No hope loan Mod’s

Today I am discussing a new law that you should be aware of…it has far reaching effects.

There are laws that are coming onto the books that affect our rights. They may seem to be good, but in reality they have bad effects.

And there are laws that seem to be good, but are really amounting to nothing.

Remember the Hope for Homeowners program? The Washington Post reported the other day that “lenders have balked at requirements that they cut some of the principal that borrowers owe. Only one homeowner has received a government-backed loan under the program so far.”

All that commotion. And only one homeowner has got a  loan from that program!

The Post reports that the new proposed law would pay servicers $2500 for each Hope for Homeowners loan they place.

We all know that we deal with loan servicers when we try to get a loan modified, lower the monthlies, and so forth.

Servicers handle foreclosure.

They handle incoming monthlies.

They are appointed by the actual investors who own the loans.

And now, the gubmint is proposing to let servicers mod loans without worrying about the contracts they have with the lenders.

The new proposals also involve seconds. The servicers who handle seconds will agree to drop the interest to 1%. And nothing the investors, the actual lenders, can do about it.

On the face of it, that’s a good thing you would think.But I do not think it is.

I think they will also work out a way to prohibit borrowers who have been screwed from suing the servicers and the lenders.

That is wrong. Huge crimes have been commited by lenders and servicers and it is wrong to make anyone immune from lawsuits that redress the problems.

Worse yet, the servicers are being paid to break contracts and simply stuff borrowers into loan mods no matter what.

What if the mods are no good? Homeowners will do practically anything to stay in their house. It may be in their worst interest. Meanwhile, the servicer gets thousands of dollars to pretend the loan mod will work out?

How long is this going to last? When will it too blow up? Does it remind you of the disgustingly high commish the lenders were collecting from subprime loans that never should have been made?

Now the gubmint is proposing paying enormous fees to get loan mods through that never should be made.

Sample complaint template

this is the type of complaint to get the lender to the table sample-bank-final-complaint1-2


As I continue through this journey through the maze created by lenders, investment bankers, title agents and closing/escrow agents I keep discovering things that end up being quite interesting.

For example: In California the requirements for posting Notice of sale are very clear and yet, I am told that they are routinely ignored. This would invalidate the notice of sale on the most basic of concepts “notice,” by definition and therefore could be attacked at any time as a defect of service and jurisdiction while at the same time bring your claims under TILA, usury, identity theft, fraud, etc. California requires public and private posting as do most other states. The public part is what they ordinarily ignore. see notice-of-the-sale-thereof-shall-be-given-by-posting-a-written-notice

With the new law changes Civil code 2923.5  that became effective Sept 6, 2008 it adds more procedures that are routinely not followed ie. a Declaration must be attached and recorded that recites that the lender has met and assessed the borrowers financial condition and made alternatives to forclosure ie. modification. First they don’t do it and second the declaration is not even under penalty of pujury. So on its face the sale could be set aside.

After the notice of default the lender routinely switches trustee’s and records a Substitution of trustee with an affidavit that is not under penalty of perjury. Again the sale could be set aside for this.

For example. MERS, whose legal status is dubious at best anyway inasmuch as it plainly violates the recording requirements of every state and which supposedly has not one but multiple corporate entities, one of which has been suspended from operation in California, is subject to specific instructions as to what to do with the “master Deed of Trust and what to do with the individual deed of trust, the procedures, language to be inserted etc. These too I am told are routinely ignored especially when it comes to (a) showing that you have provided a copy of the Master Deed of Trust and (b) having the proof as specifically required in the FNMA/Freddie instruction sheet.

As stated in my other posts, the entire MERS concept causes, in my opinion, a separation between the alleged security instrument and provisions, the Trustee’s authority and the note, all of which end up being different people who were all “real parties in interest” receiving fees and value not disclosed in the GFE or settlement statement. In all these closings the borrower is subjected to a series of documents that hide the true nature of the transaction, the true source of funds, the true lender, and the application of funds contrary to the terms of the note.

