The foreclosure wars have always had two easily identifiable sides.  It’s homeowners in one corner… and banks and mortgage servicers in the other.  In the beginning the battle was largely over TILA and RESPA claims.  After that, we fell into loan modifications, and then into the HAMP guidelines that were never really followed by the servicers, or if they were on occasion, no one could tell.

Lawyers who went to court over HAMP “rules” quickly discovered that they were more like pointers, intimations, tips, or perhaps clues… but whatever they were, HAMP had no teeth, and if there was anything that could be construed as a rule or law, then there was no private right of action.  And as far as the HAMP contract between Fannie Mae/Treasury and the participating servicers, well… forget about it because borrowers were not considered third party beneficiaries to that contract.

I never liked any of these decisions one bit… and I still don’t.  But I’m no lawyer, so I went along with whatever the foreclosure defense attorneys thought best.  Obviously, on these points at least, the fix was in, so I climbed on the bus and went on down the road.

We arrived at the battleground called “securitization fail,” and soon everybody on the homeowner side was learning to sing a new version of their ABCs that went like this… A to B, B to C, C to D, which represented the steps required to properly negotiate a note into a REMIC trust, steps that were almost never followed… or maybe never followed.

The argument, however, was a technical one and judges weren’t exhibiting much patience for the technical learning that was required to understand the argument.  It seemed that the judges were having trouble seeing past the 300 cases on their dockets and the homeowner who hadn’t paid their mortgage payments in over two years.  The argument may very well have been rock solid, but many lawyers came back from court reporting that their judges had heads that were solid as rocks.

Next up was the media darling “robo-signing,” a practice that created documents to be filed in the records that were forged or signed without knowledge of anything, or illegally notarized, or whatever else you could think of… the paperwork was all wrong.

This debate is still raging, but it hasn’t done a lot of good for many homeowners, truth be told.  It certainly has delayed things, in certain instances, and it even slowed the number of foreclosures filed during the year… but it’s certainly not keeping people in their homes in any number.

The bank and servicer side of this argument says that it’s just sloppy paperwork, technicalities causing no harm to borrowers… to which the foreclosure defense side replies, “YOU’RE BREAKING THE LAW… and then in response we hear, “IT DOESN’T MATTER.”  “YOU’RE BREAKING THE LAW.”  “IT DOESN’T MATTER.”  It’s annoying… I’ll certainly give it that.

Good Morning, New Jersey…

Well, yesterday the New Jersey Supreme Court ruled in the Guillaume case, a much-anticipated decision, so I’d been told… and the ruling says that in addition to the servicer’s name and address, the lender’s name and address must appear on the document that states that a bank intends to foreclose on a mortgage.  (You’ll find a copy of the case at bottom.)

Earth shattering news?  Yes, I thought so too.  File this one right next to “Brown v. The Board of Education,” or “Plessy v. Ferguson.”  I’m sure law schools all over the nation are rushing to change their curriculums to add a class on the “Much Anticipated but Meaningless.”

 140 Elmwood Ave, East Orange, NJ

The case involves an East Orange, New Jersey home owned by Maryse and Emilio Guillaume.  The couple received a notice of intention to foreclose in May of 2008, and that notice included the name and address of the mortgage servicer, America’s Servicing Co., but it failed to include the name and address of the lender.  And somehow, this issue made it all the way to the state’s Supreme Court.

The state’s high court ruled that because the foreclosure notice that the servicer sent to the Guillaumes did not include the name and address of the lender in addition to that of the servicer, it did fail to comply with New Jersey’s Fair Foreclosure Act.

The court said that, failure to include such information creates the potential for “significant prejudice” to homeowners.  According to the high court…

“A misunderstanding about a lender’s identity could prompt a homeowner to make a critical error at a time when he or she is struggling to avert foreclosure.”

From the sounds of that, you’d think that the decision represents some sort of a win for homeowners, right?  Not so much.

While the court ruled that the lower court judge was wrong about the need to include the lender’s name and address on the notice of intent to foreclose in addition to the servicer’s, the ruling also said that the lower court was correct to order a default judgment against the couple. Specifically, the court ruled that the couple did not make a case for “excusable neglect” or a “meritorious defense” related to their foreclosure, so the Guillaumes still lose their home.

