Mar

The California Department of Real Estate Issues “CONSUMER ALERT” Warning Consumers About “Mass Joinder” Lawsuits

By Mandelman | Housing & Economic Research, Weidner

22939Leave a Comment2011-03-18+10%3A39%3A57Mandelman

The California Department of Real Estate has issued the following “CONSUMER ALERT” warning consumers about claims being made by marketers of “Mass Joinder” Lawsuits. I have provided two links to the California Department’s Website containing the text of the “Alert,” but have also re-posted it in its entirety to help broaden the distribution of the document. Mandelman

California Department of Real Estate ** CONSUMER ALERT **

FRAUD WARNING REGARDING LAWSUIT MARKETERS REQUESTING UPFRONT FEES FOR SO-CALLED “MASS JOINDER” OR CLASS LITIGATION PROMISING EXTRAORDINARY HOME MORTGAGE RELIEF

By Wayne S. Bell, Chief Counsel, California Department of Real Estate

I. HOME MORTGAGE RELIEF THROUGH LITIGATION (and “Too Good to Be True” Claims Regarding Its Use to Avoid and/or Stop Foreclosure, Obtain Loan Principal Reduction, and to Let You Have Your Home “Free and Clear” of Any Mortgage).

This alert is written to warn consumers about marketing companies, unlicensed entities, lawyers, and so-called attorney-backed, attorney-affiliated, and lawyer referral entities that offer and sell false hope and request the payment of upfront fees for so-called “mass joinder” or class litigation that will supposedly result in extraordinary home mortgage relief.

The California Department of Real Estate (“DRE” or “Department”) previously issued a consumer alert and fraud warning on loan modification and foreclosure rescue scams in California. That alert was followed by warnings and alerts regarding forensic loan audit fraud, scams in connection with short sale transactions, false and misleading designations and claims of special expertise, certifications and credentials in connection with home loan relief services, and other real estate and home loan relief scams.

The Department continues to administratively prosecute those who engage in such fraud and to work in collaboration with the California State Bar, the Federal Trade Commission, and federal, State and local criminal law enforcement authorities to bring such frauds to justice.

On October 11, 2009, Senate Bill 94 was signed into law in California, and it became effective that day. It prohibited any person, including real estate licensees and attorneys, from charging, claiming, demanding, collecting or receiving an upfront fee from a homeowner borrower in connection with a promise to modify the borrower’s residential loan or some other form of mortgage loan forbearance.

Senate Bill 94’s prohibitions seem to have significantly impacted the rampant fraud that was occurring and escalating with respect to the payment of upfront fees for loan modification work.

Also, forensic loan auditors must now register with the California Department of Justice and cannot accept payments in advance for their services under California law once a Notice of Default has been recorded. There are certain exceptions for lawyers and real estate brokers.

On January 31, 2011, an important and broad advance fee ban issued by the Federal Trade Commission became effective and outlaws providers of mortgage assistance relief services from requesting or collecting advance fees from a homeowner.

Discussions about Senate Bill 94, the Federal advance fee ban, and the Consumer Alerts of the DRE, are available on the DRE’s website at www.dre.ca.gov.

Lawyer Exemption from the Federal Advance Fee Ban —

The advance fee ban issued by the Federal Trade Commission includes a narrow and conditional carve out for attorneys.

If lawyers meet the following four conditions, they are generally exempt from the rule:

They are engaged in the practice of law, and mortgage assistance relief is part of their practice.
They are licensed in the State where the consumer or the dwelling is located.
They are complying with State laws and regulations governing the “same type of conduct the [FTC] rule requires”.
They place any advance fees they collect in a client trust account and comply with State laws and regulations covering such accounts. This requires that client funds be kept separate from the lawyers’ personal and/or business funds until such time as the funds have been earned.

It is important to note that the exemption for lawyers discussed above does not allow lawyers to collect money upfront for loan modifications or loan forbearance services, which advance fees are banned by the more restrictive California Senate Bill 94.

But those who continue to prey on and victimize vulnerable homeowners have not given up. They just change their tactics and modify their sales pitches to keep taking advantage of those who are desperate to save their homes. And some of the frauds seeking to rip off desperate homeowners are trying to use the lawyer exemption above to collect advance fees for mortgage assistance relief litigation.

This alert and warning is issued to call to your attention the often overblown and exaggerated “sales pitch(es)” regarding the supposed value of questionable “Mass Joinder” or Class Action Litigation.

Whether they call themselves Foreclosure Defense Experts, Mortgage Loan Litigators, Living Free and Clear experts, or some other official, important or impressive sounding title(s), individuals and companies are marketing their services in the State of California and on the Internet. They are making a wide variety of claims and sales pitches, and offering impressive sounding legal and litigation services, with quite extraordinary remedies promised, with the goal of taking and getting some of your money.

While there are lawyers and law firms which are legitimate and qualified to handle complex class action or joinder litigation, you must be cautious and BEWARE. And certainly check out the lawyers on the State Bar website and via other means, as discussed below in Section III. II.

QUESTIONABLE AND/OR FALSE CLAIMS OF THE SO-CALLED MORTGAGE LOAN DEFENSE OR “MASS JOINDER” AND CLASS LITIGATORS.

A. What are the Claims/Sales Pitches? They are many and varied, and include:

You can join in a mass joinder or class action lawsuit already filed against your lender and stay in your home. You can stop paying your lender.
The mortgage loans can be stripped entirely from your home.
Your payment obligation and foreclosure against your home can be stopped when the lawsuit is filed.
The litigation will take the power away from your lender.
A jury will side with you and against your lender.
The lawsuit will give you the leverage you need to stay in your home.
The lawsuit may give you the right to rescind your home loan, or to reduce your principal.
The lawsuit will help you modify your home loan. It will give you a step up in the loan modification process.
The litigation will be performed through “powerful” litigation attorney representation.
Litigation attorneys are “turning the tables on lenders and getting cash settlements for homeowners”. In one Internet advertisement, the marketing materials say, “the damages sought in your behalf are nothing less than a full lien strip or in otherwords [sic] a free and clear house if the bank can’t produce the documents they own the note on your home. Or at the very least, damages could be awarded that would reduce the principal balance of the note on your home to 80% of market value, and give you a 2% interest rate for the life of the loan”.

B. Discussion.

Please don’t be fooled by slick come-ons by scammers who just want your money. Some of the claims above might be true in a particular case, based on the facts and evidence presented before a Court or a jury, or have a ring or hint of truth, but you must carefully examine and analyze each and every one of them to determine if filing a lawsuit against your lender or joining a class or mass joinder lawsuit will have any value for you and your situation. Be particularly skeptical of all such claims, since agreeing to participate in 4 such litigation may require you to pay for legal or other services, often before any legal work is performed (e.g., a significant upfront retainer fee is required).

The reality is that litigation is time-consuming (with formal discovery such as depositions, interrogatories, requests for documents, requests for admissions, motions, and the like), expensive, and usually vigorously defended. There can be no guarantees or assurances with respect to the outcome of a lawsuit.

Even if a lender or loan owner defendant were to lose at trial, it can appeal, and the entire process can take years. Also, there is no statistical or other competent data that supports the claims that a mass joinder and class action lawsuit, even if performed by a licensed, legitimate and trained lawyer(s), will provide the remedies that the marketers promise.

There are two other important points to be made here:

First, even assuming that the lawyers can identify fraud or other legal violations performed by your lender in the loan origination process, your loan may be owned by an investor – that is, someone other than your lender. The investor will most assuredly argue that your claims against your originating lender do not apply against the investor (the purchaser of your loan). And even if your lender still owns the loan, they are not legally required, absent a court judgment or order, to modify your loan or to halt the foreclosure process if you are behind in your payments. If they happen to lose the lawsuit, they can appeal, as noted above. Also, the violations discovered may be minor or inconsequential, which will not provide for any helpful remedies.

Second, and very importantly, loan modifications and other types of foreclosure relief are simply not possible for every homeowner, and the “success rate” is currently very low in California. This is where the lawsuit marketing scammers come in and try to convince you that they offer you “a leg up”. They falsely claim or suggest that they can guarantee to stop a foreclosure in its tracks, leave you with a home “free and clear” of any mortgage loan(s), make lofty sounding but hollow promises, exaggerate or make bold statements regarding their litigation successes, charge you for a retainer, and leave you with less money.

III. THE KEY HERE IS FOR YOU TO BE ON GUARD AND CHECK THE LAWYERS OUT (Know Who You Are or May Be Dealing With) – Do Your Own Homework (Avoid The Traps Set by the Litigation Marketing Frauds).

Before entering into an attorney-client relationship, or paying for “legal” or litigation services, ascertain the name of the lawyer or lawyers who will be providing the services. Then check them out on the State Bar’s website, at www.calbar.ca.gov. Make certain that they are licensed by the State Bar of California. If they are licensed, see if they have been disciplined.

Check them out through the Better Business Bureau to see if the Bureau has received any complaints about the lawyer, law firm or marketing firm offering the services (and remember that only lawyers can provide legal services). And please understand that this is just another resource for you to check, as the litigation services provider might be so new that the Better Business Bureau may have little or nothing on them (or something positive because of insufficient public input).

Check them out through a Google or related search on the Internet. You may be amazed at what you can and will find out doing such a search. Often consumers who have been scammed will post their experiences, insights, and warnings long

before any criminal, civil or administrative action has been brought against the scammers.

Also, ask them lots of specific, detailed questions about their litigation experience, clients and successful results. For example, you should ask them how many mortgage-related joinder or class lawsuits they have filed and handled through settlement or trial. Ask them for pleadings they have filed and news stories about their so-called successes. Ask them for a list of current and past “satisfied” clients. If they provide you with a list, call those people and ask those former clients if they would use the lawyer or law firm again.

Ask the lawyers if they are class action or joinder litigation specialists and ask them what specialist qualifications they have. Then ask what they will actually do for you (what specific services they will be providing and for what fees and costs). Get that in writing, and take the time to fully understand what the attorney-client contract says and what the end result will be before proceeding with the services. Remember to always ask for and demand copies of all documents that you sign.

IV. CONCLUSION.

Mortgage rescue frauds are extremely good at selling false hope to consumers in trouble with regard to home loans. The scammers continue to adapt and to modify their schemes as soon as their last ones became ineffective. Promises of successes through mass joinder or class litigation are now being marketed. Please be careful, do your own diligence to protect yourself, and be highly suspect if anyone asks you for money up front before doing any service on your behalf. Most importantly, DON’T LET FRAUDS TAKE YOUR HARD EARNED MONEY.

###########

Here’s another link to the California Department of Real Estate’s page containing this fraud warning:

FRAUD WARNING REGARDING LAWSUIT MARKETERS REQUESTING UPFRONT FEES FOR SO-CALLED “MASS JOINDER” OR CLASS LITIGATION PROMISING EXTRAORDINARY HOME MORTGAGE RELIEF

Mar

House Financial Services Committee: Spending $1610 to Save a Home is Too Much – Votes to Kill HAMP

By Mandelman | Federal Reserve, HAMP, Housing & Economic Research, Weidner

22567Leave a Comment2011-03-11+13%3A56%3A05Mandelman

HAMP has permanently modified 521,630 mortgages, at a cost of only $840 million, according to the Financial Services Committee Press Release, distributed late on Thursday. That’s roughly $1610 per permanent loan modification… an amount I would call “pocket change.”

The federal program designed to save homes from foreclosure before this one, had a budget of $320 billion, and modified just one mortgage, last I checked… it may have done a handful more before it was shut down for good. All of the other programs that have been launched have been miserable failures. HAMP is the only one to have saved any homes at all… better than a half a million people are still in homes they would otherwise have lost.

No one has any reliable re-default data, in fact, I’ve numbers in the single digits all the way up to 60%. Like I said, no one has reliable re-default data.

Regardless of the CBO’s projections that HAMP would help another 300,000 homeowners before it’s scheduled termination next year, and the fact that the program is saving homes for only $1610 a piece… the House Financial Services Committee… with our fabulous new House Republicans that have never even lifted a finger to help save a single house during this crisis… has voted to kill HAMP yesterday, by approving H.R. 839, the HAMP Termination Act. Now the bill will move forward for consideration by the full House of Representatives.

According to the Committee’s Press Release:

“There is widespread criticism that HAMP is not working and is only making matters worse for many of the homeowners who participate or seek to participate. In addition to the SIGTARP, the Congressional Oversight Panel and the Government Accountability Office have detailed problems with HAMP.”

But this is what SIGTARP, Neil Barofsky, said in his report to Congress:

“… while HAMP may provide a significant benefit for those who are fortunate enough to benefit from a sustainable permanent modification, given the current pace of foreclosures, HAMP’s achievements look remarkably modest, and hope that this program can ever meet its original expectations is slipping away.”

Look, these guys are nothing but uncaring, insensitive and unknowledgeable jackasses, but then that’s what they’ve been for the last three years, so I’ve stopped expecting anything from them, I guess. They’re in the pockets of the bankers, bought and paid for… all they care about is political grandstanding and they obviously consider us all to be morons… and as I said in my article from a few weeks back, Republicans Prepare to Play Politics With HAMP:

You should all hide your faces from the people who sent you to Washington… you should all be ashamed for everything you have and haven’t done. Your ignorance and insensitivity will be disdained for many years to come. You’ve done great harm to this once great nation and you should be deeply ashamed for what you are trying to do today.

But in point of fact, they are still helping some number of people remain in their homes… so make HAMP better… yes… you owe the American homeowners that and much more. Don’t kill the only thing you’ve done that’s accomplished anything at all, just because it hasn’t done nearly enough… or because you think it will help you get elected in 2012… I assure you that it won’t.

That’s it and that’s all. Obama… do whatever you want… there’s no way I could be more disappointed by you and your administration. You’ve managed to do what I would have thought impossible. I could have flipped a coin between you and McCain/Palin… and not cared on which side it landed.

You utterly failed at helping homeowners, and you haven’t even shown up to save, speak for, or try to fix your own housing rescue program… what a waste of a president you are.

Unbelievable.

Mandelman out.

Feb

Sen. Whitehouse Questions Expose a Kinder, Gentler and possibly more Frightened Tim Geithner

By Mandelman | HAMP, Housing & Economic Research, Weidner

21450Leave a Comment2011-02-19+11%3A56%3A13Mandelman

During a Senate Budget Committee meeting, Senator Sheldon Whitehouse of Rhode Island went straight at Treasury Secretary Geithner over Treasury’s abysmal track record and unquestionable ineffectiveness in combatting the foreclosure crisis. So, for that reason alone, the video below is well worth watching.

But there are quite a few other compelling reasons, as well.

Whitehouse also talked about the need to put pressure on the big banks… smacking them with a foreclosure moratorium was close to how he put it, and he spoke of the ” bureaucratic nightmare” forced on homeowners going through the loan modification process.

The Senator has, quite obviously, seemingly broken with tradition, by venturing outside the beltway to visit with some actual homeowners, realtors. and who knows who else, because he talks like a man, shocked by what he’s just learned, and simultaneously disgusted and outraged as a result.

(And speaking of being disgusted and outraged… okay, I’m sorry… that was just mean for no reason.)

Geithner responds by agreeing, pretty much across the board, with Sheldon Whitehouse’s unflattering assessment of the way things are going as far as stopping foreclosures, to-date. Heeeeere’s Tim…

“This is a tragic terrible mess across the country still, and we are not coming to the end of that amount of pain and risk and trauma to homeowners caught up in this crisis… and many of them are completely innocent victims of the failures of the system before this.

You’re also right that servicers and banks on a whole are still doing a terribly inadequate job of meeting the needs of their customers… help customers navigate through this basis process. And we are going to have to do a better job at trying to reach as many people as we can reasonably reach with these programs.”

Secretary Geithner goes on to explain that there have been about 4 million people that have benefitted from modifications and that even though a relatively small percentage of those are HAMP modifications, we should not discount HAMP’s contribution to lowering the monthly payments for millions.

And I have to agree with that, actually. I’m not defending Geithner or Treasury in any way, but he’s right that 4 million mortgages or darn close, have been lowered, roughly half a million are HAMP permanent modifications, but HAMP had a very definite influence on the other 3.5 modifications getting done.

But Secretary Geithner’s message then turns to explaining the context within which the whole loan modification thing has to be viewed. I’m paraphrasing here, but this is basically what he said:

We do not have the power under the law to compel, we have the capacity to provide incentives, and the incentives were not powerful enough in all cases to overwhelm the rest of the muck, but given the tools Congress has given us we’re reaching more than in the past… and we’ll help many more in the future.

Now, I thought that was interesting and here’s why…

First of all, a few days ago, I wrote about Federal Reserve Governor Sarah Raskin, who delivered a speech to an audience made up of those in the mortgage servicing industry that was scathing about how the foreclosure crisis’ growth is being fueled by the poor performance of servicers, and preventing our nation’s economic recovery.

In other words, she sounded like a politically correct… me.

And now, just days later, we are shown a Secretary Geithner (almost) doing an Elizabeth Warren imitation. And not only is he approaching Alan Alda-type- sensitive, but he says clearly that MANY are innocent victims of the past program and policy failures.

He even admits that it’s not stopping, which is another way of saying that it’s growing, and he seems to have no doubt that it is the servicers that are the problem. If the Senator had pushed him, he might even have eventually admitted that we’re not having a recovery as he has previously thought.

But then he said something that caused me to pause… he said that Congress has not given Treasury the tools, and that one of those tools is the power to compel the servicers to act or change. He explains that all he can do is provide incentives and, assuming that any incentive would do it, what’s been offered clearly hasn’t been enough to “overwhelm the muck,” as he surprisingly said.

I’m starting to hear a very definite shift in the attitudes towards the foreclosure crisis among our legislators and from those in our federal agencies… only the beginnings, perhaps… but it’s very definitely a new set of talking points along with a new underlying theme.

They’ve finally realized it… do you think? They thought other things would have happened by now as a result of pumping trillions into banks and the economy overall… and they haven’t. And housing is in a free fall, and unemployment is unchanged, and consumer spending isn’t coming back… and ohhhhh nooooo.

If I’m right about this, they’re now going to campaign to subtly (for them) try to change the attitudes of the general population so that they can garner the political support to do something that they hadn’t thought they would need to do… until recently.

I don’t know what they’re thinking of doing… or whether they’ve experienced enough pain that it inspires competence in the response, so don’t get too excited, but they’re not the same administration and Congress. Some voices are getting through… I think.

Okay, see what you think… click play, and get back to me…

Mandelman out.

Feb

Hawaiian Homeowners Pay Unexpected Visit to Bank of America in Honolulu

By Mandelman | HAMP, Housing & Economic Research, Weidner

21364Leave a Comment2011-02-17+13%3A26%3A19Mandelman

Have you spent any significant amount of time in Hawaii? If not, this story may not have the significance that it undoubtedly will for those that have come to know and love the islands.

This past Monday, a group of about 16 Hawaiian homeowners charged in Bank of America’s loan office in downtown Honolulu armed… with Valentine’s Day cards. According to HawaiiNewsNow.com, on the cards were sentences like:

“Bank of America, Don’t Break Our Hearts…”

“Send an authorized loan modification negotiator to Hawaii by February 28.”

One of the bank’s manager types came out to greet them. He said that he was sorry, but they didn’t have an appointment.

The Rev. Sam Domingo of Faith Action for Community Equity or FACE, who the story said is advocating with the homeowners replied… “No we don’t.”

Domingo explained: “We’ve been wanting to make sure that somebody from the main office comes down so they can deal face to face with foreclosure issues.”

Eddie Amaral, a Kalihi homeowner who says he’s been trying to get Bank of America to modify his loan for over a year said: “It’s just been very difficult and we would like to have someone authorized come here and negotiate a fair modification loan. That’s why we are here.”

Jun Yang, a FACE Organizer added: “We have families who have been trying to reach Bank of America and they have not been able to get a fair chance.”

The bank manager, who had to be wondering right about then if his life insurance policy was all paid up, responded: “With all due respect I do appreciate your time. I will pass this along to our media line and to the people that you asked. I don’t personally handle that.”

Five minutes passed… which must have seemed like an eternity, and then another bank manager asked the group to leave.

One of the group’s members suggested: “Maybe we can present our Valentine’s to the gentleman.”

The bank manager, who surprisingly declined to provide his or the other manager’s name to the news reporter from KGMB/KNHL – Hawaii News Now, said no to the Valentine’s Card offer and again asked the group to leave.

So, the group posted their cards of love on the bank’s window and started to sing a song they wrote for the occasion. It went like this:

“One hale, two hale, three hale. BofA don’t take our homes. Foreclosures on the left, foreclosures on the right, BofA it’s time to meet with us.”

Really quite a lovely little ballad, if you think about it. It doesn’t rhyme, but then… I think that’s the point.

After their stop-and-chat at the bank, the group apparently went over to the state capitol to drum up support for legislation that would force banks to meet with homeowners face to face prior to foreclosure.

Yeah, well that ought to do it… we have that same kind of law on the books here in California and it’s certainly taken care of our state’s foreclosure problems. Now, before a bank can foreclose, they have to include a “declaration” that says they tried to resolve it with the homeowner, blah, blah, blah…

You know… I’ve been wondering when the Hawaiians were going to get into the game on this loan modification foreclosure thing and there you have it… and they brought Valentine’s Cards and sang a song.

Now, I’m not an expert on Hawaiian culture, by any means, but I have spent quite a bit of time on several of the Hawaiian Islands and feel like I’m qualified to translate the meaning of the group’s visit for Bank of America’s senior management here on the mainland.

They were having trouble with your bank so they came for a visit.
They asked you very nicely to “Send an authorized loan modification negotiator to Hawaii by February 28th.”
They won’t be making appointments to see you; they’ll just stop by when they feel like it… so, get used to it. Who knows, they might stop by to see you one day when you’re at the beach. It’s the Aloha spirit, don’t you know.
They offered you a Valentine’s Day card. You didn’t take it. That was rude of you.
So, they sang you a song. The last line of their song said, “BofA it’s time to meet with us.”

Memo to Bank of America… you’re a guest on their island… I’d show some respect if I were you. They’re expecting you to send a negotiator over by February 28th because as their lovely song said… “It’s time to meet with us,” and I’d say that means that it’s time to meet with them.

This time they brought Rev. Sam Domingo with them. He was there to protect you, not them.

Of course, you’ll probably ignore their very polite words because… well… because you’re Bank of America and you don’t learn anything the easy way, now do you? No, I don’t suppose you do. You know the Hawaiians are really some of the most loving and wonderful people on the planet. If you respect them, they will respect you. If you don’t… well, don’t be surprised if next time one of your mainland managers try to say something to a group like that and you hear something is response that sounds like:

Hey, BofA-haole… pa’a ka waha.

Because next time, the card they hand you might just read:

BofA… Honi ko’u ‘elemu.

And there won’t be anybody singing.

Take it for whatever you think it’s worth… I’m just trying to help…

Aloha!

Mandelman out.

Feb

New Fed Governor Sarah Bloom Raskin Gives Me Reason to Hope

By Mandelman | HAMP, Housing & Economic Research, Weidner

21242Leave a Comment2011-02-15+20%3A53%3A09Mandelman

On October 4, 2010, President Barack Obama appointed Sarah Bloom Raskin to be a member of the Board of Governors of the Federal Reserve System.

Raskin has a B.A. in Economics from Amherst College, her undergraduate thesis was on monetary policy, a J.D. from Harvard Law, and prior to accepting the president’s appointment she served as Maryland’s Commissioner of Financial Regulation, and is said to have played an early role in her state’s response to the financial crisis, including reform of the foreclosure process, combating foreclosure rescue and loan modification scams, and the elevation of licensing and lending standards.

She also previously chaired the state’s Consumer Financial Products Agency Task Force, was a member of the State Liaison Committee for the Federal Financial Institutions Examination Council, served as the Banking Counsel for the U.S. Senate Committee on Banking, Housing, and Urban Affairs, and earlier in her career, worked at the Federal Reserve Bank of New York and for the Joint Economic Committee of the Congress.

I’m going to go out on a limb here and say that the woman is wicked smart, and one of the few people who, as you’ll see assuming you read what follows, understands and is willing to state publicly that the foreclosure crisis is what continues to prevent our nation’s economic recovery, and that the impediment to preventing unnecessary foreclosures is the mortgage servicing industry.

On February 11,2011, Sarah Bloom Raskin was one of the featured speakers at the 2011 Midwinter Housing Finance Conference, held in Park City, Utah, “an annual event geared to the top executives in the mortgage finance industry, along with key regulators, economists, and those that serve the business,” according to the conference Website.

I read her speech yesterday evening; parts actually gave me chills, and parts left me with a hopeful tear in my eye. She says almost exactly what I’ve written in my articles on at least dozens and at this point perhaps even hundreds of occasions, and it sure felt good to hear that message coming from the mouth of one of the Federal Reserve Governors. Will the banking industry listen to her message? Will it lead to meaningful change? I don’t know, but I think it offers reason to hope, and with the Obama Administration otherwise essentially silent on this issue, I need reason to hope wherever I can find it.

I urge you to take the 10 minutes or so it will take you to read Raskin’s speech, which I’ve included in its entirety just below. But for those that want the highlights, or struggle with some of the more technical sections, I’ve blued out the points that should not be missed… so please… don’t miss them.