All of these new requirements create questions of fact, that if not correct, create a method to set aside the sale by way of court action. I guess that’s the point the lenders trustees and servicers are banking on the victims not fighting it.

Borrowers’ Defenses to Forclosure

A great source of information you can use, and since the Guy is in Washington I can give him all the credit

Doan deal 2

Mortgage Chaos? Add a Bankruptcy and its a Recipe for Disaster! Part II

My last article laid out the framework for the bankruptcy real estate cocktail. This article will attempt to predict how that cocktail will be served and its ramifications. Remember, this recipe for disaster requires two things: a “Non-Perfected” Mortgage and a Bankruptcy.

So far, about 70 to 80% of the mortgages I see in local Bankruptcy cases here in the Southern District of California Bankruptcy Court appear to be non-perfected. Despite my continued requests to the mortgage companies to produce either proof they possess the underlying note or proof of a recorded assignment, I have received neither. Instead I get the run around, “Yes we have the original note. Really, can I see? Actually no, I thought we had the original, but we have a copy…………Yes we have the assignment. Really, can I see? Sure, here you go. But that was not recorded. Oh…….” Its the same song and dance. So what becomes of this?

Chapter 7: The trustee will most likely put on his “544 hat” and now “strip the lien off the house.”

When he does this, he creates an unencumbered piece of real estate in most cases, with the exception of a small amount of past taxes and HOA fees remaining as liens on the property. The property is then sold and net profits held in trust. A notice is then sent to the creditors of the bankruptcy to submit a claim if they want to get paid.

The claims are then reviewed, and paid pro-rata or objected to with the Bankruptcy Court issuing the final ruling. The Claims process is a complex area too lengthy to discuss for this Blog, but suffice to say, many claims will be objected to as well, since most credit card debt and collection agents have similar problems in proving they too own their debts. Moreover, you might ask what happens to the mortgage lien which has now become a large unsecured debt? It might be paid, provided they can prove they own the note. However, it also may not. There is a Bankruptcy Code section, 11 USC 502(d) which states that a creditor may not be able to share in the distribution if they did not give up there lien when requested by the trustee under 544. So, it could be that any remaining monies may even go back to the debtor if the new unsecured mortgage claim is disallowed! But this remains a grey area, and time will tell.

But what if the debtor wants to keep the house? No problem. Time to make a deal with the trustee. Suppose that the House was bought for $650,000 in 2006 with 100% financing and now is worth $500,000. The debtor is negative $150,000 in equity. Upside Down! Now lets say a bankruptcy is filed. The Mortgage Note was not perfected so Bankruptcy Trustee avoids the lien. Now he has this $500,000 piece of real estate that he wants to sell, but the debtor wants to keep it. So the debtor makes an offer of $430,000 to keep the house and the Trustee agrees. Trustee agrees since he would only net $430,000 anyways after costs of sale, attorney fees, marketing, etc. Debtor gets the $430,000 from a new loan he might qualify for, have cosigned, or have a family member engage their credit. Trustee then takes the $430,000 and distributes to creditors, which include the debtor’

s non-dischargeable taxes, non-dischargeable child support obligations, and non-dischargeable student loans.

Wow! Lets get this straight: Mortgage reduced from $650,000 to $430,000, and over $100,000 in non-dischargeable bankruptcy debt consisting of student loans, taxes, and support obligations also paid, and all other debt wiped out? Sounds like the lemon just turned into lemonade! Also, time to also read the blog on why the credit score is much better after bankruptcy than before now.

Chapter 13: In Chapter 13, the Trustee does not liquidate assets. Instead, he administers a three to five year plan by distributing the monthly payments from the debtor to the creditors, and the avoidance powers of the Chapter 7 Trustee are given to the Debtor(at least here in the Ninth Circuit….western states in the US). This includes the power to remove unperfected liens such as unperfected mortgages.