Additionally, the high court also reversed a separate appellate decision, known as “Laks.”

The Laks decision said that a foreclosure should be dismissed if the notice of intent to foreclose did not comply with New Jersey’s Fair Foreclosure Act, and by reversing that decision, now trial court judges that find a notice that’s fails to comply, will be able to either dismiss the action, or simply order a corrected notice, or even select another solution they deem appropriate.

So, now… after all this… while it’s true that the lenders name and address has to be included on the notice of intent to foreclose along with the name and address of the servicer’s, in the event that the lender’s name is missing, that will no longer necessarily mean that the foreclosure will be dismissed and the servicer will have to start over.  Now, the judge will have the discretion to simply order a corrected notice and allow the foreclosure will proceed.

Throughout last year, uncertainty over how the court would ultimately rule in this case led servicers to postpone foreclosures in New Jersey, and as a result foreclosures were down by 80 percent.

Now, I’m not saying that’s necessarily a bad thing, and if it were the goal, then I would call it a success. But, time is the natural enemy of a loan modification, because the longer the delay, assuming no mortgage payments are being made, the greater the amount of arrearages that have to be dealt with in order to modify the loan.

Now consider that reports all indicate that there are at least 100,000 New Jersey foreclosures that were stalled throughout last year, and that will now move forward.  That’s 100,000 or more homes that have less chance of being modifiable today than they would have a year ago.  So was the delay truly beneficial to homeowners?

I suppose for those that have no chance to  save their home by getting their loan modified, they got an extra year living in the house, but  even these people might have been better off dealing with it  a year ago and today being one year closer to rebuilding their credit and buying their next home, assuming that’s they’re goal.  The point is that a delay can be a dual edged sword, because it almost never leads to saving homes from foreclosure.

Lawyers that represent servicers all appeared quite happy with this decision because now a process that’s been clogged by uncertainty has been clarified by the court, and foreclosures will be free to move forward.

But it occurs to me… homeowners would not have been happy regardless of how this decision had gone.

I suppose I could be missing something, but I just don’t see a potential win in this case for homeowners no matter what.  It was from its outset, a lose – lose scenario.

Bloomberg, covering news of the decision, quoted Rebecca Schore of Legal Services of New Jersey, an attorney for the Guillaumes, saying that…

“While she was pleased with the ruling on the need to name the actual lender in a notice of intention to foreclose, she was disappointed that the court didn’t require dismissal of the complaint.”

Okay, I hate to say this but… does any of this really matter to homeowners?  Aren’t both positions merely a delay, and not much of a delay at that? 

I mean, one way the notice of intent to foreclose includes the name and address of the lender in addition to the servicer, and the other way the notice doesn’t.

It seems to me that we’re pretty much exclusively fighting for delays, these days… in the hope of gaining leverage… all to achieve one thing… an affordable and therefore sustainable loan modification, because that is the only way homeowners are remaining in their homes in any number.  Everything else seems to carry the odds of a Hail Mary at best.

Why are we giving our government a pass?

In February of 2009, our president introduced a plan that was to provide a path to precisely that, a sustainable loan modification, but when the participating servicers weren’t following that program’s rules, no one was willing to enforce them.  And because of that entirely unacceptable and unforgivable unwillingness to enforce the programs rules, our entire nation has endured unspeakable suffering and financial pain.

But we didn’t turn to our legislature to demand that something be done to correct the unjust situation, we followed other paths instead, perhaps for good reason.  But the fact remains that we have largely ignored the fact that the failure of HAMP is our government’s failure. As such, it is our government that should be held accountable.  And as this is an election year, it seems the timing for such efforts is fortuitous.

I’m certainly not saying that people and their attorneys shouldn’t be doing whatever they can to protect their homes, and I’m sure there are times when a delay is advantageous.  All I’m saying is that when the rules set forth by a federal program are being ignored it’s up to our elected representatives to do something to make damn sure those rules are followed because they were written in best interests of the program’s participants.

EPILOGUE…

The rules set forth under HAMP should be followed.  Now, with whatever the AG settlement says, we’re about to have a new round of rules… and since it’s possible that Congress will again refuse to enforce those rules, I believe that we should be working to structure and demand a private right of action and attorneys fees to allow homeowners and trial attorneys to turn to the courts for relief. 

