The Florida Foreclosure Fraud Weblog

How to beat foreclosure the wrong way: bankruptcy abuse

Mike — Sun, 07 Mar 2010 01:46:25 +0000

How to beat foreclosure

Today’s St. Petersburg Times features a front-page story with the bold-face heading “How to Beat Foreclosure” and tells the stories of people who have stayed in their homes for years by gaming the system.

Only one problem: filing bankruptcy time and time again is an abuse of the system, and can cause you a lot more trouble than it’s worth. And ultimately, it’s not necessary at all.

Bankruptcy abuse

The article tells the story of a handful of families who have managed to stop foreclosure sales by filing bankruptcy once, twice, even as many as eleven times. Unfortunately, this tactics won’t work for long, as judges are starting to get wise. And they have options:

Under a “three-strikes and you’re out” rule, debtors on a third filing get no relief from foreclosure if they had two cases pending in the previous year. In addition, judges are giving banks and other creditors more opportunity to request a one- or two-year ban on filings by those who seem to be abusing the system. And judges can order serial filers to appear in person and show cause why their case should not be dismissed.

Foreclosure defense, not bankruptcy, may be the better answer

The good news is, most homeowners don’t need to file bankruptcy to avoid a foreclosure. All they need is a good lawyer who knows how to defend a foreclosure case. Because of the way that mortgage loans were re-packaged and sold off in bundles over the last decade, many of the so-called lenders bringing foreclosure cases can’t prove that the borrower actually owes any money to them. And if they’re not the ones that have the right to collect, they’re not the ones who have the right to foreclose. Lawyers and judges call this legal concept “standing.”

(Curious? Confused? Check out the free 30-page Consumer’s Guide to Fighting Florida Foreclosure for more information.)

Foreclosure plaintiffs have no leg for standing on

So what does a “standing” defense mean to you? Well, if you’ve ever heard of a “produce the note” defense, that’s essentially a variety of a standing defense – because in most cases, only the party holding the original note has the right to foreclose. That’s why a foreclosure complaint with a “lost note” allegation is such a problem for the court system.

But who cares? You owe the money to someone, does it really matter which bank tries to take your house?

Absolutely it does.

Here’s why: there are cases in Florida where one party, claiming the right to enforce a mortgage note, foreclosed on property, sold the property, got paid, and the borrower walked away… only to find out, some time later, that some other lender held the note, and sued them for it.

Standing: a protection against borrowers paying twice for the same loan

So, you ask, what happened in these cases? Surely the courts must have sent the second plaintiffs packing, since the debt had already been paid…. right?

Wrong.

The party holding the note had a right to be paid, period. And so these borrowers had to pay twice, because they didn’t challenge the right of the foreclosing plaintiff to enforce the note.

Don’t pay twice on the same debt

If you don’t mind paying for your home twice, once at the foreclosure sale and then again later when someone else shows up with the note, then go ahead – let your house go into foreclosure without a fight. But if you want to make sure that your rights – including the right to pay only once for your loan – then fight. The good news is, Florida appellate courts recognize the importance of standing – and have started to throw out foreclosure cases where the lenders can’t prove their right to collect.

So if you’re facing foreclosure, call a lawyer right away.

The bank can change your locks before foreclosure. (What’s In Your Mortgage?)

Mike — Thu, 25 Feb 2010 18:02:39 +0000

Locked out

Imagine this: you’re on a two-week vacation. You come back, and find a notice on your door:

Entry by unauthorized persons prohibited.

Alarmed, you try your key in the lock – it doesn’t fit. You peek through the windows and see that everything you left behind is gone – your furniture, your clothes, your photographs – everything.

You’ve been a victim of your mortgage.

Protection for the bank but not for you

At issue is a clause in most mortgages that allows the bank to “protect its interest” in the “security” pledged for the loan – in other words, your home. If the bank, or its inspectors, decide at any point that you’ve “abandoned” the home, they claim the mortgage gives them the right to change the locks, board the windows, drain the pipes, and clean out any trash.

Here’s the language most commonly used in many Florida mortgages:

9. Protection of Lender’s Interest in the Property and Rights Under this Security

Instrument. If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, (b) there is a legal proceeding that might significantly affect Lender’s interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which may attain priority over this Security Instrument or to enforce laws or regulations), or (c) Borrower has abandoned the Property, then Lender may do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property.
…
Securing the Property includes, but is not limited to, entering the Property to make repairs, change locks, replace or board up doors and windows, drain water from pipes, eliminate building or other code violations or dangerous conditions, and have utilities turned on or off. Although Lender may take action under this Section 9, Lender does not have to do so and is not under any duty or obligation to do so. It is agreed that Lender incurs no liability for not taking any or all actions authorized under this Section 9.

What does this mean? It means that the bank decides you’ve “abandoned” your home – or in some cases, simply gone on a vacation that’s too long for their tastes – they can come in and take complete possession of your home, without foreclosing or even giving you prior notice.

The banks argue this language is needed to protect the property in the event someone walks away from the house. But what protections are there for a homeowner whose house has been improperly seized?

None… because you’ve agreed to let them do it. Of course, if challenged, many banks will attempt to fix a problem they cause by seizing a house that’s not really been abandoned, but sometimes there’s no way to fix the harm they’ve done. How do they give back irreplaceable photos or mementos? How do they restore your sense of security in your own home? There’s probably not enough money they can throw at you if this happens.

So be careful when you sign that mortgage. You might just be handing the bank a key to your house without realizing it.

( Photo Source / Photo Rights )

What tricks and traps did the bank slip into your mortgage?

Mike — Mon, 22 Feb 2010 12:56:33 +0000

Some contracts might as well be in a foreign language ( source / rights )

Car rental companies hate me.

Whenever I rent a car, before I sign that two-sided, extra-long, faint-colored fine-print contract of theirs, I sit and read it, so I know what I’ve agreed to.

Now, I’ve been a lawyer for fifteen years. I can say I understand those contracts almost all the time. But the average non-lawyer who rents a car has no idea what they’re agreeing to, besides the daily rental rate, whether they have to fill the tank before returning it, and if they’re lucky, they understand the insurance bit.

That’s a two-page contract. When you bought your house, you had to cope with a stack of paper as thick as your wrist, on legal-sized paper, which you had five minutes to look at before you signed it. Right?

I have to confess: when I bought my first house, I had no idea what I had gotten myself into by signing all those papers. My wife, who’s a smarter lawyer than me, didn’t have a clue either. But we wanted the house, so we needed the loan, and we signed. And signed. And signed. In duplicate, triplicate, notarized and photocopied.

For us, nothing ever went wrong. But we were lucky. A lot of people have gotten hurt, badly, because they agreed to something they didn’t fully understand.

Knowing what I know today, I’d have to think long and hard about whether I would ever sign a mortgage, ever again. And I sure as hell won’t do it unless I a chance to review the loan papers before closing day.

What’s in your mortgage?

The mortgage is the document that allows the bank – or whoever they sell your loan to – to take your house away in a foreclosure case if you stop paying. It’s one of two extremely important documents you sign when you borrow money to buy a house (or when you refinance).

In a series of posts, I’ll take a look at several keys provisions of a typical mortgage- ones that are common in most, if not all, mortgage forms commonly used today. Once you’ve had a chance to read them, you’ll have a better idea of what’s in your mortgage, and why you should be very, very concerned.

Read the whole “What’s In Your Mortgage” series here.

Lenders sign bogus paperwork to support foreclosures

Mike — Mon, 15 Feb 2010 15:45:35 +0000

Bogus property records

What if you lost your house because the bank submitted bogus paperwork to the court?

It happens more often than you think. Sometimes, it’s just a mistake. Sometimes, it’s a cover-up of past mistakes. Sometimes, it’s out-and-out fraud by the foreclosing lender. Here’s a shocking example from the Tampa Bay area: evidence that documents prepared for foreclosure cases have been systematically faked: They actually have the word “BOGUS” in them.

Your assignment, if you choose to accept it

Usually, before a foreclosure begins, the plaintiff needs to find an “assignment” of the mortgage, which supposedly transfers the rights to the loan from the original lender to whomever actually forecloses. (In today’s foreclosure crisis, it is rarely the original lender who forecloses, but someone they’ve sold the loan to.)

These assignments get “recorded” as part of the public record. And if you look in Florida’s public records, you’ll find that a number of these so-called assignments literally transfer mortgages from lenders to “BOGUS ASSIGNEES.” Look at this bogus assignment [PDF] I found in the public records of Pasco County.