So now the debtor can remove the mortgage just like a Chapter 7 Trustee.

But that might be a problem. The Chapter 13 Trustee may object now to the bankruptcy since the debtor has too many assets. Well, as discussed above, time to get another smaller mortgage, pay that money into the Chapter 13 plan, and again pay off the non-dischargeable debt. Even better, if not all the creditors filed claims, the money then reverts to the debtor!

In the alternative, the simple threat of litigating the issues to remove the mortgage sure makes for a great negotiating tool to deal with the lender and rewrite the mortgage…..knocking off possibly hundreds of thousands of dollars and also lowering the interest rate substantially.

Involuntary Bankruptcies? Is there such a thing? Unfortunately, YES. And this could be very problematic. If several creditors are owed substantial sums of money, say a SBA Loan, large Medical Bill, or even large credit cards, they could petition the court for an involuntary bankruptcy. The debtor has no control to stop it. Next thing the debtor knows, he is in a bankruptcy and all the property is being liquidated, less the property allowed by exemption law. Then steps up the Chapter 7 Trustee and discovers that the Mortgage is not perfected. Well, there goes the house now! Or does it?

Once again, a smart debtor would argue to the trustee that he will get a loan to pay the trustee as discussed above. Problem solved, and what appears to be disaster at first, may be a blessing in disguise. The debtor keeps his home with a much smaller mortgage and removes non-dischargeable debts. He is better off now than before, even though he did not want this!

So the Recipe for Disaster appears to only affect the Mortgage Companies. They are the losing parties here, and rightly so for getting sloppy…..attempting to save $14 per loan times thousands of loans. Why didn’t they compute losing hundreds of thousands of dollars per loan times thousands of loans? Couldn’

t they connect the dots? No… I said, lots of smart Real Estate Attorneys and lots of smart Bankruptcy Attorneys, but not too many Bankruptcy Real Estate Attorneys and none of them worked for the Mortgage industry.

But everyone else now seems to win. The debtor reduces his mortgage, gets a better interest rate, and eliminates the rest of his debts. The trustee makes a healthy profit on distributing such a large dividend to creditors. And the creditors who obey the law now share in a large dividend.

Of course, all the forgoing is Brand New. It has not been done yet in any cases I am aware of. But since talking with other Bankruptcy Attorneys across the Nation for the past couple weeks, its starting to catch on. I’

m told a few trustees back east have started this procedure now. And just today, I get an announcement from our local Chapter 7 Trustee that he is making new requirements concerning producing documents in all cases before him so that he can start avoiding these liens. Coincidentally, this also comes after three of our Local Bankruptcy Judges started denying relief to Mortgage Creditors when coming before the Bankruptcy Court during the past week! Its brand new…but catching on like wildfire.

Housing Bubble? Mortgage Bubble? Well now it’

s a Housing Mortgage Bubble disaster about to happen in Bankruptcy Court. Congress was not able to reform the predatory lending abuses. The Lenders certainly do not seem interested in workout programs. I guess its time for a Bankruptcy Cocktail!