And with that, I give you… Sarah Bloom Raskin speaking to the mortgage servicing industry leaders in Park City this past week…

~~~

A Speech Delivered by Federal Reserve Governor Sarah Bloom Raskin

At the 2011 Midwinter Housing Finance Conference, Park City, Utah

February 11, 2011

Putting the Low Road Behind Us

Good evening. I would like to thank the sponsors of the Midwinter Housing Finance Conference for kindly inviting me to join you. Tonight, I’m going to share with you some thoughts about the powerful impact the housing and mortgage markets have on the nation’s economic recovery, present some ideas to effect positive change in the mortgage servicing industry, and finally impart a guiding principle that should help us find our way through the current struggles and drive the way our industry operates in the future.

Speaking strictly in an economic sense, the recession that emerged in 2008 is over. But I know that the millions of Americans still looking for work, living in cars or motels, or trying to keep their businesses out of bankruptcy would beg to disagree. Our economy is growing, but the pace of recovery is agonizingly slow, well behind the pace of recovery in prior recessions. There are several causes for this lethargy, but, in my view, the critically important drag on the economy is the absence of any substantial recovery in the housing sector. Traditionally, housing is the first sector to recover after a recession, buoyed by low interest rates and pent-up demand. The increase in housing sales and construction usually is followed by a robust increase in consumer expenditures on durable goods, like furniture and appliances, which magnifies and multiplies the effect of the housing recovery.

Yet today, demand for housing is weighted down by the enormous losses in income and net worth that households suffered in the recession. In addition, the persistent high rate of unemployment is further depressing housing demand, creating uncertainty about housing prices, and impeding that robust recovery in the housing sector that we generally see. With a pipeline full of distressed properties, the unfortunate consensus is that we should expect even more downward pressure on house prices. Potential buyers seem inclined to wait and see if they can get a better buy in the future. Builders, too, are deterred by the additional competition lurking in this reservoir of vacant and distressed properties.

Significantly, uncertainty about house prices destabilizes expectations outside of the housing sector. When banks have troubled mortgages on their books, they may be required to increase their loss provisioning and implement troubled debt restructuring, which in turn reduces the amount of funds they have to lend. Uncertainty about house prices also clearly undermines consumer confidence and undercuts consumers’ willingness to spend.

According to the Census Bureau, homeownership rates have fallen so significantly in recent years that they have more than wiped out the increase in homeownership that had taken place between 2000 and 2007. When I think about this statistic, I see not only the drag on the nation’s already-tepid recovery, but the millions of American families who have lost their homes and their hopes.

When people lose their homes, the impact is felt not only by the homeowners, but by the broader community: the bonds of community are weakened, business investment is undermined, homelessness increases, children are uprooted, unemployment deepens, and even health problems multiply.

I emphasize all this bad news not to dampen the dinner mood here tonight, but to underscore the importance of the work that you do and to reiterate what we already know: The recovery of the housing sector is critical to the robust and sustainable recovery of the American economy. To see the kind of economic recovery we want, we need to revive our housing sector and restore the communities that were shaken by its collapse.

So what needs to happen now? To begin with, we should start at the ground level and work with troubled borrowers to prevent additional foreclosures that will further weaken the market. We need to make certain that foreclosures take place only when there is no option available that would be preferable to both the borrower and the investor. It is critical for servicers to review all options on any given delinquent loan before deciding that foreclosure is the best course of action.

Certainly foreclosure cannot be avoided in every case. However, servicers must identify those instances where both the borrower and the investor would be better off modifying the loan than foreclosing on it. Some distressed borrowers should be able to qualify for a modification through Treasury’s Home Affordable Mortgage Program (HAMP). If the HAMP evaluation has been properly done and the borrower still does not qualify, the servicer should consider all other reasonable alternatives, ranging from proprietary modifications to short sales to deeds-in-lieu-of-foreclosure, before filing for foreclosure. And, for homeowners whose financial distress is the result of job loss, something as simple as payment forbearance while the homeowner is unemployed could prevent the loan from going to foreclosure.

Servicing shops need to be diligent in pursuing these options, and investors need to be supportive of efforts to find net-positive alternatives to foreclosure. These actions will have a far-reaching positive impact: A lower inventory of distressed properties for sale results in higher house prices, which leads to a healthier pace of recovery in the housing market and the broader economy. I can’t emphasize enough how important it is that servicers be willing and diligent in offering assistance to troubled homeowners: It is key to the pace of economic recovery.

For those in the housing and mortgage fields, making needed changes will not be easy. In particular, for those in the mortgage servicing industry, it means difficult changes and significant investments to rectify broken systems. For those servicers who are subsidiaries or affiliates of a broader parent financial institution, the responsibility for change and further investment absolutely extends up to that parent company, many of which have enjoyed substantial profits while their servicing arms have been run on the cheap.

In November, I spoke about the problems in residential mortgage servicing operations that were undermining the performance of this industry. These problems existed before November and as far as I can tell they remain unaddressed. How do I know this? Late last year, the federal banking agencies began a targeted review of loan servicing practices at large financial institutions that had significant market concentrations in mortgage servicing. The preliminary results from this review indicate that widespread weaknesses exist in the servicing industry. The agencies intend to report more specific findings to the public soon, but I can tell you that these deficiencies pose significant risk to mortgage servicing and foreclosure processes, impair the functioning of mortgage markets, and diminish overall accountability to homeowners.

I’m sure this has been said, but I’ll say it again because I have seen little to no evidence of improvement in the operational performance of servicers since the onset of the crisis in 2007: Until these operational problems are addressed once and for all, the foreclosure crisis will continue and the housing sector will languish.

What is needed is strong corporate governance procedures for servicers that are established, monitored, and enforced enterprise-wide in order to prevent process breakdowns. Servicers need sound policies and procedures that outline the rules, laws, standards, and processes by which internal operations are assessed. Senior executives need to emphasize compliance and qualitative measures over short-run cost efficiency, and need to articulate the presence of adequate quality controls and audit processes to identify risks and take timely, corrective actions where needed. Corporate leadership needs to communicate performance expectations that hold all business lines accountable to strong procedural controls.

If errors occur or internal processes become challenged, servicers must act swiftly and responsibly to contain the damage to consumers and markets. Going forward, the servicing industry must foster an operational environment that reflects safe and sound banking principles and compliance with applicable state and federal law. This is a primary responsibility of the servicing industry, but regulators now have to be prepared to monitor servicing functions on an ongoing basis to ensure confidence is restored and take enforcement actions, when necessary, to address significant failures.

I’m not going to outline for you the consequences of these failures. You know them all too well. Suffice it to say that when servicers misapply payments, lose paperwork, file incorrect foreclosure affidavits, or simply do not answer the phone or make available knowledgeable staffpersons, there are consequences to the consumer. With few adequate remedies to provide meaningful recourse in the event errors occur–after all, it’s not as if consumers have a choice regarding who does their servicing–many consumers find themselves captive to practices that have emphasized speed and aggressive timeframes over responsiveness, accuracy, and completeness.

So something is wrong. Here we are in 2011, looking at high levels of foreclosures on the horizon, looking at significant failures in process, and nothing much has changed since 2007. I always thought this dysfunction was going on for too long–but I’m someone who thought the successive waves of foreclosures in 2007 amounted to a virtual tsunami. In my mind, massive foreclosures were always a sign of an equally massive market failure. Well, now it seems to me we have reached a point where this sign of failure is hindering our economy’s ability to rebound.

In addition to improvements that individual servicers need to make, we also have to find a way to fix broader problems in the industry and make it functional.

In my November remarks, I began the conversation about a flawed business model that creates misaligned incentives in ways that are more difficult for any one company to change on its own. So let’s talk now a little bit about how a better-functioning servicing industry would be structured.

One step the industry could take that would have an enormous payoff for consumers and market participants would be to change its pricing model. The economic incentives and pressure points of the current servicing model cause problems at multiple levels.

In addition to float income and ancillary fees, servicers earn money through an annual fee on each loan. This annual servicing fee is an important income source that has to cover some wildly varying costs. On a performing loan for which costs to servicers are minimal, the revenue stream from ancillary fees and float may itself be nearly enough to fairly compensate servicers.

But when a loan becomes non-performing, costs start climbing. Costs associated with collections, loss mitigation, foreclosure, the maintenance and disposition of real-estate owned properties, and so on, are lumpy and can be high. The current model is structured with the hope that, over a given period of time, there are enough of the low-touch performing loans to cross-subsidize the high-touch non-performing ones, so that the overall pool of servicing fee revenue is sufficient to cover expenses and return a reasonable profit. But if that doesn’t happen, servicers are either being paid too much for their efforts or not enough.

The current model also rests on the expectation that, in good times, servicers are using some of the residual income to build out systems and procedures to handle the pressures that come with worse times. Unfortunately, as we have seen, this has not happened.

A better business model–one that might attract more entrants and increase competition–would more closely tie expenses with compensation and reduce many of the principal-agent problems that currently exist.

Rather than rolling most of the compensation into one annual fee that covers performing and delinquent loans alike, servicers could be compensated quite modestly for the routine processing of payments involved with performing assets. They would be required to have either significant capacity for loss mitigation and the other work involved with non-performing loans, or business relationships with third parties, such as specialty servicers, that do. Contracts could spell out a structure wherein the investor would pay significantly higher and more direct compensation for the more labor-intensive work involved in delinquent loans, though they would need to be careful not to create perverse incentives to encourage such delinquencies.

There would also need to be much more clarity and specificity about loss mitigation standards and systems for auditing internal procedures. Such a system could more appropriately compensate servicers and sub-servicers for the level of work involved in servicing very different types of loans. Specialists could emerge who focus primarily on the routine performing loans or the more involved non-performing ones. If the non-performing specialist was a third party, the existing servicer could either transfer the servicing rights once a loan hits a certain delinquency trigger, or simply have the loans subserviced–of course with high levels of accountability–on a fee-for-services basis until the delinquency is resolved. One structure along these general lines has recently been proposed by Fannie Mae, Freddie Mac, and Ginnie Mae. While many details would need to be worked out and possible implications thought through, I believe it is a promising start.

Another structural change that would help would be a limit on the extent to which servicers have to advance principal and interest on non-performing loans. In times of high delinquency, this can put considerable financial strain on servicers, which can lead to negative consequences for consumers trying to work with those stressed servicers. This could be addressed by changing secondary market standards so that servicers only have to advance mortgage principal and interest up to, say, 60 or 90 days beyond delinquency. Alternatively, they could advance principal and interest payments only as they come in–a so-called “actual/actual” schedule. Either change would affect the payment streams to investors, but I would imagine that participants in the secondary markets would be able to model with some confidence how this would affect the value of securities and adjust pricing accordingly.

This means that future pooling and servicing agreements will need to look different than those of the past. They will need to be much more detailed and provide clarity about what the servicer can and cannot do. They should explicitly allow for loan modifications and other non-foreclosure workout actions when they are determined to lead to a smaller loss to the investor than would a foreclosure. There also needs to be clarity that the servicer is expected to work in the aggregate best interests of the investor, regardless of tranche. And we need to find ways to deal with the problems that arise from the conflicting interests of senior and junior lien interests that can hold up workable alternatives to foreclosure.

Too many of the practices in the mortgage servicing industry have been developed and defended solely on the basis of “standard industry practice,” but many practices were not only standard but shoddy. This has proven true, I might add, on the underwriting and secondary market sides of the house, and we are now seeing courts reject some of those practices. More explicit rules and procedures need to replace standard practices. And these rules and procedures need to be incorporated into the deals with investors, who will factor them in to the value they see in the securities.

These are some initial thoughts on how to rebuild an important but currently dysfunctional sector of the housing market. Surely details need to be worked out, costs accounted for, and potential unintended consequences thought through. This isn’t easy, and time is of the essence because the drag on our recovery is palpable. We need the incentives that permit us to reengineer this sector of the market and build a business model that actually works. That model will need to provide adequate and appropriate compensation for servicers, protect consumers, give investors what they need, and be sufficiently transparent to all parties and the public. It needs to be transparent and accountable–one that better aligns the interests and incentives of homeowners, investors, and servicers. And servicers need to understand that the homeowner is an important constituent, if for no other reason than that it is the homeowner who is critical to the revitalization of the housing sector.

In the process of rebuilding, we all have a significant and urgent role to play. The Federal Reserve Board has acted to provide unprecedented levels of liquidity to the market since the crisis began through the development of an accommodative monetary policy and the establishment and implementation of back-stop facilities and last-resort lending. We clearly need to continue thinking about obstacles that exist in the realm of strong mortgage lending. There is always more that the Federal Reserve can consider in terms of reforms that are needed for housing finance, mortgage lending, and mortgage service providers.

But the government can only do so much, and relevant private sector actors need to think beyond their bottom line and focus on how their firms’ actions are or are not contributing to the economic recovery. I am convinced that, in order for our economic reconstruction to come about, it will be essential for each of us to commit to furthering the good of our nation, our neighborhoods, and our fellow citizens.

I do not want to revisit all of the sordid events that brought us to economic crisis in 2008 but, suffice it to say that, in the housing sector, we traveled a very low road that had nothing to do with looking out for the greater good. On the contrary, there were too many people in all of the functional component parts–mortgage brokers, loan originators, loan securitizers, sub-prime lenders, Wall Street investment bankers, and rating agencies–who were interested only in making their own fast profits and were indifferent to the consequences of their actions for homeowners and communities, much less the nation as a whole. This selfish free-for-all ultimately led to an economic slide the effects of which are still visible in the boarded-up houses and sheriffs’ foreclosure notices posted all over America.

We pulled back from the brink of depression only through a massive and unprecedented infusion of public dollars in the banking system, and in other systemically important firms, to prevent collapse. In other words, the public was forced into a position where it had to put a lot on the line to save the financial system from its own follies and from total ruin. And many were bitter about having to do so.

Now, it is time to pay back the American citizenry in full, and not just in the literal sense, but in the sense that there must be reciprocity and mutuality in our structuring of economic policy so that we do not travel this low road again. Bluntly stated, the government reluctantly provided the taxpayer funds necessary to unfreeze the financial markets and get our financial institutions on their feet again, with the expectation that the benefits would be directly meaningful to those taxpayers in their households and communities.

The financial institutions that have been bolstered directly and indirectly by government subsidy and aid must now seek to support those who have been buffeted and injured by the housing crisis.

This must go beyond the corrective actions that need to be taken to rectify current deficiencies. It means that financial institutions need to understand the effects their actions will have on consumers and the country as a whole, and factor those considerations in to their business decisions. This is the high road–a moral and economic imperative that must be the driving purpose that unifies and animates our efforts. Indeed, the high road demands that we become effective institutional innovators for positive changes in our communities and for housing practices that promote community well-being. When we traveled the low road, the only question was: Will this practice make me rich? Taking the high road means we continually ask: Do our financial and legal arrangements contribute to the public welfare and the common good?

Yes, our economy has started to rebound, but we need a strong housing market in order to ensure a complete, stable, and sustainable recovery. The meltdown in the housing sector set off our economic crisis, and the reconstruction of the housing sector will help bring it to a close. Each of you has a role to play in this mission, and I urge you to embrace this challenge and to do your part to contribute to the economic rebuilding of our country.

Thank you.

~~~

So… what did you think? Better than a poke in the eye with a sharp stick, right? The woman knows what she’s talking about and isn’t afraid to say things that may offend her peers. She must be lonely there on the Federal Reserve’s Board of Governors… I wonder how she and Bernanke get along.

Now, if we could team her up with Elizabeth Warren, Brooksley Born, Meredith Whitney, Janet Tavakoli, Yves Smith, Erica Payne, Nomi Prin, Anya Schiffrin, April Charney, and Sheila Bair (assuming she promises to leave Tim Geithner out of the discussion), and I would have no doubt that we would have the foreclosure crisis under control within six months and be on our way back to economic prosperity by year’s end. And tell you what… just to show you that I’m completely anti-men… Simon Johnson can come along too.

I’ve had about enough of the boys club… the fellas aren’t doing anything for me lately… it’s the women that have their arms around this issue and personally I’d like to see them get a chance to set the course going forward. The guys have been at it a bit too long and they’re obviously all tired and too rich to know what this country looks like anymore.

Bye-bye guys… the showers are on… and then it’s time for a nap.

Ladies… let’s show the world what you can do… it’s your century, I can feel it. But, hurry… we’re melting fast at this point, so there’s no time to lose… push, and push harder… the people will support you, I know it to be true.

Mandelman out.

Feb

A San Diego Attorney Speaks Out on How SB 94 Has Taken Legitimate Lawyers Away from Homeowners

By Mandelman | HAMP, Housing & Economic Research, Weidner

20906Leave a Comment2011-02-09+14%3A58%3A47Mandelman

I think it’s fair to say that I’ve written more on the subject of lawyers and loan modifications than anyone else… I’m not bragging, in fact I wish it had never been necessary for me or anyone else to write about the topic in the first place. The question of whether a homeowner at risk of foreclosure and who is seeking a loan modification should be able to hire a lawyer to represent them, if that’s what they want to do, should never have been a question. It just shouldn’t have ever been all that complicated an issue, in my mind anyway.

A few years back, I was teaching 5-6th grade US History/Social Studies at a nearby elementary school and I’m quite sure that if I would have asked my students who they should call if they needed help when at risk of losing a home, they would have all picked “lawyer” off of the list of options. And, as to whether lawyers do a better job getting loans modified than homeowners on their own, the answer is also yes, no question about it. That doesn’t mean that a given homeowner can’t get their mortgage modified without being represented by an attorney, some can and some do. But overall, the vast majority of the hundreds of homeowners that contact me for one reason or another each month, all have similar stories… they’ve been tryingon their own to get their bank to modify their loan for a year or more and to no avail. They hire an attorney to represent them and lo and behold, in almost every instance, their loans get modified.

Moat recently, there was a woman who called me days before Christmas with Bank of America having already turned her down for a loan modification and set a sale date of January 7th. I referred her to a lawyer I know well, and two days before New Years her loan was permanently modified. Would that have happened without an attorney… no, it would not.

Another couple from Northern California also comes to mind. They had been trying to get Chase to modify their loan for over a year. Chase was talking to them but it was going nowhere and they were scared that they could lose their home of 20 years. Again, I referred them to a law firm I’ve gotten to know well, and a few months later, they not only got a modification, but a great modification, in my view, including a principal forbearance of $200,000. Do I think that would have happened without a lawyer involved… not a chance in the world.

I’ve simply seen too many similar stories over the last couple of years for just anyone to tell me I’m wrong about this, but if anyone has any data that says otherwise, I’m certainly open to taking a look or hearing about someone else’s experience if different than my own.

The issue has been muddied ever since President Obama, Treasury Secretary Geithner, and Attorney General Holder, all told the nation in so many words that, “loan modifications are free… you don’t need a lawyer, you just call a HUD counselor or your bank directly.” I was shocked when I heard that message coming from Washington D.C. because it never made any sense at all to me… because nothing that comes from a bank is ever free.

And the idea that a homeowner calling a HUD counselor or their bank directly would be as effective as paying a private sector attorney to handle things just never seemed likely to me. And I don’t think it was much of a mystery to many homeowners either.

To the California State Bar, however, I think it would be fair to say that the whole subject of attorneys being involved in loan modifications has been hard to understand. And much of the reason for this apparent difficulty, is that there have been far too many scams out there from which homeowners can far too easily choose.

It’s astounding, actually. I mean, I realize that our state and federal governments have limited resources when it comes to enforcing the law in certain areas, but my God… I have to believe that if drug dealers had Websites, wouldn’t law enforcement have moved in to shut them down faster than it has taken to go after the innumerable scams that have proliferated around the Internet claiming to be able to save someone’s home from foreclosure? Maybe I’m wrong, maybe the response would be about the same if it were drug dealers… but would it really?

To make matters worse, there have unquestionably been many firms that opened with the best of intentions only to discover that the banks were on a mission to make their lives miserable and their jobs next to impossible. I can’t mention any names, but I happen to know of one loan modification company that was opened by a retired banker… and not just any banker, but a senior level banking executive that ran an entire region of the country for one of the largest banks in the U.S. He came out of retirement to open a company that helped homeowners get loans modified. Why? Because he knew what he was doing, obviously, that’s why. But, today… his company could easily find itself branded a scammer for accepting a fee in advance of getting a loan modified.

I think there were a lot of companies, in other words, that tried and failed when it came to loan modifications, and with our government’s only advice being call HUD or your bank directly, it was left to homeowners to figure out where real help could be found and who might be in business tomorrow.

Then you had the “salesperson effect”. Salespeople working on commission who told a homeowner with monthly income of $2,000 that they could expect to keep their home even though their first mortgage was $475,000, and their current payment with which they were struggling was interest only. Again, I don’t think there should be any question that government could have done a lot to prevent that sort of thing from happening as well. They just didn’t. They rolled out a loan modification program, called Making Home Affordable, that sounded wonderful, but they failed to enforce its rules, and allowed servicers to do as they pleased… and the litigation won’t end for years to come as a result… not that it should.

What the banks have done while Treasury looked the other way, represents the worst abuses to American citizens I’ve ever seen, read about, or imagined could occur… at least since the pre-union abuses of laborers by Robber Barons at the beginnings of the 20th Century.

No one is pro-scammer, mind you… everyone hates the idea of a homeowner being scammed out of money when at risk of losing a home, or at any time, for that matter. But I think it should be clear that the only way to stop the spread of scammers is to make legitimate assistance abundant. Just imagine if the State of California had announced that you could find legitimate assistance with a loan modification at every Starbucks… no more scammers, right? Why would you need to search for such assistance using Google when you could get meaningful help while your decaf low-fat latte was being prepared?

Our regulators need to understand, and it’s about time they did, that homeowners at risk of foreclosure are going to try to get their loan modified on their own if that’s what the government says they should do, but when they find out that they can’t get it done… well, they’re going to write someone a check before they give up and look for a place to rent. If they find legitimate help, great. But they’ll write a check to organized crime before they walk away from their homes without trying something else. And no one is going to change that fact… water is wet, the sky is blue, and… you get the idea, right?

Think about prohibition. Want to get rid of bootleggers? Only way to do that is to put legal liquor stores on the corners. You can break up stills, and chase down illegal rum runners all you want, but put a legal liquor store on the corner and presto… no more bootlegger.

We need our lawyers to get us through this… simple as that.

The one thing you don’t want to do is pass a law that removes only legitimate attorneys from the marketplace, and yet that’s precisely what California did in 2009 with the passage of SB 94. I know… the state didn’t know what else to do… they thought the new law would help, but they were wrong on all counts. SB 94 hasn’t eliminated or even reduced the number of scammers preying on homeowners at risk of foreclosure. In the last few days alone, I’ve received links to Websites offering the most insane schemes to prevent foreclosure I’ve ever seen and some that I couldn’t have come up with in a hundred years.

Have you heard of “assets for value”? Who came up with that convoluted concept that requires you to buy into the supposed fact that there is no federal government having something to do with our nation coming off of the gold standard? Or how about some sort of club that you join to get your house free and clear? There’s a whole slew of “put-off-your-trustee-sale-date-for-a-grand companies. And others that claim to represent a hedge fund that’s going to buy your note from your bank and then sell it to you for less, but they can bever seem to be able to tell you the name of a homeowner fro whom their plan worked, or even the name of the hedge fund, as if such a thing would be kept secret were it in any way true.

And, of course, we’ve all heard about the forensic loan audit that is going to bring your bank to its knees for failing to do something for which the statute of limitations has expired years ago, or that requires you to get relief by refinancing and repaying your loan.

Some of the scams out there are so far out there that’s it’s hard to believe that anyone would be sucked in… until you talk to a salesperson at one of these operations and that’s when you realize how good someone of these people are at getting you to believe their stories. If you weren’t a homeowner in a panic, you’d never buy any of this, but when it comes to losing a home, people will try anything. And that’s why the unintended consequence of SB 94, although I certainly wrote about what its passage would bring on numerous occasions, has not been to stop scammers, but more so it’s made them harder to find as they carefully crafted ways to charge homeowners outside the law.

It;’s common sense really… laws only matter to law abiding people. Scammers don’t care about the laws… which is why they’re called scammers. I mean, when SB 94 was passed in California, thus making it illegal for a real estate licensed person to accept a fee for helping a homeowner get a loan modified, it was already illegal to rip someone off for three grand, wasn’t it? I’m not an attorney, but I’m pretty sure taking someone’s three grand and delivering nothing in return was always against the law.

But what it did accomplish was to take all of the legitimate companies that were offering to help homeowners out of business because no one can work to get someone’s loan modified for God only knows how long the servicer takes to stop losing paperwork and actually look at someone’s file, and then send a bill for services… a year down the road… and even then hope that the homeowner isn’t so all-fire mad by then that they will actually pay the bill. And if someone doesn’t pay, what then? Ruin their credit? Come on now… let’s be adults about this… I pay my bills but I’m not even sure I’d pay that one a year down the road after being jerked around like chum on a line for months at a time.

So, SB 94 took the legitimate providers out of the business and that includes hundreds or maybe even thousands of lawyers as well. The scammers… oh, they’re doing just fine, thank you very much.

I recently taught a continuing education class, along with two attorneys, for the Orange County Bar Association. There must have been something close to 100 lawyers in attendance, but I was shocked when the room was asked how many were offering loan modification services and less than 20% put up their hands. Why were they there, I thought to myself, and then it became clear… none of them knew for sure how they were permitted to get paid by clients needing help with a loan modification.

I’m sorry State of California, but if lawyers can’t figure out what a law allows and doesn’t… there’s a problem with the law. If travel agents weren’t sure how a new law affected them, well… that’s one thing, but an entire room full of licensed practicing attorneys? If they don’t know, who should know?

The FTC’s recently enacted final MARS (“Mortgage Assistance Relief Services”) rule, for example, regulates all providers of loan modification services nationwide, and prevents such providers from charging homeowners before a loan modification has been offered by the servicer. But the FTC’s rule also allows for licensed attorneys to be exempt from that requirement, recognizing that without a retainer up front, an attorney could not offer to represent a homeowner seeking a loan modification. Under the new MARS rule, therefore, lawyers are allowed to charge a retainer up front, as long as that money is deposited in the attorney’s trust account and earned as services are rendered.

You know… the way lawyers have always charged their clients for just about everything.

SB 94 has made it much more likely for a homeowner to find a scammer because it has taken at least hundreds and perhaps even more legitimate lawyers out of offering the services related to a loan modification, while the scammers have just found ways to appear outside the law and therefore are that much harder to catch and shut down.

Something has to be done and I’m going to take a shot at doing it. Stay tuned to Mandelman Matters for updates, and for more exposing of the scams that are turning up around every Internet search. We’re three plus years into this crisis and the government continues to fail at every turn and in every way when it comes to stopping or even slowing foreclosures. There’s just no excuse for this sort of thing to go on any longer, and I’m going to take a shot at both exposing and getting the State Bar to do something helpful. Because we need our lawyers to get us through this, and those lawyers need to know how they are permitted to practice in this area, just like the lawyers now do in the other 49 states.

To read more about why I supported the attorney exemption contained in the FTC’s final rule, here’s a link to an article I wrote last year: FTC Considers Wrong Approach to Protecting Homeowners from Loan Modification Scams… http://mandelman.ml-implode.com/2010/02/ftc-considers-wrong-approach-to-protecting-homeowners-from-loan-modification-scams/

But enough of what I have to say… even I’m tired of listening to me on this topic.

Just a couple of days ago, I received the following letter from an attorney from San Diego. I was so moved by the letter that I asked for and received permission to post it. Needless to say, I’ll be including him on my listing of trusted lawyers, a list I’m expanding as fast as I can. No one knows what the outcome will be when negotiating with a servicer today, but if you can’t get anywhere you should be able to hire a lawyer and know that, if nothing else, he or she will do everything possible to save your home. And that you most certainly won’t get ripped off.

Here’s what a San Diego, Ret. Navy, attorney had to say after finding an article I wrote last year about SB 94…

Dear Mr. Mandelman:

I am sorry I missed your blog of September 9, 2009 concerning SB 94. I was trying to find a copy of SB 94 when I found your blog. You were so on the money!

I am an attorney and at the time I was doing loan modifications and if you read the below response, you will see I was successful with them. SB 94 killed my loan modification practice for all of the reasons you laid out in your blog.

Yesterday I saw the attached article on the State Bar web page and I nearly lost my mind. So I prepared the response you will find below.

Unlike the attorneys in your blog, if any of this is helpful, cite me. I do not care. The State Bar has harassed me before and as I told them then, dis-bar me, make my day. I am tired of dealing with lying crooked attorneys, crooked judges and a corrupt State Bar. (Oh the stories I can tell.) But I also told them they would have to prosecute me because, I will not go quietly into that good night.

I hope you enjoy the response. I did get Senator Calderon’s name and position from your blog, so thank you.

Albert M Sterwerf, USNR Ret, Attorney at Law

Dear Ms. McCarthy:

I just read your article “No let-up in loan modification complaints” about James Towery’s pursuit of the small number of lawyers who were doing improper work with regards to loan modifications. I noticed that your article did not answer some very important questions. Such as:

1.      Is the State Bar going after the attorneys working for the banks who are illegally conducting the foreclosures you discussed in your article? No? Oh, that’s right SB 94 specifically exempted those attorneys working for banks who are responsible for the foreclosure crises.

2.      Is the State Bar going after the attorneys working for the banks who are committing ethics violations, such as illegally contacting parties represented by a counsel (SB Rule # 2-100) or the so call “robo-signing” of thousands of documents a day without any review (SB Rule 3-110), etc.? No? Oh, that’s right SB 94 specifically exempted those attorneys working for banks from being prosecuted for their ethical violations while conspiring to steal people’s homes and life savings.

3.      How is SB 94 constitutional, such as equal protection issues, right to counsel issues, right to contract and so on, when SB 94 limits the mortgagee’s ability to contract with an attorney, i.e. preventing the mortgagee from paying the attorney a retainer until the loan modification was completed, but the same requirement is not placed on any other attorneys in the state, including the attorneys working for the banks who are conducting the illegal foreclosures you referred to in your article? Again the banks’ attorneys are specifically exempted in SB 94. I am starting to see a pattern here, under SB 94 the banks’ representatives seem to be exempt from all of these rules and laws in California. Why is that? Who did write that bill? Oh yeah, California State Senator Ron Calderon, the Chair of the Senate Banking Committee. How much money do the banks have?

4.      Since attorneys doing loan modifications can only be paid after they successfully get their client a loan modification, are the State Bar and the legislature going to make the payment of retainers illegal for all attorneys? After all, if it is good for attorneys doing loan modifications, it would be even better for divorces or criminal prosecutions or civil defense cases, etc. Why shouldn’t all attorneys have to wait to be paid until after all of the work is done on the case?

5.      Since attorneys doing loan modifications can only be paid after they successfully get their client a loan modification, are the State Bar and the legislature going to make it illegal for all attorneys to be paid if they fail to win their cases? I do not see any rush to make criminal defense attorneys return the money to their clients in jail or prison. Or those prosecutors that we all pay for, shouldn’t they only be paid when they get a conviction? Think of how much money we could have saved on the OJ Trial if we had not had to pay Darden and Clark their bonuses! They lost didn’t they?

6.      In all of the complaints you discussed in your article, how many attorneys were wrongfully accused and forced to defend themselves against frivolous complaints? You did not answer that question, but I did see that you did lump the innocent attorneys in with the guilty. I guess is sounds better if you double the number of all of the cases dismissed as if they were all against “guilty attorneys”. It seems the State Bar does not mind condemning the innocent with the guilty.

Since you are a staff attorney for the State Bar, I guess these questions were not important to you.

However, they are to me! The State Bar and SB 94 destroyed my loan modification practice so it is personal to me as is California families who have lost their homes and life savings because of SB 94 and the State Bar. I take offense at your cavalier treatment of all of the people that have been hurt by SB 94 and the State Bar.

Prior to SB 94, my office had over a 99% success rate on loan modifications and for the one failure(?) that I had, I complied with the terms of my contract and refunded my client’s money to them. I was unable to obtain the loan modification in that case because the client would not comply with the “bank’s requirement” that he miss two payments before they would even talk to him or me about a loan modification. (The requirement for the mortgagee to miss two payments was set up by the banks so that they could subsequently foreclose on the properties and in the process harm the mortgagee’s credit rating thereby making it more difficult for them to qualify for any other types of assistance including Federal HUD refinancing plans which in many instance could have assisted the mortgagees in saving their homes.)

THE STATE BAR AND CALIFORNIA STATE SENATOR RON CALDERON, THE CHAIR OF THE SENATE BANKING COMMITTEE KNEW THAT SB 94 WOULD AID THE BANKS AND HARM THE PEOPLE OF CALIFORNIA.

Prior to SB 94, I took one case in which the client was to pay me after I completed the loan modification. This resulted in me not getting paid after I successfully completed the loan modification for my client. I do not remember the State Bar offering to help me get paid by my client. This case was pre SB 94 and the law did not apply to that case, but based on that case, I realized that I could not run my practice doing loan modifications if I could not get paid up front for the work I would do on the loan modification and had to wait until the loan modification was completed in the hope that my client would pay me.

I cannot run a law practice in which I and my office would spend months of work consisting of hours of time preparing the required documentation and more hours on the phone going through the bank’s run around and transfers (On one call I was transferred between 6 different people in 4 different states over 2 ½ hours and I had to start over at the beginning with each person I spoke to.) and repeatedly faxing and mailing documents to the banks (which the banks consistently lost, ignored or simple said they did not receive despite evidence of their receipt, i.e. proof of mailing and receipt of fax verifications) to not get paid after I successfully got the client a loan modification.

The State Bar knew that SB 94 would make law practices like mine untenable and that most attorneys in the field of loan modifications would have to terminate that part of their practice. The State Bar knew it was cutting the legs out from under the attorneys who were the only ones protecting the families of California, by making it illegal and punishable as a felony the same conduct that every other attorney in the State of California is allowed to do, to accept a retainer.

But the State Bar did not care that it was hurting the people of California, as long as the attorneys working for the banks, the parties with lots of money, were protected. Which Senate Committee is Senator Caldron the Chairman of again? Oh yeah BANKING!

Thanks to SB 94, I now have people coming to me, people I could have helped save their homes, after their homes have been sold in foreclosure sales and the story these people tell me is fairly consistent, “I was doing a loan modification myself, they asked me to send them some more information, I sent them the requested documentation, then I got the notice that my home had already been sold in a foreclosure sale.”

That is okay. SB 94 makes unconscionable conduct by the bank lawful!

WHERE IS THE STATE BAR FOR THESE PEOPLE?

I can tell you. No where! When I was doing loan modifications, my clients consistently informed me that their banks continued to contact them despite the banks being on record that I was my clients’ attorney. When my clients told the banks that they had an attorney the banks told them, “We don’t like working with attorneys. You don’t need an attorney. We want to talk directly to you.”

Somehow the term, “You don’t need an attorney,” sounds familiar. Oh yeah, SB 94 again, attorneys doing loan modifications have to provide their clients with a notice that they can do loan modifications themselves and that they do not need an attorney or the attorney can go to jail and be convicted of a felony. Wow! I wonder how that got into SB 94? Who wrote that bill again? Senator Caldron the Chairman of the Senate BANKING Committee.