Linda Green, did you read this before you signed it?

This one claims to assign the mortgage and the loan from MERS (more about them later) to “Bogus Assignee for Intervening Assignments.” This document was prepared by Ron Mehrg of “DOCX” and signed by MERS officers Linda Green and Jessica Odhe.

It seems pretty obvious that MERS didn’t intend to ship this mortgage off to a “Bogus assignee” – one that literally doesn’t exist. This was, at the start, just a horrible mistake by DOCX, the document preparer. Then it got worse.

Most documents of this kind are computer-generated. Pull up the template, enter a few names, print. Sometimes templates like this have “placeholder” names that are replaced with the real ones when they are created. The more obviously fake these names are, the better, to prevent mistakes from happening – so they might use something like “bogus assignee” as a placeholder, thinking that no one in their right minds could possibly miss that when putting in the real names. But, someone did. So far, just an innocent mistake.

Then, Linda Green signed it. What could she possibly have been thinking? Did she read what she signed? Did she review the file to make sure that the mortgage was actually being sold to the right party?

Obviously not. With the volume of home loans, and the money sloshing around in the system, emphasis was on speed and efficiency – not doing it right. There were many people, like Linda Green, whose job it was to sign these papers, were paid to do so in volume. They would sit with a stack of paper, and sign, sign, sign, for hours at a time. Never once did they stop to check what they were signing – they didn’t get paid to do that.

And in the process, Linda Green and people like her were slowly wrecking the trustworthiness of our public property ownership records.

Papered over: the coverup

So how did they fix this problem? The disappointing answer, is that they didn’t. Once MERS discovered all these bogus assignments (and there are a lot of them, all over Florida and maybe even the whole country) they simply had DOCX go back and print out some new assignments, and had Linda Green sign them all over again. (That’s what happened to this Pasco County family’s home.)

But signing new assignments doesn’t fix the old one – it just papers it over. The trouble is, once Linda Green and MERS assigned the mortgage to anyone – even a “bogus” assignee – it was no longer theirs to assign to anyone. The result is uncertainty and confusion in the public records. Because it’s not clear who, if anyone, currently owns this mortgage, there’s a “cloud” over the title of the property – meaning it will be difficult for anyone to buy this home and be certain that they own it free and clear of all liens.

And that means, no one in their right mind would ever buy that home except for a deep, deep discount – driving down home prices for everyone in the neighborhood. And that’s true of every county, every state, where one of these BOGUS assignments has been entered.

The tip of the bogus iceberg

Any idiot – except perhaps Linda Green – can see that these “Bogus” assignments are exactly that. But the damage goes much deeper. All over the country, hundreds of Linda Greens, for thousands of lenders, have signed millions of such papers. Few, if any, of them have been checked for accuracy. That means that all mortgages are potentially the subject of bogus transfers, even if the word “bogus” doesn’t appear on the documents. Your mortgage, my mortgage, your neighbors’ and mine – all potentially blown up with the stroke of a careless pen.

In the long term, all of us will pay for the careless of the Linda Greens out there.

Deed In Lieu of Foreclosure: Florida lawyers spot bait-and-switch scam

Mike — Tue, 03 Nov 2009 18:06:44 +0000

Deed in Lieu of Foreclosure: Giving up the keys

Just want to hand in the keys and walk away from your upside-down loan? Many of our clients – often facing impossible monthly payments or gut-wrenching shortfalls on their loan-to-value ratios – just want to turn in the keys and walk away from their loans. “What about a deed in lieu?” they ask.

That’s usually when I have to deliver the bad news. Not only are DIL’s hard to negotiate unless you’re already in foreclosure proceedings, they’re often impossible to get nowadays just because the banks already have too much undervalued real estate. They don’t want your house – they want your money. And taking your house through foreclosure is mainly a way to motivate you to cough up some of that cash.

Lenders offer Deeds in Lieu as part of a bait-and-switch

Florida attorney Jonathan Alper reports that he recently spotted a bait-and-switch (my words, not his) on a supposed DIL settlement offered to one of his clients. Alper reports:

When I looked at this client’s “deed in lieu” I found that the lender did not include a release of liability, and in fact the document referred to the borrower’s continued liability for a deficiency. This client had negotiated a deed in lieu of foreclosure [but] not a deed in lieu of deficiency liability. Also, by surrendering title to the property without the bank having to foreclose, the client gave up all the defenses available in a foreclosure action which he could use as leverage to negotiate a complete release.

[emphasis mine - Ed.] Alper offers this bit of advice, which everyone trying to negotiate a DIL should take to heart:

If your mortgage lenders offers you a deed in lieu make sure it’s the real deal. You give them the property back and they release you from any further liability. Anything less may be a trap.

Admiral Ackbar couldn’t have said it better.

Another foreclosure crisis: Not enough lawyers defending homeowners

Mike — Fri, 09 Oct 2009 16:11:30 +0000

We’re all familiar with the all-too-common cries that the number of foreclosures in this country is reaching “crisis” proportions.

But the New York Times sees another kind of crisis: those in foreclosure trouble don’t have access to legal help.

an overwhelming number of homeowners who face foreclosure do not have legal help in protecting their rights. As a result, people are losing their homes who do not need to.

It is absolutely true that many people now losing their homes could have saved them if they’d only had adequate legal help. All over the country, judges are throwing out foreclosure cases because banks who claim to own the loans really don’t — and they might have no idea who really does. This is the lynchpin behind the “produce the note” defense – the idea that a bank actually has to prove that a borrower owes them money… meaning this bank, as opposed to another one. It’s the only way to protect borrowers from facing multiple actions by multiple lenders, each of whom claim to be able to collect the same loan.

Proof of ownership.

For the most part, only a lawyer trained in the rules of evidence and the laws relating to the transfer of promissory notes – the loan documents themselves, which are usually governed by the Uniform Commercial Code – can really force a foreclosure plaintiff to cough up the evidence the shows who really does – and who really doesn’t – own the loan.

According tot he Times, the problem is that there aren’t enough lawyers. But there are plenty of lawyers out there, and more every day are learning how to fight these battles. So the problem isn’t that we need more layers – it’s that too few foreclosure victims ever hire a lawyer to help them out.

And because of that, too many people lose homes they could have saved.

Beware illegal evictions in Florida foreclosures

Mike — Thu, 18 Jun 2009 11:49:40 +0000

Going through foreclosure? Not sure when you have to leave?

You’re at risk for an illegal eviction. Tampa resident and illegal eviction victim Bruce Wernet explains.

I came home to find two trucks being loaded with my personal belongings. A “lock-out” company, hired by the bank, informed me that the house was foreclosed upon, and they now were the owners of my personal property.

I called the Hillsborough County Sheriff’s Office, and the company was ordered to leave. Once a home becomes foreclosed on, it doesn’t mean that the bank can take your belongings and change the locks. They are required to file a writ of possession that is carried out by sheriff’s deputies.

In my case, no writ of possession had been filed. But the lock-out company already had removed several valuables that were never recovered. I felt violated, as if I woke up and found myself in a communist country.

If you find yourself the target of an illegal eviction, call the sheriff first and a lawyer next. Don’t lose your home before you absolutely have to.

Florida lawmakers stick it to foreclosure victims again: homeowners’ filing fees go up to $1,900

Mike — Fri, 29 May 2009 16:48:37 +0000

No man’s life, liberty, nor property is safe while the legislature is in session.
-Judge Gideon Tucker

Foreclosure filing fees jacked up to $1,900

In an apparent effort to stem the tide of foreclosure cases, and stauch the bleeding budget at the same time, the Florida Legislature this year jacked up court fees in foreclosure cases – up to $1,905 just to file the case, if the case is for more than $250,000. (Most of them are.) The new fees are effective June 1, 2009.

New extortionate fees for defendants, too

Sticking it to the banks? Well, not so fast. If the foreclosure defendant has a counterclaim – say, they want to countersue the lender for fraud or other violations of the law related to lending – they have to pay a filing fee, too. And it’s also $1,900. The money for both fees go straight into the state’s general fund.