Written by Attorney Michael G. Doan

90 days plus 90 foreclosure law

Q 83. What, in a nutshell, is the new law extending the foreclosure process by 90 days?
A Under the new California Foreclosure Prevention Act, lenders foreclosing on certain loans are prohibited from giving a notice of sale until the lapse of at least 3 months plus 90 days after the filing of the notice of default (see Question 88). A loan servicer can obtain an exemption from this requirement by demonstrating that it has a comprehensive loan modification program (see Questions 89 to 94).
Q 84. What is the purpose of this law?
A The purpose of this law is to try to stem the tide of foreclosures and their adverse consequences by providing additional time for lenders to work out loan modifications with borrowers as well as creating an incentive for lenders to establish comprehensive loan modification programs.
Q 85. When will this law be in effect?
A This bill was enacted into law on February 20, 2009 along with the state budget. Its provisions take effect on or about March 16, 2009.
More specifically, the law states that the appropriate commissioners must adopt regulations to carry out this law within 10 days of its enactment (see Cal. Civil Code § 2923.53(d)), which would be by March 2, 2009. The law also states that it will become operative 14 days after the issuance of such regulations (Cal. Civil Code § 2923.52(d)), which would be on or about March 16, 2009.
This law will stay in effect only until January 1, 2011 at which time it will be repealed, unless it is deleted or extended by statute (Cal. Civil Code § 2923.52(d)).
Q 86. How does this new law affect the foreclosure timeline?
A Under preexisting law, a lender who files a notice of default in the foreclosure process must wait at least 3 months before giving a notice of sale (Cal. Civil Code § 2924). The new law extends that 3-month period by an additional 90 days.
Also under preexisting law, the general rule of thumb is that the entire foreclosure process takes a minimum of 4 months from the filing of a notice of default until the final trustee’s sale. Under the new law, that general rule of thumb is extended by 90 more days for a total of about 7 months, unless the lender is exempt. For more information about the foreclosure process, C.A.R. offers a legal article entitled Foreclosure Timeline.
Q 87. Under the new law, is the minimum time frame from the filing of a notice of default to the notice of sale a total of 6 months or 180 days?
A Neither. The way the law is written, the minimum time frame from the filing of the notice of default to the notice of sale is technically “3 months plus 90 days.”
Q 88. What type of loan falls under the new law extending the foreclosure process by 90 days?
A Unless otherwise exempt, the 90-day extension to the foreclosure process applies to loans that meet all of the following requirements:
The loan was recorded from January 1, 2003 to January 1, 2008, inclusive;

The loan is secured by a first deed of trust for residential real property;

The borrower occupied the property as a principal residence at the time the loan became delinquent; and

A notice of default has been recorded on the property.
(Cal. Civil Code § 2923.52(a).)
Q 89. What are the exceptions to the new law extending the foreclosure process by 90 days?
A Most notably, a loan servicer is exempt from the 90-day extension to the foreclosure process if the loan servicer has obtained an order of exemption based on the implementation of a comprehensive loan modification program (Cal. Civil Code § 2923.53(a)) (see Questions 89 to 94). The order of exemption must be current and valid at the time the notice of sale is given (Cal. Civil Code § 2923.52(b)).
Other exceptions to the 90-day extension include the following:
Certain state or local public housing agency loans (Cal. Civil Code § 2923.52(c)).

When a borrower has surrendered the property as evidenced by a letter confirming the surrender or delivery of the keys to the property to the lender or authorized agent (Cal. Civil Code § 2923.55(a)).

When a borrower has contracted with any person or entity whose primary business is advising people who have decided to leave their homes on how to extend the foreclosure process and avoid their contractual obligations to the lenders (Cal. Civil Code § 2923.55(b)).

When a borrower has filed a bankruptcy case and the court has not entered an order closing or dismissing the case or granting relief from a stay of foreclosure (Cal. Civil Code § 2923.55(c)).
Q 90. What constitutes a comprehensive loan modification program?
A A comprehensive loan modification program that may exempt the loan servicer from the 90-day extension to the foreclosure process includes all of the following features:
The loan modification program is intended to keep borrowers whose principal residences are located in California in those homes when the anticipated recovery under loan modification exceeds the anticipated recovery through foreclosure on a net present value basis (Cal. Civil Code § 2923.53(a)).

It targets a 38 percent or less ratio of the borrower’s housing-related debt to the borrower’s gross income (Cal. Civil Code § 2923.53(a)). Housing-related debt is debt that includes loan principal, interest, property taxes, hazard insurance, flood insurance, mortgage insurance and homeowner association fees (Cal. Civil Code § 2923.53(k)(2)).

It includes some combination of loan modifications terms as specified (Cal. Civil Code § 2923.53(a)) (see Question 91).