It is funny, I thought the State Bar was there to protect me as an attorney, not to make me a felon for helping people try to save their homes.

Do criminal attorneys have to provide written notice to their clients that they can represent themselves and that they do not need an attorney? I somehow do not remember that being a requirement.

Another funny thing I noticed, that while I would have had to tell any prospective loan modification clients that they did not need to have an attorney, not one bank gave up their attorneys and when I tried to deal directly with their attorneys, I was denied access to them.

I called the State Bar to complain about the banks’ attorneys ignoring me and my office and going around me to directly contacting my clients.

The State Bar’s response, “We don’t care.”

Then the State Bar supported SB 94, when I called about that and pointed out how SB 94 left all of the mortgagees, the people that the law was supposed to protect, without lawyers, the

State Bar response was, “We don’t care.”

When I asked how I was supposed to run a law practice doing loan modifications I was told, “If you are a competent lawyer, you will not mind getting paid after the work is done.”

So I go back to unasked questions 4 and 5 above, are all attorney retainers going to be made illegal? After all, if the lawyer is competent, they should be willing to be paid after the divorce is done or when their client is in prison, or how about prosecutors only getting paid when they get a conviction. If it is good enough for attorneys doing loan modifications, it should be good enough for all attorneys. As the State Bar says, “If you are a competent lawyer, you will not mind getting paid after the work is done.”

WHO HAS THE STATE BAR AND SB 94 HELPED? THAT’S RIGHT, THE BANKS!

As for Mr. Towery’s successes, congratulations. For the twenty lawyers that have been punished, how many thousands of California families have lost their homes to the banks who are protected by SB 94? How many billions of dollars have the banks stolen from the people so that Mr. Towery could get his twenty lawyers? Yahoo!

I would like to see the numbers breakdown for the following sentence in your article, “And between 2007 and 2010, the number of cases resolved through warning letters, stipulations, closure or filing of charges doubled from 902 to 1987.” I would like to see this broken down because I noticed that “closures” i.e. cases where no action was taken against the attorneys, i.e. the attorney was wrongfully accused, was lumped in with the warning letters, stipulations and filing of charges.

HOW MANY ATTORNEYS WERE WRONGFULLY ACCUSED?

Why has Mr. Towery’s office been able to go through so many cases as you discussed in your article? For two reasons:

The first reason is that over 90% of the complaints of misconduct was by the 20 lawyers that were prosecuted. It is my guess, since the article was not clear on the matter, that the 20 lawyers either ran or worked for the client mills that were scamming thousands of clients. When the State Bar gets a complaint against the attorneys that have already been disbarred or resigned, the complaint can be quickly dismissed since that attorney has already been punished. That means hundreds if not thousands of complaints which are due to those 20 attorneys can easily be dismissed.

Therefore, the majority of the valid complaints to the State Bar came from a few client mills, which were simply churning clients and performing no work. (Before you become too judgmental on these organizations, there unconscionable conduct is much the same actions that the banks were doing to obtain the illegal loans in the first place and when people contacted them for loan modifications and are what the banks are now doing to get their illegal foreclosures. Let us not forget, the State Bar and SB 94 protects the banks and their attorneys.) Just one of these client mills had over a thousand files or cases. So that means over 1,000 possible complaints against the lawyer involved with this client mill could be dismissed out of hand because the attorney responsible has already been punished.

I was contacted by one of these client mills to see if I would assist them, but I was unwilling to work under the conditions they desired and we went our separate ways. I did not know at that time that the organization was not performing the work or any other ethical violations; I simply was not willing to work on the large volume of cases they demanded and therefore I maintained a client base that I was able to manage.

The second reason that Mr. Towery could clear up so many backlogged cases is because most of them are frivolous! I had to defend myself against a claim based on one of my loan modification clients. I got the loan modification for my client (Pre SB 94) as per our contract and then months later the client tried to get the money back that I had earned and in an effort to coerce me into paying them the money, they first threatened and then filed a complaint with the State Bar.

So I had to spend valuable time and effort, away from helping my clients, defending myself against the frivolous claim of a client who was satisfied with my work until he heard about the State Bar prosecuting attorneys doing loan modifications and thought he could get his money back.

If Mr. Towery believes he is going to bust a lot of attorneys for loan modification scams, he needs to contact the substance abuse counselors at the State Bar. Most of the attorneys and other professionals that were doing loan modifications stopped after SB 94 leaving the mortgagees without any legal help and the majority of the people who are still doing loan modifications will be following the letter if not the intent of the law.

I am sorry, I made a mistake. The mortgagees are not totally without legal assistance. They can call the HUD recommended free services for help. I called a few of them to see who I could recommend to the people coming to me to for assistance. From what I could determine from my communication with these “free services”, two proverbs that came to mind, “You get what you pay for,” and “When you buy a diamond for a dime, you get a diamond not worth a dime.” I could not recommend any of the services I spoke with to the people who came to me for help.

I have had clients, post SB 94 clients, whose houses have been sold in unannounced foreclosure sales and they want me to help them get their houses back after the HUD recommended agencies had failed to perform. Yahoo SB 94!

That is another of those interesting little tidbits of SB 94, attorneys doing loan modifications have to tell their clients, in writing, that they do not need an attorney and to tell them they can go to the HUD recommended free services for help. I do not remember that requirement for criminal attorneys or divorce attorneys or malpractice attorneys or the attorneys working for banks.

The point is I know where the majority of the complaints to the State Bar came from and therefore I know that the number of attorneys involved has to be fairly limited. So to punish a few (20) bad attorneys, who could have been punished under existing ethics rules and laws, the State of California and the State Bar have allowed hundreds of thousands of California families to be thrown out of their homes. Again Yahoo!

So to answer the implicit question in the first sentence of your article, i.e. “Despite extensive efforts over the past two years to rein in improper loan modification activities by some lawyers, including legislation and aggressive prosecution by the State Bar and the attorney general, complaints from clients continue unabated.” The complaints keep coming in because people are losing their homes and life savings because the State Bar and the State of California threw them to the wolves, i.e. the banks, and then cut them off from the only people who could have protected them, their attorneys. Then after throwing them to the wolves, the State Bar has said, complain to us about your attorney and get your money back. So it is no surprise that the complaints continue to come in.

Not only did the State Bar throw the people of California to the wolves, it threw us attorneys helping them under the train. Thank you!

In case you are thinking that I am making up the above observations about SB 94 below are significant portions of SB 94.

SEC. 6. Section 10133.1 of the Business and Professions Code is amended to read:

10133.1. (a) Subdivisions (d) and (e) of Section 10131, Section 10131.1, Article 5 (commencing with Section 10230), and Article 7 (commencing with Section 10240) of this code and Section 1695.13 of the Civil Code do not apply to any of the following:    (1) Any person or employee thereof doing business under any law of this state, any other state, or the United States relating to banks, trust companies, savings and loan associations, industrial loan companies, pension trusts, credit unions, or insurance companies.

To be completely clear, SB 94 explicitly states that Civil Code Section 1695.13 does not apply to banks and their employees, yet that code section states:

CC § 1695.13. It is unlawful for any person to initiate, enter into, negotiate, or consummate any transaction involving residential real property in foreclosure, as defined in Section 1695.1, if such person, by the terms of such transaction, takes unconscionable advantage of the property owner in foreclosure.

SB 94 SEC. 10. Section 2944.7 is added to the Civil Code, to read:

2944.7. (a) Notwithstanding any other provision of law, it shall be unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following:

(1) Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.

(2) Take any wage assignment, any lien of any type on real or personal property, or other security to secure the payment of compensation.

(3) Take any power of attorney from the borrower for any purpose.

(b) A violation of this section by a natural person is a public offense punishable by a fine not exceeding ten thousand dollars ($10,000), by imprisonment in the county jail for a term not to exceed one year, or by both that fine and imprisonment, or if by a business entity, the violation is punishable by a fine not exceeding fifty thousand dollars ($50,000). These penalties are cumulative to any other remedies or penalties provided by law.

(c) Nothing in this section precludes a person, or an agent acting on that person’s behalf, who offers loan modification or other loan forbearance services for a loan owned or serviced by that person, from doing any of the following:

(1) Collecting principal, interest, or other charges under the terms of a loan, before the loan is modified, including charges to establish a new payment schedule for a nondelinquent loan, after the borrower reduces the unpaid principal balance of that loan for the express purpose of lowering the monthly payment due under the terms of the loan.

(2) Collecting principal, interest, or other charges under the terms of a loan, after the loan is modified.

(3) Accepting payment from a federal agency in connection with the federal Making Home Affordable Plan or other federal plan intended to help borrowers refinance or modify their loans or otherwise avoid foreclosures.

Sub-Section C is the interesting paragraph, especially when it is understood that a “bank” is considered a “person” for this section. How about that, the prohibitions do not apply to the banks or their agents.

So SB 94 makes it a crime for an attorney to represent property owners punishable by incarceration simply for being paid for work to be performed just like every other attorney in the State of California is allowed to do, yet it allows banks and their employees, i.e. attorneys working for the banks, to unlawfully and unconscionably take advantage of property owners in foreclosure.

Please tell the president of the State Bar not to send me any more requests for donations. I gave with the rest of California with SB 94.

Respectfully,

Albert M Sterwerf, USNR Ret., Attorney at Law

~~~

Mr. Sterwerf, I just can’t thank you enough, if for no other reason, than to make me feel that much less alone.

What’s being allowed to go on in this country is not something I could have ever imagined. It’s no different that were I to be forced to watch the U.S. Army water-boarding American citizens. Our government has simply sat idly by while literally millions of American homeowners have been tortured mercilessly and without recourse by our banks and mortgage servicers.

In fact, I’ll go even further… I’ll bet money that I can find thousands of homeowners in this country that would have volunteered for a couple of days of water-boarding if it meant not having to endure the torture meted out by their servicers that they all-too-often have endured for a year or more… before losing their home anyway.

“I’m sorry, Mrs Smithstone, we’ve gone and lost your paperwork once again. We’re so sorry, but you have to understand… we’re a bank… we lose stuff all the time. Not our money, of course, but yours… well, it comes and goes… that’s just the way it is around here. Complain? Why sure you can complain… hold on while I get you the number for our complaint line… click… dial tone.”

“Oh, Mr. Stonesmith, now you’re taking those HAMP guidelines awfully literally, don’t you think? I know it says you’ll get a loan modification if you make all your trial payments on time, but did you read our addendum to those rules? I didn’t think so… our rules say that you have to be wearing a purple hat every time you call and then say the magic word: “Pluthtarth Ingybingy” within 5 seconds of when we answer the phone. So, you’re home was actually sold last Thursday.”

Is this Ms. Smithrock? Yes, well hi to you too. Listen you’ve been denied once again for a loan modification, but I do have some good news for you… we’ll go ahead and let you reapply for another loan modification, and all you have to do is send us a check for $10,000 and keep making those trial payments that don’t apply to anything. Plus, I asked my boss, and he said we wouldn’t be denying you again for another four or five months… as long as you’ll pay the property tax bill that’s coming up.”

Oh, Mr. Rocksmith, you don’t want to refinance, you want a loan modification. Just stop making your payments and call us in say eight or nine months, and we’ll be taking care of that bothersome mortgage payment you’ve got hanging around your neck before you know it. That’s right, don’t worry about a thing…”

Look, anyone that doesn’t realize that we need our lawyers to get us through this simply isn’t paying attention. From robo-signers to trustees that can’t even prove they own the loan they want to foreclose on… to GAMC who just keeps foreclosing on one couple in Ohio even though they keep making those pesky payments on time. The cases of servicers breaking laws and rules are coming at us faster every day.

And our government obviously doesn’t care… or at least they don’t care much. Why, cause as far as they’re concerned, we’re all nothing but a bunch of irresponsible homeowners that caused this financial catastrophe, and we don’t deserve anything better than what we’re getting already. I’m sorry to have to break it to you, but that much is clear.

Luckily, we still have laws and lawyers. We’re a nation of laws, as a matter of fact, forged by lawyers. And, as we’re seeing happen more and more each day, the banks may be able to buy our legislators, and even our president, but they just aren’t having much luck getting to the thousands of judges in this country who are starting to smell a rat, and by rat I mean banker.

The FTC’s rule is good enough to protect the homeowners in the other 49 states, why can’t we live by it here in California. SB 94 isn’t doing anything but making it impossible for licensed attorneys to help homeowners when they are being jerked around by their banks and servicers. Isn’t it clear yet?

SB 94 is simply a law written by the Senate Banking Committee to make it next to impossible for a homeowner to hire a lawyer when at risk of foreclosure. I bet the banks wish they could have passed such a thing in Florida and then maybe none of this nasty robo-signer business would have come out, and they could have just kept on illegally foreclosing with fraudulent documents for as long as they pleased. That would have been nice for the banks, wouldn’t it?

Something else you should know… remember all those scamming lawyers that we were told were raoming the countryside scamming everyone out of their money left and right? And remember the 8,000 complaints that are now 2,000 complaints? Yeah, well a year later, the State Bar has taken action against 20 lawyers… TWENTY LAWYERS, and that includes lawyers who didn’t get convicted of anything… 12 of the 20 simply resigned.

There are 200,000+ lawyers in California. We needed to take thousands of legitimate lawyers away from homeowners because 20 were doing something wrong?

It’s ridiculous. To any thinking adult, it’s just plain ridiculous. Stop the banking lobby from making laws that only help them not get caught. Write to your state senator and tell them you’re paying attention to what’s happening as a result of SB 94. Tell them you don’t want it to be difficult or even impossible to hire an attorney if you want to hire an attorney. We have a right to legal representation in this country.

We need our lawyers to level the playing field and fight the banks who are unjustly taking our homes even when the investor would make more money by modifying the loans. And put the bad guys in jail where they belong… for a change.

And me? I’ll take water-boarding for $200, Alex.

Mandelman out.

Want to read more about what I’ve written on this topic… here’s a few just to get you started… why am I like the only person writing about this topic… I don’t even know anymore, but it sucks, I’ll tell you that. And it’s pissing me off because I could keep adding links below until there were so many I’d want to eat a gun. Can’t we just get this one thing right? Do I have to make an entire f#@king career out of this one stupid easy subject? Dear God…

Loan Modifications and the Right to Representation (May 2009)

Did Attorneys “Turn Bad” in 2009? What… is there Something in the Water (August 2009)

Journalists on Crack… Are Lawyers Turning to Crime in Tough Times? (January 2010)

US District Court Chief Judge Gonzalez Says WaMu’s Conduct Appears Immoral, Unethical, Oppressive, Unscrupulous or Substantially Injurious to Consumers (November 2010)

Kings of Loan Mod Scams – Arizona, Nevada Sue Bank of America Over Loan Mod Program (December 2010)

Legal Aid for Homeowners – Perhaps the only thing for which TARP funds cannot be used (December 2010)

Chris Adams, McClatchy Newspapers, Get It! Servicers Suck. (October 2009)

A Bill in California Will Establish That Lawyers Cannot Be Trusted (August 2009)

My Year in a Trance: What I’ve Learned About Loan Modifications (May 2010)

2 Years Waiting for New York Times to Cover Lawyers & Loan Mods and they still get it wrong (December 2010)

How to Tell Legitimate Loan Mod Firm from Illegal Operation – The FTC’s Bright Line MARS Rule (December 2010)

Jan

The Full Impact of The Foreclosure Calamity- And Why Aren’t Homeowners Questioned?

By Matthew D. Weidner, Esq. | Weidner

20346Leave a Comment2011-01-31+10%3A43%3A46Matthew+D.+Weidner%2C+Esq.

All across this country legislators and policy makers are discussing the Fraudclosure Crisis. The suits are there from the banks and the foreclosure mills. Policy wonks are there from think tanks and universities, but the people who are most directly impacted by all of this are excluded. Here in this state our legislators are meeting and they’ll hear from all the usual suspects…but are consumers ever invited to tell their side of the story?

You will get your chance on March 9, 2011 when we hold the 2nd Annual Rally in Tallahassee. We want to see thousands of homeowners in the state capitol telling your legislators how Fraudclosuregate has personally impacted you. And now the Mother Jones Article….

After 18 months and more than 700 sworn testimonies, Congress’ Financial Crisis Inquiry Commission wrapped up its hearings last September with three unscheduled witnesses—a last-minute plea from a lawyer got them included, for five minutes each, at the tail end of the commission’s hearing in Sacramento.

A relative helped 79-year-old Lovie Hollis to the microphone. She testified (pdf) that she and her husband Grafton had raised five daughters in their Sacramento home and had paid off their mortgage but had to sell in 2006 when Grafton could no longer get up the stairs. She did not understand the terms on their new home and was unable to pay when the monthly rate suddenly adjusted upward to nearly three times the original mortgage. She answered an ad offering loan modification help. “Tom” operated out of an office in Hollis’s neighborhood. He told her to stop making loan payments while he worked on her case, took her money (and her car), and fled. Hollis, now a widow, lost her home.

Mother Jones Here

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Jan

California Appeals Court Rules Homeowners Can Sue Banks for Fraud Over Broken Loan Modification Promises

By Mandelman | Housing & Economic Research, Weidner

20245Leave a Comment2011-01-29+14%3A36%3A20Mandelman

Well, first let me just say… it’s about damn time.

The Second District Court of Appeals in Los Angeles has ruled that banks are “legally bound by their loan modification promises,” and can be sued for fraud when homeowners rely on such promises and are damaged as a result.

Did I already say that it’s about damn time? Well, it totally is.

Claudia Aceves received a foreclosure notice from U.S. Bank, so she filed for bankruptcy protection and the foreclosure was halted. Her plan was to file Chapter 13, which would mean that she could very likely keep her home and under a court approved repayment plan.

Then she got a call from the nice folks at U.S. Bank… and the bank’s representative said… I’m paraphrasing here…

“Oh, Claudia, Claudia, Claudia… this is all just one big misunderstanding. You don’t need to trouble yourself with the whole bankruptcy thing. We’d be happy to help you get your loan reinstated and modified… assuming, of course, you wouldn’t mind just withdrawing your bankruptcy filing.”

So, she did.

And just five days later… without so much as a courtesy call or even a “F#@k you” card… U.S. Bank scheduled her home to be auctioned off a month later.

See… this is an excellent example of why I’m starting to think we’ve become too civilized a society. I was born back in Brooklyn, New York, I mostly grew up in Pittsburgh, and my wife’s from the City of Chicago… and I’m here to tell you that if someone tried to pull something like that on someone else in any of those places back when we were kids, the offending party would pray for the dispute to be settled in a courtroom, you know what I’m saying here?

Claudia told Bob Egelko of the San Francisco Chronicle that the bank was nice enough to contact her attorney the day before the sale to offer her the chance to save her home by agreeing to a higher monthly payment.

The auction went on as scheduled and would you like to venture a guess as to who purchased Claudia’s home? Come on, you can do it… why, U.S. Bank, of course! And just two months later, the bank pinned an eviction notice to her door.

What would they say over in England… oh, that’s right… Jolly good show! In fact, I’d have to add… crackerjack work… that is one fine piece of banking right there, wouldn’t you say?

So, instead of, let’s say… causing someone great bodily harm or significant property damage… Claudia filed a lawsuit against her bank… only to have a lower court judge dismiss it!

Hey look… I can understand that… I mean, she was the one who was having trouble making the mortgage payment on her $845,000 loan, which almost undoubtedly secures a property worth something under $500k. And she had a chance to keep her home through a court approved repayment plan had she gone ahead with her Chapter 13 filing.

But, noooo… she withdrew her filing, now didn’t she? And whose fault was that? She knew she was dealing with a bank, and she went ahead and relied on what they said… I mean… come on… who would do something like that in this day and age?

I could see it if she had gotten a call from say… the mob… you know, good old organized crime. Sure, then she could have reasonably assumed that the caller would keep his word and help her modify her loan, but a bank representative? There’s no way I’d believe anything a bank representative told me over the phone.

So, the lower court dismissed her frivolous claim, but what do you know… it must be a brand new day in the California courts because the Second District Appeals Court picked it right back up and, even though they declined to reverse the foreclosure, this past Thursday the court ruled 3-0 that…

“… a lender who falsely promises to help a homeowner prevent foreclosure can be sued for fraud.”

The court, according to Friday’s Chronicle, said:

“… (she) could have reasonably relied on the bank’s promise to work out a loan reinstatement and modification if she did not seek relief under the bankruptcy law…”

During the proceedings held in Los Angeles, U.S. Bank argued that Claudia had acted in “bad faith,” by attempting to avail herself of our nation’s bankruptcy laws in order to avoid foreclosure.

A spokes-jackass from U.S. Bank supposedly said:

“The betch was trying to avoid getting foreclosed on by hiding behind that bankruptcy shiz, so why should we have to deal fairly, tell the truth, and keep our promises? She’s the one who set the rules here… and come on… we all know that ho can’t afford no $835,000 loan, and if we don’t take her pad back and dump it now, it could be worth a hundred grand less by the end of this year.

If Americans want this country’s banks to get healthy again, they’re going to have to stop getting in our way, and set aside all those ridiculous rights and laws that deadbeats are always yammering on about. I’m telling you, if people keep resisting like this, we’ll just have to spend more of your tax dollars lobbying and probably even have to order another trill from Uncle Timmy and Aunt Ben.”

Okay, so I made that last part up, about the spokes-jackass, but can you blame me?

And anyway, the court said that Chapter 13 is a legitimate way for a homeowner to reinstate a mortgage and that they didn’t see how Claudia filing for bankruptcy protection would have violated the bank’s rights. Not only that, but since a federal bankruptcy judge still cannot modify a mortgage by lowering payments or extending the term, Claudia had darn fine reason to rely on the bank’s promise to help her reinstate her loan, and provide her with more favorable terms.

Claudia’s attorney, Nick Alden, told the Chronicle that the decision should also help other homeowners throughout California who have been told by their bank that they would get a modification, and are making trial payments as a result, but could easily find their homes on the auction block at any moment.

Why? Because they’re banks, that’s why… and these days, banks and fraud are like bees and honey, don’t you know.

So… hey, banker-people-that-read-me… I know you’re there… Google analytics, remember… are you starting to notice anything changing for you guys of late? Starting to feel a little bit warmer under your heavily starched collars? Why you guys are starting to be about as popular as Sarah Palin at an Arizona Liberals convention wearing an NRA tee-shirt with a target on each breast.

Do you remember what I started warning you about over a year ago? Anyone, anyone? Remember my article, My Grandmother, Standard Oil and the Banks? Well if you didn’t read it… it’s sure should pack a powerful message about your collective future.

And homeowners… start your lawyers… Here’s a link to the ACEVES DECISION, but in case it doesn’t work because I had some trouble with it, the decision in its entirety follows below.

In case you want to reach Nick Alden or Dennis Moore, the two lawyers in this case, here’s their contact information:

Nick Alden, Attorney at Law

1380 Davies Dr.

Beverly Hills, CA, US 90210

Telephone: +1 (310) 275-6664

Fax: +1 (310) 550-1856

aldenlaw@yahoo.com

Dennis Moore, Attorney at Law

5041 La Mart Dr., Ste 230

Riverside, CA 92507

(951) 660-5289

Fax: (951) 340-3276

Mandelman out.

~~~

Filed 1/27/11

CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA

SECOND APPELLATE DISTRICT

DIVISION ONE

CLAUDIA JACQUELINE ACEVES,

Plaintiff and Appellant,

U.S. BANK, N.A., as Trustee, etc.,

Defendant and Respondent.

B220922

(Los Angeles County

Super. Ct. No. BC410890)

APPEAL from an order and a judgment of the Superior Court of Los Angeles County, Michael L. Stern, Judge. Affirmed in part and reversed in part.

Dennis Moore; Nick A. Alden for Plaintiff and Appellant.

Brooks Bauer, Michael R. Brooks and Bruce T. Bauer for Defendant and Respondent.

___________________________________________

As alleged in this case, plaintiff, a married woman, obtained an adjustable rate loan from a bank to purchase real property secured by a deed of trust on her residence. About two years into the loan, she could not afford the monthly payments and filed for bankruptcy under chapter 7 of the Bankruptcy Code (11 U.S.C. §§ 701–784). She intended to convert the chapter 7 proceeding to a chapter 13 proceeding (11 U.S.C. §§ 1301–1330) and to enlist the financial assistance of her husband to reinstate the loan, pay the arrearages, and resume the regular loan payments.

Plaintiff contacted the bank, which promised to work with her on a loan reinstatement and modification if she would forgo further bankruptcy proceedings. In reliance on that promise, plaintiff did not convert her bankruptcy case to a chapter 13 proceeding or oppose the bank’s motion to lift the bankruptcy stay. While the bank was promising to work with plaintiff, it was simultaneously complying with the notice requirements to conduct a sale under the power of sale in the deed of trust, commonly referred to as a nonjudicial foreclosure or foreclosure. (See Civ. Code, §§ 2924, 2924a–2924k.)

The bankruptcy court lifted the stay. But the bank did not work with plaintiff in an attempt to reinstate and modify the loan. Rather, it completed the foreclosure.

Plaintiff filed this action against the bank, alleging a cause of action for promissory estoppel, among others. She argued the bank’s promise to work with her in reinstating and modifying the loan was enforceable, she had relied on the promise by forgoing bankruptcy protection under chapter 13, and the bank subsequently breached its promise by foreclosing. The trial court dismissed the case on demurrer.

We conclude (1) plaintiff could have reasonably relied on the bank’s promise to work on a loan reinstatement and modification if she did not seek relief under chapter 13, (2) the promise was sufficiently concrete to be enforceable, and (3) plaintiff’s decision to forgo chapter 13 relief was detrimental because it allowed the bank to foreclose on the property. Contrary to the bank’s contention that plaintiff’s use of the Bankruptcy Code was ipso facto bad faith, chapter 13 is “‘uniquely tailored to protect homeowners’ primary residences [from foreclosure].’” (In re Willette (Bankr. D.Vt. 2008) 395 B.R. 308, 322.)

BACKGROUND

The facts of this case are taken from the allegations of the operative complaint, which we accept as true. (See Hensler v. City of Glendale (1994) 8 Cal.4th 1, 8, fn. 3.)

A. Complaint

This action was filed on April 1, 2009. Two months later, a first amended complaint was filed. On August 17, 2009, after the sustaining of a demurrer, a second amended complaint (complaint) was filed. The complaint alleged as follows.

Plaintiff Claudia Aceves, an unmarried woman, obtained a loan from Option One Mortgage Corporation (Option One) on April 20, 2006. The loan was evidenced by a note secured by a deed of trust on Aceves’s residence. Aceves borrowed $845,000 at an initial rate of 6.35 percent. After two years, the rate became adjustable. The term of the loan was 30 years. Aceves’s initial monthly payments were $4,857.09.

On March 25, 2008, Option One transferred its entire interest under the deed of trust to defendant U.S. Bank, National Association, as the “Trustee for the Certificateholders of Asset Backed Securities Corporation Home Equity Loan Trust, Series OOMC 2006-HE5” (U.S. Bank). The transfer was effected through an “Assignment of Deed of Trust.” U.S. Bank therefore became Option One’s assignee and the beneficiary of the deed of trust. Also on March 25, 2008, U.S. Bank, by way of a “Substitution of Trustee,” designated Quality Loan Service Corporation (Quality Loan Service) as the trustee under the deed of trust. The Substitution of Trustee was signed by the bank’s attorney-in-fact.

In January 2008, Aceves could no longer afford the monthly payments on the loan. On March 26, 2008, Quality Loan Service recorded a “Notice of Default and Election to Sell Under Deed of Trust.” (See Civ. Code, § 2924.) Shortly thereafter, Aceves filed for bankruptcy protection under chapter 7 of the Bankruptcy Code (11 U.S.C. §§ 701–784), imposing an automatic stay on the foreclosure proceedings (see 11 U.S.C. § 362(a)). Aceves contacted U.S. Bank and was told that, once her loan was out of bankruptcy, the bank “would work with her on a mortgage reinstatement and loan modification.” She was asked to submit documents to U.S. Bank for its consideration.

Aceves intended to convert her chapter 7 bankruptcy case to a chapter 13 case (see 11 U.S.C. §§ 1301–1330) and to rely on the financial resources of her husband “to save her home” under chapter 13. In general, chapter 7, entitled “Liquidation,” permits a debtor to discharge unpaid debts, but a debtor who discharges an unpaid home loan cannot keep the home; chapter 13, entitled “Adjustment of Debts of an Individual with Regular Income,” allows a homeowner in default to reinstate the original loan payments, pay the arrearages over time, avoid foreclosure, and retain the home. (See 1 Collier on Bankruptcy (16th ed. 2010) ¶¶ 1.07[1][a] to 1.07[1][g], 1.07[5][a] to 1.07[5][e], pp. 1‑25 to 1‑30, 1‑43 to 1‑45.)

U.S. Bank filed a motion in the bankruptcy court to lift the stay so it could proceed with a nonjudicial foreclosure.

On or about November 12, 2008, Aceves’s bankruptcy attorney received a letter from counsel for the company servicing the loan, American Home Mortgage Servicing, Inc. (American Home). The letter requested that Aceves’s attorney agree in writing to allow American Home to contact Aceves directly to “explore Loss Mitigation possibilities.” Thereafter, Aceves contacted American Home’s counsel and was told they could not speak to her before the motion to lift the bankruptcy stay had been granted.

In reliance on U.S. Bank’s promise to work with her to reinstate and modify the loan, Aceves did not oppose the motion to lift the bankruptcy stay and decided not to seek bankruptcy relief under chapter 13. On December 4, 2008, the bankruptcy court lifted the stay. On December 9, 2008, although neither U.S. Bank nor American Home had contacted Aceves to discuss the reinstatement and modification of the loan, U.S. Bank scheduled Aceves’s home for public auction on January 9, 2009.

