Mortgages & Sub-Prime Mortgage Meltdown

 

Here are two types of horror stories I’ve been hearing from some recent clients about their HAMP experiences.

 

First, the homeowner applies for HAMP relief but does not receive a timely response from their mortgage servicer.  In the meantime, their debt situation becomes worse and worse as they struggle to remain current on their obligations.  This then puts them into an untenable financial situation that they cannot get out of.

 

Second, some other homeowners have reported to me that they applied for HAMP relief and were granted a temporary modification.  However, several months later, after the trial period ended, they were turned down for permanent relief, leaving them immediately on the hook for catching up with thousands and thousands of dollars in payments that they didn’t make (and now cannot afford to make).

There is no “cram-down” on the unpaid principal balance.  In other words, the savings do not disappear.

 

Even though the homeowner will be saving money by having a reduced monthly mortgage payment, these savings are not forgiven.  The amount of savings is actually set aside as a non-interest-bearing balloon that the homeowner must pay upon sale, refinance or the maturity of the loan.

 

Apparently, many homeowners are unaware of this aspect.

 

 

All arrears up to the time the HAMP offer is made, are capitalized into the balance of the modified loan.  They, too, are not eliminated.

 

 

The reduced monthly payments are only good for five years.  For each year after that, the interest rate increases by one percent each year until it reaches a certain Freddie Mac cap rate.

 

 

HAMP will reduce a homeowner’s monthly mortgage payment on a TEMPORARY basis.  However, the adjustment becomes permanent after the homeowner makes three on-time payments.

 

The incentive for mortgage lenders in doing this is that the Obama administration is offering big bucks in incentive payments to lenders.

 

Here is the official link to Home Affordable Modification Program.

A recent comment that appeared on the on-line version of the Wall Street Journal posed an interesting take on this:

 

 

That leads to the fundamental principal in any legal case pending in a court of law:  the plaintiff must prove its case.  Banks and mortgage companies must certainly adhere to the law and are now being called to task by the court when they fail to do so.  See my post:  Judicial Sentiment Against Foreclosing Banks Reaching All-Time High .

 

If a mortgage lender wants to bring a foreclosure proceeding, it must be able to demonstate that it actually owns the papers it is seeking to foreclose on.  Homeowners who are being sued in foreclosure should consult legal counsel to ascertain how to protect their rights.

 

 

 

About the image and the artist
 
The foreclosure image above is printed with permission from illustrator David Dees, who takes delight in creating unusual, striking and provocative political activist illustrations.  Check out his website.

Todd Zywicki, a law professor at George Mason University, who was interviewed for the article, questioned whether judges are changing the rules in the middle of the game . . .  just because there is a financial crisis.
 
Apparently, about a year and a half ago, judges in foreclosure cases would routinely dismiss foreclosure cases if they could find reason to do so. But those judges usually permitted the banks and mortgage companies to refile their foreclosure proceedings after correcting any paperwork mistakes that they previously made.

  
However, the times have changed. Now, after the country has been mired in a housing crisis for several years, more and more judges are penalizing lenders on their paperwork glitches, and in some cases going much further in their efforts to help homeowners.
 
It seems that the national housing problem has actually propelled some jurists to become activist judges who seek to protect the underdog homeowner from the evils of indifferent, careless and sloppy mortgage companies.

 

In my own Long Island foreclosure defense practice, this has become evident as we have been able to successfully persuade the court to dismiss foreclosure suits because we called attention to the lender’s defective paperwork. For example, in a recent case, the lender failed to demonstrate that they had legal standing. This is because the lender neglected to properly perfect some mortgage assignment documents with the County Clerk.

 

 

The Wall Street Journal article commented that many of the recent foreclosure case decisions that punished the lender highlighted what became a common practice among mortgage companies: filing a foreclosure lawsuit without showing proof that they actually own the mortgage and have the right to foreclose. This occurs in large part because mortgages often change hands multiple times after the original mortgage loan is made; yet the mortgage transfer documents are never revised to reflect those changes. Consequently, years later, it can be difficult to verify who is the owner of the mortgage.

 

The article quoted Raymond Brescia, an assistant professor at Albany Law School, who said that it makes sense for judges to demand that mortgage companies follow the rules to the letter if they want to win foreclosure cases in court.

 

 

There was another controversial ruling in October by Keith Long, a state-court judge in Massachusetts. Judge Long invalidated two foreclosure sales that had occurred more than two years ago because the mortgagees, U.S. Bancorp and Wells Fargo & Co., never had the right to sell the homes.

 

Judge Long ruled that even though the mortgage companies physically held the relevant mortgage documents, the mortgages were never legally assigned to them and recorded with the state. As such, they were selling something they don’t own, despite the fact that the mortgagees may have been operating in the same way they have done so for the past decade or two.
 
Most mortgage foreclosures continue to be routinely processed by the courts because the homeowners neglect to take steps to protect their rights. The proceedings go unchallenged. However, any Long Island homeowner who has fallen behind with their mortgage payments, and who has been served with foreclosure papers, should consider consulting with a Long Island foreclosure defense attorney to learn how to protect their rights.

 

About the Author.  Long Island Bankruptcy Attorney Craig D. Robins, Esq., is a regular columnist for the Suffolk Lawyer, the official publication of the Suffolk County Bar Association in New York. This article appeared in the December 2009 issue of the Suffolk Lawyer. Mr. Robins is a bankruptcy lawyer who has represented thousands of consumer and business clients during the past twenty years. He has offices in Patchogue, Commack, Woodbury and Valley Stream. (516) 496-0800. For information about filing bankruptcy on Long Island, please visit his Bankruptcy web site: http://www.BankruptcyCanHelp.com.