The loan servicer seeks long-term sustainability for the borrower (Cal. Civil Code § 2923.53(a)).
Q 91. What are the loan modification terms that must be included in a comprehensive loan modification program?
A A comprehensive loan modification program that may qualify for exemption from the new law extending the foreclosure process by 90 days must include some combination of the following features:
An interest rate reduction, as needed, for a fixed term of at least five years;
An extension of the amortization period for the loan term to no more than 40 years from the original date of the loan;
Deferral of some portion of the unpaid principal balance until loan maturity;
Principal reduction;
Compliance with a federally mandated loan modification program; or
Other factors that the appropriate commissioner determines.
(Cal. Civil Code § 2923.53(a)(3).) See also Question 92.
Q 92. Does a loan servicer have to modify loans to get an exemption from the 90 day extension to the foreclosure process?
A No. A loan servicer is not required to modify a loan for a borrower who is not willing or able to pay under the modification. Furthermore, a loan servicer is not required to violate any contractor agreement for investor-owned loans. (Cal. Civil Code § 2923.53(i).)
Q 93. How does a loan servicer obtain an order of exemption from the new law extending the foreclosure process by 90 days?
A A loan servicer may apply to the appropriate commissioner (see Question 94) for an order exempting loans that it services from the new law extending the foreclosure process by 90 days (Cal. Civil Code § 2923.53(b)(1)). Upon receipt of an initial application for exemption, the commissioner must issue a temporary order exempting the mortgage loan servicer from the 90-day extension to the foreclosure process (Cal. Civil Code § 2923.53(b)(2)). Within 30 days of receipt of the application, the commissioner must make a final determination by issuing a final order exempting the loan servicer or denying the application (Cal. Civil Code § 2923.53(b)(3)). If the application is denied, the temporary order of exemption shall expire 30 days after the date of denial (Cal. Civil Code § 2923.53(b)(1)).
Q 94. To which commissioner does a loan servicer apply for exemption?
A A lender or loan servicer would apply for an exemption to the following commissioner as appropriate:
Commissioner of the Department of Financial Institutions for commercial and industrial banks, savings associations, and credit unions organized in California to service mortgage loans;

Commissioner of the Department of Real Estate for licensed real estate brokers servicing mortgage loans; and

Commissioner of the Department of Corporations for licensed residential mortgage lenders and servicers, licensed finance lenders and brokers, and any other entities servicing mortgage loans not regulated by the Department of Financial Institutions or Department of Real Estate.
(Cal. Civil Code § 2923.53(k)(1).)
Q 95. How does a homeowner ascertain whether his or her loan servicer is exempt from the 90-day extension to the foreclosure process?
A The Secretary of Business, Transportation and Housing must maintain a publicly-available Internet website disclosing the final orders granting exemptions, the date of each order, and a link to Internet websites describing the loan modification programs (Cal. Civil Code § 2923.52(f)) (see also Question 96).
Q 96. Does a loan servicer have to inform the borrower as to whether the loan servicer is exempt from the longer foreclosure timeframe?
A Yes. A notice of sale must include a declaration from the loan servicer stating both of the following:
Whether the loan servicer has obtained a final or temporary order of exemption from the 90-day extension to the foreclosure process that is current and valid on the date the notice of sale is filed; and
Whether the 90-day extension to the foreclosure process under the new law does not apply.
The law requires the loan servicer’s declaration of exemption on the notice of sale, even though it may have been more helpful for the borrower if the declaration was on the notice of default. This requirement will stay in effect only until January 1, 2011 at which time it will be repealed, unless it is deleted or extended by statute. (Cal. Civil Code § 2923.54.)

Q 97. What is the penalty for violating this law?
A Anyone who violates this law shall be deemed to have violated his or her license law as it relates to these provisions (Cal. Civil Code § 2923.53(h)).
Q 98. Where do I find this law?
A This law is set forth at sections 2923.52 to 2923.55 of the California Civil Code. The full text of this law is available at the California Legislative Counsel website at

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