On December 10, 2008, Aceves sent documents to American Home related to reinstating and modifying the loan. On December 23, 2008, American Home informed Aceves that a “negotiator” would contact her on or before January 13, 2009 — four days after the auction of her residence. On December 29, 2008, Aceves received a telephone call from “Samantha,” a negotiator from American Home. Samantha said to forget about any assistance in avoiding foreclosure because the “file” had been “discharged” in bankruptcy. On January 2, 2009, Samantha contacted Aceves again, saying that American Home had mistakenly decided not to offer her any assistance: American Home incorrectly thought Aceves’s loan had been discharged in bankruptcy; instead, Aceves had merely filed for bankruptcy. Samantha said that, as a result of American Home’s mistake, it would reconsider a loss mitigation proposal. On January 8, 2009, the day before the auction, Samantha called Aceves’s bankruptcy attorney and stated that the new balance on the loan was $965,926.22; the new monthly payment would be more than $7,200; and a $6,500 deposit was due immediately via Western Union. Samantha refused to put any of those terms in writing. Aceves did not accept the offer.

On January 9, 2009, Aceves’s home was sold at a trustee’s sale to U.S. Bank. On February 11, 2009, U.S. Bank served Aceves with a three-day notice to vacate the premises and, a month later, filed an unlawful detainer action against her and her husband (U.S. Bank, N.A. v. Aceves (Super. Ct. L.A. County, 2009, No. 09H00857)). Apparently, Aceves and her husband vacated the premises during the eviction proceedings.

U.S. Bank never intended to work with Aceves to reinstate and modify the loan. The bank so promised only to convince Aceves to forgo further bankruptcy proceedings, thereby permitting the bank to lift the automatic stay and foreclose on the property.

The complaint alleged causes of action against U.S. Bank for quiet title, slander of title, fraud, promissory estoppel, and declaratory relief. It also sought to set aside the trustee’s sale and to void the trustee’s deed upon the sale of the home.

B. Demurrer

U.S. Bank filed a demurrer separately attacking each cause of action and the requested remedies. Aceves filed opposition.

At the hearing on the demurrer, Aceves’s attorney argued that Aceves and her husband “could have saved their house through bankruptcy,” but “due to the promises of the bank, they didn’t go those routes to save their house. [¶] . . . [¶] . . . [T]hat’s the whole essence of promissory estoppel. [¶] . . . [¶] Prior to [American Home’s November 12, 2008] letter, there’s numerous phone contacts and conversations with [American Home], which was the agent for U.S. Bank, regarding, ‘Yes, once we get leave, we will work with you, . . . and they did not work with her at all.’” The trial court replied: “The foreclosure took place. There’s no promissory fraud or anything that deluded [Aceves] under the circumstances.”

On October 29, 2009, the trial court entered an order sustaining the demurrer without leave to amend and a judgment in favor of U.S. Bank. Aceves filed this appeal.

DISCUSSION

Aceves focuses primarily on her claim for promissory estoppel, arguing it is adequately pleaded. She also contends her other claims should have survived the demurrer. U.S. Bank counters that the trial court properly dismissed the case.

We conclude Aceves stated a claim for promissory estoppel. As alleged, in reliance on a promise by U.S. Bank to work with her in reinstating and modifying the loan, Aceves did not attempt to save her home under chapter 13. Yet U.S. Bank then went forward with the foreclosure and did not commence negotiations toward a possible loan solution. As demonstrated in its brief on appeal, U.S. Bank fails to appreciate that chapter 13 may be used legitimately to assist a borrower in reinstating a home loan and avoiding foreclosure after a default.

All but one of Aceves’s remaining claims were properly dismissed. She adequately pleaded a claim for fraud. But the record does not support her other claims or requests for relief: The complaint does not allege any irregularities in the foreclosure process that would permit the trial court to void the deed of sale or otherwise invalidate the foreclosure.

A. Promissory Estoppel

“‘The elements of a promissory estoppel claim are “(1) a promise clear and unambiguous in its terms; (2) reliance by the party to whom the promise is made; (3) [the] reliance must be both reasonable and foreseeable; and (4) the party asserting the estoppel must be injured by his reliance.” . . .’” (Advanced Choices, Inc. v. State Dept. of Health Services (2010) 182 Cal.App.4th 1661, 1672.)

1. Clear and Unambiguous Promise

“‘[A] promise is an indispensable element of the doctrine of promissory estoppel. The cases are uniform in holding that this doctrine cannot be invoked and must be held inapplicable in the absence of a showing that a promise had been made upon which the complaining party relied to his prejudice . . . .’ . . . The promise must, in addition, be ‘clear and unambiguous in its terms.’” (Garcia v. World Savings, FSB (2010) 183 Cal.App.4th 1031, 1044, citation omitted.) “To be enforceable, a promise need only be ‘“definite enough that a court can determine the scope of the duty[,] and the limits of performance must be sufficiently defined to provide a rational basis for the assessment of damages.”’ . . . It is only where ‘“a supposed ‘contract’ does not provide a basis for determining what obligations the parties have agreed to, and hence does not make possible a determination of whether those agreed obligations have been breached, [that] there is no contract.”’” (Id. at p. 1045, citation omitted.) “[T]hat a promise is conditional does not render it unenforceable or ambiguous.” (Ibid.)

U.S. Bank agreed to “work with [Aceves] on a mortgage reinstatement and loan modification” if she no longer pursued relief in the bankruptcy court. This is a clear and unambiguous promise. It indicates that U.S. Bank would not foreclose on Aceves’s home without first engaging in negotiations with her to reinstate and modify the loan on mutually agreeable terms.

U.S. Bank’s discussion of Laks v. Coast Fed. Sav. & Loan Assn. (1976) 60 Cal.App.3d 885 misses the mark. There, the plaintiffs applied for a loan and relied on promissory estoppel in arguing that the lender was bound to make the loan. The Court of Appeal affirmed the dismissal of the case on demurrer, explaining that the alleged promise to make a loan was unclear and ambiguous because it did not include all of the essential terms of a loan, including the identity of the borrower and the security for the loan. In contrast, Aceves contends U.S. Bank promised but failed to engage in negotiations toward a solution of her loan problems. Thus, the question here is simply whether U.S. Bank made and kept a promise to negotiate with Aceves, not whether, as in Laks, the bank promised to make a loan or, more precisely, to modify a loan. Aceves does not, and could not, assert she relied on the terms of a modified loan agreement in forgoing bankruptcy relief. She acknowledges that the parties never got that far because U.S. Bank broke its promise to negotiate with her in an attempt to reach a mutually agreeable modification. While Laks turned on the sufficiency of the terms of a loan, Aceves’s claim rests on whether U.S. Bank engaged in the promised negotiations. The bank either did or did not negotiate.

Further, U.S. Bank asserts that it offered Aceves a loan modification, referring to the offer it made the day before the auction. That assertion, however, is of no avail. Aceves’s promissory estoppel claim is not based on a promise to make a unilateral offer but on a promise to negotiate in an attempt to reach a mutually agreeable loan modification. And, even assuming this case involved a mere promise to make a unilateral offer, we cannot say the bank’s offer satisfied such a promise in light of the offer’s terms and the circumstances under which it was made.

2. Reliance on the Promise

Aceves relied on U.S. Bank’s promise by declining to convert her chapter 7 bankruptcy proceeding to a chapter 13 proceeding, by not relying on her husband’s financial assistance in developing a chapter 13 plan, and by not opposing U.S. Bank’s motion to lift the bankruptcy stay.

3. Reasonable and Foreseeable Reliance

“‘Promissory estoppel applies whenever a “promise which the promissor should reasonably expect to induce action or forbearance on the part of the promisee or a third person and which does induce such action or forbearance” would result in an “injustice” if the promise were not enforced. . . .’” (Advanced Choices, Inc. v. State Dept. of Health Services, supra, 182 Cal.App.4th at pp. 1671–1672, citation omitted, italics added.)

“[A] party plaintiff’s misguided belief or guileless action in relying on a statement on which no reasonable person would rely is not justifiable reliance. . . . ‘If the conduct of the plaintiff in the light of his own intelligence and information was manifestly unreasonable, . . . he will be denied a recovery.’” (Kruse v. Bank of America (1988) 202 Cal.App.3d 38, 54, citation omitted.) A mere “hopeful expectation[] cannot be equated with the necessary justifiable reliance.” (Id. at p. 55.)

We conclude Aceves reasonably relied on U.S. Bank’s promise; U.S. Bank reasonably expected her to so rely; and it was foreseeable she would do so. U.S. Bank promised to work with Aceves to reinstate and modify the loan. That would have been more beneficial to Aceves than the relief she could have obtained under chapter 13. The bankruptcy court could have reinstated the loan — permitted Aceves to cure the default, pay the arrearages, and resume regular loan payments — but it could not have modified the terms of the loan, for example, by reducing the amount of the regular monthly payments or extending the life of the loan. (See 11 U.S.C. § 1322(b)(2), (3), (5), (c)(1); 8 Collier on Bankruptcy, supra, ¶¶ 1322.06[1], 1322.07[2], 1322.09[1]–[6], 1322.16 & fn. 5, pp. 23–24, 31–32, 34–42, 55–56.) By promising to work with Aceves to modify the loan in addition to reinstating it, U.S. Bank presented Aceves with a compelling reason to opt for negotiations with the bank instead of seeking bankruptcy relief. (See Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at pp. 1041–1042 [discussing justifiable reliance].)

We emphasize that this case involves a long-term loan secured by a deed of trust, one in which the last payment under the loan schedule would be due after the final payment under a bankruptcy plan. (See 11 U.S.C. § 1322(b)(5).) Aceves had more than 28 years left on the loan, and a bankruptcy plan could not have exceeded five years. In contrast, if a case involves a short-term loan, where the last payment under the original loan schedule is due before the final payment under the bankruptcy plan, the bankruptcy court has the authority to modify the terms of the loan. (See 11 U.S.C. § 1322(c)(2); In re Paschen (11th Cir. 2002) 296 F.3d 1203, 1205–1209; 8 Collier on Bankruptcy, supra, ¶ 1322.17, pp. 57–58; March et al., Cal. Practice Guide: Bankruptcy (The Rutter Group 2010) ¶ 13:396, p. 13‑45; compare id. ¶¶ 13:385 to 13:419, pp. 13‑42 to 13‑48 [discussing short-term debts] with id. ¶¶ 13:440 to 13:484, pp. 13‑49 to 13‑54 [discussing long-term debts].) The modification of a short-term loan may include “lienstripping,” that is, the bifurcation of the loan into secured and unsecured components based on the value of the home, with the unsecured component subject to a “cramdown.” (See In re Paschen, supra, 296 F.3d at pp. 1205–1209; 8 Collier on Bankruptcy, supra, ¶ 1322.17, pp. 57–58; see also March et al., Cal. Practice Guide: Bankruptcy, supra, ¶¶ 13:370 to 13:371.1, p. 13‑41 [discussing lienstripping].) If a lien is “stripped down,” the lender is “only assured of receiving full [payment] for the secured portion of the [bankruptcy] claim.” (In re Paschen, supra, 296 F.3d at p. 1206.)

4. Detriment

U.S. Bank makes no attempt to hide its disdain for the protections offered homeowners by chapter 13, referring disparagingly to Aceves’s bankruptcy case as “bad faith.” But “Chapter 13’s greatest significance for debtors is its use as a weapon to avoid foreclosure on their homes. Restricting initial . . . access to Chapter 13 protection will increase foreclosure rates for financially distressed homeowners. Loss of homes hurts not only the individual homeowner but also the family, the neighborhood and the community at large. Preserving access to Chapter 13 will reduce this harm.

“Chapter 13 bankruptcies do not result in destruction of the interests of traditional mortgage lenders. Under Chapter 13, a debtor cannot discharge a mortgage debt and keep her home. Rather, a Chapter 13 bankruptcy offers the debtor an opportunity to cure a mortgage delinquency over time — in essence it is a statutorily mandated payment plan — but one that requires the debtor to pay precisely the amount she would have to pay to the lender outside of bankruptcy. Under Chapter 13, the plan must provide the amount necessary to cure the mortgage default, which includes the fees and costs allowed by the mortgage agreement and by state law. Mortgage lenders who are secured only by an interest in the debtor’s residence enjoy even greater protection under 11 U.S.C. § 1322(b)(2) . . . . Known as the ‘anti-modification provision,’ [section] 1322(b)(2) bars a debtor from modifying any rights of such a lender — including the payment schedule provided for under the loan contract. . . . [Cf. 11 U.S.C. § 1322(c)(2) [bankruptcy court has authority to modify rights of lender, including payment schedule, in cases involving short-term mortgages]; see pt. II.A.3, ante.]

“Even though a debtor must, through reinstatement of her delinquent mortgage by a Chapter 13 repayment plan . . . , pay her full obligation to the lender, Chapter 13 remains the only viable way for most mortgage debtors to cure defaults and save their homes. Mortgage lenders are extraordinarily unwilling to accept repayment schedules outside of bankruptcy. . . . There is no history to support any claim that lenders will accommodate the need for extended workouts without the pressure of bankruptcy as an option for consumer debtors. Reducing the availability of [C]hapter 13 protection to mortgage debtors is most likely to result in higher foreclosure rates, not in greater flexibility by lenders.” (DeJarnatt, Once Is Not Enough: Preserving Consumers’ Rights To Bankruptcy Protection (Spring 1999) Ind. L.J. 455, 495–496, fn. omitted.)

“It is unrealistic to think mortgage companies will do workouts without the threat of the debtor’s access to Chapter 13 protection. The bankruptcy process is still very protective of the mortgage industry. To the extent that the existence of Chapter 13 protections increases the costs of mortgage financing to all consumers, it can and should be viewed as an essential form of consumer insurance . . . .” (DeJarnatt, Once Is Not Enough: Preserving Consumers’ Rights To Bankruptcy Protection, supra, Ind. L.J. at p. 499, fn. omitted.)

We mention just a few of the rights Aceves sacrificed by deciding to forgo a chapter 13 proceeding. First, although Aceves initially filed a chapter 7 proceeding, “a chapter 7 debtor may convert to a case[] under chapter []13 at any time without court approval, so long as the debtor is eligible for relief under the new chapter.” (1 Collier on Bankruptcy, supra, ¶ 1.06, p. 24, italics added; accord, March et al., Cal. Practice Guide: Bankruptcy, supra, ¶¶ 5:1700 to 5:1701, 5:1715 to 5:1731, pp. 5(II)‑1, 5(II)‑3 to 5(II)‑5; see 11 U.S.C. § 706(a).) In addition, Aceves could have “cured” the default, reinstating the loan to predefault conditions. (See In re Frazer (Bankr. 9th Cir. 2007) 377 B.R. 621, 628; In re Taddeo (2d Cir. 1982) 685 F.2d 24, 26–28; 11 U.S.C. § 1322(b)(5); March et al., Cal. Practice Guide: Bankruptcy, supra, ¶ 13:450, p. 13‑50.) She also would have had a “reasonable time” — a maximum of five years — to make up the arrearages. (See 11 U.S.C. § 1322(b)(5), (d); 8 Collier on Bankruptcy, supra, ¶ 1322.09[5], pp. 39–40; March et al., Cal. Practice Guide: Bankruptcy, supra, ¶ 13:443, p. 13‑49.) And, by complying with a bankruptcy plan, Aceves could have prevented U.S. Bank from foreclosing on the property. (See 8 Collier on Bankruptcy, supra, ¶¶ 1322.09[1] to 1322.09[3], 1322.16, pp. 34–37, 55–56.) “‘“Indeed, the bottom line of most Chapter 13 cases is to preserve and avoid foreclosure of the family house.”’” (In re King (Bankr. N.D.Fla. 1991) 131 B.R. 207, 211; see also March et al., Cal. Practice Guide: Bankruptcy, supra, ¶¶ 8:1050, 8:1375 to 8:1411, pp. 8(II)‑1, 8(II)‑42 to 8(II)‑47 [discussing automatic stay]; In re Hoggle (11th Cir. 1994) 12 F.3d 1008, 1008–1012 [affirming district court order denying lender’s motion for relief from automatic stay]; Lamarche v. Miles (E.D.N.Y. 2009) 416 B.R. 53, 55–62 [affirming bankruptcy court order denying landlord’s motion to set aside automatic stay]; In re Gatlin (Bankr. W.D.Ark. 2006) 357 B.R. 519, 520–523 [denying lender’s motion for relief from automatic stay].)

U.S. Bank maintains that even if Aceves had pursued relief under chapter 13, she could not have afforded the payments under a bankruptcy plan. But the complaint alleged that, with the financial assistance of her husband, Aceves could have saved her home under chapter 13. We accept the truth of Aceves’s allegations over U.S. Bank’s speculation. (See Hensler v. City of Glendale, supra, 8 Cal.4th at p. 8, fn. 3.)

5. Absence of Consideration

U.S. Bank argues that an oral promise to postpone either a loan payment or a foreclosure is unenforceable. We have previously addressed that argument, stating: “‘[I]n the absence of consideration, a gratuitous oral promise to postpone a sale of property pursuant to the terms of a trust deed ordinarily would be unenforceable under [Civil Code] section 1698.’ (Raedeke v. Gibraltar Sav. & Loan Assn. (1974) 10 Cal.3d 665, 673, italics added.) The same holds true for an oral promise to allow the postponement of mortgage payments. (California Securities Co. v. Grosse (1935) 3 Cal.2d 732, 733 [applying Civil Code section 1698].) However, ‘. . . the doctrine of promissory estoppel is used to provide a substitute for the consideration which ordinarily is required to create an enforceable promise. . . . “The purpose of this doctrine is to make a promise binding, under certain circumstances, without consideration in the usual sense of something bargained for and given in exchange. . . .”’ (Raedeke, supra, 10 Cal.3d at p. 672.) ‘“Under this doctrine a promisor is bound when he should reasonably expect a substantial change of position, either by act or forbearance, in reliance on his promise, if injustice can be avoided only by its enforcement. . . .”’” (Sutherland v. Barclays American/Mortgage Corp. (1997) 53 Cal.App.4th 299, 312; accord, Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at pp. 1039–1041.) We further commented: “When Raedeke and California Securities Co. were decided, Civil Code section 1698 provided in its entirety: ‘A contract in writing may be altered by a contract in writing, or by an executed oral agreement, and not otherwise.’ . . . In 1976, a new section 1698 was enacted which states in part: ‘A contract in writing may be modified by a contract in writing . . . [or] by an oral agreement to the extent that the oral agreement is executed by the parties. . . . Nothing in this section precludes in an appropriate case the application of rules of law concerning estoppel . . . .’” (Sutherland v. Barclays American/Mortgage Corp., supra, 53 Cal.App.4th at p. 312, fn. 8, citations omitted.) Our earlier analysis in Sutherland applies here.

Finally, a promissory estoppel claim generally entitles a plaintiff to the damages available on a breach of contract claim. (See Toscano v. Greene Music (2004) 124 Cal.App.4th 685, 692–693.) Because this is not a case where the homeowner paid the funds needed to reinstate the loan before the foreclosure, promissory estoppel does not provide a basis for voiding the deed of sale or otherwise invalidating the foreclosure. (See Garcia v. World Savings, FSB, supra, 183 Cal.App.4th at p. 1047, distinguishing Bank of America v. La Jolla Group II (2005) 129 Cal.App.4th 706, 711–714.)

B. Remaining Claims

The elements of fraud are similar to the elements of promissory estoppel, with the additional requirements that a false promise be made and that the promisor know of the falsity when making the promise. (See McClain v. Octagon Plaza, LLC (2008) 159 Cal.App.4th 784, 792–794 [discussing elements of fraud].) Aceves has adequately alleged those facts.

Aceves’s other claims and requests for relief lack merit as a matter of law. All of them are based on alleged irregularities in the foreclosure process. We see no irregularities that would justify relief. For example, Aceves contends U.S. Bank’s designation of Quality Loan Service as the trustee under the deed of trust was defective because the “Substitution of Trustee” was signed by the bank’s attorney-in-fact. But Aceves cites no pertinent authority for her contention. (See Schoendorf v. U.D. Registry, Inc. (2002) 97 Cal.App.4th 227, 237–238 [party forfeits contention absent citation of authority].) Neither Civil Code section 2934a, which governs the substitution of trustees, nor the trust deed itself precludes an attorney-in-fact from signing a Substitution of Trustee. And case law strongly suggests Aceves is wrong. (See Tran v. Farmers Group, Inc. (2002) 104 Cal.App.4th 1202, 1213 [“an attorney-in-fact is an agent owing a fiduciary duty to the principal”]; Burgess v. Security-First Nat. Bank (1941) 44 Cal.App.2d 808, 818–819 [person can perform any legal act through attorney-in-fact that he or she could perform in person, including entering into contracts].)

Aceves also takes issue with the notice of default, pointing out that it mistakenly identified Option One as the beneficiary under the deed of trust when U.S. Bank was actually the beneficiary. Although this contention is factually correct, it is of no legal consequence. Aceves did not suffer any prejudice as a result of the error. Nor could she. The notice instructed Aceves to contact Quality Loan Service, the trustee, not Option One, if she wanted “[t]o find out the amount you must pay, or arrange for payment to stop the foreclosure, or if your property is in foreclosure for any other reason.” The notice also included the address and telephone number for Quality Loan Service, not Option One. Absent prejudice, the error does not warrant relief. (See Knapp v. Doherty (2004) 123 Cal.App.4th 76, 93–94 & fn. 9.)

Last, after the filing of the reply brief and before oral argument, we requested additional briefing on the protections accorded by chapter 13. In her letter brief, Aceves went beyond the scope of the request and presented arguments not previously made about the order in which various documents were recorded. The new arguments were unsolicited; Aceves did not explain why the arguments were not raised earlier; and U.S. Bank had no opportunity to respond. Accordingly, we do not reach them. (See City of Costa Mesa v. Connell (1999) 74 Cal.App.4th 188, 197; Campos v. Anderson (1997) 57 Cal.App.4th 784, 794, fn. 3.)

It follows that the trial court properly sustained the demurrer without leave to amend with respect to all claims and requests for relief other than the claims for promissory estoppel and fraud. Aceves should be allowed to pursue those two claims.

III

DISPOSITION

The order and the judgment are reversed to the extent they dismissed the claims for promissory estoppel and fraud. In all other respects, the order and judgment are affirmed. Appellant is entitled to costs on appeal.

CERTIFIED FOR PUBLICATION.

MALLANO, P. J.

We concur:

ROTHSCHILD, J.

JOHNSON, J.

Jan

Do you need a lawyer to get a loan modified?

By Mandelman | Housing & Economic Research, Weidner

19915Leave a Comment2011-01-24+12%3A13%3A47Mandelman

Okay, I’d like to straighten this issue out… Do you need a lawyer to get your mortgage modified?

(This is being written in response to a homeowner in Arizona asking a question on ABC15.com.)

By way of introduction, I’ve never been paid a nickel having anything to do with performing loan modification services, I am not personally at risk of foreclosure, I’m not an attorney, nor have I ever been in the mortgage, real estate, banking or related industries. I’m a writer that has to-date written roughly 400 in-depth articles on the political, economic, social and legal aspects of the financial and foreclosure crises and loan modifications.

Over the last 2+ years, I’ve interviewed thousands of homeowners and hundreds of attorneys, along with numerous mortgage experts, real estate licensees, bankers and mortgage servicers. I’ve been a speaker on the foreclosure crisis at professional conferences held by the American Bar Association, Committee on Consumer Financial Services, and a judicial conference for 9^th Circuit judges. I am an outspoken advocate for homeowners. For a more extensive bio covering my professional career, click here.

Now, as to your question: Do you need a lawyer to get your mortgage modified? No, there’s certainly no requirement that you be represented by an attorney to get a mortgage modified. But, what you’re really asking is: Should you have an attorney represent you when trying to get a loan modified, right?

The answer is… it depends on you, but quite possibly… yes.

First, understand that there are only three kinds of mortgage servicers: 1. Unbelievably Annoying. 2. Unbearably Frustrating. 3. Infuriating to the point that you daydream about setting your own home on fire before letting them have it. (And I’m not recommending that, it’s a joke, okay?)

Servicers make more money foreclosing than they do modifying loans, so that’s what they’re likely to try to do if they can, but not only that… before they try to foreclose, they’ll make you wait on hold forever, lose your paperwork three or four times, send you the rudest letters ever written, call you at 8 AM to ask why you haven’t made your payment… whatever obnoxious things they can do, they will do… count on it.

The mortgage servicers in this country don’t follow HAMP rules often, they lie often, they are wrong in what they tell homeowners often… AND I DO MEAN ALL OF THEM… Chase, BofA, Wells… yes I mean you guys specifically… and should any of the servicers want to sue me for saying that… you know, defamation or whatever… please file your damn suit TODAY! I’m easy to serve… Just remember, I’m not folding, settling or anything remotely close… file it and let’s see if we can get an expedited trial date… because we’re definitely going all the way to trial and I’m certainly ready to proceed… just say when.

But, you might want to read this before you file… Chief Judge Gonzalez calls WaMu’s Conduct “Immoral, Unethical, Oppressive, Unscrupulous or Substantially Injurious to Consumers” (You go, Your Honor.)

Or this… The Kings and Queens Loan Mod Scammers: Arizona & Nevada Sue Bank of America Over Loan Modification Program

Or this… Report Shows Treasury Disagrees With Loan Mod Decisions at Chase, Wells & BofA – Requires Servicers to Make Changes Going Forward

Or who could ever forget this… INSIDE CHASE and the Perfect Foreclosure

I can go on like this forever, by the way… I’m not proud… or tired.

People stress out terribly during the modification process, they can’t sleep… they’re emotional, unknowledgeable, afraid and ashamed… not exactly the best position to be in when negotiating with a bank the size of Australia and Canada combined. And, Bank of America, JPMorgan Chase and the rest don’t care about you threatening to sue them… besides you’re talking to a minimum wage person whose last job was asking people if they wanted fries with that… or darn close.

All of that being said… people do get their loans modified on their own, although many times they end up with terrible terms because by the time their bank offers them anything they’re so grateful they say yes to whatever is offered. Running a REST Report and submitting it to your servicer, assuming it shows that you do in fact qualify, helps a lot… but it’s not a substitute for a good lawyer.

Qualified (and of course ethical) lawyers are infinitely better than the vast majority of homeowners for the same reason that I’m afraid of my wife, but I’m not afraid of yours… do you know what I mean by that? Lawyers aren’t emotional, afraid, unknowledgeable or ashamed, and they deal with the banks every day on modifications, so they know who to call and what to say. Nine times out of ten… they get much better results than any homeowner does flying solo.

By the way… I recently wrote an article on how to tell a good loan modification law firm from a scam, and you can find it online by searching: How to Tell Legitimate Loan Modification Firm from an Illegal Operation or Scam… The FTC’s New Bright Line MARS Rule. You also might want to read: Mandelman’s Uncommon Advice for Getting Through the Loan Modification Process Without Losing It. And you also might check out: How Banks View Loan Modifications, which I wrote about a year ago.

And for sure, all homeowners should read this… Reporting on Ongoing Outcomes Using the REST Report.

Now let me address what Joe Duffin of Blue Roof Realty said in his answer to your question. With all due respect to Mr. Duffin, it’s not so much that he’s wrong in what he’s said, it’s more that his advice is nothing more than the same generic stuff you’ll get on thousands of Websites written by people with very little real life experience with loan modifications. I’m sure he’s a good guy who is trying to help, and for that I applaud him.

Shop around? NO! Don’t “shop around.” Every company you call will have great sounding sales people and that’s not how you want to make a decision.
If you don’t know any local lawyers you can ask for a referral, call Legal Aid in your hometown. They probably won’t be able to represent you… you have to be very low income to get free legal help, but the lawyers that work there know who the good private practice attorneys are that are representing homeowners and helping with loan modifications.
Negotiate? NO! Okay, let’s face facts here… you don’t mind paying the fee, you just don’t want to get taken advantage of by some scammer, right? So, concentrate on finding someone you’re sure of and stop trying to save $500.
Forget about the whole “performance based” idea. There’s no legitimate attorney anywhere that wants to work on your loan modification for months in the hopes of earning a $500 bonus, and besides it’s like a hospital bill… no one thinks you’ll pay it anyway. You only hire a lawyer when the outcome is uncertain and you pay them for their time, knowledge, experience and effort… and they hate losing someone’s home. How would you feel if you lost someone’s home? Well, them too.
Clarify define results? Assuming you qualify for HAMP, your lawyer or servicer will pretty much tell you what your modified payment will be, there’s a formula.
Mr. Duffin’s quite right when he says to be “patient and positive” when calling the firm for updates, but even better… ask them how often they update, and whether they’d prefer to be contacted through email or phone of you have a question. Just know this… they on your side.
Mr. Duffin’s also right when he says there are alternatives, and because he’s a Realtor, he mentions a “short sale,” but that’s not really an alternative because that means you don’t keep your house. Short sales are the same uber-headache as loan modifications and you can end up losing the home to foreclosure anyway. You want your home? Then fight for it and don’t stop.

One more thing…

The FTC’s new MARS rule essentially makes it impossible for anyone but lawyers to handle loan modifications… any other kind of company is not allowed to charge you a dime until you approve a written offer from your servicer… and no one could operate a business like that. So… it’s a lawyer you’re looking for… not a company that plays one on TV.

In closing I just want to say take your time and read up on everything to do with loan modifications. You can email me at mandelman@mac.com. I see homeowners get permanent loan modifications every single day… HAMP has only modified a little under 500,000 loans according to Treasury, but in-house modifications are in the 3+ million range.

It’s not easy, but it’s not Mt. Everest either… and start saving money everyday… see how much you can possibly save… get a big jar and save your change… you may need it to save your home… pay off credit cards, or whatever. And if you don’t end up needing the money you’ve saved, you can use it to go on vacation after your loan gets modified… you’ll need a vacation by then for sure.

Heck, just having to write all that once again tired me out…

Mandelman out.

Jan

How Banks View Loan Modifications

By Mandelman | HAMP, Housing & Economic Research, Weidner

19916Leave a CommentHow+Banks+View+Loan+Modifications2011-01-23+18%3A29%3A22Mandelman

I can’t think of any subject that has been so widely and frequently discussed and studied, over such a long period of time, by such a large number of experts and observers, who continually espouse such a diverse range of opinions and cite such a large number of conflicting facts, that is still so misunderstood… or understood differently by different people… or in short, is such a mess… that affects so many people… and is so important to our government and our economy… yet remains pretty much unsolvable… AS LOAN MODIFICATIONS.

See… loan modifications today represent such a complex subject that even writing a sentence describing the situation surrounding them, such as the one above, was a pain in the neck.