High fees prevent homeowners from protecting their legal rights

This is an outrage. Charging any filing fees for counterclaims, in my view, is ridiculous. Charging $1,900 to someone who’s in foreclosure – already in financial distress? Every member of the legislature that voted for this provision should be horsewhipped in public, just before being turned out of office. Why? Because few, if any, foreclosure defendants can possibly afford to pay that much to bring a claim that the lender has engaged in fraud or some other illegal conduct. (For that matter, few could afford the old counterclaim fees of $295, imposed last year.) This new filing fee effectively prevents foreclosure defendants from enforcing their legal rights in foreclosure actions if the lender has broken the law.

Homeowners get stuck coming and going

Even the initial filing fee, the one paid by plaintiff, ultimately hurts homeowners because in cases where the foreclosure is not contested, that filing fee as a “cost” that is added to the amount of the lien assessed against the home. If there’s any equity left in the house – not currently common, but once was and someday will be again – that filing fee comes out of the homeowner’s pocket, not the plaintiff’s.

Unfortunately, it looks like we’re stuck with this, although there may be some ways to mitigate or even avoid the impact altogether – such as filing separate actions instead of counterclaims, or perhaps removing cases to federal court where possible. In the meantime, we’ll be left wondering how the legislature is going to screw homeowners next year.

The Florida Foreclosure Fee Schedule

Here’s a copy of the new fee schedule for all court filings. This one is for Putnam County, but it’s the same one that will apply across the state.

Fake Sale Dates and Identity Theft

Mike — Thu, 21 May 2009 21:45:25 +0000

Identity Theft Warning

The phone rings. On the other end, someone claims to be calling from your bank, telling you that a sale date has been scheduled on your home for next week, or the week after.

But, they say, you can stop this if you submit an application for a loan modification. All you need to do is give them your latest paystubs, income tax returns… you get the idea.

Funny thing is… when you check with the clerk, there’s no sale date at all. It’s a complete lie. So who’s making these calls?

That’s what I, and some other lawyers I know, wonder when our clients tell us about the calls. Not every homeowner in foreclosure is lucky enough to have a lawyer or the savvy to check what their real sale date is. A large number of these folks will not even think to question whether it’s really their bank on the other end of the phone line.

And far too many will be willing to surrender their private financial information to someone on the other end of the line, without knowing who it really is.

How to Stop Identity Theft

If you’re in Florida, it’s easy to check whether your home is scheduled for sale – just call the Clerk of Court. If you’re anywhere else, check with the relevant authority. But beyond that, do not – under any circumstances – send private financial data to anyone who claims to be from your bank unless you are absolutely, 100% positive that they are who they say they are. If you’re not sure, ask them for a street address, not a P.O. box, to mail your information to. And then get online and check out that address.

Be safe out there.

Obama foreclosure plan or loan modification scam?

Mike — Mon, 20 Apr 2009 13:02:55 +0000

Looking for government help to save homes

One of the most popular search terms people use to find one of our sites is “Obama foreclosure plan.” Homeowners in economic distress are hungry for information about government programs. And of course, where there are people hungry for information about what the government is doing to help them save their homes.

Seeking information about the Obama foreclosure relief plan

Unfortunately for those seeking information about President Obama’s plan to help homeowners avoid foreclosure, many web sites have cropped up designed to lure those people into paying for services the government might offer them for free.

One such site is pictured above. I won’t link to it, but the site uses the same look-and-feel of the Obama campaign website, and the current White House website. There’s a video of the President speaking. The site even – almost certainly without legal authorization – uses the Obama campaign logo. All this is, of course, designed to give the false impression that the site is somehow government-related or government-sponsored. The site goes further, bragging about the availability of government programs to help homeowners:

Demand is expected to be very high for these programs. Although billions have been set aside to assist affected homeowners, unfortunately this window of opportunity will only last for a limited period of time. Individuals who are interested in applying for loan modification are encouraged to do so immediately.

Someone reading this would expect to be referred to a legitimate government program. Unfortunately, they’d be wrong. The site sends its visitors to a site for a clearly for-profit, privately-owned program that offers to help you get a new loan for some undetermined fee. Of course, no legitimate government site would do this (just as no legitimate government site would use a campaign logo). But for the careful reader, there’s proof that the website has nothing to do with any government program despite every possible effort made to convey that impression. In tiny print at the bottom, there’s a disclaimer:

Our website acts as an informative median, that lists references of available opportunities that individuals can learn about during our effort to recover the economy as a nation. We are not a government funded website nor do we have any affiliation with the US government. Our purpose is to open our users to multiple financial services that may help certain financial situations they face.

I think someone needs to look up the word “median,” first of all… but the important thing to remember here is that this is some private program that desperately wants you to believe that it’s a government program. It’s not.

Don’t give them a dime.

Senator Martinez responds to foreclosure concerns, weakly.

Mike — Fri, 17 Apr 2009 12:28:36 +0000

My friend Deidre Newton wrote to U.S. Senator Martinez in support of the “Helping Families Save Their Homes in Bankruptcy Act” (S. 61). This legislation would allow a bankruptcy judge to modify the terms of a debtor’s primary residence and reduce the principal owed on a mortgage to avoid home foreclosure.

Senator Martinez wrote back, a full page… and not a single word saying that he was supporting the bill.

Expect a “nay” vote from the gentleman from Florida.

New scorched-earth tactics from second-note lenders: skip foreclosure, skip deficiency judgment, go straight for the jugular

Mike — Thu, 16 Apr 2009 12:55:07 +0000

Florida asset protection lawyer Jonthan Alper reports that more second-note holders are skipping the foreclosure process and going straight to court on the promissory note itself.

A colleague of Alper’s says, “In other words they are seeking what is tantamount to a deficiency decree and will not have to go through any procedure to domesticate it in the state where the assets are located.” Alper himself comments:

This tactic is prevalent in foreclosures of commercial loans against developers and builders. I would pursue the same tactic if I owned this second mortgage. I still rarely see deficiency claims from first mortgage lenders, but this report is another example of more aggressive collection by second mortgage lenders who receive nothing from foreclosure of “under water” Florida real estate.
I often tell my clients that, historically, first mortgage lenders on residential properties rarely pursue deficiency judgments, but history is no guide to what they will do next week, next month, or next year, since the financial environment is completely different now than it was during that “historical” span. The tactic described by Alper is not technically seeking a deficiency judgment; it’s worse, because it ignores the value of the property that secures the note.

(An aside note: Alper’s Florida Asset Protection Weblog is an excellent source of information on asset protection techniques in Florida and can be a useful primer for anyone who wants to know more about the topic.)

Two more loan modification firms taking up-front fees draw the wrath of Florida Attorney General Bill McCollum: National Foreclosure Counseling Services Corp. and Keep Your Property, Inc.

Mike — Fri, 10 Apr 2009 13:45:26 +0000

Two more loan modification shops are under fire from Florida’s Attorney General Bill McCollum:

The lawsuits were filed against south Florida’s Keep Your Property Inc. and Jacksonville-based National Foreclosure Counseling Services Corp. The attorney general’s office alleges that both companies charged up-front fees to customers facing foreclosure. This is against the law in Florida.

McCollum has said previously that loan modification operations are the number-one consumer complaint his office received in all of 2008.

Dishonest process servers deliver consumer injustice

Mike — Tue, 07 Apr 2009 19:29:35 +0000

What if someone sued you and you didn’t even know about it? That’s happening to consumers all over the country, because some people appointed to deliver important court papers are lying about doing their jobs.

The Home Equity Theft Reporter details a new report from the New York area about this practice. The study suggests as high many 94% of lawsuits were botched by process servers.

“Almost always scams” – law enforcement cracks down on foreclosure rescue operations

Mike — Tue, 07 Apr 2009 12:22:32 +0000

Foreclosure rescue scammers now have a new front to worry about: a coordinated operation by state and federal officials to shut down those who prey on foreclosure victims.

“The message is very simple: If you prey on vulnerable homeowners with fraudulent mortgage schemes, we’ll find you and we will punish you,” [U.S. Attorney General Eric] Holder said.

Scammers disguised as government programs

Other federal programs have given scammers an ironic opportunity to prey upon homeowners: they disguise themselves as government programs, using official-looking logos and bureaucratic-sounding names.

It’s all too easy to fall prey to the slick packaging, but HUD Secretary Shaun Donovan says there’s one easy way to tell who’s who: government programs are free.

April Charney comes to Tampa again, blasts “sloppiness, deception and outright fraud.”

Mike — Mon, 06 Apr 2009 12:37:27 +0000

The St. Pete Times reports on April Charney coming to town again:

At the start of class, April Charney makes one thing clear.