To be blunt, it seems to me to be insane that our president should be allowed to announce and implement a $75 billion program designed to save homes from foreclosure, in order to rescue our economy and protect our middle class population, and then when program applicants are abused because program rules are not followed, that our legislature sit on their hands pretending that nothing can be done… as we go off to try other approaches.

It also seems ridiculous that a $75 billion program, three years after its launch, has only spent five percent of its budget, and no one says a word.  If we had a $75 billion program for rats and mice, and three years later only five percent of the budgeted amount had been spent, there would be people screaming about how we’ve underserved the rats and mice.  In fact, I don’t think I’ve ever heard of a government program under-spending to this degree.  Has it ever happened before?

Why is there no effort to hold the administration and member of Congress accountable for what has clearly been their failure related to the federal government’s loan modification initiative?  Why are we accepting such utter failure and holding them accountable for nothing, when in point of fact, their failure has cost the country trillions, and destroyed the lives of millions?

Instead it seems that we’re being corralled into a position where almost all of our efforts, even if successful, only have the potential to lead to a delay… a delay that in most cases reduces the potential to save the home.

We still have a democracy of sorts, do we not?  Isn’t it the responsibility of our elected representatives to protect us from abuses caused by inadequacies in federal programs?  Aren’t we supposed to be holding them accountable and demanding they so something. That’s how democracy is supposed to function, is it not?  Why are we not trying to force our democracy to function, as it was intended to function… as it has functioned for hundreds of years?

Or, what about at the state level?  Our AGs settled and let us down.  That much seems water under the bridge, so fine.  Well, I for one want the “new” servicer standards or guidelines to be more than mere suggestions… can they be codified at the state level.

I’d certainly feel a lot less let down by the AG’s settlement if the servicer standards were made into law that had a private right of action and a provision for attorneys fees because that would save homes and stop foreclosures, and it would do so more effectively than any amount of money.

Let’s UNITE homeowners around fairness, instead of DIVIDING them over delays…

I’m not talking about bailouts for borrowers, I just want the rules associated with a federal program to be followed and enforced, and I think every homeowner in the country should and would want that too, regardless of whether at risk of foreclosure or not at this moment.

Every homeowner in America should have an interest in federal programs operating as they were intended to operate.  It’s not about who is at risk of foreclosure and who isn’t.  It’s simply about being in favor of basic fairness in our federal or state programs.  And basic fairness, competence and accountability from our elected officials.  No one should, and few would, oppose any of those ideals, and those that suffered as a result of being deprived such fairness would engender sympathy from others.

Technically deficient paperwork, on the other hand, as was the crux of the Guillaumes decision by the New Jersey Supreme Court, is an entirely different matter.  Guillaumes will appear to many to be a distinction without a difference.  Who cares if the lender is mentioned on the notice or not… the answer is most assuredly not many people.

It will also appear to be a transparent a stall tactic, since even if the judge were to dismiss a foreclosure that failed to comply with the state’s Fair Foreclosure Act, the remedy would simply be to begin again.  I realize that this would buy a homeowner some time, but it would not buy much, and the time it would buy would make it that much harder to get the loan modified, as time is the enemy of modifications.

The truth is, Guillaumes is what it appears to be… stalling… hoping for leverage, and losing a house to foreclosure.  And that does not engender sympathy from homeowners not facing foreclosure.  What it does is further divides those in foreclosure from those who are not.

Delays for technical reason are never going to make homeowners in foreclosure look good to those not in foreclosure.  Don’t shoot the messenger, but it’s one thing if you’re being treated unfairly… screwed around by a government program where participating servicers who are receiving money from the program are not following the rules.  That’s wrong in anyone’s book.

It’s quite another when it appears that all that’s happening is a delay of the inevitable based on what’s perceived as relatively trivial or technical, and that’s what comes to pass.  This decision helps no one but servicers, and does significant further harm to the image of homeowners at risk of foreclosures as “deadbeats” postponing the inevitable.

I believe it is to large degree indicative of a need to re-think our strategy on behalf of homeowners and the foreclosure crisis.  The track we’re on far too often has no win available, and can cause significant harm to the cause and the individual homeowners we’re trying to help.

I would appreciate responses to the ideas presented in this post, at least the  Epilogue… Thank you.

Mandelman out.

US Bank National Association v. Guillaume