Let’s start with the questions on everyone’s mind… Why aren’t more loans getting modified? Why is it so difficult to get the bank to modify a mortgage? Why are trial modifications ending in foreclosure? Why is it that people are consistently treated so poorly by the banks? Is it the investors that are making it hard to get a loan modification? Is the government doing enough to get banks to modify loans? And should people hire an attorney to help them obtain a loan modification, or go it alone? That’s at least a pretty good start, right?

I think the fundamental thing that almost no one understands involves how a bank views a borrower’s request for a loan modification. Lot’s of people, including me in past articles, have said that banks simply don’t want to modify mortgages. Lot’s of people, including me, have also pointed out that servicers make more money by foreclosing than modifying loans.

All of those points apply in certain circumstances, but they’re also beside the point to some degree.

A Banker’s View…

Your bank views you calling to request that your mortgage be modified as the beginning of a process. Maybe you truly need and deserve a loan modification, but maybe not. The only way the bank will be able to tell one way or the other is by putting you through that process, and it’s not a pleasant process in the least.

Let’s say that you’re someone that has good credit, you’ve never missed a payment, and now are saying that you need your loan modified or you may lose your home to foreclosure. When you call your bank to ask about a loan modification, they’re going to tell you that they can’t talk to you until your payment is delinquent by at least 30 days.

You hang up the phone. You’re disappointed. And you now have your first decision to make: Do you let your credit score get trashed by going 30 days late on your mortgage? It’s not an easy decision. Once you head down that path it’ll be years before your credit score is back up where it’s always been, and if you need your credit to be good for other reasons, chances are you’ll decide that you no longer want a loan modification because the cost of trying to get one… sacrificing your credit score… is too high.

The bank’s process has just saved the bank quite a bit of money. Had the bank agreed to modify your loan, it would have been like throwing money away unnecessarily because you kept making your payments without them having to modify your loan.

Now, let’s say that you decide to go 30 days delinquent on your mortgage. You call back, now 30 days late, but now your bank tells you that you have to be 90 days late before you can be transferred to a negotiator. You hang up the phone. Again, you’re disappointed. Do you go 90 days late, or do you bring your loan current and forget the whole thing? Some bring their loans current, others don’t.

If you don’t bring your loan back to current status, you’re about to start receiving a series of letters and phone calls designed to make you feel ashamed, guilty and scared. And those letters will come more and more frequently, and they’ll be written using stronger and stronger terms. And chances are you’ll feel worse and worse as time goes by.

Then in 90 days, assuming you’ve gone the distance, you call the bank again. This time they’ll tell you that your credit score is now too low to qualify for a loan modification. Now you’re enraged. You stomp your feet. And then, if there’s anyway you can do it, chances are you bring your loan current and try to forget the whole idea of a loan modification. Maybe you get rid of a car payment to do it, maybe you rent out a room or take on a part-time job to generate the extra income you need, or maybe you borrow the money from a relative.

You never even bring up the whole experience to your friends or family members because you’re ashamed that it even happened. You’re ashamed that you were having trouble making the mortgage payment that you signed up for, and you’re ashamed about having gone 90 days late on your mortgage payment and almost losing your home. The whole thing becomes one of those skeletons that you hope will soon fade away in your closet of memories.

Besides, what would your friends or family members even say if you did tell them? Do you think they’d be on your side and angry at the way your bank treated you? Or would they take the view that the bank had every right to handle your situation the way they did, because after all, you signed the mortgage and agreed to make the payments… the bank has no obligation to lower your payment just because you having trouble making it. You’re lucky the bank didn’t foreclose, in the eyes of your friends or family members.

Oh, and one or two more things, while we’re at it… maybe you should have opted for a little less house and not gone quite so far out on a limb… maybe you should have spent a little less on your car too, and not used your credit cards for all those nice clothes you wear… maybe you’re just living way beyond your means. You’re probably not saving for retirement either. You’re one of THOSE irresponsible people and maybe losing your home to foreclosure would teach you a lesson.

Whew… it’s exhausting, isn’t it?

But, let’s say for a moment that you could not find a way to bring your mortgage payment current when told, when you were 90 days delinquent, that your score was now too low to qualify for a modification. Now you’re 120 days behind, and soon it’s been six months since you’ve made a payment to your bank on your loan.

By now the bank is sending you the most threatening letters imaginable. They could foreclose at any moment according to the letters, and their tone tells you that you are basically an irresponsible failure who cannot be trusted because your word means nothing. You promised to make the payment and now you’re not living up to that promise. You’re a promise breaker… a liar. How do you sleep at night? You shouldn’t even have friends, because if your friends knew what you were up to, they likely wouldn’t want to be your friend anymore.

Nonetheless, you’re now seven months late, then eight, and then nine. Now the bank is calling you almost daily, the pressure is becoming unbearable, you’re trying everything to make more money so that you can make the payment. If you do find a way to come up with the cash, you bring your mortgage payment current immediately. If you get a new job that pays more, you call your bank and start begging and explaining that everything is going to be okay… you’re working again… if they’d just please understand… you’re a good person… you’ll pay your payment every month and on time from now on… you’re sooooo sorry to have gotten behind… How about $1200 this week, and then $1200 the following week, and then $2000 by the end of the… blah, blah, blah.

You’re a babbling fool that will agree to just about anything the bank says at that moment. If the person you’re talking to at the bank acts the slightest bit nice to you, or comes off as even a little bit understanding of your situation… you gush with appreciation and feel like you want to be their BFF. Thank you, thank you, thank you, thank you, thank you, thank you… really… thank you so much. My husband thanks you, my children thank you… my dog thanks you. Yuck. It’s disgusting, really.

Or, maybe that’s not what happens. And now you’re almost eleven months late. You’re working. You could make a reasonable payment if you weren’t so far behind. You’ll never be able to pay off the arrears though, so what’s the point. You’re desperate… you’re about to give up and resign yourself to the fact that you’re going to lose your home to foreclosure. You’re trying to get used to the idea that you’ll soon be packing and calling the moving truck… its heart wrenching for anyone to watch.

Well, guess what? Depending on the specifics of your situation… whether there’s any equity in your home… how far underwater you are… how long are homes like yours and in your area remaining on the market before being sold? Things like that.

Do you see what’s going on?

Since foreclosure is now imminent, the bank can’t threaten to ruin your credit score anymore, as it’s already ‘F’ and would be ‘G’ if scores went that low. The bank is now trying to figure out two things:

1. What is the likelihood of you being able to make the payment if the bank modifies your loan? What if they take the amount in arrears, tack it on to the back end of the loan, and reduce your monthly payment by a couple hundred a month? Would that do it? Or would you agree to the deal and then not be able to make the modified payment… and again in six months end up right back in foreclosure where you are now.

If the bank thinks that might happen, they won’t modify your loan. They’d rather foreclose now than go through this same thing next year and end up foreclosing then. Real estate values will likely be lower next year, so by waiting the bank just assures itself of a bigger loss on the property.

The cost of foreclosure to your bank is going to be 30% to 50%, or even more in the worst of instances. But that’s not the most important factor to your bank… this is all about your bank’s degree of certainty that if they modify your loan, you won’t be back in foreclosure anytime soon, and likely never. Your bank views a loan modification as pretty close to unthinkable in the first place, so it’s unquestionable that it’s a once in a lifetime thing in their eyes. You should be too embarrassed to even ask a bank to modify a loan a second time, according to your bank. It’s almost like… if that happens, you’ll probably want to change your name and move to another state. What a load of crap the banks have peddled our way all these years.

So, you see… it’s a range. In order to get your loan modified, you need to fall somewhere between “Definitely won’t default again if loan reasonably modified,” and “Will self-cure the mortgage before home is actually taken back by the bank”. Get it?

I talk to people all the time that have recently applied for a loan modification, and they always talk to me about how it will cost the bank more to foreclose on their particular house, so they expect the bank to modify the loan. But then the bank refuses, and I hear people say that they can’t understand it because the bank should do what’s in the best interests of investors. Then we start talking about how servicers make more money foreclosing, all of which is true.

The problem with this line of thinking, however, is that it fails to incorporate all the data… it’s not just a numbers game to the bank. First they need to know, if they offer you nothing, will you really end up losing the home to foreclosure, or will you let the Devil himself rent out a room to avoid that shameful outcome? Then they need to know that if they do accommodate you and provide you with a modification, chances are good that you’ll never miss a payment for the rest of your life.

Shame, shame, shame…

So, how should a bank go about getting the answer to either or both of those key questions? Self-cure and/or re-default? It’s not like you can find the answer to either of those questions from looking at an application or a credit report. You certainly can’t tell by talking to someone on the phone.

The only way a bank can know for sure whether you’re going to self-cure and eject yourself from the foreclosure process, is to let you get to that point and see what you do.

It’s like a game of poker… will you fold under extreme stress and pressure and show up with the money to save your home, or will the bank actually be forced to foreclose, and therefore better off to modify your loan… and if they do approve your “mod,” as they say in the biz, will you make it just fine for a long, long time, or will you end up right back where you are today, next year at this time, if not sooner?

Once a bank knows the answer to those two questions about you, then the bank’s cost comparison between modification and foreclosure becomes pivotal, but until then, chances are the bank will play out its inherently superior hand and count on you folding your cards before foreclosure by coming up with the money you said you could not possibly come up with when you were talking with your bank’s representative about a loan modification.

I talked to a woman a few days ago, she said she was in her early sixties, said she owned two homes, desperately needed at least one loan modified and probably both, otherwise she’s going to be on the street. She wanted me to recommend a few attorneys for her to talk to, and I gave her the contact information for the lawyers I knew in reasonably close proximity to her home. Then she asked me a few questions, and the last one I’ll always remember. Referring to the lawyer, she said:

“Do you think I have to tell him about my trust account?” (Adorable, right?)

I answered as honestly as I could. I said: “I wouldn’t.” (It’s probably not the right answer, I realize, but I’m just saying…)

If this were a tennis match, the score would always read: Advantage – Banks & Servicers

The reason that, other things being equal, I advise people to hire an attorney to help them negotiate a loan modification is that their lender or servicer will ALWAYS have a huge built in advantage in any negotiation over the settlement of a debt you contracted to repay, because the moral norms for borrowers work against them, and the market norms that apply to banks, support the bank doing pretty much whatever it thinks it needs to do to get the borrower into compliance with the terms of his or her loan… or reclaim the property.

Even when people hear that a bank did something really egregious or even illegal, many of them just say: “Yeah, well, I guess that can happen.” It’s as if to say that perhaps the bank went too far, but the borrowers were juggling flaming chainsaws in terms of risk, and the bank still has the right to take back its home and punish the irresponsible homeowner who fell outside of our society’s norms by failing to fulfill his or her promise to repay a debt.

See, there are some things in our society that work the way they do only because we believe they will work the way they do. The FDIC, or Federal Deposit Insurance Corporation, is a commonly offered example of this principle at work. The FDIC “guarantees” cash deposits up to $250,000 per account, as of last year, I believe. So, no one has to worry about rushing down to the bank to get their money out if there’s a problem at the bank, the FDIC will cover any loss up to $250,000 per account.

Except, even in the best of times, the FDIC could not possibly come up with the money to cover even a small fraction of bank deposits in this country. If there ever were a disaster that caused all the banks to fail, the FDIC would be meaningless. The FDIC is an independent agency of the federal government and you might call it a “faith based” organization because it only exists to give us faith in our banking system, and only works as intended because of that faith.

Well, loan modification negotiations are a little bit like that. The bank gets to use shame, guilt and fear to get you into compliance with your loan. Once you’re deeply ashamed, you won’t tell anyone what’s going on… and you’ll feel worse every day. Then you become afraid to answer the phone. Then you’re turning off the machine… you won’t even want to hear the phone ring.

Your bank will also greatly exaggerate what it will cost you to lose your property to foreclosure. You’ll be told that you won’t be able to buy anything for a decade, and all kinds of other nonsense. By the time you’re done reading a few of the letters you get from your lender each week, you can easily become convinced that losing your home is almost the end of all opportunity in your life. Might as well be a bum after that. It’s absurd of course… you can buy another home in 2-3 years, if that’s even what you want to do. There’ll be so many foreclosures on the market… you’re going to be hearing about foreclosures selling ten years from now.

The Point Is…

The point is, that when homeowners start the process of negotiating with their lender, they’re not only subject to being made to feel guilty and ashamed, but they are also likely to over-estimate the personal cost of foreclosure, all as a result of the bank’s and our society’s intentional efforts to make borrowers feel that way. It’s no accident, is what I’m trying to say.

You see, we keep the banks open and safe by believing in the FDIC, and we keep people from walking away from their homes when the value of those homes drops significantly by imposing our society’s moral norms, which include shame, guilt and fear, related to repaying debts. If the government and the banks can make homeowners deeply ashamed and afraid to lose their homes, then fewer people will even ever ask for a modification in the first place. With me?

Why the Bank Doesn’t Want You to Hire a Lawyer or other Expert…

When a homeowner hires an attorney to help negotiate a loan modification, that attorney is not going to being made to feel ashamed, guilty, or afraid… the borrower can be made to feel all of those things and more, but the lawyer, not so much. He or she is a hired gun, if you will. That’s why the banks don’t want homeowners to be represented, and why they want homeowners to call them directly.

Treasury looks the other way on this “put-the-borrower-through-hell” process because it understands that banks have to make sure that they are not throwing away money by modifying loans for borrowers who would have self-cured. Nor does the government want the banks to modify loans for people who won’t be able to make the modified payment. And since the only way for the bank to really know either of those things is to put the borrowers through their paces, as it were. Many will self-cure, some should be foreclosed upon… blend, shake, stir and pour,,, see what comes out. And of those that fall somewhere in the middle, some will have more or less equity, and some will be in markets where houses are selling relatively faster than others.

Out of that psycho-social-financial-market analysis, the bank will modify some loans… but the process used to conduct the so-called analysis is guaranteed to frustrate the hell out of everyone who enters it that’s determined to obtain a loan modification.

Being represented by an attorney or other expert throughout the process is unquestionably better than not being represented, mostly because that attorney won’t be subject to the bank’s tactics of trying to shame, guilt or scare, and as a result of that, is likely to think more clearly than you would be able to. And also because of the attorney’s or other expert’s knowledge of the law related to the foreclosure process and the HAMP guidelines, that attorney is more likely to get a result that’s acceptable to you, the homeowner… and by acceptable, I mean a modification that’s sustainable over time.

Is This How Things Should Be Done Today?

Absolutely not. The situation we’re in today is NOT a normal market correction, and I thought I’d better make it clear how I feel about how the banks are handling loan modifications: I hate everything about it, and I think it could not be more wrong. The Obama Administration has continued our government’s tradition of implementing pointless programs designed to help stop the foreclosure crisis. Nothing our government has done has helped in the least… they’ve failed us at every turn.

It’s not today’s homeowners that are responsible for the position in which they find themselves… no matter what anyone tells you… it is NOT your fault. If someone would like to debate that point with me, bring it. I’m easy to find and can be emailed at mandelman@mac.com. But come to the discussion prepared, because I am.

This meltdown was caused by this country’s financial institutions, and not by people with mediocre credit scores who wanted to buy houses. It’s the banks that did this, but no one is making them do anything to fix what they’ve clearly broken.

We’ve given the banks in this country something like $11 TRILLION so far, and we’re going to have to give them a lot more. The so-called toxic assets are still right where they were last fall, and the banks that were too big to fail last year, are now bigger. They have an obligation to act in the best interests of the homeowners they screwed, and in the best interests of our nation’s economy because without American taxpayers, they wouldn’t even be open for business.

So, don’t read what I’ve written and come away thinking that I approve of the way banks view borrowers asking for loan modifications… I don’t. I’ve only written what you’ve just read because I think it’s important that people understand the dynamics of what’s going on… that the reason they feel guilty and ashamed is because the banks and our government want them to feel that way, so that people don’t just start walking away from their mortgages because they’re so far underwater.

They’re manipulating you into feeling ashamed for being in trouble on your mortgage… but don’t let them make you feel that way. It’s not your fault… it’s the banks that wear the black hats in this horror movie, make no mistake about that.

And, in the event that you’ve already lost a home to foreclosure, don’t believe the crap about how your life will be ruined for another ten years. It’s simply not true. You may not be able to buy another house for the next few years, but so what? We haven’t come close to hitting bottom, so you wouldn’t want to buy another home in the near future anyway.

All forecasts say that we’ll have 12 million more foreclosures in the next two years, and that number is probably low, so don’t feel alone and ashamed about your situation. The people you’re talking to down the street have problems too, they’re just too ashamed to tell anyone about their situation, just like you’ve been afraid to talk about yours.

Let it go… and let’s turn up the heat on exposing what the banks have done and continue to do. Next year the mid-term elections will mean that every single representative in the House is up for re-election. Let’s just see if we can’t send a message they’ll hear and listen to… I’m sure we can, if we want to.

It’s not over until it’s over. Don’t give up the fight. Knowledge is power. As Winston Churchill once said:

“Never give up. Never give up. Never. Never. Never.”

Jan

Ohio Judge Follows JPMorgan Chase’s Advice, Ends up in Foreclosure

By Mandelman | HAMP, Housing & Economic Research, Weidner

18816Leave a Comment2011-01-08+06%3A09%3A07Mandelman

I have to tell you… I’ve been waiting for this to happen.

Ohio Judge Peter Sikora was looking to take advantage of the lowest mortgage interest rates in decades and refinance his eight-bedroom, lakefront Cleveland home, so he contacted his bank, JPMorgan Chase. With property values in decline in Cleveland, Chase said no to refinancing but told the judge to apply for a loan modification instead. The judge followed JPMorgan Chase’s advice to the letter and as a result has fallen a year behind on his nearly $1 million mortgage… hasn’t paid his property taxes… and now has ended up in foreclosure.

So, all I can think of to say is… don’t you just hate these irresponsible sub-prime borrowers who should never have been allowed to buy their homes in the first place and now think they’re entitled to loan modifications? I know I sure do. Maybe if the judge had called a scammer and paid an up front fee… he would have gotten his loan modified… no, wait… that’s not right… maybe if he had called a lawyer he would have… wait, no… he is a lawyer, right. Well, maybe if he… oh wait, I know… MAYBE IF HE HAD NOT BELIEVED THE LIES TOLD BY JPMORGAN CHASE… yeah, that’s sure as shootin’ where he went wrong.

According to a story in the Cleveland Plain Dealer, that I’m betting mysteriously isn’t going to get a lot of national attention…

“The bank advised me that the only way they would consider a loan modification would be if I fell behind on my payments,” said Sikora, 59, a judge since 1989. “I took their advice and put the money aside.”

The judge has now pinned his hopes on an upcoming mediation session to keep him in his Edgewater Drive home, which according to the Cuyahoga County Auditor’s Office, appraises at $844,000. Sikora told the Plain Dealer in a telephone interview that he has the money to make his mortgage payments, and that the only reason he’s in foreclosure is that he followed the advice of officials at JPMorgan Chase & Co.

Sikora, who was elected in 2008 as president of the Ohio Association of Juvenile Court Judges, also said that he was surprised when, back in June, right smack dab in the middle of his negotiations with JPMorgan Chase, the bank went ahead and filed the foreclosure lawsuit against him seeking $999,000, including $6,400 in unpaid property taxes.

According to Sikora…

“It’s unfortunate that it’s gotten to this situation, I’ve been talking with them for more than a year, but the bank hasn’t been responsive.”

JPMorgan Chase hasn’t been responsive? Well, that can’t be right, can it? Aren’t we all so surprised that Chase wasn’t responsive? And the fact that Chase would file for foreclosure while in the middle of negotiating with him over a loan modification… that they told him he should apply for by stopping making his mortgage payments… well, frankly I’m just shocked, aren’t you? Totally taken aback, I’d have to say.

I’ll tell you what’s really surprising to me… there are two things:

A judge worked with JPMorgan Chase for over a year to get his mortgage modified, ended up in foreclosure… and all he has to say is that it’s “unfortunate”.
Bank of America hasn’t done this to a judge yet.

Oh, and there was one more thing in the Cleveland Plain Dealer’s story that didn’t surprise me in the least…

“The attorney for JP Morgan Chase did not return a phone call.”

No surprise there.

Mandelman out.

Jan

DEATH FROM FORECLOSURE- WE’RE GOING TO SEE MORE OF THIS

By Matthew D. Weidner, Esq. | Weidner

18629Leave a Comment2011-01-05+00%3A35%3A44Matthew+D.+Weidner%2C+Esq.

One of the things that I’m most concerned with in the middle of this Foreclosure Fight is the increasing desperation I see and hear from clients and consumers. Even if people are being treated fairly and getting foreclosed on, there are some folks who are just so desperate, so angry, so abandoned that they are going to take desperate measures. There have been two examples just in the last month in my immediate area, and I’m certain that we’re going to see many more before this is all through.

It’s bad enough when people feel like they’re losing out when it’s a fair fight, but when people feel like they’re being abused and mistreated, then things are going to take a very ugly turn. And we know from the testimony in front of Congress and all the reports that real people are suffering real abuse. I’m not just saying abuse because your loan modification was denied. I’m calling abuse the endless cycle of phone calls and lost paperwork and resubmitting documents over and over. I’m calling abuse throwing a homeowner into the street then selling her home at foreclosure when they wouldn’t give the homeowner the same deal. I’m calling abuse refusing to acknowledge the real purchase price of some of these loans…especially when the loans were purchased in government-subsidized sweetheart deals.

This has all got to stop. Now. We’ve all got to start looking after one another and protecting our neighbors and communities. We cannot let people suffer in silence. We cannot let people think there is no hope. The story reported below is tragic, but I want us all to think how we could have intervened to help this couple before this tragedy took place. And because we’re going to see more and more of this, we all need to be working on ways to reach out to assist people before it gets this bad….

NBC SAN DIEGO

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Dec

Two Years Waiting for the New York Times to Write About Lawyers & Loan Modifications, and they Still GET IT WRONG.

By Mandelman | HAMP, Housing & Economic Research, Weidner

18141Leave a Comment2010-12-28+18%3A04%3A07Mandelman

When I first read David Streitfeld’s article headline: “Homes at Risk, and No Help From Lawyers,” which ran on December 20^th, in The New York Times

I thought…

Wow, well it’s about time… maybe someone’s finally gotten it.

Then I read the article and now I’m only filled with a sense of profound disappointment, resignation even. Never have I seen anything so inadequately understood by so many for so long. Never have I seen such an absolute failure on the part of my government to address the needs of so many millions Americans.

It’s inexcusable, really. Two years and 381 articles ago I started writing about issues related to loan modifications and the foreclosure crisis, two years ago Christmas Eve, as a matter of fact. What a way to celebrate such a milestone, to find out that whatever I’ve tried to do, few listened or learned a damn thing. And the pain that ongoing ignorance has caused is immeasurable. What a tragedy.

David Streitfeld’s article opens by saying:

“In California, where foreclosures are more abundant than in any other state, homeowners trying to win a loan modification have always had a tough time.

Now they face yet another obstacle: hiring a lawyer.”

The Times’ story then went on to recount the following tale:

“Sharon Bell, a retiree who lives in Laguna Niguel, southeast of Los Angeles, needs a modification to keep her home. She says she is scared of her bank and its plentiful resources, so much so that she cannot even open its certified letters inquiring where her mortgage payments may be. Yet the half-dozen lawyers she has called have refused to represent her.”

“They said they couldn’t help,” said Ms. Bell, 63. “But I’ve got to find help, because I’m dying every day.”

Then Mr. Streitfeld provides a misguided explanation for this problem, as faced by Ms. Bell, saying:

“Lawyers throughout California say they have no choice but to reject clients like Ms. Bell because of a new state law that sharply restricts how they can be paid. Under the measure, passed overwhelmingly by the State Legislature and backed by the state bar association, lawyers who work on loan modifications cannot receive any money until the work is complete. The bar association says that under the law, clients cannot put retainers in trust accounts.”

Okay, this is where Mr. Streitfeld’s article confuses the facts related to California’s “new” law, and therefore proceeds to misstate just about everything he needs to make his key point. I understand how it happened, however, as it’s an easy mistake to make, thanks to the California State Bar’s ongoing refusal to make clear what California’s “new” law prohibits and what it allows.

The “new” California law that Mr. Streitfeld references is known as Senate Bill 94 (“SB 94″) and it was passed by the state legislature in 2009, and signed into law by Governor Schwarzenegger on October 12, 2009. Sen. Ron S. Calderon, Chairman of the Senate Committee on Banking Finance & Insurance, sponsored the bill.

Let’s get this subject straightened out once and for all:

SB 94 DOES NOT REQUIRE lawyers who offer to represent homeowners seeking loan modifications to wait until their clients’ loans are modified before being paid. IT DOESN’T SAY THAT.

Allow me to explain in the most direct way possible. To begin with, California SB 94 impacts two groups: Real Estate Licensees and Attorneys.

As the new law pertains to attorneys, SB 94 created one new section of the Business & Professions Code, and two new sections of the California Civil Code, as follows:

B&P 6106.3 – NEW… This is just the enabling language that states that the State Bar can discipline lawyers for violations of the new law. It doesn’t establish or restrict anything; it is only language that enables some sort of enforcement should the law be violated by an attorney.

Civil Code 2944.6 - NEW… This section states that attorneys must provide a new NOTICE to their clients that they do not have to pay anyone to help them get their loan modified, they may attempt it on their own by contacting their servicer directly, or they may contact a HUD counselor for assistance that’s free of charge.

Civil Code 2944.7 – NEW… This is the language that contains the operative phrase, which states that an attorney cannot: Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.

As SB 94 pertains to real estate licensees, there are two sections of the Business & Professions Code affected, one is new, the other has been amended.

B&P 10085.6 - NEW… This is a duplicate of the language that also applies to attorneys above that contains the operative phrase: as a real estate licensee, you cannot: Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.

B&P 10026 - AMENDED… This language modifies the definition of advance fee for real estate licensees, prohibiting said licensees from breaking up the services related to a loan modification.

It is important to note that these sections are in Division 4 of the Business and Professions Code, which applies only to real estate licensees and not to attorneys. Bus. & Prof. Code Section 100116 defines “licensee” as “a person, whether broker or salesman, licensed under any of the provisions of this part.”

Do you see where the confusion is coming from? B&P 10026 has been amended to prohibit real estate licensees from breaking up the services related to a loan modification into component parts. However, there is no corresponding language that applies to attorneys, and therefore attorneys are permitted to break up the services related to a loan modification into component parts.

That means that lawyers helping homeowners obtain loan modifications, can contract to perform a specified set of services related to a loan modification, and be paid for those services once they have been completed. Nowhere in SB 94 does it say that a lawyer must obtain a loan modification for his or her client before being paid for services by that client.

Here is the text of the California Civil Code created by SB 94:

2944.7. (a) Notwithstanding any other provision of law, it shall be unlawful for any person who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following:

(1) Claim, demand, charge, collect, or receive any compensation until after the person has fully performed each and every service the person contracted to perform or represented that he or she would perform.

And here’s the language, related to charging homeowners fees for helping them obtain a loan modification, that applies to those licensed by the state’s Department of Real Estate:

SEC. 5. Section 10085.6 is added to the Business and Professions Code, to read:

10085.6. (a) Notwithstanding any other provision of law, it shall be unlawful for any licensee who negotiates, attempts to negotiate, arranges, attempts to arrange, or otherwise offers to perform a mortgage loan modification or other form of mortgage loan forbearance for a fee or other compensation paid by the borrower, to do any of the following:

(1) Claim, demand, charge, collect, or receive any compensation until after the licensee has fully performed each and every service the licensee contracted to perform or represented that he, she, or it would perform.

And here is the language amending B&P Code 10026:

10026. The term “advance fee” as used in this part is a fee, regardless of the form, claimed, demanded, charged, received, or collected by a licensee from a principal before fully completing each and every service the licensee contracted to perform, or represented would be performed. Neither an advance fee nor the services to be performed shall be separated or divided into components for the purpose of avoiding the application of this section.

Again, this means that a person licensed by the state’s Department of Real Estate who enters into an agreement to assist a homeowner in obtaining a loan modification cannot be paid until the homeowner receives a modification, because the services related to a loan modification cannot be divided into component parts for the purposes of billing for those services.

But an attorney, on the other hand, can contract for some limited set of services related to a loan modification, complete those services, be paid for those services, and then move on to other services as specified by separate contract.

Here’s a link to the final text of California’s SB 94, signed into law by Governor Schwarzenegger on October 12, 2009.

SB 94 vs. AB 764

Another way you can tell that SB 94 doesn’t require lawyers to wait until they obtain a loan modification for their client before being paid for any services, is by looking at the other bill that was passed by the California State Legislature in 2009, at the same time SB 94 was passed, and subsequently signed into law by the governor.

The other bill was AB 764, and like SB 94, it was also the product of a legislative committee on banking and finance, so no surprises there.

Assembly Bill 764, which was proposed by Assembly Committee on Banking and Finance Chair, Pedro Nava (D-Santa Barbara), did state that neither attorneys nor real estate licensees could be paid until a loan modification has been successfully obtained from the homeowner’s lender or servicer.

Senator Ron S. Calderon (D-Montebello), who chairs the Senate Banking Committee and whose committee was responsible for the much more rational SB 94, published an article in the Sacramento Bee in the early fall of 2009, in which he explained why he didn’t choose to take the approach contained in AB 764. In that article he said:

“I considered the approach in AB 764 when drafting SB 94, but ultimately rejected it for three reasons.

First, preventing fee-for-service providers from charging their clients, unless they obtain a modification, will almost certainly increase the fees that fee-for-service providers charge their clients. If fee-for-service providers can only charge certain clients, they will need to increase the fees they charge those clients, to make up for their inability to charge other clients.

Second, the approach in AB 764 is likely to cause fee-for-service providers to cherry-pick their clients. If a provider knows he or she can only get paid if a modification is offered to a borrower, that provider is unlikely to take on the difficult cases, leaving borrowers most in need of help with fewer options for assistance.

Third, AB 764 is likely to force many fee-for-service providers out of business, which is likely to reduce the options for troubled borrowers even further.”

Now, logic should at this point dictate:

There were two bills, and one of them, AB 764, did in fact prohibit both lawyers and real estate licensees from being paid prior to a loan modification being obtained.