“This is very dense, complicated work,” she warns. “If you don’t get it, raise your hand and ask questions because the chances are others don’t get it either.”

[She's speaking to] lawyers and judges from all over Florida. And they’ve come to this seminar in Tampa to learn from the woman many consider the nation’s foremost expert on fighting foreclosure.

…Charney has parlayed her own experience helping clients save their homes into a veritable crusade to protect millions of Americans from what she says are illegal foreclosures. Over the next eight hours, she will cite example on example of the sloppiness, deception and outright fraud — including forged signatures — in some of the 275,000 foreclosure suits filed nationally each month.

She’s making some headway, too. April is teaching lawyers, packing in hundreds at a time to hear her speak, and those lawyers are going out and using her methods to stop these sloppy, deceptive, and fraudulent foreclosures.

And some judges are listening. More than ever, homeowners are beating their foreclosures. More than ever, people who would have otherwise lost their homes to these fraudulent practices are staying in their homes.

The tide is turning, thanks in large part to April Charney.

What happens to tenants when the landlord goes into foreclosure?

Mike — Mon, 30 Mar 2009 14:44:48 +0000

UPDATE

Since this article was posted, federal law has changed to protect the rights of tenants. If you’re a Florida resident and your landlord is in foreclosure, find out what you can do to stay in your home for the duration of your lease, under the “Protecting Tenants at Foreclosure Act of 2009,”.

Time to pack?

It’s a renter’s nightmare: a knock on the door, sheriff’s deputy standing outside with an eviction order because the landlord fell into foreclosure and the property was sold.

Time to pack, right?

Florida attorney James Tai, who handles landlord/tenant cases, says:

There really is nothing that tenants can do to if the property is foreclosed upon. The best that they can do is try to get advanced notice, so that the tenants do not have to make moving arrangements on short notice. In some instances, a tenant may have as little as 3 notice days to vacate the rental property. If a tenant does not have money saved up for relocation, this often leads to disastrous results.

James goes on to describe when a tenant has the right to notice in a foreclosure proceeding.

Even tenants have rights in foreclosure

I don’t completely agree with James when he says that there’s “nothing” a tenant can do. As James notes, a tenant who’s already in the property (even without a “signed” lease) is a “person in possession” who is a necessary party to the foreclosure action. In other words, the tenant is a co-defendant who has the chance to raise any legal defenses that might exist. And in some foreclosure cases, the tenant can raise some of the same defenses that the landlord could raise. That means that a properly-prepared tenant who is highly motivated to stay in their home could extend or even defeat the foreclosure, or create enough leverage that the foreclosing plaintiff agrees to let them stay on, even after the foreclosure.

Standing and other defenses

How? Well, there’s always the standing defense, one of my favorites. “Standing” simply means that the foreclosing plaintiff is the right person or right entity to be foreclosing – that they have the right to do so. If the plaintiff lacks standing, they lack the right to foreclose, and the tenant gets to stay. The standing defense is most commonly seen where a loan has been sold one or more times and it’s not completely clear who owns it. A foreclosure complaint which contains a “lost note” count often is a warning sign that a standing issue is present. So a tenant who gets served with a foreclosure complaint, one that includes a lost note count, may want to consult a lawyer to see if a standing issue could be raised to keep the tenant in the home.

(For a more detailed explanation of this and other defenses, read our free 30-page “Consumer’s Guide to Defending Florida Foreclosures.”)

Standing is just one of maybe a dozen different defenses to a foreclosure action, each of which could keep the tenant in their home for the rest of a one-year lease or even longer. But the tenant has to be willing to fight.

Afraid of Foreclosure Rescue Scams? Don’t Follow CNN’s Bad Advice.

Mike — Sun, 29 Mar 2009 22:38:11 +0000

Why CNN is Wrong About Foreclosure Rescue Scams

If you’re afraid – and you should be afraid – of getting ripped off by foreclosure rescue scams, you might think that CNN’s advice on how to spot foreclosure prevention rip-offs would be a good place to look. Sadly, you’d be wrong. Here’s why.

Their advice is focused exclusively on those who are seeking “counseling.” In Florida, trying to seek counseling after a foreclosure case has been filed – without seeking the advice of a licensed attorney – could be a disaster, and possibly even illegal. Why? Because foreclosure cases are lawsuits. Only a practicing attorney, licensed in the state of Florida, can help you defend a foreclosure case.
Their advice steers people exclusively to non-profits. While non-profit assistance can be a great boon to a homeowner in foreclosure – see, for example, the work of April Charney at Jacksonville Area Legal Aid – many people don’t qualify for free legal help.
Their advice steers people to those with connections, rather than knowledge or skill. (They even say, “Some foreclosure counselors have a servicer’s VP for mortgage mitigation on speed dial.”) Having a speed-dial isn’t the same thing as getting the job done. Why? The VP for the servicer isn’t the person calling the shots in most cases. It’s the investors who own the loan who do. And there’s no one who has those people on speed dial. The only way to get them to budge is to fight back.

The Helpful Bits

It’s not all bad news over at CNN. Some of the things they say make sense. Two things stood out:

Make sure someone is with you every step of the way. You don’t want to get bounced around from agent to agent, from rep to rep, having to restart the process every time. When you hire a Florida lawyer to defend your foreclosure, they have to stay on your case until the end, unless you or the judge say otherwise.
Find out what you’re paying for, and when. In Florida, it’s now illegal for most non-lawyers to take any money from you until they have finished providing all services. And they have to spell it out for you in writing. So don’t pay any money to anyone until you know exactly what you’re getting, and who you’re getting it from.

There are new scams popping up every day, so be careful out there!

“State of Emergency” due to foreclosure rescue scams, says McCollum

Mike — Fri, 27 Mar 2009 21:10:23 +0000

“State of emergency” were the words chosen by Attorney General Bill McCollum this week, when he announced that he was asking law enforcement officials from state and local agencies to step up enforcement efforts.

Mortgage fraud, and in particular, foreclosure rescue fraud, were the number one complaint to McCollum’s office in 2008.

There’s no such thing as the “Federal Mortgage Modification Administration” – not in our government, anyway.

Mike — Wed, 25 Mar 2009 19:05:27 +0000

This is NOT a government agency.

One of my clients today got a mailing from a group called the “Federal Mortgage Modification Administration.” They have a government-sounding name, a government-seal-looking logo, and a Washington, D.C. address. They purport to offer loan modification services, and it’s clear they are trying to look like a government agency that doesn’t exist. In their letter to my client, they even claim that Congress has granted them authority to modify home loans.

What an interesting mailing address…

Are they for real? Can they really do what they promise? Well, I can tell you this: When I lived in D.C., 611 Pennsylvania Avenue S.E. was a UPS Store. And the web site? Owned by a web design firm in California.

You be the judge.

Florida Foreclosure Law Center LLC and Lincoln Lending Services Accused of Illegal Loan Modification Operation

Mike — Tue, 24 Mar 2009 17:39:18 +0000

“We are asking the Court to shut them down.”

Another loan-modification shop, this time in conjunction with a law firm, has apparently run afoul of the law. Florida’s Attorney General, Bill McCollum, has sued Florida Foreclosure Law Center LLC and Lincoln Lending Services and said at a press conference:

We are asking the court to shut them down.

“Forensic analysis” fee was a fraud

Florida law bars foreclosure rescue services from charging an advance fee yet Lincoln Lending asked homeowners to pay a $2,700 “forensic analysis” fee up front, claiming that they were reviewing the loan for errors and violations that would help lenders avoid foreclosure. McCollum said the fee was a fraud, designed to skirt the law. They also lied when they told homeowners that a $999 “loan-modification” fee would be paid by President Obama’s stimulus plan. It won’t.

Lincoln Lending Targeted Hispanics

Some of my colleagues have told me they’ve seen Lincoln Lending advertising on South Florida Spanish-language TV stations, calling the ads “outrageous.” The AG’s office apparently agreed. Also, because Lincoln was allegedly feeding clients to a local law firm, it may be “indirectly” involved in the practice of law, violating Florida law regarding unauthorized practice of law.

The lesson?

Be careful who you hire to help you when you’re facing foreclosure.

Loan Modifications Can Be a Foreclosure Trap – Because of “Investors” Owning the Loan

Mike — Sun, 22 Mar 2009 21:03:31 +0000

The Tampa Tribune explains why loan modification isn’t all it’s cracked up to be.

