loan closer to Sheriffs’ Sale which in this case is at least 8 or 9 months away… maybe more.” 

“I think you screwed things up.”  he told me.

Though he promised to FAX to me  the listing agreement, contract of sale, PHUD1, etc., he didn’t.

(OH, BY THE WAY.  I ALSO WROTE, AN ETHICAL APPROACH TO SHORT SALES IN 2006). 

 Instead, I got a polite email from the woman who asked me to “back-off” because her friend would “ask again” for the lender to modify the loan.

I wasn’t afforded the opportunity to review the nuts and bolts of this transaction, in fact, I was denied the opportunity which raised suspicions.   I have nothing invested except a little bit of time, and my compassion for anyone who is at risk of losing their home to foreclosure…

But I do have some unanswered questions.  I have questions about the likely predatory nature of the mortgage in foreclosure, and who originated the mortgage loan.

Is there a connection between the predatory loan’s origination and the convenient, accelerated short sale transaction?

I have only my suspicions based on experience and instinct.  I may be wrong.  I hope I’m wrong.

I feel as if I am watching a person starve to death with a turkey sandwich within reach.

“Hey!  There’s a turkey sandwich over there. Eat it!”

“Oh, no.  My friend says that its not a turkey sandwich, and even if it is, it’s not for me.”

www.spoch.org

The Housing Scene  (CRAMDOWN LOAN MODIFICATION SERVICES)Document Review Could Save Home

If the TIL statement doesn’t match up with the HUD-1 closing cost sheet you received at closing, if the APR is off by just a hair, you might have cause for legal action against the lender.

Typically, forensic loan audits are ordered by mortgage investors to determine what kind of legal liability confronts them in the pools of loans they already own or are considering buying. As a so-called “business-to-business”service, they are not generally available to individual borrowers.

The reviews aren’t cheap. The fee could be as high as $3,000, depending on how much you owe on your mortgage. But if an error is found, it could be the 2-by-4 between the eyes you need to force the lender to move you up to the front of the long, long line of borrowers who are looking for ways to hold on to their homes.

“In some cases, if people were simply overcharged by $30 on the final HUD-1, or if the APR was higher by just .125 percent than was originally disclosed, this may give the lawyers leverage when negotiating with the lender to grant a beneficial loan modification and ultimately save their homes.

Well over 80 percent of the recent audits performed have revealed major Truth-in-Lending violations, errors in the good faith estimates required under the Real Estate Settlement and Procedures Act, illegal predatory lending practices or even fraud. 
 

“With 60 pages of loan documents, there’s bound to be a mistake in there somewhere,” says Ruyle, a real estate and estate planning attorney. “Maybe some pages were left out or they are in the wrong order. Perhaps some of the language is just plain gibberish, or maybe there is a technical error.”
 

The four-out-of-five figure seems a little high to Jeffrey Taylor of Digital Risk, an Orlando-based firm which performs forensic loan audits on behalf of mortgage investors. But in that his company finds “material misrepresentations” in 57 percent of the loans it reviews, he says that high an error rate is “very possible.”

Intentional or not, mistakes on the part of mortgage brokers and funding lenders are characteristic of the housing boom, when there was a gold rush to approve the mortgage application of practically anyone who could fog a mirror. And now that the boom has gone bust, they can be used by borrowers to keep their homes if they so desire.

Forensic reviews “have put a big spotlight on how the average home buyer was abused during the mortgage craze,” says Ruyle. And if any kind of violation of the law is found, adds Maddux, it affords the borrower the opportunity to “use their rights to gain some leverage” with their lender.

The problem isn’t so much that lenders aren’t willing to work with borrowers to keep their homes. Rather, it’s that they are so overwhelmed that they can’t keep with the onslaught of callers seeking help.

Which is why consumer advocate David Petrovich now advises troubled buyers to order forensic loan audits to determine if their loans were predatory or made in violations of state or federal lending laws.  

Petrovich, who is executive director of the non-profit Society for the Preservation of Continued Home Ownership in Oakhurst, N.J., and the author of “Fight Forelcosure: How to Cope With a Mortgage You Can’t Pay, Negotiate With Your Bank and Save Your Home” (John C. Wiley & Sons), says the intent of an extensive review of your documents isn’t to sue the lender. Rather, it is to give you some bargaining power.

“My intent is not to see lenders dragged into court, but to offer them a chance to avoid expensive litigation by agreeing to modify the illegal loan’s terms in an affordable workout,” he explains.

A problem Petrovich encountered just the other day with a large loan servicing company
illustrates the kinds of issues beleaguered home owners face in dealing with their lenders – or, in most cases, the servicer hired by the owner of the mortgage to administer the loan.

As he tells the story, the servicer had been stalling for months on an application for a short-sale, which is basically a contract between the borrower and a potential buyer at a price that isn’t enough to cover the seller’s mortgage. On such situations, the lender must give its approval for the deal to go through.

After resubmitting documents on several occasions, Petrovich was told the file had been closed because the necessary papers hadn’t been received. This, despite the fact that he had confirmation on his fax machine that the docs had been received as well as an e-mail from the company confirming same.
“They killed the file knowing I would resubmit,” he says. “If I sent in a new application, (the servicer) could quickly approve the short sale and boast it completed a new application within a short time. This is unconscionable and despicable behavior!”

The consumer advocate maintains this is not an isolated case. Owners “on the edge of despair” are often misled into believing that if they jump though hoops, all will be okay, he says. “Loss mitigation agents lie to owners about time frames. Others demand big payments up front” before agreeing to modify mortgages or other loan work-out solutions. 

“That’s why I hold little hope home owners will be able to secure the affordable workouts needed to keep their homes,” says Petrovich, “Home owners need teeth.”