The author of the other one, SB 94, would not state publicly that he chose not to go with the approach in AB 764, for the reasons stated, if his bill were accomplishing the same objective in the same way.

Is that making any sense for anyone? Lord, I do hope so, but if not… perhaps it would be helpful to read the governor’s letter to the California State Assembly explaining why he chose to veto AB 764 and sign SB 94 into law. The governor’s message to the State Assembly follows:

To the Members of the California State Assembly:

I am returning Assembly Bill 764 without my signature.

Although I support the prohibition of individuals charging advance fees for mortgage loan modifications, I do not agree with the provision of this bill that will only allow fees to be collected if a modification is successful.

This could adversely affect legitimate businesses that provide loan modification services. As such, I am signing SB 94 that accomplishes this prohibition against advance fees without unnecessarily harming legitimate companies.

For these reasons, I am unable to sign this bill.

Sincerely,

Arnold Schwarzenegger

Can you hear me now? Is that doing it for you? The facts about California attorneys who offer to assist homeowners with loan modifications as presented in the New York Times story are just plain WRONG.

SB 94 does not prohibit an attorney licensed to practice law in California from being paid in conjunction with a loan modification, until a loan modification has been obtained. It only says that attorneys must complete the services they’ve contracted to complete before being paid for those services.

Under the new law, it’s only real estate licensees that are not permitted to charge a homeowner a fee until a loan modification is obtained, because the new law does not allow real estate licensees to divide said services into component parts as related to a loan modification.

David Cameron Carr, a State Bar Defense and Ethics attorney practicing in San Diego, California agrees wholeheartedly with the view of SB 94 as I’ve presented it here, as do numerous other Bar Defense lawyers throughout the state. As to the legislative intent of SB 94, and the validity of lawyers unbundling services, David offers the following:

“The intent of the Legislature and the Governor was not to put legitimate firms out of business, rather it was to ensure that homeowners are only changed for work that has legitimately been done in service of the clients’ goal to modify their mortgage.

Attorneys cannot guarantee the outcome of legal representation and the banks have not made it easy for individuals seeking to modify their loan obligations, whether they are represented by attorneys or not. Staking all of the attorney’s fees on the successful loan modifications will lead to no attorneys willing to even make the effort. This is an access to justice issue clearly recognized by the Governor when he vetoed AB 764.

Allowing consumers to pay for legal services in discrete ‘unbundled’ increments serves the interests of clients and attorneys. Chief Justice Ronald George recently co authored an op-ed article in the New York Times praising unbundled practice as allowing ‘lawyers – especially sole practitioners – to service people who might otherwise have never sought legal assistance.’”

And that, as they say, is all I have your honor. The defense rests.

The New York Times article, however, doesn’t. It goes on to say:

Two years ago, the state bar association had seven complaints of misconduct in loan modifications. By March 2009, there were more than 100 complaints, and a task force was formed to deal with the problem. Soon, there were thousands of complaints.

It was a public relations disaster. The president of the bar association (Howard B. Miller) wrote in a column last year that “hundreds, and perhaps thousands, of California lawyers” were victimizing people “at the most vulnerable point in their lives.”

Now, I couldn’t even count all of the articles I’ve written about these sort of statements at the time (here’s one: Did Attorneys “Turn Bad” in 2009? What… Was there something in the water?), but the bottom line is, that for all the “witch hunting” that went on back then, with lawyers playing the role of the “witches,” the California State Bar, in a state with 206,000 licensed, practicing attorneys, has posted the following results as of September of 2010, according to the California Bar Journal, which is the “Official Publication of the State Bar of California.”

“The bar’s Office of Chief Trial Counsel has obtained the resignations of 12 attorneys involved in loan modification misconduct since creation of the task force in April 2009. Six loan modification trials are pending…”

So, this April it will have been two years since the California State Bar established its Task Force to root out the “hundreds, or perhaps thousands of California lawyers” who were said to be victimizing people “at the most vulnerable point in their lives.” And yet to-date, the California State Bar has obtained the resignations of 12 attorneys involved in loan modification misconduct. Oh yeah, and there are six more trials pending.

I’m certainly not saying there weren’t more illegal operators, scammers, and/or lawyers operating outside the rules, and in fact the California Bar Journal also states that there are 1800 active investigations underway, but with a dozen resignations and six trials pending… after almost two years… the idea that there were ever thousands of California attorneys victimizing people “at the most vulnerable point in their lives,” well… it was just preposterous then and it’s even more so today.

Today, it should be clear that the media and the public believed that sort of obvious fear-based hyperbole back then because back in mid-2009, pretty much everyone believed two things that we now know were far from true:

That President Obama’s plan to save homes from foreclosure would work as advertised, or at least close to as advertised. The president had told the nation that “loan modifications were free,” and that you could “call a HUD counselor,” or “contact your bank directly.” And with the government and the banks reinforcing the message, why would anyone think you’d need a lawyer?
That the banks would deal with homeowners applying for a loan modification in a reasonable way, and follow the rules of the president’s plan to some reasonable degree.

With these two thoughts firmly implanted in the minds of the media and the masses, and with no personal experience to tell them otherwise, it made sense that when someone had paid a company to help them get their loan modified, and their loan did not get modified, it had to be the company’s or the lawyer’s fault… it had to be that the lawyer or company was scamming the homeowner, taking their money and delivering nothing in return.

By the end of 2009, however, it became clear that the president’s program was not working as advertised, and that the banks were not following the program’s rules, or oftentimes any rules, for that matter, and as a result, more and more people started to think that perhaps one should hire a lawyer when applying for a loan modification.

And certainly today, with consumer attorney superstars like Max Gardner and others, making news of banks using robo-signers to create fraudulent paperwork leading to improper foreclosures, along with stories of banks misleading homeowners and even attempting to foreclose on homes they don’t own, it should be abundantly clear that a homeowner should at least consider hiring an attorney when at risk of foreclosure.

But… it’s about to be 2011… and frankly there’s no excuse for this sort of misconception to still be going around… and there’s certainly no reason for any lawyers in California to be afraid to represent a homeowner who is seeking a loan modification based on the requirements of SB 94.

Of course, none of this is to say that hiring a lawyer to represent you when seeking a loan modification offers any sort of guarantee that you’ll get your loan modified, but then you never hire a lawyer when the outcome is certain. You only hire a lawyer when the outcome is uncertain. If the outcome were certain, why would you pay an attorney?

In this case, homeowners that choose to hire a lawyer to help them get their loans modified do so because they believe that their attorney has more experience in the area and will therefore have a better chance at getting the loan modified, and I think this is unquestionably true. In my somewhat vast experience talking with homeowners at risk of foreclosure, and with attorneys that specialize in helping homeowners obtain loan modifications, I have absolutely no question in my mind that many homeowners need professional help getting their loans modified.

For one thing, homeowners at risk of foreclosure are scared and don’t relish the idea of talking with their servicer, who is often rude and unaccommodating. For another, many feel ashamed that they are at risk of losing their homes, and that makes dealing with a mortgage servicer or bank that much more difficult. And lastly, most homeowners don’t know their rights as related to foreclosure, or the rules and guidelines under the HAMP program, and they tend to panic or act irrationally as a result.

From the story in the New York Times:

Lenders were supportive of the bill, Senator Calderon said.

The law is working well, Senator Calderon said. “You do not need a lawyer,” he said.

Look, obviously Senator Calderon has never had a particularly thorough understanding of what’s going on in real life as related to loan modifications and the foreclosure crisis. But we can hardly blame him for that… he’s the California Senate’s Banking and Finance Committee Chair, so what would you expect?

So, allow me to be blunt, so as to avoid any confusion as to the facts of the matter:

The law is not working well… in fact it’s not working at all. It has accomplished almost nothing in regards to protecting consumers from scammers. But then… it never had a chance of working well, or at all, so I suppose in that sense, it is living up to its potential.

And as to Senator Calderon’s claim that you do not need a lawyer to obtain a loan modification, he’s quite right. You don’t NEED a lawyer… it’s not a requirement. But for many people, it sure as heck can help… a lot. Having interviewed over a thousand homeowners and hundreds of attorneys that represent homeowners at risk of foreclosure, I can tell you this… I wouldn’t try it on my own, but again… that’s me. Everyone has to make their own decision as to whether they want or need an attorney. My father prepares his own tax returns, so go figure.

If the State of California wants to eliminate the scammers who prey on distressed homeowners with promises of loan modifications, the answer is not to make it illegal to charge a fee. That only eliminates the legal operators… the scammers don’t care about laws that prohibit them from being paid up front… that’s why they’re called scammers… because they break the laws.

And as I predicted at the time, since SB 94 took effect last year, the scammers shifted into offering products and services not covered by SB 94… oooh, that was a hard one to see coming, wasn’t it? I’m a genius, I realize. They started selling “forensic loan audits,” that often cost thousands of dollars but were about as valuable as the paper they were printed upon.

And then, more recently, business entities calling themselves “Doc Prep” companies arrived on the scene, offering to prepare the documents needed to apply for a loan modification on behalf of a homeowner for several thousand dollars up front.

The point has been rendered moot by the FTC’s recent announcement of its new MARS rule, which is a federal rule that fully takes effect on Jan 30, 2011. MARS governs how “Mortgage Assistance Relief Services” providers may operate and be paid for their services, but for the record, I contacted Tom Pool at the California Department of Real Estate, to find out if these doc Prep companies were operating in violation of SB 94, and his view was they that they are in fact operating in violation of the new law.

There are also companies out there who lure homeowners with all sorts of programs that promise relief from foreclosure. And some are now soliciting homeowners to be participants in various lawsuits for a fee. My only advice is to be careful out there… because SB 94 isn’t going to protect you from smooth talking salespeople looking to make a commission by selling you a pig in a poke. In case it’s helpful, here’s a link to my recent article: How to Tell Legitimate Loan Modification Firm from an Illegal Operation or Scam… The FTC’s New Bright Line MARS Rule.

The point is that if the State of California wants to get rid of the scammers, the answer is to let homeowners know where they can go to get legitimate assistance, and “call your bank directly,” or “contact a HUD counselor,” is neither helpful, nor is it credible.

The State Bar has hidden from SB 94 for over a year now, refusing to come out publicly with any sort of clarification on how they interpret the new law. All they’ve said is that attorneys cannot accept up front funds from a homeowner seeking a loan modification into their attorney trust account… which is absurd, especially when you consider that the new FTC MARS rule REQUIRES lawyers offering to help homeowners obtain loan modifications to put advance fee retainers into their attorney trust accounts. (Although the FTC’s MARS rule is subject to state law, so lawyers representing homeowners seeking loan modifications will continue to practice as they have been under SB 94.)

I’m sorry to have to say this, but by hiding from the new law, the State Bar has made it more difficult for homeowners to hire an attorney, as shown in the New York Times story, and as a result, made it more likely for homeowners to end up getting scammed.

If you want to get rid of scammers, make legitimate loan modification legal assistance available at every Starbucks… no more scammers. It’s not different than getting rid of bootleggers, which you do by putting a liquor store on every corner in town… no more bootlegger. You certainly aren’t going to get rid of scammers by making it harder to find a legitimate attorney, because when people are losing their home, and they can’t find help… they panic. And panic is the fastest path to getting scammed there is.

The truth is, there are scammers around us every single day of our lives. But we don’t get scammed every day, because we’re not in a panic. The first day we are, is the day we’ll find ourselves having been parted with our hard-earned money by some con artist.

So, when Mr. Streitfeld’s New York Times article opens by saying:

“In California, where foreclosures are more abundant than in any other state, homeowners trying to win a loan modification have always had a tough time.

I can’t argue with that, assuming that he’s referring to the banks’ and mortgage servicers’ behavior as related to loan modifications.

I assume that he’s referring to the banks and mortgage servicers disregarding every rule or guideline set forth in the president’s Home Affordable Modification Program, HAMP, along with most of the state laws related to the foreclosure process, and are now being investigated by all 50 state attorneys general for loan modification fraud.

Is that what you meant by “had a tough time,” Mr. Streitfeld?

I could try to list all of the abuses committed by the bankers and mortgage servicers, but I’m not sure one person could do it comprehensively in less than a year. You’d need to put an entire team on it, and they’d likely still miss a few.

At this point, the four largest players in the mortgage market, GMAC, JPMorgan Chase, Wells Fargo Bank, and of course, Bank of America all stand accused of bringing fraud on the courts by submitting their robo-signed affidavits, their forged signatures, and numerous others violations of the laws governing the transfer of property rights in this country.

Most recently, in New Jersey where a judge is presiding over the KEMP v Countrywide suit, Bank of America, in an effort to establish that they should be allowed to foreclose on the Kemp’s home, has tried three times to do so with fraudulent documents, the last time so flagrantly, that BofA’s lawyer had to ask the court to allow the bank to withdraw the evidence they’d submitted.

In point of fact, the banks and servicers are being sued from parties on all sides of the situation… by homeowners, both individually and as members of various class action lawsuits, by investors who claim they were defrauded by a failure to comply with underwriting requirements of the Pooling and Servicing Agreements that govern their investments in the mortgage-backed securities that allegedly hold the mortgages in question. And by various state governments, including Arizona and Nevada, who have each filed suits alleging loan modification fraud against Bank of America as of a few weeks ago.

And on several well-documented occasions, the banks have even foreclosed or attempted to anyway, on homes on which they never even held a mortgage.

So, yes… I think it’s safe to say that homeowners in California and elsewhere have had a “tough time,” when it comes to obtaining loan modifications. And I would think that this sort of “tough time” would lead just about anyone over the age of nine to conclude that homeowners should at least consult with an attorney before attempting to get their loans modified.

In fact, there are only two groups opposed to this idea: the bankers and the politicians clearly in the pocket of the banks. Anyone else opposed to the idea is just a derivative of one of these two groups, and neither is looking out for the best interests of the homeowners when forming their views.

Look, I understand why bankers wouldn’t want homeowners to hire attorneys when at risk of foreclosure; it would make things much, much easier for bankers if homeowners showed up alone and unarmed, after all.

Without an attorney, it’s Bank of America against Mr. & Mrs. Jones, who are emotional, unknowledgeable and afraid… and BofA can mow over them with their foreclosure mill lawyers without any resistance to speak of in their way. Without lawyers, no one would have ever discovered the fraudulent documents being used by the bankers to foreclose on properties, for example, so I absolutely understand why the bankers would be attempting to make it difficult for a homeowner to hire a lawyer to help them prevent foreclosure.

I also find such an impetus despicable and wholly devoid of moral character. If the banks in this country are going to oppose basic fairness, then they should be nationalized and turned into the equivalent of public utilities… and in my opinion they quite likely will one day if they continue on their current path.

Mandelman out.

~~~~~~

BANK BREAK INS- New York Times- What Will You Do To Stop This Tyranny?

By Matthew D. Weidner, Esq. | Foreclosure Fraud, Weidner

17721Leave a Comment2010-12-22+11%3A21%3A30Matthew+D.+Weidner%2C+Esq.

It’s happening all over the country…banks breaking into people’s homes, with no court order, with no legal authority, with no right to do so. Taking property, trashing homes, ruining lives….sometimes when there are no mortgages on the property at all…

One of my cases is mentioned in the article, and it’s important for everyone in America to understand that the conduct of these banks has gotten so totally out of hand because we’ve become week, meek, soft and compliant. It is only through the intervention of federal cases that something might be done to reduce such conduct….right now it is rampant and unchecked.

Read from the article below and consider how these lives are destroyed by these practices…what has this country become?

In an era when millions of homes have received foreclosure notices nationwide, lawsuits detailing bank break-ins like the one at Ms. Ash’s house keep surfacing. And in the wake of the scandal involving shoddy, sometimes illegal paperwork that has buffeted the nation’s biggest banks in recent months, critics say these situations reinforce their claims that the foreclosure process is fundamentally flawed.

“Every day, smaller wrongs happen to people trying to save their homes: being charged the wrong amount of money, being wrongly denied a loan modification, being asked to hand over documents four or five times,” said Ira Rheingold, executive director of the National Association of Consumer Advocates.

Identifying the number of homeowners who were locked out illegally is difficult. But banks and their representatives insist that situations like Ms. Ash’s represent just a tiny percentage of foreclosures.

READ FULL ARTICLE HERE

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Dec

Tired of Reading? Videos on the Foreclosure Crisis.

By Mandelman | HAMP, Housing & Economic Research, Weidner

17715Leave a Comment2010-12-22+10%3A10%3A19Mandelman

Here’s something you don’t find every day on Mandelman Matters, a whole series of videos, most from C-Span’s coverage of various congressional hearings, and all having to do with the foreclosure crisis. Some feature testimony by NCLC’s rockstar foreclosure defense attorney, Diane Thompson, who I think is the bomb. And you find Georgetown Law Professor, Adam Levitin, who clearly explains that the problems with loan modifications are the mortgage servicers, companies that he explains are closely tied to the banks and the trustees, and that continue to refuse to release data that would show how loan modification programs are actually working.

Diane Thompson of National Consumer Law Center

He also says that servicers are not in the modification business and that asking them to be is asking too much. He also thinks that when the servicers come to congress and testify as to how many modifications they’ve done, they count each one more than once… as in each loan has multiple modifications. And I, for one, was relieved that I wasn’t the only one who has been noticing that, and writing about it, for some time now.

Georgetown Law Professor Adam Levitin

The videos are very telling as to just how difficult the foreclosure crisis is to solve because the banks and servicers are so difficult to deal with and because the regulators don’t want to see too much because then they’d have to take some action… and Treasury’s orders are to allow the banks to take necessary write-downs from retained earnings over ten years.

Hearing that sentence testified to in congress gave me chills. You see, in Japan that’s sort of what the banks did… they laid low, doing little if any lending for a decade until they could write down the over-valued assets from pre-1990, when their real estate bubble popped. However, I wrote once that if Secretary Geithner thinks that the 10-year hold-your-breath strategy will work here, I think he’s wrong… although I may have employed more colorful phraseology than that at the time.

For one thing, we are not living in Japan. My impression is that we can’t even sacrifice for one winter by keeping our thermostats under 70 degrees, and the Japanese could probably live through a decade of winters with no heat at all. So, if he thinks he can tap dance around what the banks have been doing in the last two years for another eight… he’s high. No way, no how.

I recent;y read that today, 20 years after the Japanese real estate bubble popped, assets are still struggling to recover. In Japan, housing prices declined steadily from 1990 to 2004, had a small blip up in 2004, but then started falling again. If that sort of thing happens here, I don’t think we’re going to take it nearly as well as the Japanese.

But, that’s how we seem to be handling things so far, with the bankers as our special class, essentially immune from real regulation, and apparently allowed to behave badly in the name of their recovery. To me it looks like the bankers have succeeded in scaring the administration into believing that no one but who we currently have in place at major banks is capable of bringing those banks back from the dead, so we all better tip-toe around them, because they’re very easily upset.

Okay, so I promised no reading, so I’ll shut up. Watch them all, you’ll learn a lot… I sure did.

~~~~~~~

Dec

The Kings and Queens Loan Mod Scammers: Arizona & Nevada Sue Bank of America Over Loan Modification Program

By Mandelman | HAMP, Housing & Economic Research, Weidner

17679Leave a Comment2010-12-21+21%3A54%3A05Mandelman

I remember a couple of years back now, when Arizona Attorney General Terry Goddard was watching his state go down the foreclosure rat hole, and he was being greeted most days by a parade of banking types who were telling him that it was they who had the answer, and certainly not the law firms and other professionals who were offering to help homeowners get their loans modified for the dreaded up front fee.

Back then, if you recall, President Obama was new in his office, and he had told us all that loan modifications were free. He had recently given a speech, in Arizona by the way, announcing his new Making Home Affordable plan that he said would save 3-4 million homes from foreclosure, and the cheering in response was louder than at any speech I could remember.

Back then, for the most part, we all believed that Barack Obama was two things: smart, and a man of the people more than a man of Wall Street. We believed that, although Bush’s plan to save homeowners from foreclosures was an abysmal failure, certainly Obama’s plan would not meet the same, or even similar fate.

So, when he said that loan modifications were “free,” and that all one needed to do was call the government’s toll-free hotline or, in lieu of that, their bank directly, people believed him. And very soon, that made anyone who charged a fee to help a homeowner get their loan modified, a “scammer,” just by virtue of them charging a fee for their services.

Those that were reading me back then know that I never was comfortable drawing that conclusion. Not that I wanted to ever see a homeowner at risk of foreclosure get ripped off, in fact that’s the last thing I’d ever want to happen. But it never made sense to me that something like getting a loan modified would be “free”. I mean, getting my loan in the first place wasn’t free. And I’d never hired a lawyer or other professional for free in the past. Why would that now be free?

Oh sure, I recognized that the government had a toll-free hotline, and in fact when Obama announced its availability, I called it myself dozens of times… and it worked about as well as I expected a government hotline to work, that is to say, not at all.

But the idea that one could simply call their bank directly and ask them to modify their loan, and that would lead to their loan being modified, never rang true with me. I’ve tried calling my bank many times in the past, and for many reasons. And it never had gone well. I said recently in an article that it would be faster for me to drive to my bank to see if it’s open than it would be for me to call and find out.

Banks don’t reduce the amount of money you owe them easily… they don’t have a give-the-money-back department. So, when Obama said call your bank directly, or that there was a government hotline available, neither option sounded better than me paying a lawyer or other professional to help me get it done. Maybe some would call a HUD counselor, and maybe it would work out okay for them, but for me personally, I knew that I’d rather pay for the services I need, and that’s just me.

So, back then Terry Goddard was finding himself being approached on numerous occasions by bank industry people and they were all assuring him that the homeowners of his state were perfectly right to simply contact their banks directly when they needed to get their loans modified… and that would help control the growing foreclosure crisis that was fast destroying his state’s economy and the lives of countless homeowners.

So, he believed them, and he went out and told the homeowners of Arizona that they should not pay someone to help modify their loans, but rather they should contact their banks directly. And people listened to what he said, and they followed his advice. But it didn’t work, and in fact it became a nightmare for all who tried it his way. And many came back to his office and said… WTF?

And Terry Goddard felt like he had been deceived. He wasn’t exactly sure what the answer was, but he now knew that it certainly wasn’t as simple as telling folks to call their banks directly.

So, when the opportunity came up to investigate the banks as a result of things like robo-signers fraudulently signing affidavits in order to foreclose on people’s homes, came to light, Terry Goddard was one of the state attorneys general to jump in with both feet. And this past week it was announced that the state of Arizona and Nevada are both suing Bank of America.

Is it “the” answer? Probably not. But is it a step in the right direction? I think it unquestionably is.

In broad terms, Arizona’s lawsuit accuses the bank of misleading consumers. According to Bloomberg:

“The bank is accused in the Arizona and Nevada lawsuits filed yesterday of misleading consumers about requirements for the modification program and how long it would take for requests to be decided. The bank provided inaccurate and deceptive reasons for denying modification requests, according to the suits.”

In a statement released by the office of Arizona’s Attorney General, Goddard explained that instead of working to modify loans in a timely basis, Bank of America went ahead and foreclosed on homes while the borrowers were awaiting a decision on their application for such a modification, and that violates a 2009 agreement with the state to help people who were at risk of losing homes.

Again, according to Bloomberg:

“The Arizona lawsuit, filed in state court in Phoenix, seeks a court order holding the Charlotte, North Carolina-based bank in contempt for violating the agreement and requiring it to pay as much as $25,000 for each violation of the accord plus as much as $10,000 for each violation of the state’s consumer-fraud law.”

I also think it’s more than safe to assume that the announcement by Arizona and Nevada that they are suing Bank of America is the beginning of a much larger movement, and not the end. All 50 states attorneys general are currently investigating whether the bankers have used fraudulent documents to provide the legal justification to foreclose on homes. And that’s not the sort of investigation likely to go away quickly or without some price being paid by someone, in my view.

The Bloomberg story also quoted Bank of America spokesperson, Dan Frahm, as saying:

“We are disappointed that the suit was filed at this time. We and other major servicers are currently engaged in multistate discussions led by Attorney General Miller in Iowa to try to address foreclosure related issues more comprehensively.”

And all I have to say to that, is that, as statements go, is it is beyond disingenuous. No one involved believes that your bank gives a damn, Mr. Frahm. Oh, we believe your bank is disappointed, all right, but only that it was caught, and that now someone with some legal clout is finally taking you to task and using the court system to do it.

Remember… Bank of America is one of the banks that announced that it was stopping foreclosures in the 23 judicial foreclosure states back in October, and then in all 50 states, but just a couple of weeks later announced that it had reviewed more than a hundred thousand loans and determined that everything was just fine and dandy. Nonsense, Mr. Frahm… even a child could see through that and say… nonsense.

Bloomberg’s story lists the following case specific information:

The Arizona case is Arizona v Bank of America, CV2010- 33580, Maricopa County Superior Court (Phoenix). The Nevada case is Nevada v. Bank of America, Eighth Judicial District Court, Clark County (Las Vegas).

To contact the reporter on this story: Karen Gullo in San Francisco at kgullo@bloomberg.net.To contact the editor responsible for this story: David E. Rovella at drovella@bloomberg.net.