Rafael and Tina Castillo thought their mortgage lender must have made a mistake when it sent them their loan modification paperwork this month. The monthly payment of $1,700 had been reduced to $737.41 for the next six months…. But then came the kicker. September’s payment: $10,303.11.

Obviously, that bank isn’t really interested in helping out the Castillos. But why? Because their loan isn’t owned by that bank, it’s owned by a bunch of faceless “investors” who bought it on Wall Street:

Most of Wells Fargo’s loans are owned by investors, and those investors control the modification terms.

In other words, if the investors don’t want to modify your loan, there’s nothing the bank can do about it. Now, more than ever, it’s important to find out who owns your loan.

How to Lose Your License to Practice Law: Split Fees With Loan Modification Shops

Mike — Wed, 04 Mar 2009 21:18:22 +0000

Since the passage of Florida’s Foreclosure Rescue Fraud Act, § 501.1377, many operations have been trying to get around the new law by teaming up with attorneys to offer services, in hopes that the attorney’s exemption would shield them from liability.

The Florida Bar has called foul. In a just-released Ethics Opinion, the Bar has stated (properly, in my opinion) that fee-splitting arrangements with these operations, along with other types of business deals, violate the attorney’s obligations under the Rules of Professional Conduct.

The Florida Bar’s Ethics Hotline recently has received numerous calls from lawyers who have been contacted by non-lawyers seeking to set up an arrangement in which the lawyers are involved in loan modifications, short sales, and other foreclosure-related rescue services on behalf of distressed homeowners. These non-lawyers include mortgage brokers, financial management advisors, foreclosure “consultants” and others who engage in foreclosure related rescue services or other similar services. Non-lawyers have proposed a variety of agreements, even offering to hire lawyers as “in-house counsel” to provide services to the non-lawyer’s customers. The Foreclosure Rescue Act, Section 501.1377, Florida Statutes, went into effect October 1, 2008 and imposed restrictions on non-lawyer loan modifiers to protect distressed homeowners. The new statute appears to be the impetus for these inquiries.

Lawyers should be wary of these proposals, as many violate the ethics rules and may subject the lawyer to discipline.

(Emphasis added.)

The whole opinion is worth reading: Download the Opinion [pdf]

Nevada Law Enforcement Overwhelmed by Shady Foreclosure Rescue Operations

Mike — Wed, 18 Feb 2009 16:40:59 +0000

Florida isn’t the only state dealing with shady foreclosure rescue operations and loan mod shops popping up like mushrooms: Nevada is getting new complaints every day and has trouble addressing certain types of these scams due to statutory loopholes.

Waltuch said his state office has the statutory authority to go after foreclosure consultants but not loan modification consultants who work with properties not in foreclosure. He said his agency work in a roundabout way using loopholes available through the Consumer Affairs Division.

[via HETR]

Florida AG Targets Orlando Foreclosure Rescue Firm: “Financial Management Advisors”

Mike — Mon, 16 Feb 2009 22:55:05 +0000

Florida AG Bill McCollum has set his sights on an Orlando-area firm offering loan modifications:

A local firm offering loan modification services to homeowners facing foreclosure violated a state law that prohibits companies from charging an up-front fee for their services, according a lawsuit filed Feb. 13 by Florida Attorney General Bill McCollum.

Among other things, the lawsuit states that FMA:

…require homeowners to pay an up-front fee before the Defendants will render any loan modification and foreclosure-related rescue services. Upon Plaintiff’s information and belief, the up-front fee charged by Defendants can be as high as $2,500 (Two Thousand, Five Hundred Dollars).

So what do you get for that $2,500.00? Apparently, nothing:

Upon Plaintiff’s information and belief, Defendants are not providing homeowners with the contracted-for services.

FMA also stands accused of false and misleading advertising, including fake testimonials, false claims of affiliation with lending agencies, and false claims to having attorneys on staff.

Download the complaint [PDF]

Florida AG Shuts Down HomeKeeperUSA for Foreclosure Rescue Act Violations

Mike — Wed, 11 Feb 2009 20:41:43 +0000

Florida Attorney General Bill McCollum has shut down HomeKeeper USA, a Florida company, for violating Florida’s Foreclosure Rescue Fraud Prevention Act.

The attorney general’s office said it investigated the company for four weeks and found it violated the state’s newly-enacted Foreclosure Rescue Fraud Prevention Act by accepting upfront cash payments for arranging an alternative payment plan. The law requires services to be completed before payment is rendered.

The company, according to the attorney general’s office, offered to assist financially-strapped homeowners in arranging new payment plans with their lenders.

It appears that a company by the same name is still operating in Florida – so beware.

Foreclosure Rescue Scams Still Run Rampant

Mike — Sun, 01 Feb 2009 16:15:29 +0000

Imagine facing foreclosure, terrified of losing your home, and then paying hundreds or even thousands of dollars to a company who promised to help you – and then did nothing. Tragically, that scenario is all too real for many Floridians. More and more illegal foreclosure rescue operations are cropping up statewide.

These companies charge fees to negotiate with lenders on behalf of homeowners. The goal is to stop the foreclosure and get the lender to modify the loan so the homeowner can afford to stay.

Unfortunately, many of these companies not only fail to deliver on their promises, they also violate a new state law regulating foreclosure rescue consultants.

The Florida attorney general’s office last year opened more than 50 investigations and sued several foreclosure rescue companies for not making good on promises to consumers. So far, three Tampa Bay area companies, including the one Matlock paid, have gone out of business amid these investigations.

Although the attorney general’s office has been diligently trying to weed out these scam artists from Florida, new ones crop up every day. If you’re in foreclosure, and you are hiring someone to help you, make sure you check them out first.

April Charney Trains Tampa Lawers to Fight Foreclosure

Mike — Fri, 23 Jan 2009 14:05:10 +0000

Yesterday, nationally-recognized foreclosure expert April Charney came to Tampa to train Bay Area lawyers how to fight foreclosures and help homeowners save their homes.

If the lender can’t prove it owns the loan, judges will sometimes throw out the foreclosure. If the wrong lender forecloses, Charney said, homeowners could face another lawsuit later.

Charney said her strategies came from finding sloppiness and fraud in her cases and those of other attorneys. Many of the people losing their homes, she said, are in this position because of unethical and sometimes illegal foreclosure procedures.

The lawyers of Ricardo Wasylik & Kaniuk have trained with Charney and use updated versions of techniques that Charney pioneered in order to help homeowners beat foreclosure and keep their homes.

One local bankruptcy judge was impressed with Charney’s presentation.

Catherine Peek McEwen, a U.S. bankruptcy judge in Tampa, attended and said she wants to gain a better understanding of foreclosure law.

“I think the learning curve was up a notch for the Tampa Bay area,” she said.

“The state court judges are going to have more to chew on if these lawyers get in front of them.”

Several area judges already have.

Chase and Wells Fargo anger federal judges due to fraud and incompetence in mortgage cases

Mike — Mon, 29 Dec 2008 18:32:31 +0000

Two major lenders, Chase and Wells Fargo, have angered federal judges sitting in two different cases: Chase, because of an apparent fraud on the court, and Wells Fargo, through incompetence and sloppy bookkeeping.

Chase lies to the court

My good friend Jay Fleischman describes the Chase case:

In the case of In re Pawson, Case No. 05-18439 (Bankr. S.D.N.Y.) Chase filed a motion for relief from stay although the debtor had substantial equity in a co-operative apartment valued at $1,000,000. Chase alleged that the debtor was two months in arrears in his mortgage payments, though the debtor showed that Chase had been rejecting the online payments he had made since filing his petition.

Because this is not the first time Chase has been caught with its hand in the cookie jar, it now has to agree to follow special procedural safeguards in that bankruptcy court designed to prevent future fraud, and, if I’m reading the story correctly, must pay to the debtor $50,000 in compensation.

Wells Fargo can’t keep track of its payments

The Wells Fargo case is simply one of extreme incompetence:

The Burriers denied that they had missed payments, but in April, to keep their home, they agreed to make double payments to cover the ones Wells Fargo claimed they had missed. If the borrowers could prove that the mortgage checks were submitted, Wells Fargo said, their account would be credited and they would no longer have to make up the payments. The proof required by Wells Fargo and approved by the court was “valid, accurate and true copies” of the front and back of the checks the borrowers sent in.

Only one problem: Wells Fargo had been recording the payments electronically, so that the borrowers never got any canceled checks, and Wells Fargo knew that.

“The payments have, evidently, been lost in a black hole of the creditor’s organization or through accounting mismanagement,” the judge wrote. “This is a major lender/mortgage loan servicer where the left hand does not know what the right hand is doing — the collection department does not know what the check processing and accounting departments are doing.”

Like Chase, Wells Fargo has been in hot water before with this same judge, and he’s considering whether their conduct in this case deserves some kind of punishment.

Attorney Mike Wasylik addresses Foreclosure Defense on Tampa TV show “Success Made Simple”

Mike — Fri, 26 Dec 2008 16:47:24 +0000

I appeared recently on a Tampa-based show, “Success Made Simple” with Anthony Kocovic, discussing foreclosure defense. The video has just been released:

Enjoy the show, and have a happy New Year!

Who owns your loan? MSNBC asks April Charney the tough questions.

Mike — Fri, 19 Dec 2008 15:48:41 +0000

MSNBC has posted its interview with April Charney, the Jacksonville Area Legal Aid lawyer who has pioneered the field of foreclosure defense here in Florida.

“You ever look into a place where snakes hang out?” she asks in the middle of a conversation about the loan officers, appraisers, investment bankers, attorneys and others that she believes are responsible for the nation’s worsening financial crisis. “That’s what I see here. They’re writhing and oozing and morphing into creepy stuff with slime all over it.”

Then in her quiet, gentle drawl — the kind of voice that could get you invited to afternoon drinks on the finest porches in South Florida, where she grew up — she leans forward and says quite earnestly, “Not to discredit snakes or anything.”

Besides April’s dry humor, the article is a must read for anyone who’s interested in our current mortgage and foreclosure crisis, how the financial industry has hopelessly screwed up our residential real estate system, and what’s going to happen when a certain five-year deadline starts hitting some of these loans early next year.

60 Minutes: “There’s Still a Lot of Pain to Come” in mortgage crisis

Mike — Mon, 15 Dec 2008 15:03:57 +0000

Watch CBS Videos Online

We’re “about halfway” through the bursting of the bubble.

Countrywide puts up billion-dollar settlement for defrauded Florida homeowners

Mike — Tue, 07 Oct 2008 02:58:33 +0000

Countrywide and Florida Attorney General Bill McCollum have reached a settlement of the wide-ranging fraud claims filed by the state earlier this year. The details remain to be worked out, but here are several key features to the settlement that could benefit more than 50,000 Florida homeowners with a Countrywide loan.

Cash payments

Floridians who have lost their homes due to some of Countrywide’s challenged practices may be eligible for cash payments in compensation. Up to $20 million may go to Florida’s former homeowners.

Late fee waivers

Countrywide borrowers who were assessed late fees due to improperly-written loans may be eligible for waivers of those fees. Up to $4 million has been set aside to benefit Florida homeowners with late-fee waivers.

Loan modification and foreclosure abatement

The most important feature of the settlement is the prospect of modifying the loans of qualified Countrywide borrowers, converting adjustable-rate loans into fixed-rate loans with more affordable interest rates, using HUD income-to-debt ratio guidelines. Countrywide has also agreed to hold off on filing or pursuing foreclosure against any borrowers who might qualify for relief.

Toll-free Countrywide hotline

Not all homeowners will qualify, so keep an eye out for more details as they develop. Countrywide has a toll free hotline for those who want more information: 1-800-669-6607.

UPDATE

I’ve been getting reports from people who are trying to call the hotline that they get transferred, hung up on, and otherwise ignored. This has been reproted to the attorney general’s office.

New Florida Foreclosure Rescue Scam Law takes effect Oct. 1

Mike — Wed, 01 Oct 2008 13:15:31 +0000

If you want stricter laws protecting homewoners from predators looking to scam foreclosure victims, then Florida has some good news for you.

The state has enacted a new law, effective on October 1, 2008, aimed at equity-skimming and advance-fee fraud schemes designed to steal from Florida homeowners what little money or equity they may have left.

The law doesn’t apply to everyone – lawyers, for example, are already regulated by the Florida Bar and are exempt from the new law – but anyone who’s not exempt and offers services to foreclosure homeowners has to comply with strict new requirements, including written disclosure requirements, a cooling-off period, and a prohibition from taking fees before all services are complete. The law also makes it easier for homeowners to cancel any transaction where a foreclosure “consultant” tricks the homeowner into singing over a deed to their home.

Perhaps most important, for homeowners who have fallen victim to foreclosure predators, anyone who violates the new law may have to pay penalties of up to $15,000. Anyone who thinks they’ve been a victim of foreclosure rescue scams after October 1 should contact a lawyer to find out if they have any claims against a scammer.

Foreclosure Fraud is a “monstrous” problem across America

Mike — Mon, 22 Sep 2008 15:52:14 +0000

MSNBC reports on just how bad the foreclosure fraud problem has become:

Rich Hagar is a former home appraiser based in Seattle who now runs seminars for law enforcement officials and real estate professionals on detecting fraud. He describes the mortgage fraud problem as “monstrous,” noting that bank “Suspicious Activity Reports” for mortgage fraud have jumped nearly 700 percent in the last five years, with 48,000 filed in the first nine months of this year alone. But Hagar said he believes those figures only represent 10 to 15 percent of the total fraud cases – suggesting nearly 1 million more fraudulent mortgages have been closed in the first nine months of this year.

The article also talks about the perils of fraud in short-sale transactions:

Fraudulent short-sale specialists often promise quick resolution for a fee. They can also hide the true value of the sale from parties involved and pocket the difference. For example, the con artist might persuade a buyer to pay $175,000 for a home with a mortgage of $200,000, then tell the bank the price was $150,000. The short-sale facilitator then pockets the $25,000 difference.

“There’s a lot of room for fraud in short sales,” said Wasylik, the Florida attorney.

Just one more reason to avoid fly-by-night foreclosure rescue operators and “short sale consultants.”

AG McCollum sues 25 defendants for fraud: maybe the largest fraud case ever

Mike — Sat, 20 Sep 2008 20:55:23 +0000

Attorney General Bill McCollum is at it again, targeting perpetrators of mortgage fraud. This time, McCollum has sued some twenty-five defendants who allegedly skimmed over $6 million out of approximately 60 home loan transactions. Here’s some of how they did it:

Starting in July 2005 and continuing through at least January 2007, three of the ring’s leaders allegedly defrauded lenders by recruiting “straw buyers” with good credit and using them to create false applications to buy homes throughout Central Florida.

The lawsuit, filed by the Attorney General’s Mortgage Fraud Task Force, claims the ring conspired with Realtors to artificially inflate purchase prices, thus enabling them to obtain larger mortgage loans.

One potential defendant was actually left out, because “real estate agents are exempted from the Deceptive and Unfair Trade Practices Act under which the others are being sued.” However, she and the others may be subject to criminal charges beyond the civil suit.

Of the 60 homes, about 50 are now in foreclosure.

The pain of short sales: banks want homeowners to “share the loss”

Mike — Sat, 20 Sep 2008 19:52:58 +0000

Losing your home? Most homeowners facing a mortgage default have already come to grips with that consequence or at least they know it’s a very likely possibility. But may don’t realize that, long after losing their home, they might still end up paying against the debt for years, even decades.

The false promise of loss mitigation

When the mortgage lending industry hit the iceberg, all those brokers and real estate agents who had pocketed so much money during the boom suddenly found their empty pockets in need of refilling. Where’s the demand now? “Loss mitigation,” or helping homeowners find solutions for their home loan defaults. Unfortunately, real loss mitigation options are very limited: almost no one qualifies for a re-finance, and unless you choose to fight your foreclosure, almost every option involves losing the home.

Short sales: Not a silver bullet

One pitch that loss mitigation specialists have hit on is the “short sale.” There are two parts to the short sale: first, that it’s a sale of the home to some third party. Second, the sale price is less – often, much less – than the total loans on the property – that’s the “short” part. In order to make a short sale work, the lender or lenders have to sign off on the deal.

The main benefit to the lender on a short sale is that they get some cash, now, instead of the mere possibility that they might someday recover some amount of the loan. The main benefit to the borrower is that they achieve some finality – they get to settle their debt and end the worries that the bank will pursue them for years to pay on a loan for a home they no longer own. (This is a possibility in many foreclosures, in states like Florida that allow for “deficiency judgments” if the foreclosure sale doesn’t cover the amount of the debt.)