Mandelman out.

~~~

Dec

Don’t Arrest The Criminal Bankers- Arrest the Protesters!- A CALL TO ARMS!

By Matthew D. Weidner, Esq. | Weidner

17621Leave a Comment2010-12-21+02%3A54%3A37Matthew+D.+Weidner%2C+Esq.

Small groups of people are finally starting to protest…and some of them are getting arrested. That’s a good thing. We need more arrests. I say arrest all the protesters. Lock them up and throw the keys away….at least they’ll have Three Hots and A Cot and a roof over their head. (Until we all realize that the jails are all mortgaged by municipal bonds…the next big financial crisis but that’s another story.)

ABC NEWS

Anywhoo, forget about protesting the bank…where we need to focus our efforts is protesting and protecting the homes that the banks are trying to take. We’ve all got to wait for the right case, but when the right case and the right person comes along, the message goes out that we all show up at this person’s home after the Writ of Possession is filed. I’ll send someone to the courthouse to make copies of all the robo signed documents, the non-verified complaint, the post dated assignment, the bogus service of process then we’ll all meet at the person’s home (with their permission of course) and we’re not leaving. PERIOD. While we’re there, the attorneys will huddle with the documents and we’ll draft the Motion to Vacate Sale and Final Judgment.

Now law enforcement may feel obliged to arrest protesters on arguably bank property, but I’d just love to see Sheriffs arresting people on the private property of a homeowner whose home was sold pursuant to a void or voidable judgment….which makes the Writ of Possession Void or Voidable. The right person and family will come along. It’s an elderly person or a struggling family with kids who has good records of attempts to work out a loan modification. It’s a securitized loan or a Fannie or Freddie Loan. It’s Deutsche Bank or Indymac. It’s a Stephan affidavit. It’s a lawsuit filed by David Stern, or Florida Default, or Marshall Watson, or Shapiro and Fishman. It’s got service of process charges for Unknown Spouses and Unknown Tenants. It’s Constructive Service of Process and an Avoidance Affidavit from a disabled or elderly person. It’s got a Proof of Publication Affidavit that is illegally notarized. When we find this case, we all know what to do……

SEE YOU AT THE PROTEST!

(And save me a cot at the Concentration Camp…unless I get there first, then I’ll save one for you.)

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Dec

Wanna Know Why Your Loan Mod Was Denied? Call the Bank…They’ll Tell You.

By Matthew D. Weidner, Esq. | Weidner

17622Leave a Comment2010-12-21+01%3A52%3A55Matthew+D.+Weidner%2C+Esq.

You’re a real dope if you wasted all your time submitting loan modification paperwork to your lender. You’re an even bigger dope if you called the “independent” phone number to find out why it was denied. (almost all were denied after all)….

Of all the possible reasons why the government’s loan modification program has been a dud, at least one has received scant attention: When borrowers are denied a loan mod and call a hotline to have their case reviewed, they are handed off to a nonprofit group created by a large mortgage servicer and largely funded by the industry.

Well ain’t that just great…turns out the biggest dopes in this whole thing are all the American taxpayers…not only did we shovel billions of dollars to the lenders and the servicers and their law firms…we also shoveled millions of dollars off in every different direction…..why has not a single solitary person been placed in handcuffs?

AMERICAN BANKER

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Dec

Mandelman Commenting on ProPublica Article…

By Mandelman | HAMP, Housing & Economic Research, Weidner

17494Leave a Comment2010-12-19+09%3A16%3A54Mandelman

I rarely do this sort of thing…

But, ProPublica posted an article about real life foreclosures not fitting the conventional wisdom of what most people think they are… they’re not a bunch of low income minorities who should never have been able to buy their homes in the first place, for example. I posted a comment in response to the article they posted, and then someone who reads Mandelman Matters showed up and responded and I responded again… and I wanted my readers to be able to see what we talked about…

ProPublica seems to be posting quite a bit about the foreclosure crisis of late, and some of it seems pretty good, although I haven;t had enough experience with the site really. I remember last year thinking that they didn’t get it… so who knows.

Their article follows… then my comments…

Tale of Three Cities: Foreclosures Don’t Always Follow the Script

As a symbol of the national foreclosure crisis, Jaymie Jones isn’t what you might expect.

The 52-year-old Seattle-area woman worked her way up in the financial-services industry over three decades from bank teller to mortgage executive.

In spring 2007, she bought her dream home in Kirkland, signing a 30-year, fixed-rate mortgage.

Then, as Jones celebrated New Year’s Eve on a beach in Mexico, the call came: Her division was shutting down. Jones tapped her savings over the next year and tried for a loan modification, but in the end, the bank filed to foreclose. The dream was over.

In the conventional narrative of the foreclosure crisis, rapacious lenders hooked up with irresponsible buyers in a tale of “Lending Gone Wild.”

There was certainly much of that. But a Seattle Times-ProPublica analysis of foreclosures from three areas hit hard by the housing crash tempers that image — and punctures some other popular notions about the mortgage meltdown.

Most of those in foreclosure were young people, right? Not true. Like Jones, half of them were over age 40.

Predatory lending caused foreclosures, correct? In fact, nearly three out of four loans did not have any of these three key predatory loan features — balloon payments, prepayment penalties and high interest rates.

And as for the common assumption that most people in foreclosure lost their homes? Surprisingly, not so. More than half of them were able to keep their homes, with some selling them for more than they owed.

The Times-ProPublica analysis provides new insights into the foreclosure crisis and helps fill an acknowledged gap: Much of the data on home loans is insufficient, hidden or hard to obtain.

Although politicians and regulators have moved to gather more information about lending practices and foreclosures, consumer advocates say progress is too slow. And it’s unclear how much will be made public.

“For those of us who want to understand how the foreclosure crisis has affected borrowers and communities, it is frustrating to not have access to publicly available data that can really help us to understand what happened and why,” said Carolina Reid, a research manager for the Federal Reserve Bank of San Francisco.

Even a basic number — borrowers in default or foreclosure — is hard to pinpoint, said Guy Cecala, publisher of Inside Mortgage Finance, a leading trade publication. That’s because those who track the data have no way to weed out homes that are counted multiple times because they’ve gone into and out of the foreclosure process more than once.

Cecala’s best guess, based on industry surveys: 4.8 million homes are in serious delinquency or foreclosure.

But, “even the best foreclosure numbers don’t give us the reason for the foreclosure,” Cecala said. “It’s hard to address a problem when you don’t know all the causes of it.”

Debate about root causes of the crisis has re-emerged in recent days with a partisan split on the Financial Crisis Inquiry Commission about whether failed government housing policies or private-sector lending abuses deserve the most blame.

To address the lack of information about foreclosures, The Seattle Times and ProPublica decided to create a database that could provide some answers. Reporters pulled a random sample of more than 1,200 foreclosure filings from 2005 through 2008. That entailed around 400 filings for each one of the central counties encompassing the Seattle, Phoenix and Baltimore areas.

Overall, the data underscore how the housing bubble and lower lending standards of the era reinforced each other, seducing many homeowners to get in over their heads. Comparing the three counties also reveals regional differences in the profiles of those who got into trouble.

In the Phoenix area, one of the biggest housing bubbles in the nation suddenly burst, unleashing an equally sudden wave of foreclosure filings.

In the Baltimore area, job losses in an aging city threatened home purchases and neighborhood revitalization.

And in the Seattle area, longtime homeowners responded to lenders’ aggressive pitches by tapping into rising equity, taking on more debt, and refinancing into adjustable-rate mortgages.

Click to read more: Seattle: Waves of Refinancing , article continues…

NOW HERE’S MY RESPONSE, AND MY SECOND RESPONSE FOLLOWS:

There are two primary misconceptions why Americans are allowing the foreclosure crisis to continue:

1. People believe that the “banks” are foreclosing because it’s in their best financial interests. And it makes sense that they think this way, as that’s what “banks” have always done in the past.

2. Banks are foreclosing on homes bought by irresponsible and often low income people that should never been allowed to buy their homes in the first place and can’t possibly afford them. And virtually all of the imagery of the foreclosure crisis features poor minorities in run down homes with trash piled everywhere.

If either of these thoughts were true, then the people would be right to ignore the foreclosures as they would be the natural order of things. Unpleasant to watch, but unavoidable, so wake me when its over.

So, it’s not illogical that most of the country seems to be uninterested in stopping the foreclosure crisis, even though they themselves are losing enormous amounts of accumulated wealth in their homes as a result of the crisis continuing. If you believe points one and two above, then there’s nothing to be done… so wake me when it’s over.

BUT NEITHER POINT IS TRUE.

While low income minorities certainly have suffered as a result of the crisis, they are by no means the lion’s share of the affected population. It’s just that the “The Anderson Family” rarely stops for a photo-op in front of their Volvo wagon before driving away from their home for the last time.

And “banks” are not the ones foreclosing… “servicers” are foreclosing. And “servicers” ALWAYS make the most money by servicing a delinquent loan for as long as possible and then foreclosing.

Servicers aren’t acting in the best interests of investors or borrowers, or even our society as a whole. They are acting in their own best interests, which are to keep your loan delinquent for a while before foreclosing.

The unsolvable part of the crisis is that in many cases there are no fiduciaries to the loans… the investors are holders of “certificates” entitled to a share of the cash flows produced by a pool of loans, but they don’t consider themselves landlords, by any means.

And if not servicers, then who will be involved in negotiating loan modifications? Servicers can’t be relied upon to do it, their incentives are not aligned with any others, and the government would have to take over the loans to modify them.

The country needs to come to understand that the cause of the crisis was not a housing bubble popping, it was not caused by irresponsible people buying homes they can’t afford.

It should be obvious by now that none of us will be getting out of this unscathed. The water is rising and, while the crisis may only be causing flooding in 15% of homeowners with a mortgage, it is already at least lapping at the rest of America’s toes.

The only real question is whether the people will come to understand what’s happened and is being allowed to continue to happen before we all learn the truth of the matter the hard way.

Already 42 million Americans are receiving food stamps, up from 11 million in 2005. Million dollar mortgages are defaulting at twice the national average. More than half of all foreclosures are prime loans, and there are few states today unaffected by the foreclosure crisis.

Because foreclosures breed foreclosures… they lead to lower property values, which lessens consumer spending, which reduces corporate profits, resulting in higher unemployment, which ends in more foreclosures.

It’s a feedback loop that won’t stop until it has wiped out America’s consumer economy and destroyed the accumulated wealth of America’s middle class.

THEN, HERE’S MY SECOND COMMENT:

For the record… home prices fell for different reasons at two different times.

1. The Bubble Begins to Deflate… By summer 2006, the Fed had raised rates 17 times in a row in its attempt to keep inflation in check.

As rates rose, fewer qualified for loans, homes stayed on the market longer… prices fell. Those who had put no money down, had adjustable or teaser rate loans, or who had counted on low rates or higher values in the future so they could refinance… fell into foreclosure.

But that’s what was supposed to happen…

Who knows what would have happened from there, had the housing bubble continued to lose air. We never got to find out…

2. The Banks Break the Bond Market… On July 10th, 2007… something happened that never happened before.

Standard & Poors and Moody’s, announced they were downgrading ratings on 1,032 bond issues, fewer than 1% of all bonds backed by sub-prime loans, but it didn’t matter…

Investors panicked, many dumped holdings at fire sale prices. Many had been sold to pension plans, whose bylaws prevented them from holding anything but triple A rated securities.

Investors worried that if S&P and Moody’s were wrong about these bonds, what about the trillions in bonds backed by Alt-A and other mortgages.

The bond market froze. Within two weeks, banks wouldn’t loan money to each other, and the Fed had to reverse its position from two weeks prior, and started pumping cash into the system to keep liquidity from drying up.

All of a sudden no one trusted ratings on bonds, so no one would buy or hold bonds backed by mortgages. And the secondary market, which is where banks sell loans they’ve originated, was no longer buying mortgages, since they couldn’t sell bonds backed by such mortgages.

Lending stopped… banks started hoarding cash. Over a couple of weeks, we went from lending… to no loans. You couldn’t get a first mortgage or a second.

With no loans available, housing prices started falling… fast.

But this was no housing bubble slowly deflating, this was a free fall situation that would soon take down Wall Street, spawn a global financial crisis, and wipe out the accumulated wealth of America’s middle class.

Treasury Secretary Hank Paulson, and Fed Chair Ben Bernanke didn’t see what was happening until it was far too late. In Paulson’s book, On the Brink,” he admits: “We were just wrong.”

Bear Stearns went first. Then September 17th, 2008, Lehman Bros. announced that it was filing for bankruptcy, and AIG… well, that’s another story.

THE KEY PROBLEM…

Somewhere along the way, we started blaming “irresponsible sub-prime borrowers” who were said to have bought homes they couldn’t afford.

Many people had seen new McMansions going up during the bubble, and had started to get just a little jealous or concerned that perhaps they were falling behind their peers… and now they said to themselves:

“Ah ha! I knew it wasn’t me… they were irresponsible borrowers… I knew it!”

No one saw the bond market break, but everyone heard of houses in foreclosure. And I suppose that its easier to blame neighbors for being irresponsible than Goldman Sachs, or others on Wall Street whose greed and abuses of the system weren’t widely understood, or explained by the media.

Today, the only lender in this country is the federal government, through Fannie, Freddie or FHA. There are no “securitizations” to speak of, which is the process through which mortgages are transformed into debt securities sold to investors.

Our banks were holding hundreds of billions in mortgage-backed securities and collateralized debt obligations (CDOs) on their balance sheets and in off-balance sheet SPVs (Special Purpose Vehicles). There was no longer a market, so marking them down to market value meant they were worthless… they were “toxic assets.”

Banks had also borrowed against their now worthless assets by up to 30:1, and the entire U.S. banking system was about to implode.

Enter: TARP

Paulson said he’d need $700 billion to stop our ship from sinking, and we know what happened from there. To-date we’ve pumped $12.2 trillion into our banking system, but only 1/1000th of that amount into stopping the foreclosure crisis.

Why? Because there is no widespread political support for bailing out what too many still think of as “irresponsible sub-prime borrowers who bought homes they couldn’t afford, and who therefore should be punished by losing their homes.”

And so, housing prices remain in a free fall, unemployment is still rising, and homeowners have lost $9 trillion in equity since 2006.

The housing bubble’s demise might have caused the worst economic downturn since the Great Depression, but it didn’t… it never got the chance.

Those at risk of foreclosure today didn’t do anything wrong. They just did whatever they did at the wrong time.

It’s not the borrowers… it’s the banks.

AND… there’s more on the ProPublica site if you;re interested…

Mandelman out.

Dec

How to Tell Legitimate Loan Modification Firm from an Illegal Operation or Scam… The FTC’s New Bright Line MARS Rule

By Mandelman | HAMP, Housing & Economic Research, Weidner

16734Leave a Comment2010-12-06+18%3A55%3A31Mandelman

How can you tell what is legitimate loan modification assistance from what is offered by a “scammer”. When I started writing about the foreclosure crisis back in the latter part of 2008, this was one of the central questions being asked across the country. I found it ridiculous, back then, that it should be so difficult to figure out, and I did my best to check firms out and let people know where it seemed to me that they could go for help without being ripped off.

Of course, I was coming late to the party… loan modification assistance companies of one kind or another had started springing up as early as 2006, way before I knew what a loan modification firm was… or wasn’t. Having never been in the mortgage or real estate business before, I had no idea what forces were in play back then, but I figured that it just couldn’t be that hard to tell which firms were actually modifying loans and which weren’t. I mean, it couldn’t be rocket surgery, right?

Well, what a three-ring-monkey-circus that endeavor turned out to be, let me tell you. The entire foreclosure crisis has been and continues to be perhaps the least understood disaster in the history of the world, and with the federal and state governments doing their best Marx-Brothers-Meets-Carrot-Top imitation in their handling of the situation, throughout 2009 figuring out who could be trusted and who couldn’t just got murkier and murkier.

Loan modifications are free, the president said during a speech early in 2009, and when I heard him say it, I thought to myself… wow, what a stupid thing to say. They’re free? Loan modifications are free? Like water flowing in a mountain stream or the air that we breathe? Why would they be free? Getting my mortgage wasn’t free, why would modifying it be free? Nothing else at my bank is free… well, maybe the coffee.

Obama spoke of a new toll-free government help-line people could call and I started laughing before I even had a chance to dial the number. It didn’t take a Harvard grad to vote for that strategy as “most likely to fail”. Try calling ANY government phone number just to ask for another government phone number would be a low probability situation, right? Would you want to bet you could do it on the first try?

Our government is the one that occasionally pays $17,500 for a hammer, remember? And, once I sat up until 3:00 AM watching congress debate whether English should be our “national language” on C-Span. After an hour I wanted to take a staple gun to my inner thigh just to make the pain stop. We may be the land of the free and the home of the brave, but no one has ever accused the United States government of being a bastion of efficiency. Was Obama expecting an outbreak of competence in Washington?

So, the first time I called the government loan modification help-line the guy who answered the phone said, “Thank you for calling Countrywide.” Excuse me? Countrywide? “Yes,” he explained… I was calling Countrywide. Perfect. I said the only thing I could think of at the time… “Yes, do you have anything in a predatory loan I could take a look at?” He hung up.

The next time I called the number the guy who answered was in India. He was very nice, and I found out where to get good Indian food in New York City, but that’s about all I could say about that experience. After 45 minutes he placed me on hold and 10 minutes after that the line went dead. Swimmingly… as I had suspected, this was going to work out swimmingly.

The president went on to explain that the other thing we could do when seeking a loan modification was to call our banks directly… that they’d be happy to help. Of course… we’re so silly… why hadn’t we thought of that? Duh… call our banks, of course.

Call my bank and tell them I want to pay less each month on my mortgage? And they’ll say what, did he suppose? “Sure, no problem… thanks for calling, Mr. Andelman… please hold while I transfer you to our ‘give-some-of-the-money-back-department’. Tell us about your hardship… we’re interested and we’re here to help?”

Back then I kept thinking… has my president ever called a bank for any reason? Because I can’t even call my bank to find out how late they’re open on the Wednesday before Thanksgiving. It’s faster to just get in the car and drive down there to get the answer. So, what would happen now? Was I going to call my bank and hear the recording say:

“Press ‘3’ if you think your mortgage interest rate is too high… press ‘4’ if you’d like your principal balance reduced… press ‘5’ if you’d like us to just forget the whole darn thing… press ‘6’ if you want to hear a duck quack.”

Seriously? Call my bank directly to tell them I want them to reduce my mortgage payment? Once I spent the better part of a year trying to get my bank to credit my account for the $9 a month service fee they were charging me for my “Totally Free Checking Account”. I finally just closed the account and opened a new one… it was costing me way more than $9 a month to get them to take off the $9 charge that they all agreed should not have been charged in the first place.

Next I started hearing something that made even less sense to my ears… “You don’t need a lawyer…”

Excuse me? I don’t need a lawyer? See… that’s the sentence, more than any other that I generally hear as the cue for me to absolutely need a lawyer. Like when the finance manager at a car dealership tells you that you don’t need to read something… if you don’t read anything else… READ THAT.

And besides, when Wells Fargo or Chase tells me that I don’t need a lawyer, aren’t they giving me legal advice? Why was my bank practicing law without a license all of a sudden?

I was 47 or maybe 48 years old at the time, had owned my own consulting firm for some 20 years, and no one had ever cared whether I hired a lawyer before, for whatever reason. If I wanted to hire a lawyer to come with me to join a gym, no one had ever cared one way or the other. Now, all of a sudden, my bank had an opinion on the matter, and they were solidly against the idea. How strange.

My bank had a lawyer… or maybe a couple thousand of them. Why shouldn’t I have one, if for no other reason than to stop me from beating the crap out of one of their lawyers when pone of them says something dickish, as bank attorneys are so often prone?

And besides all that, if a Vegas odds maker saw Bank of America on one side of the table, and Mr. and Mrs. Jones from Scranton on the other, who do you suppose the favorite would be? You could bet $1 on the nice couple from Scranton and win a million bucks if they come out on top, right?

But, there was a problem I couldn’t reconcile… lawyers are so rarely free. I had several friends and relatives that were lawyers and I was pretty sure I was on solid ground with my thinking there… and they are especially not free when asked to go up against Bank of America. The only way a lawyer is going to sue Bank of America for free is if a pregnant heart surgeon were run over by one of their official bank vehicles while she was standing at their ATM in broad daylight, and as the bank’s video camera clearly captured, the driver was snorting cocaine at the time he rammed her from behind. And even then, although it may not cost anything for the lawyer to take the case in that situation, when the 8-figure settlement check comes in, the doctor’s part is going to be about 60% of the total, at best.

Clearly, getting a loan modified was not going to fall into this category, so how could it be free?

Yet, right up until the end of 2009, we were still being told by the government, the media and the banks themselves that if someone wants to charge you to help you get your loan modified, that makes them a “scammer”. It was ridiculous, in my mind, and since I had personally visited with perhaps 100 firms that helped homeowners get loan modifications, and interviewed hundreds of their clients… to say nothing of the numbers I spoke with all over the country… I knew the whole issue was spin city on all sides, but who was on first… I couldn’t be sure.

So, then here’s what we all saw unfold next:

More than 700,000 homeowners who had all been granted trial loan modifications, a requirement of the government’s HAMP loan modification program, all got tossed out on their rear ends… DENIED. Not just those that hired a scammer to help them, but those that called their bank directly as the president had said to do.

Why? No one really knew… the banks said they all had failed to send in the proper paperwork, which made no sense whatsoever… the media said it was because none of them could afford the homes they had bought, which made even less sense… and congress said: “Huh? I’m sorry, you’ll have to ask my staff about that, I’m due at a dinner party being hosted by the American Bankers Association and they’re serving poached bald eagle eggs atop baby seal stuffed with currency and bearer bonds.”

But the real question was… who was scamming whom? You see, up until that moment in time… right around the end of 2009, the widely held assumption, at least by those with no personal experience in the matter, was that if a homeowner hired someone to help them get a loan modification and they didn’t get their loan modified, it was obviously because the firm they hired was a scammer and never lifted a finger to help after charging a $3,000 upfront fee. It couldn’t be that the bankers are lying or that Obama’s plan is no better than Bush’s was. No way… he was a smart president, right?

At the same time, I had a very hard time believing that lawyers en masse were ripping people off for three grand. My thinking on this was simple… I’d gotten bills from lawyers for $3,000 just for photocopying. Why would they put their license to practice law on the line for three grand? And besides, if charging homeowners three grand to help them get their loans modified was so profitable… and there were so many homeowners in need of the service… wouldn’t it make more sense to just submit the package and try to get the loan modified? That way you could get even more three thousand-dollar checks from homeowners and stay in business for longer than Spring break.

After all, it wasn’t that much more work to send the homeowner’s paperwork into the servicer than it would be to take it to the dump. And it was a sure thing that the servicer would claim to have lost it three or four times anyway, because all of a sudden another weird development was occurring: banks were all consistently losing stuff. I felt like I was living in an alternate reality in which banks lose things all the time and lawyers are all trying to steal three grand from homeowners who can barely make their mortgage payments.

I couldn’t help but wonder what would come next? Would my doctor offer me a cigarette while sitting in his waiting room, or suggest I put on a few pounds by cutting back on my exercise and eating more bacon? Would my CPA soon be calling me up to ask if I had a calculator he could borrow, or would the bumper sticker on my dentist’s car now say “Flossing is for Sissies.”

So, as 2010 unfolded the foreclosure crisis did nothing but worsen, and by June, when the economic stimulus programs ran out of steam and housing prices resumed their free fall, it became clear to anyone with a brain that we were not recovering, we were sinking and now faster than ever. Unless we were bankers, of course, in which case even though our banks were still largely insolvent, our bonus checks only went in one direction… up.

Yes… swimmingly… things were just going swimmingly on the home front, as I had suspected they would for some time now.

As the midterm elections approached the Democrats, led by the prince of hope and change, were clearly oblivious to what was happening in this country. Obama had started to sound like he was getting his economic news from John McCain, saying that we were on track and recovering, while at the same time Ben Bernanke was taking the unprecedented step of printing hundreds of billions in cash in order to pump it into the Treasury Department via Goldman Sachs. Everything’s fine… pay no attention to the man printing cash behind the curtain… there’s nothing unusual about that… we do that all the time.

By midway through the year, “economists” were being “surprised” quarterly. It seemed that economics, which had always been known as the “dismal science,” was more like an optimists club. The media reported that all of the economists kept on being surprised that we weren’t back on easy street. One report I remember specifically said that something like “48 out of 48 economists were surprised by the numbers for the quarter.”

But which economists were those? Certainly none that I knew of, or whose books I was reading. Stiglitz… Roubini… Johnson… Tavakoli… Reich… the list would go on and on… none were the least bit surprised by our sinking ship. To the contrary, they had by now all predicted it.

Then things went from bad to worse for the bankers… enter the “robo-signers”. A group of foreclosure defense attorneys, led by lawyers like Max Gardner in North Carolina and April Charney of Jacksonville Legal Aid in Florida, finally started establishing through depositions and mountains of hard evidence that the banks had been playing the foreclosure game… let’s say… fast and lose. Or perhaps fraudulently would be a better description, and this time it wasn’t just homeowners they were defrauding, it was judges… and judges, I knew, were going to hate that.

All of this was now being covered by the mainstream media and one thing was becoming quite clear… we now knew who at least some of the scammers were and their names were JPMorgan Chase, Bank of America, and Wells Fargo, et al. All of a sudden the idea of homeowners needing a lawyer when at risk of losing a home didn’t sound so bad, and no one expected those lawyers to work for free. Maybe charging for services wasn’t what made someone a “scammer” after all.

The bank’s propaganda campaign about not needing a lawyer when trying to save your home from foreclosure had been a lie and was unraveling faster every day. Billy Shakespeare had said it best: Oh what a tangled web we weave, when first we practice to deceive. And when that web starts coming apart, it’s something to behold. GMAC froze foreclosures first, then Bank of America, then Chase… but then they checked their own work and in a matter of weeks gave themselves passing grades and went right back to work attempting to eradicate any remaining wealth still being held by the country’s working class.

So, now it was clear that homeowners, at least in many if not most instances, would need to hire someone to help them work with their banks to save their homes from foreclosure. Oh sure, you could still handle it yourself if you wanted to, but you could also file your own tax returns or handle your own drunk driving defense in court.

Today, it should be clear to everyone that lawyers who represent consumers and homeowners against financial institutions are very much needed. Because even though we were all raised to believe that we could trust the bank, but not the used car dealer… as it turns out… given the choice, the reverse is the way to go.

Of course, I’ve always known that people needed lawyers to help them with their banks and mortgage servicers, not only because I’ve written 360 fairly in-depth articles on the subject, but also because I continually see that the “Trusted Attorneys” page on my blog, Mandelman Matters, always has as many pageviews as any of my articles… a fact that drives me nuts, by the way. I write what I consider fairly astute and important stuff at times… try to be funny on occasion… and all you guys care about is who’s on the “trusted lawyer” list. It was sad, really. It shouldn’t be that hard NOT to get scammed in this country.

I had the trusted attorney page “under construction” for many months as the FTC was formulating a federal rule that would finally define who could charge to help a homeowner get a loan modified and who couldn’t, because NOTHING else was being done to clean up the mess out there.

(I wrote an article summarizing the new FTC rule the day it was issued and you can find it here: FTC Moves to Protect Homeowners with New MARS Rule. Basically, it prohibits any type of for-profit company… except attorneys and presumably law firms… from charging you anything in conjunction with a loan modification until you sign-off on a loan modification offered in writing by your lender or servicer. So, if it isn’t a lawyer’s office asking for a check so they can help you get your loan modified, JUST SAY NO.

I’m not saying that you should say no because that company who is offering to help is a scam, necessarily, but they will be operating illegally, so if you write them a check and they end up being shut down by the FTC or state regulators, you will probably not get your money back or your loan modified.

So, as of January 30, 2011… in all fifty states… a lawyer… it’s okay to pay to help you get a loan modification. All other for-profit companies or business models… NO… No payments until you get a written offer from your bank and you accept what they’ve offerdd.

The California Experience…

In California, the scam capital of the country, it often seems, they passed a law in the fall of 2009 known as SB 94, which prevented a non-attorney, which in this context primarily means a “mortgage broker,” from charging a homeowner anything until the mortgage gets modified. Obviously, the thinking by the legislature was that by banning upfront fees, homeowners would be assured of receiving value before being charged.

As I explained in several articles written as the bill was moving through the California legislature in 2009, the intentions may be good, but the thinking was and is fatally flawed, and sure enough, while the new law did get the legitimate companies out of the business of helping homeowners obtain loan modifications, it hasn’t reduced the number of scammers preying on homeowners in distress.

As a result of SB 94 there are certainly fewer “loan modification companies,” not operating as law firms, but as I predicted, all that happened was that the scammers moved into the unlimited number of perceived loopholes available. For example, instead of selling a loan modification for $3500, many started selling “forensic loan audits” for guess how much? Bingo… right around $3,500.

The forensic loan audit pitch is that the homeowner will receive a report showing all of the laws their lender broke having to do with their loan, and armed with that information the homeowner will force their too-big-to-fail bank to the negotiating table. Ultimately, the bank will have no option but to modify the loan to avoid being sued by Johnny Lunchbucket, for all of the rules the bank broke along the way, I suppose.

It’s a preposterous premise for all sorts of reasons, but it’s also an attractive sales pitch for a slick sounding salesperson targeting homeowners who want nothing more than to take some control of the situation back from the banks that seem to be holding all the cards ever since the bubble popped and easy credit evaporated overnight. It’s a bit like having something to blackmail the bank with… the threat of a lawsuit. Modify or else… pilgrim.

It doesn’t work in at least 99.9% of cases and there are two key reasons why not:

The banks have broken all kinds of major laws in so many areas that it’s unfathomable, and many have already been sued by the Justice Department or the SEC, etc. and they barely care about those lawsuits. John Q. Public doesn’t scare JPMorgan by threatening the global mega-bank with litigation… ever. JPMorgan certainly has hundreds of lawyers on its payroll, to say nothing of the firms on retainer around the country, and you threatening to sue them would be like the U.S. being threatened with invasion by Monaco. Goldman Sachs settled one such suit for something like half a billion dollars, which is like you or me handing someone a five dollar bill.
The forensic loan audits being offered by these companies are primarily designed to show violations of the Truth in Lending laws, often referred to as “TILA violations,” and the many of these have a one-year statute of limitations, so if your loan is more than a year old… which it is… the violations are irrelevant. Other aspects of TILA offer a remedy called rescission, which means the homeowner would need to get a new loan to replace the one found to have violated the rules. But, there’s not much chance of that happening today, as essentially everyone in this situation is underwater and unable to qualify for a new loan anyway.

(One of my closest friends, attorney Julie Greenfield, is a mortgage banking attorney with thirty-some years experience in mortgage banking compliance. Julie advises the California State Bar and numerous other organizations on such issues and she has published numerous articles on the inadequacies and absurdities of forensic loan audits, as they are commonly marketed today. Here’s a link to the FTC’s Website where you can find her article and many others on the subject as well.

DOC PREP FOR LOAN MODIFICATIONS – The New Illegal Upfront Fee…

As more homeowners became aware that a forensic loan audit wasn’t worth the paper it was printed on, the California mortgage brokers, now blocked out of offering loan modifications by the new law prohibiting advance fees, found a new avenue to charge homeowners for upfront that’s related to loan modifications, and it’s called “Doc Prep”.

This pitch is simple: You need someone who is expert in mortgages and loan modifications to help you get your loan modified, but since we can’t help you with all of it, we’ll charge a bit less and we’ll at least prepare your package that you can then submit to your lender. You’ll never be able to figure it out on your own, so since we’re the experts, we’ll create your submission, give you some tips on how to do it, and you take it from there.

How much to create these documents? The going rate is between $1,500-$2,000, but I won’t be surprised if I find that some are figuring out how to get the bill for doc prep up to $3,500 before it’s over. I’ve heard just about everything by now, so nothing surprises me anymore.

DOC PREP COMPANIES ARE NOT OPERATING LEGALLY IN CALIFORNIA, and after January 30, 2011, when the new FTC rule takes effect, they are NOT allowed to charge upfront fees anywhere in the country either. I’m not saying that the non-attorney firm offering to help prepare your documents is doing something badly, they may be very good at their job, but THEY ARE OPERATING ILLEGALLY and therefore they can be shut down at any time.

Only a law firm can charge you before you receive a loan modification for services related to obtaining a loan modification, so unless it’s a real law firm, if someone contacts you and offers to help you create your documents for a fee… JUST SAY NO. And do the rest of us a favor and tell them you will be reporting them to the California Department of Real Estate and State Attorney General’s office.

Other Scams to Watch Out For…

It pains me to say that this list will likely be a work-in-progress for some time to come. If there’s a homeowner who’s afraid of losing a home, there’ll be someone waiting to take advantage of that situation by selling them the equivalent of magic beans, but without the golden goose that showed up at the top of Jack’s famous stalk.

Recently, I’ve heard about companies that claim that they have investors who will buy your home and sell it back to you for less than you owe now. Nice plan, but it’s a bunch of crap in almost every instance. There are a few companies that do something like this, called a “short sale lease back,” but they are few and far between and they never charge you an upfront and often exorbitant fee to “get the ball rolling”.

We now even have a few join-the-lawsuit scams out there that are offered by companies that sound like law firms, and claim to be offering consumers a chance to join a larger lawsuit in the hopes of winning money or even their home free and clear. If you’re contacted by someone offering you this sort if deal, until you’ve spent some time checking out the firm you’re talking to, STAY AWAY.

To begin with, lawyers are NEVER permitted to solicit you without you requesting assistance, by phone especially, so if a salesperson is calling and offering you the chance to join a lawsuit and all you have to do is write a check for five grand… thank the caller for calling, write down the information about the firm and hang up the phone. If you requested information from a website or called them first, they can respond to your inquiry however. If you’re interested in pursuing the idea, spend time checking things out. Check the State Bar’s Website to make sure the attorneys involved are in good standing. Ask to speak with other clients of the firm. And talk to other lawyers to see what they think of what’s being offered to you by the other firm.

Above all, what I would say in the strongest of terms to every homeowner in America… and this advice is supported by other consumer attorneys that are friends of mine, Nathan Fransen, Julie Greenfield, Mark Zanides and undoubtedly numerous others, is to never hire a law firm without having spoken with an actual attorney who works at that firm. I realize that there are paralegals and other support personnel that work at law firms and they certainly serve their intended purposes, but when you write a check to a law firm, ask to talk to an actual lawyer there.

The Bottom-Line is the FTC’s New Bright Line. And the facts of the matter…

The bottom-line to this entire discussion is that finally the FTC has issued its rule, and formally, it’s called Title 16 – Code of Federal Regulations, Part 322, for Mortgage Assistance Relief Services. Informally, it’s called MARS. And for all of its imperfections, it does provide a “bright line” by which homeowners in all 50 states can now at least know what is not a legitimate operation as related to loan modification services.

Attorneys are largely exempted from the new rule’s ban on upfront fees, in the sense that lawyers are permitted to charge a client a retainer in advance for services to be rendered as related to the homeowner’s application for a loan modification as long as they comply with applicable state laws and how many and what were they doing to abuse me place the amounts into their attorney trust account, earning their fees as work is completed. Lawyers have worked under this type of arrangement forever, and there are very strict rules governing such trust accounting, and very strict penalties for failing to follow those rules.

For mortgage brokers engaged in helping homeowners obtain loan modifications, however, it’s pretty much the end of the line… nationwide. Non-attorneys, under the FTC’s new rule, are NOT permitted to charge a homeowner for services having to do with application for a loan modification until the homeowner receives a written offer from their lender or servicer, and the homeowner ACCEPTS that offer in writing.

I simply cannot imagine anyone being able to operate under such a restriction to cash flow and ultimate uncertainty of payment, so I will be very surprised to see non-attorney firms operating legitimately in this area come next year. The fine for not being in compliance is $11,000 a day, so it’s no small thing for a company to get caught breaking this rule, and although I don’t know this for sure, I would think that the FTC will be looking to enforce this rule come next year to send a message that they mean business.

So, homeowners need to know about this rule, as do the firms and individuals involved in helping homeowners. And I hope the industry will support the rule in the sense that it will start policing itself in an effort to stamp out the abuses of the past, and come together to share best practices that will lead to improved outcomes for homeowners.

The facts of the matter today…

Scammers are all around us every day. But most of us don’t get scammed because we’re not in a panic. The first day we are feeling panicked is the day we are no longer thinking clearly and therefore vulnerable to buying into a sales pitch that leads to our being taken advantage of and ripped off.

So, now we have a federal rule, and it draws a clear and bright line, but it’s always going to be buyer beware out there… there’s no rule that replaces knowledgeable and cautious decision making, especially during times like these.

The facts of the matter today as related to the foreclosure crisis and loan modifications, however, could not be considered positive, I’m afraid. Help does not appear to be on the way, or on the horizon. As inconceivable as this is to my way of thinking, there are no plans that have been announced from anywhere in our government that have the potential to make anything meaningfully better anytime soon.

So, here are the facts of the situation. I know these facts to be true because I’ve ended up in the position of hearing from both homeowners and lawyers from all over the country essentially every single day for almost two years. If there were a definitive trend emerging as related to getting a loan modified, I’d have seen it by now… and I can assure you that one doesn’t exist. Those seeking loan modifications are fighting the world’s largest and most powerful banks and in order to win must prepare as one might prepare for a battle… both psychologically and physically.

Sometimes getting a loan modified goes surprisingly smoothly, but then the same servicer a week later can appear utterly intractable. I’ve seen it take a matter of days for a loan to be modified and I’ve seen it take well over a year, and because the combination of factors related to each borrower’s application, mortgage, and servicer interface paints a unique picture, it’s impossible to know precisely why it went one way or the other.

Let’s look at the numbers…

This past year, for example, we saw more than 700,000 HAMP trial modifications cancelled, and to-date, according to Treasury’s most recently released data, there are 466,708 active permanent loan modifications under HAMP. But this past year essentially anyone could get a trial loan modification under HAMP simply by applying for one. When it came time to qualify for a permanent modification, many discovered that they were being denied, and the reasons for the denials were as many and varied as they were opaque and undisclosed.

Today, however, borrowers are required to prove their income before they can be placed into a trial modification, so although the number of trial modifications has decreased, the percentage of permanent modifications being granted has risen significantly and the expectations are that this percentage will continue to increase.

Still, there are no magic bullets for sale here. The banks in this country are still in grave financial trouble and the government is obviously afraid of the impact that their failing would have on this country and the world. In other words, it seems safe to assume that for now anyway, the banks are going to win the toss. These are far from normal times, and the only thing we know about the “new normal” is that it’s going to be around for a long time, and feel anything but.

But, new rule or not, the same old rules do apply… if it sounds too good to be true, it probably is… there’s no such thing as a free lunch… and you have to be careful and cautious with your money. Don’t just write a check because someone said something you wanted to hear. And in loan modifications, and life…

The good news is that it’s not at all impossible to get your mortgage modified… if it makes financial sense to do so, and if you are relentless and dedicated to achieving the goal. You have to decide what’s best for you and there’s nothing wrong with fighting and nothing wrong with giving up and walking away. Take you time and discuss the pros and cons with others with experience in the area.

You don’t NEED a lawyer to get your loan modified, but then again you may NEED a lawyer to get your loan modified. It’s not something anyone can answer for you, and it may not be something you’ll ever know for sure yourself. It’s a call you’ll have to make based on learning about the process and knowing yourself.

The FTC’s new rule is the bright line upon which things can be put right, if the legal profession and specifically those consumer attorneys committed to the fight view it as such, and start operating as part of a greater whole. Some undoubtedly won’t like the new rule, and it may very well not be fair to the non-attorney professionals who have provided effective and ethical support to homeowners in need of loan modifications. But the time for that debate has ended and the FTC’s new MARS rule becomes effective in its entirety as of January 30, 2011.

Illegal operations can’t be tolerated as unpleasant facts of life. The new rule must be embraced and communicated by the law firms involved in the newly legitimized field. Consumers must be protected from scammers and it’s everyone’s job to assist in that cause. There can be no condoning of noncompliant behaviors and no looking the other way.

Thoughts for homeowners…

Whatever you do as a homeowner, don’t avoid the subject, don’t give up, and don’t feel ashamed and alone… because if you are anything at all, you are far from alone. There are only two types of Americans today… those who have already felt the impact of the foreclosure crisis, and those that will soon feel the impact of the crisis. None of us are getting out of this unscathed.

Well… I suppose there are also banker-Americans, but who cares what they’re thinking or feeling? I certainly don’t, and besides I’m fairly sure that they lack the capacity for independent thought or human feelings anyway, so laissez les bon temps roulez, as they say in France.

A Time for Education…

The most effective way to protect yourself as a homeowner today is though educating yourself as to what is going on all around you.

It was a lot harder to get your arms around the subject matter two years ago, because there were very few writing about the topic of loan modifications objectively. I began in late 2008, but there were others that came before me… like Moe Bedard from LoanSafe.org, who really was out in front educating all of us before we knew anything of what was to come. Aaron Krowne of ML-Implode.com, the site that tracked the implosion of the mortgage industry more than any other by far. And Danny Schechter of The News Dissector, who has been writing about financial disasters from a consumer’s perspective since the S&L crisis, which now feels to me like it might have happened over a century ago, sometime after Holland’s tulip bubble.

Today, there’s Shahien Nasiripour who writes both brilliantly and passionately for Huffington Post, and Richard Zombeck of Shamethebanks.org who also writes important, real life articles for Huffington Post. Richard, who is someone I consider a friend, is currently looking for homeowners to sign on to his site and share their stories that expose what the banks have done to countless Americans.

I think its very important that homeowners post their stories about how their banks have behaved on Shamethebanks.org. The site is nationally recognized as a repository that provides a window into the lives of Americans dealing with our nation’s financial institutions during this crisis. Homeowners that share their experiences on the site directly impact the awareness level of how commonplace shameful banker behavior truly has been and continues to be today.

There’s Steve Dibert of MFI-Miami.com, who has also become a friend over the last year or two, and is incredibly knowledgeable when it comes to anything related to the foreclosure crisis and mortgages in general, and there are sites like 4closurefraud.org, foreclosurehamlet.org, firedoglake.com, nakedcapitalism.com, largely written by the uber-smart Yves Smith, and givemebackmycredit.com, written by Denise Richardson, and too many others for me to remember them all, or list here, even if I could.

Then there are the legal blogs that are written by some of the country’s top foreclosure defense and bankruptcy specialists like Max Gardner’s blog, and mattweidnerlaw.com, among many others, and there are economics blogs like globaleconomicanalysis.blogspot.com, Calculated Risk, and of course the Baseline Scenario, written by brilliant economist and all-around rational thinker, Simon Johnson. Johnson was also the author of a book this past year, “13 Bankers,” and I cannot recommend it highly enough.

Even big name columnists, like Gretchen Morgensen, who writes for The New York Times, have started to write brilliant and often scathing articles exposing the truths about the foreclosure crisis upon which the banking lobby would prefer we didn’t focus. My personal favorite is Rolling Stone journalist, Matt Tiabbi, who recently knocked it completely out of the park with his fifth book, “Griftopia.” (With the holidays upon us, I can only say… get it, get it, get it. It’s great.)

The mainstream media finally taking more of an interest in the foreclosure crisis reminds me that I’ve not been insane to write about what I’ve been writing about these last couple of years. And obviously, the more people that understand what’s happening in this country today, the sooner we can begin the long road back to becoming the country I remember, and not a nation doing some sort of kleptocracy impersonation act, appearing to be run by an oligarchy made up of a near cartoonish banking elite.

Because we’re not that, you know, and we will never be that. No matter how much we may look that way today… we won’t stand for that sort of thing for very long. We’re standing in a river not a lake, and things are changing almost daily. The courts are starting to understand what foreclosure defense lawyers have been trying to convey and it’s making a difference. And as I’ve always said, the current path the banks have chosen is not a sustainable one, regardless of how it may appear at any given moment.

Just a few days ago, according to an article written by Shahien Nasiripour for Huffington Post:

“The Obama administration will spend less than a quarter of the $50 billion it promised to help homeowners facing foreclosure, the nonpartisan Congressional Budget Office said in a report Monday.”

Yes, you read that right. By far the most significant economic crisis in this nation’s history continues to unfold in front of our eyes, and I have all the faith in the world that soon the people will stop being placated with tales of recovery and realize that the Obama Administration has allowed the wealth of the middle and working class in this country to be wiped out while debating incremental changes in health care and anemic stabs at financial reform. Ben Bernanke now talks of inequality in this country creating “two societies,” as if this country can survive as two societies. I assure you… it cannot.

The crisis is only worsening. And perhaps that’s a good thing because at some point the people will demand change, and they will do so in a way that their demand won’t be ignored or negotiated.

We’re still the place that recognized the right to legal representation for British soldiers responsible for the Boston Massacre, and then three years later threw the tea into Boston Harbor. We’re still the people that marched for Civil Rights, and refused to stop until we stopped an unjust war.

Our society has been threatened by the unbridled avarice of our bankers before and we endured the pain of The Great Depression only to emerge, our flaws extant, as a world superpower and beacon of freedom and democracy. We have come through our past storms because we are nation that is unwavering in its belief in certain fundamental and inalterable truths, one of which is, as stated by Thomas Jefferson:

“All, too, will bear in mind this sacred principle, that though the will of the majority is in all cases to prevail, that will to be rightful must be reasonable; that the minority possess their equal rights, which equal law must protect, and to violate would be oppression.”

It may not feel like it today, but when it reaches a certain point the only question on the minds of most Americans will be whether to carry a torch or pitchfork… and from there we will exact the essential reforms that will provide the foundation upon which we will set things on a more righteous course once again.

So, just as we have persevered through monumental struggles before, I have little doubt that we will do so again. We as a nation once highly resolved, as stated by our 16^th President, Abraham Lincoln, “that this nation shall have a new birth of freedom; and that this government of the people, by the people, for the people, shall not perish from the earth.”

And I know, whether left, right, or center… I can still get a resounding Amen to that from everyone, right?

Mandelman out.

Nov

FTC Moves to Protect Homeowners With New MARS Rule – Regulates Loan Modifications Nationwide

By Mandelman | Housing & Economic Research, Weidner

16126Leave a Comment2010-11-20+11%3A53%3A18Mandelman

Formally, it’s called Title 16 – Code of Federal Regulations, Part 322, for Mortgage Assistance Relief Services. Informally, it’s called MARS. And for mortgage brokers engaged in helping homeowners obtain loan modifications, it’s pretty much the end of the line… nationwide.

Attorneys, however, are largely exempted from the new rule.

The Final Rule therefore permits attorneys who provide MARS as part of their provision of legal services to collect advance fees if, in compliance with applicable state laws and licensing regulations, the attorney deposits such payments into a client trust account and draws on them as work is performed.

In fact, in California specifically, where there is already a state law governing advance fees, known as SB 94, lawyers will see very little change when the new FTC rule takes effect at the end of this calendar year. The new rule allows lawyers to accept an advance fee, but mandates that the amounts be placed in the attorney’s trust account and only withdrawn as earned, and that does represent a change, although I would think, not an insurmountable one.

The California State Bar has interpreted SB 94 to prohibit the use of trust accounts in conjunction with the acceptance of advance fees as related to providing loan modification services, and it doesn’t appear that the FTC’s new rule will do anything to preempt that interpretation.

Actually, it gets a bit complicated. The FTC’s new rule says the exemption to the rule for attorneys is subject to state laws, and the State Bar’s interpretation of SB 94 is not actually a law, but with the penalty for non-compliance being a criminal matter, no one has tested the Bar’s interpretation in a court of law. So, for now… suffice it to say that attorneys will continue to practice in this area as they have been since SB 94 was signed into law on October 12, 2009.

As far as mortgage and real estate brokers in California are concerned, the new FTC rule just makes a bad situation much worse. There aren’t many real estate and mortgage professionals offering to assist consumers with loan modifications, as SB 94 made it illegal to accept payment for services until a loan modification has been obtained, or the homeowner is formally denied by the lender, I suppose, and that can mean not getting paid for an awful lot of work for up to and even beyond a year in some cases.

As you might imagine, that’s a pretty effective deterrent to California’s mortgage and real estate brokers being that business, but the new rule goes even further, and applies to all non-attorneys nationwide, prohibiting payment for services until the homeowner receives a written offer to modify his or her loan from the lender or servicer, and the homeowner ACCEPTS the deal. Under the new rule, if the homeowner says “no thanks,” the mortgage or real estate broker gets nothing.

I’m sorry, but it’s kind of funny when you think about it. Since no one in this country can predict what any of the banks are going to do tomorrow, let alone six months or a year from now, and when you consider the percentage of homeowners that are likely to be dissatisfied with the bank’s offer and therefore say no in the end, and then factor in the percentage of homeowners who won’t or can’t pay the bill at the end of the process for whatever reason… the only way the business makes any sense is if you were to charge something like $100,000 for the modification and then be ready to file a law suit to collect, and perhaps… at best… end up with a lien on a property that is, by definition, seriously underwater. Yeah baby… sign me up for that on Career Day.

In the summary to the Commission’s Final Rule and Statement of Basis and Purpose, it states that it governs “the practices of for-profit companies that, in exchange for a fee, offer to work on behalf of consumers to help them obtain modifications to the terms of mortgage loans or to avoid foreclosure on those loans.”

It also states that, among other things, the Final Rule:

Prohibits providers of such mortgage assistance relief services from making false or misleading claims;
Mandates that providers disclose certain information about these services;
Bars the collection of advance fees for these services;
Prohibits anyone from providing substantial assistance or support to another they know or consciously avoid knowing is engaged in a violation of the Rule;
And imposes recordkeeping and compliance requirements.

The FTC’s Final Rule will go into effect on December 29, 2010, with the exception of § 322.5, which is the section that bars the collection of advance fees, or as described in the text of the new rule: Prohibition on Collection of Advance Fees and Related Disclosures. That aspect of the Final Rule doesn’t take effect until a month later on January 31, 2011.

I read the 180-page document three times… see what I go through… and as I read, I got the impression that the rationale behind the advance fee ban not becoming effective until a month after the rest of the rule takes effect is to provide companies with a little extra time to comply with the various requirements, such as the new disclosure and record keeping requirements. Then towards the very end, I found this:

The Commission is providing MARS providers an additional month after the effective date of the other provisions of the Rule because compliance with the advance fee ban may entail substantial adjustments to many providers’ operations.

This is hysterical, in terms of its real life impact, because I cannot imagine even a single non-attorney staying in business under the new rule. As a result, the only impact of the extra month is likely to be an extra month for scammers to rip-off homeowners. But I digress.

Look, I’ve met two of the key guys at the FTC related to this issue, Tom Pahl and Joel Winston. In January of 2010, I was a speaker, alongside Tom Pahl of the FTC, on a panel at the American Bar Association’s Conference on Consumer Financial Services. And I’ve spoken with them on several occasions post-conference. They’re not bad guys. They’re trying to help prevent homeowners from being ripped off primarily by unscrupulous mortgage brokers whom, they would say, as a group have proven themselves to be oftentimes, shall we say, less-than-trustworthy.

They don’t exactly have a rock solid grasp on exactly what’s happening in real life in communities throughout this country, they don’t get to see the “good guys” that are undeniably out there, and they don’t have unlimited resources that can be directed at solving the problem. Also, in my view anyway, they’re probably a bit too influenced by the financial industry’s influence peddlers… but nowadays, who in Washington D.C. isn’t?

So, when faced with the problem of creating a rule to protect distressed homeowners from being ripped off, they did what they could do… stopped the ability for non-attorneys to get paid until the homeowner is happy and all warm and safe, tucked in bed. It’s a shame for the legitimate providers of loan modifications services who have without question helped many thousands of homeowners get loans modified. But, at the end of the rule making process, the FTC accepted this loss in favor of protecting homeowners from the other kind of loss… getting scammed by someone who promises and then delivers nothing.

And, even though I hate to see the number of legitimate sources that homeowners have to turn to for help with loan modifications decrease, I hate the idea of desperate homeowners getting conned out of thousands of dollars even more.

At least the Final Rule does not apply retroactively, so the advance fee ban doesn’t apply to contracts with homeowners executed prior to the effective date. California’s SB 94 was retroactive and it was a huge problem for many in the industry.

I couldn’t find the penalty for noncompliance with the new rule anywhere in the 180-page document, so I called Julie Greenfield, who is both a close friend of mine, and a highly experienced mortgage banking compliance attorney who now represents homeowners seeking modification of loans. In response, Julie sent me the following: “Under the FTC Act, violations of a final FTC Order can impose a civil liability of $11,000 per day.”

That’s $11,000 a day that you are found to be out of compliance with the new rule… that is to say that each day is considered a separate violation and carries its own $11,000 fine. Out of compliance for a month… that’ll be $330,000, thank you very much.

So, what else is in the 180 pages that describing the new Final Rule?

Well, let’s see… one HUGE thing is that lead generation companies are pretty much cooked too.

Federal courts have held that providing knowing substantial assistance to others who engaged in unlawful conduct is an unfair practice.

And that means that if you provide leads to a company that you know or should know… or have consciously avoided knowing… is breaking the rule, you can be charged just like if you were breaking the rule yourself. The rule speaks to this issue extensively, so I would think that it’s clearly an area the FTC intends to enforce.

F. Section 322.6: Substantial Assistance or Support

The proposed rule prohibited any person within the FTC’s jurisdiction under the FTC Act from providing “substantial assistance or support” to any MARS provider if the person “knows or consciously avoids knowing that the provider is engaged in any act or practice that violates this rule.”

Several commenters asserted that such a measure would prevent MARS providers from using “lead generators” or mortgage brokers to supply contact information for potential customers, thus making it more difficult for deceptive MARS providers to operate. For example, a consumer group explained that such a provision would be valuable because entities that assist and facilitate fraudulent MARS providers often receive a substantial portion of the funds obtained from consumers for mortgage assistance relief services.367

1. Substantial Assistance

Many MARS providers rely on, or work in conjunction with, other entities to advertise their services and operate their businesses. The Final Rule provision applies to substantial – i.e., more than casual or incidental – assistance or support that such entities provide to MARS providers.

Substantial assistance could include such critical support functions as lead generation, telemarketing and other marketing support, payment processing, back-end handling of consumer files, and customer referrals. A common example of those who provide substantial assistance to MARS providers are so- called “lead generators.”

Lead generators obtain the contact information of consumers, i.e. leads, who have indicated interest in MARS by visiting the lead generator’s website in response to advertisements disseminated either by the lead generators themselves, or through a network of Internet advertisers. Lead generators then sell the consumer information to MARS providers.

The Commission retains the “knows or consciously avoids knowing” standard in the Final Rule.

… the ‘conscious avoidance’ standard is intended to capture the situation where actual knowledge cannot be proven, but there are facts and evidence that support an inference of deliberate ignorance on the part of a person that [the wrongdoer] is engaged in an act or practice that violates [the Rule].”379

If those who provide substantial assistance or support to MARS providers receive or become aware of information that reasonably calls into question the legality of the MARS provider’s practices, they will be liable if they continue to assist and support that provider. In general, the determination of whether a person had the requisite knowledge will depend on a variety of factors such as the person’s relationship to the MARS provider, the nature and extent of the person’s degree of involvement in the operations of the MARS provider, and the nature of the provider’s violations.

2. The Knowledge Standard

Under the proposed rule, those who provided substantial assistance to MARS providers would be liable if they knew or consciously avoided knowing that the providers were violating the rule.

Lead generators themselves often may also qualify as “mortgage assistance relief service providers” and thus be liable for primary violations of the Rule, because many of these entities “arrange for others to provide” MARS. For example, if a lead generator disseminates advertisements containing misrepresentations to entice consumers to provide their contact information, and then passes that information on to another entity that will provide MARS, the lead generator would likely be in violation of § 322.3 of the Final Rule.

Additionally, advertising affiliate network companies may serve as intermediaries between advertisers and lead generator websites. Such companies also could be held liable if they knowingly provide substantial assistance to MARS providers who violate the Rule.

So, if you’re in the business of generating leads for a company offering loan modification services, you’d better make sure they’re not breaking the new rule, because just saying “I didn’t know” is not going to get you very far in terms of a defense should the fit hit the shan.

And what else?

This may sound terrible, but one positive thing for those that provide loan modification services, I suppose, is that the FTC declined to place caps on amounts charged for services, saying:

… the Commission declines to set caps on the fees MARS providers can receive. While the FTC concludes that the collection of advance fees by MARS providers is an unfair act or practice, it has made no such determination about the amount of fees charged. In general, the competitive market should establish the prices MARS providers charge,351 and the Commission’s role is to remove obstacles to consumers making the informed choices that are necessary to a properly functioning market.

I know, some of you may be thinking that placing caps on fees would be a good thing, but I’m not at all sure about that. The market is almost always much better at setting the costs of things, and if the caps didn’t allow lawyers to provide the service, they wouldn’t… and homeowners would be on their own… not a good thing. Also, it costs more to do business in some states and less in others, so caps would have been difficult to establish correctly.

There’s also a whole lot about how the FTC reached the conclusions they did… what the arguments were, for and against the various points, but I’m not going to bother going into all that mostly because I just don’t see the point. I mean, why should I bother describing the new record keeping requirements for non-attorneys when I can’t envision any non-attorneys even being in the business after this coming New Years’ Day. And attorneys are exempted from those new record keeping requirements anyway.

What I will do is offer what I considered to be a few of the most important paragraphs from the 180-page document, and provide a link so you can read it for yourself, if you are so inclined.

So, here are some of the paragraphs you might want to read… and you’ll find Title 16 – Code of Federal Regulations, Part 322, for Mortgage Assistance Relief Services in its entirety by clicking on that blue type.

And here are some of the highlights, or lowlights, as the case may be:

The Final Rule, however, requires that payment be contingent upon consumer acceptance of results the provider presents.337

# # #

As discussed in Section I.A, the Dodd-Frank Act will transfer rulemaking authority with respect to this Rule to a new Bureau of Consumer Financial Protection, effective as of the transfer date, Dodd-Frank Act, Pub. L. 111-203, 124 Stat. 1376, which is currently designated as July 21, 2011.

# # #

Regardless of how the result the provider delivers compares to what it promoted or promised at the time the consumer agreed to use its service, the provider still must secure a written agreement between the consumer and his or her lender or servicer accepting the results delivered before collecting any fees. The Commission has adopted an approach different from that in the proposed rule because it concludes that the new approach strikes a better balance between protecting consumers and ensuring that MARS providers can collect fees for beneficial results they achieve.

At the same time, the Final Rule permits providers to collect fees if they deliver results that, although different from what they promised to consumers, are ultimately acceptable to consumers. It avoids disputes over what the provider actually promised, and allows consumers to make the decision about whether the offered mortgage relief is satisfactory to them. It also ensures that the consumer receives a result that he or she determines to be beneficial – for example, a loan modification with a particular reduction in monthly payments338 or lasting a specific duration. This approach is similar to the one taken in the TSR’s advance fee ban for debt relief services.339

# # #

The Commission warns that securing consumer acceptance to an offer will not immunize a provider from other violations of the Rule. Providers cannot misrepresent the results consumers will receive if they use MARS. For example, if a provider represents to a consumer that it will obtain a reduction in the amount of interest, principal balance, or monthly payments, but only obtains a forbearance agreement, then, regardless of whether the consumer accepts the forbearance agreement, that provider has made a misrepresentation in violation of § 322.3(b) of the Final Rule. In order to comply with § 322.3(b), the provider should qualify its claims sufficiently so that a reasonable consumer would understand that he or she may not receive a reduction in the amount of interest, principal balance, or monthly payments.

# # #

The Commission cautions that providers not attempt to evade the requirements of § 322.5(a) by entering a contract with consumers signed at the outset specifying the consumer’s preapproval, for example, that any offer that involves a certain type of concession from the lender or servicer will be deemed acceptable. Moreover, the provider may not rely on authority obtained through a power of attorney at the time or before the time of contracting to execute an agreement incorporating the offer of mortgage relief from the lender or servicer on the consumer’s behalf, because the Commission would not regard the consumer as having accepted the offer – as required under § 322.5(a). The Commission further cautions that providers not use deceptive or unfair practices to convince consumers to accept concessions to which they would not otherwise agree, as doing so may constitute a violation of § 322.5(a) and other provisions of the Rule, including § 322.3(b)(12).

# # #

Further, as described above, § 322.5(b) of the Final Rule requires providers to inform consumers: (a) that they do not have to pay any fees to the MARS provider unless and until they accept the result that the provider has delivered, and (b) the total amount in fees consumers will have to pay the provider if they accept that result.

Section 322.5(d) also specifies that in cases where the mortgage relief offer obtained from the lender or servicer is a trial loan modification, the notice from the lender or servicer that the provider must furnish to the consumer with the offer of mortgage assistance must include: (1) that the consumer may not qualify for a permanent modification, and (2) if the consumer does not qualify, the likely amount of the scheduled periodic payments that he will have to pay and any arrearages or fees that may accumulate.

Some commenters recommended that the proposed rule be changed to prohibit providers from collecting fees for obtaining a trial modification, because most consumers who receive trial modifications do not receive permanent modifications that would substantially reduce the amount they pay on their loans.340

The Commission has determined that, in light of the changes in the Final Rule, including the advance fee ban and related disclosures, such a prohibition is unnecessary. As noted above, § 322.5 will ensure that consumers are told that they are being offered a trial modification and ensure that they have the opportunity to reject the offer.

# # #

b. Prohibition on Advance Fees for Piecemeal Services

As detailed above, NAAG and several other commenters strongly supported the proposed rule’s prohibition on the practice of collecting advance fees for piecemeal services.342

The Commission agrees that without such a prohibition, many MARS providers would attempt to collect fees for discrete tasks that fall short of, and often may never lead to, the result promised. These individual tasks might include: conducting an initial consultation with the consumer; reviewing or auditing the consumer’s mortgage loan documents; gathering financial or other information from the borrower; sending an application or other request to the lender or servicer; facilitating communications between the borrower and the lender or servicer; or responding on behalf of the consumer to requests from the lender or servicer. The record demonstrates that many MARS providers currently charge discrete fees for these types of tasks, in some instances to evade state advance fee bans.344

Section 322.5 of the Final Rule, although modified, still prohibits MARS providers from collecting fees for piecemeal services. Section 322.5(a) requires the provider to secure the consumer’s written agreement to accepting the mortgage relief it has obtained; thus, providers will be unable to charge a fee for intermediate services unless and until the consumer accepts the result the MARS provider obtains from the consumer’s lender or servicer.

# # #

b. Use of Dedicated Accounts

In the NPRM, the Commission requested comment on whether, in the event the Rule bans advance fees, MARS providers should be allowed to request or require that consumers place any such fees in a dedicated bank account.352

The Final Rule does not permit MARS providers, other than attorneys, to request or require consumers to pay fees into any type of account prior to completing their services.353

The overwhelming weight of comments opposed allowing the use of such accounts, because, among other things, some unscrupulous MARS providers might misuse funds held in dedicated accounts, and permitting dedicated accounts would place undue burdens on consumers to recover money they paid into the accounts if providers do not deliver the results consumers finds acceptable.356

There is nothing in the record indicating that non-attorney MARS providers currently use dedicated accounts with any frequency to deposit advance fees or that an infrastructure to support such accounts exists. Without more information as to how MARS providers would use dedicated accounts and whether consumers would be adequately protected, and in light of widespread deceptive and unfair acts and practices by MARS providers, the Commission declines to permit providers to request or require that consumers place advance fees for MARS in such accounts.357

“Bank of America, Don’t Break Our Hearts…”

“Send an authorized loan modification negotiator to Hawaii by February 28.”

Hey, BofA-haole… pa’a ka waha.

Because next time, the card they hand you might just read:

BofA… Honi ko’u ‘elemu.

And there won’t be anybody singing.

Aloha!