Lose the house, keep the pain

Now, the New York Times has reported, banks are calling a halt to the short-sale party.

Reluctantly, banks are agreeing to let some short sales go through. But instead of writing off the unpaid portion of the debt, they want homeowners to sign a note promising to pay some or all of the balance due.

As short sales become more popular, pitched by loss mitigation consultants looking to make a cut on the transaction, banks have become more sour on the idea. They are now demanding that homeowners carry substantial debt with them for as long as twenty years. One bank, slapping a last-minute condition on an already-approved short sale, told the homeowner, “When you are ready to participate in the loss, feel free to call me.” One lender actually demands that homeowners commit to repay the full debt, as far as thirty years into the future.

Credit scores: the hits keep on coming

One other potential benefit claimed by short-sale pushers is that a short sale is somehow less bad for your credit score. Unfortunately, this just isn’t true:

People in the industry say banks sometimes tell borrowers that their credit will take less of a hit if they agree to sign a promissory note than if they default. It is not true. In both cases, credit agencies consider the homeowner to have failed to live up to a solemn obligation.

Like any other credit obligation, it’s the timely payment that keeps your rating up. Missing a payment, even if you later make up every dime, is the damage to your credit report. A foreclosure filing, or even a pre-foreclosure default, are what affect your score, not your proficiency in negotiating a way out of the problem.

Short sales: not for everybody… in fact, darn near nobody.

If you’re a homeowner and behind on your mortgage, you’re going to start getting pitches from short-sale “specialists.” Unless you’re in a very unusual situation, you should probably tell them to take a long walk off a short pier.

Hat tip to Calculated Risk for the story.

The Subprime Primer

Mike — Sat, 20 Sep 2008 18:05:32 +0000

Wondering why our banking system is on the verge of collapse? Baffled at just how a surge in mortgage defaults threatens to pancake our entire economy? Look no further than the power of cartoons:

Some genius, unknown to me, has created this slideshow, “The Subprime Primer,” and it tells you prety much all you need to know about how we got here. (Warning: there’s some salty language here. This is not a cartoon you’ll want to share with the kids.)

For a more serious treatment, check out “The Root Causes of the Financial Crisis,” by Francis Cianfrocca:

THIS IS WHY THE ECONOMY SLOWED DOWN, BEGINNING LATE IN 2007. And I’d been saying that in this space a whole quarter before it even happened. This is also why economic stimulus plans like the one we got this year from George Bush and will get from Obama if he’s elected President, only make the problem worse, not better. And it’s also why the economy can not recover until the bad paper all runs off.

Good, if scary, reading.

Florida leads the nation in mortgage fraud

Mike — Mon, 25 Aug 2008 18:07:40 +0000

A new report claims that Florida leads the nation in mortgage fraud.

In fact, 24 percent of fraudulent loans reported to the [Mortgage Asset Research Institute] during the first quarter originated on properties in Florida.

The most common kind of fraud was application fraud, including misstating income and false identification. I wonder how many of those involved were brokers with criminal records?

Banks violate SCRA by foreclosing on active-duty military

Mike — Mon, 18 Aug 2008 15:02:41 +0000

Fighting on two fronts

Imagine getting called up for military duty, torn away from your family, your normal life, and your job. Imagine the stress of going off to war, and then imagine coming back having lost your home. I am amazed and saddened to learn that for too many of our soldiers, sailors, and airmen, this is not a drill – it’s their reality.

Foreclosures against deployed military violate federal law

NPR reports that many active-duty military are falling prey to banks hungry for foreclosures. Not only does this lender practice shock the conscience, it’s against the law. The Servicemembers Civil Relief Act, passed by Congress during World War II, is supposed to protect active-duty servicemembers from exactly this situation. If you’re on active duty – and that includes any time in basic training, as well as time actually spent overseas – the law provides important protections against foreclosures and other financial hardships that sometimes affect our men and women in uniform.

Relief from Foreclosure

The SCRA includes several provisions to provide active military with relief from foreclosure – before, during, and even after the foreclosure case. Some of those powers include preventing entry of default judgments, postponing court cases, and setting aside judgments that the court has already entered. Because these foreclosures violate federal law, victims might also find relief under other laws, such as those preventing unfair or deceptive debt collection practices. Members of the military, and their families, facing foreclosure while on active duty should consult with an attorney right away to plan for quick action to save their family home.

Florida broker regulator Saxon out of a job; felons still brokering loans

Mike — Thu, 14 Aug 2008 02:55:51 +0000

Don Saxon, chief regulator overseeing Florida’s licensed mortgage brokers, resigned at yesterday’s meeting of Florida’s Cabinet. Saxon resigned rather than try to defend his job after a surprising move by Governor Charlie Crist supporting a motion to fire Saxon.

Saxon has come under heavy fire for failing to protect Florida homeowners from convicted felons working as mortgage brokers, both when they applied for licenses, and even when they continued to steal money from borrowers while acting as brokers.

The Cabinet also passed new emergency rules restricting the issuance of licenses to criminals in the future, but Attorney General Bill McCollum expressed some doubt if the emergency rules were within the Commission’s legal authority: “‘I think we ought to try it,’ the attorney general said. ‘It may be legal, it may not be legal.’” The Cabinet did not act to revoke the licenses of felons currently brokering loans.

Florida gave broker licenses to felons, then let them keep stealing

Mike — Wed, 13 Aug 2008 01:15:08 +0000

The last part of the Miami Herald exposé has run, and the findings are damning. Not only did Florida’s Office of Financial Regulation fail to keep felons from entering the mortgage brokering industry, but once they were in and began stealing money from homeowners, the OFR didn’t pull their licenses.

Complaints to the Office of Financial Regulation — the state agency created to police the industry — were routinely ignored, leaving consumers to fend for themselves, according to public records and interviews.

Among those dismissed: 10 complaints against a notorious Broward brokerage whose president eventually pleaded guilty to $21 million worth of mortgage fraud.

During an eight-month investigation, The Miami Herald analyzed more than 1,400 final orders issued by the agency between 2000 and 2007 and posted on the OFR website, reviewed quarterly reports the agency presented to the Florida Cabinet and scrutinized the agency’s annual industry newsletters.

The article blames Saxon for failing to effectively lobby for more staff to enforce existing regulations.

President Bush signs new foreclosure relief law – how it can help homeowners

Mike — Wed, 30 Jul 2008 12:48:24 +0000

President Bush this morning signed into law new federal legislation aimed at addressing the nation’s current foreclosure crisis. Some of the provisions of this new law, which takes effect October 1, 2008, may offer relief to certain homeowners in foreclosure. Here’s how.

FHA-backed Refinancing

The Federal Housing Authority now has the ability to insure up to $300 billion dollars in loans to allow troubled homeowners to refinance their home loans. Banks would be more willing to extend loans to qualified homeowners because the loans are backed by the federal government.

Who Qualifies

In order to qualify for a new FHA-backed loan, the homeowners must meet certain criteria.

They must live in the home – no landlords allowed.
They must currently have home loans issued between January 2005 and June 2007.
They must be spending at least 31% of their gross monthly income on mortgage debt.
A borrower may either be current or behind on their existing loans, but they will have to prove that they cannot continue to make their current payments.
Borrowers must first pay off any other debt on the home (such as home equity loans) and may not get a new one for five years, except to pay for maintaining the home.
The new loans are subject to FHA approval.
The original lender would have to agree to take a substantial loss on the original loan, but gets to avoid filing foreclosure – which might cost them more in the long run.

(Source: CNNMoney )

Depending on each homeowner’s particular circumstances, this might be a viable way to get out of a bad loan and into a more affordable one – after October 1. Officials in the Bush administration, though, are already bad-mouthing the new law, saying that other laws already in place will help more homeowners than this one, and noting that Congress failed to provide funding for the new loan guarantees. Steve Preston, Secretary of Housing and Urban Development, said: “I think it may be helpful on the margin but ultimately what we need is new homebuyers to come into this market and buy up the inventory of homes.”

UPDATE: The New York Times thinks the new law is better than Santa Claus.

Florida Bar News: Glitch won’t affect Florida attorneys

Mike — Tue, 29 Jul 2008 13:00:35 +0000

The Florida Bar News reports on Florida AG Bill McCollum’s action exempting Florida attorneys from portions of the Foreclosure Rescue Act. Florida Bar News editor Gary Blankenship has been following this story for some time, and has written a nice piece explaining both the problem and the solution. As an added bonus, he quotes me at some length on the AG’s action.