~~~

Putting the Low Road Behind Us

~~~

But enough of what I have to say… even I’m tired of listening to me on this topic.

~~~

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A Banker’s View…

Shame, shame, shame…

If this were a tennis match, the score would always read: Advantage – Banks & Servicers

The Point Is…

Is This How Things Should Be Done Today?

“Never give up. Never give up. Never. Never. Never.”

When I first read David Streitfeld’s article headline: “Homes at Risk, and No Help From Lawyers,” which ran on December 20th, in The New York Times

I thought…

Wow, well it’s about time… maybe someone’s finally gotten it.

SB 94 vs. AB 764

The New York Times article, however, doesn’t. It goes on to say:

From the story in the New York Times:

So, when Mr. Streitfeld’s New York Times article opens by saying:

Other articles I’ve written on the topic:

I rarely do this sort of thing…

Tale of Three Cities: Foreclosures Don’t Always Follow the Script

So, as of January 30, 2011… in all fifty states… a lawyer… it’s okay to pay to help you get a loan modification. All other for-profit companies or business models… NO… No payments until you get a written offer from your bank and you accept what they’ve offerdd.

DOC PREP FOR LOAN MODIFICATIONS – The New Illegal Upfront Fee…

Other Scams to Watch Out For…

The facts of the matter today…

A Time for Education…

When I first read David Streitfeld’s article headline: “Homes at Risk, and No Help From Lawyers,” which ran on December 20^th, in The New York Times