Don Saxon on the hot seat: Should Florida’s top mortgage lending regulator keep his job?

Mike — Tue, 29 Jul 2008 12:45:12 +0000

In the wake of last week’s Miami Herald investigation on this state’s willingness to let convicted fraudsters work as mortgage brokers, the state’s top mortgage lending regulator Don Saxon meets today with the Governor’s Cabinet who will consider, among other things, whether Saxon should keep his job.

State Chief Financial Officer Alex Sink last week called for Saxon’s resignation. On Monday, Sink said she was not ready to make such a motion at today’s meeting – though she continued to talk tough about Saxon, saying she had not changed her mind about replacing him.

Sink is one of four members of Florida’s Cabinet.

The St. Pete Times thinks Saxon ought to go:

If the Herald’s findings are not enough to take action, Crist and the Cabinet should read a scathing report issued in March by the statewide grand jury about the office’s regulation of check cashers. Here’s a snippet: “We conclude that the agency most responsible for insuring compliance by check cashers has failed to aggressively root out fraud and money laundering from the check cashing industry.”

Well, and there’s more. in the course of representing victims of foreclosure fraud, I have learned that high-level officials in Saxon’s office directly interfered with active investigations, modifying final reports and watering down actions against obvious foreclosure rescue scam – even when the main perpetrators were already convicted of felony fraud. I can’t quote sources, and I can’t name specifics, but when it breaks, I’ll confirm what I know to you.

How to pick a mortgage broker who won’t rob you blind

Mike — Mon, 28 Jul 2008 12:25:56 +0000

After the recent Miami Herald exposé on Florida’s mortgage broker industry, you’re probably wondering how in the world you can find a mortgage broker who won’t rob you blind. I’ve put together a list of steps that any prospective borrower can take that will be highly effective in weeding out the con artists and the fee-padders.

Look for a broker before you start looking for a house.

If you’ve already got your heart set on a house and need to put in a bid, then you’re setting yourself up for a huge time-pressure crunch that can lead you to make some very bad decisions. Pick your broker and get your loan before you start shopping for a house, so you have time to fix any problems that might come up or even back out of the deal if you have to.

Look for someone who’s been in business for a while.

Whenever the market booms, all kinds of shady operators come out of the woodwork and set up shop as mortgage brokers. When the market tanks, the brokers of ill repute will be the first ones to fold up their tents and walk away. Look for someone who’s been around a while – someone who has ridden the ups and downs of the market, and has survived tough times because they have a good reputation in the community.

Look for someone who’s not trying to push the latest fad loan on you.

Mortgage brokers push fad loans for a reason – they make more money on them because you pay more money over the life of the loan. Certain types of adjustable-rate mortgages, interest-only loans, and other creative arrangements are popular with lenders because they’re popular with brokers, but they end up costing more in the long run. Do your research before picking a broker, know what type of loan you’re looking for, and reject any broker who tried to push the latest thing on you just because it’s popular or looks like a great deal – at first.

Get references from people who know the good ones from the bad.

People find mortgage brokers in many different ways. But with a transaction this size – for most people, the largest deal they’ll ever sign – it makes sense to be extremely careful about who you pick. It’s not enough to use the guy your next-door neighbor used, unless your neighbor has the relevant knowledge to be able to judge what kind of job the broker did for him. Who might know good, honest brokers with a long and proven track record? Anyone who’s in the financial field or handles those types of deals for a living is a good choice. But make sure that the referral is coming from someone you know well enough to trust, and someone who doesn’t have anything to gain from the recommendation. A banker, a lawyer, a real estate agent who’s not part of the deal – all those people in your community might have good names for you to check out.

Check the broker out with the state licensing board.

In Florida, the Office of Financial Regulation is responsible for overseeing the licensing and regulation of mortgage brokers. Certainly, they’re not foolproof, but if a mortgage broker has some pending disciplinary action or a criminal record, you’ll want to know. It sure can’t hurt to ask.

These steps aren’t foolproof, but they will go a long way to making sure you don’t get ripped off by an unscrupulous broker next time you get a home loan.

Florida Bar announces program to help pre-foreclosure homeowners

Mike — Sun, 27 Jul 2008 12:59:53 +0000

About to enter foreclosure and not sure what to do? The Florida Bar has announced a new program designed to divert people homeowners from foreclosure and help them negotiate a work-out with their lenders.

The Statewide effort called FLASH (Florida Attorneys Saving Homes) has launched a toll-free hot line (866-607-2187) and will take calls from 8 a.m. through 4 p.m. Monday through Friday. Callers who fear that they soon won’t be able to make their mortgage payments or who have already missed payments but are not yet in foreclosure are urged to call. Hot line callers will answer a few initial questions to ensure accurate placement with pro bono attorneys, who will then negotiate with lenders on behalf of homeowners.

The full announcement can be found on the Florida Bar website.

Florida sues mortgage fraudsters and foreclosure scammers

Mike — Fri, 25 Jul 2008 17:26:32 +0000

Bill McCollum, Florida’s attorney general, as been very active lately, going after a number of companies he has accused of foreclosure rescue scams and unfair mortgage-related practices, according to the Tampa Bay Business Journal.

…McCollum has filed five cases against companies he believes have conducted questionable, if not illegal, acts in regard to mortgage and foreclosure fraud since assembling his Mortgage Fraud Task Force last September.

The defendants include:

the highly-publicized Countrywide Financial;
A Realty Rx LLC;
Florida Housing Council LLP;
Equity Investment Capital Management Inc.;
Star Enterprises LLC.

Countrywide stands accused of defrauding its investors by making asset-based loans to individuals who couldn’t possibly support those payments, but telling investors that all borrowers were thoroughly vetted for ability to pay. A Realty RX has been sued for selling realty without a license and other fraudulent practices – including possible foreclosure rescue fraud.

The others? Foreclosure rescue scammers.

Miami Herald uncovers the shady underworld of Florida mortgages

Mike — Wed, 23 Jul 2008 15:25:07 +0000

Willie Sutton, one of the FBI’s most-wanted bank robbers back in the 30’s, once answered the question of why he robbed banks by saying, “That’s where the money is.”

Over the last several years in this state, as home prices surged and the family home became the single largest asset most Florida families owned, more and more modern-day Willie Suttons took notice. Where was the money? In homes and home loans. And so that’s where the criminals went.

Mortgage brokers – the people who introduce borrowers and lenders to each other – must be licensed by the state of Florida. In theory, felons should not to be able to get mortgage broker licenses. But as the Miami Herald found out, in far too many cases, they do.

When Scott Almeida walked out of federal prison and into the mortgage business, he took a gamble. He admitted on his license application that he had been convicted of cocaine trafficking.

Florida regulators — responsible for protecting borrowers from predatory brokers — could have rejected him on the spot.

Instead, they asked for a character reference: He gave them a note from his mom. They said he needed a reputable supervisor for his practice: He chose a guy he met in the prison visitor room.

…Over the next three years, in a crime spree that stretched from Tampa to Miami, Almeida arranged nearly $3 million in fraudulent loans and fleeced 30 people — many of them elderly and disabled.

Mortgage brokers with history of criminal activity are a serious threat to borrowers because of the size on the complexity of most home loan transactions. It is far too easy for an unscupulous mortage broker to slip in unfair or illegal fees and kickbacks, or use bait-and-switch tactics that unsophistcated borrowers have trouble detecting. The character of a mortgage broker is probably the greatest safegaurd against consumer rip-offs, and it may be difficult to police, but when people with proven character flaws get licenses on the flimsiest of character investigations, the state just isn’t trying hard enough.

The lesson for consumers? Choose very carefully when picking a mortgage broker. Make sure their background checks out, and make sure it’s someone you can trust completely. If you don’t, you could lose everything. I’ll give some specific tips in a future post on how to pick a mortgage broker.

Florida Attorney General Bill McCollum takes action to fix flaws with 501.1377

Mike — Thu, 10 Jul 2008 21:23:16 +0000

I have just learned that the Attorney General’s office has taken action today to fix one of the largest flaws in the Foreclosure Rescue Act. I don’t have the exact language, from from what I’ve been told, it uses the “express authority” provision in 501.1377 (2)(b) 2. to authorize certain Florida attorneys to provide foreclosure-related rescue services… thereby excepting those attorneys from the definition of “foreclosure resuce consultants.”