Sherwin Law Firm To Argue Foreclosure Defense Appeal Before Supreme Judicial Court

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The Supreme Judicial Court has granted direct appellate review for one of my upcoming foreclosure defense appeals.  Direct appellate review allows the Supreme Judicial Court (Massachusetts’s highest court) to hear an appeal pending before the Appeals Court (the appellate court that is responsible for initially hearing appeals).  Direct appellate review is often granted for pressing issues of law that the Supreme Judicial Court believes is necessary to resolve as soon as possible.

This appeal is whether a mortgagee’s failure to comply with G.L. c. 244, § 15A (which requires notices to be sent after the foreclosure sale) invalidates a foreclosure.  This law has been included as among the requirements for a Massachusetts foreclosure and trial courts are divided as to whether this is a valid foreclosure defense.  Stay tuned!

The Big Short – Origins of the Foreclosure Crisis

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Last weekend, I went to see The Big Short, which portrays the origins of the foreclosure crisis.  As a foreclosure defense attorney, I was interested in seeing how the movie explained the events of the financial meltdown and its effect on residential foreclosures across the United States.  Notably, this is the second foreclosure defense movie that has come out in the past two years.  Who knew foreclosure defense could ever be so entertaining? 

The Big Short has an all star cast (Christian Bale gives a great performance) and a compelling story line.  Unfortunately, the movie is a bit long, even for someone highly interested in the origins of the foreclosure crisis.  The movie would have been much, much better if it was shorten and focused on fewer characters.   With all of the good movies out now, you are best waiting to see this one on video.

Nonetheless, if you are interested in the origins of the foreclosure crisis, The Big Short is worth watching.  The movie does a good job of explaining how the secondary mortgage market, securitization, and incompetent bankers lead to the mortgage meltdown.  The short answer to the origins of the foreclosure crisis is that bankers were given enormous incentive to give out mortgage loans, because these loans could be easily sold on the secondary market (allowing the loan originator to “wash their hands” clean of the original lending transaction).  Securitization, which I have written about before, played an important role as well: these complex financial transactions allowed investors to diversify risk, giving a great incentive for lenders to make toxic loans.  If you are interested in reading more about this, check out this op-ed from the New York Times, written by Michael J. Burry, one of the characters from The Big Short (played by Christian Bale).

I liked The Big Short because it provides important ammunition in fighting big banks in foreclosure defense cases.  Bank like to blame everyone but themselves for the origins of the foreclosure crisis, but this movie shows where the real blame lies.  I’ve seen first hand the effects of these toxic loans from the early 2000s, with homeowners having been given loans and refinances despite no supporting income and documentation.  Many of these borrowers were “setup to fail” from the beginning.

An important word of caution about The Big Short.  I know some will see this movie and think that these origins of the foreclosure crisis alone are enough to beat foreclosure.  A few, unfortunately, may even believe that foreclosure defense can result in a free home.  Foreclosure defense is much, much more complex than that and struggling homeowners should consult an experience attorney in handling one of these cases.

Paragraph 22 of the Standard Mortgage

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An important foreclosure defense is paragraph 22 of the standard mortgage.  The “standard mortgage” is the mortgage agreement used by Fannie Mae and Freddie Mac, two of the largest holders of residential mortgages in the United States, making it a widely used form for residential home transactions.  If you borrowed money for a residential home, chances are excellent that your lender used the standard mortgage.

Paragraph 22 of the standard mortgage requires the lender to provide the borrower a default notice prior to foreclosure.  This default notice provision, often found in paragraph 22 of the standard mortgage, requires the following for a non-judicial foreclosure state like Massachusetts (where the lender does not need to go to court to foreclose):

Acceleration; Remedies.   Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument (but not prior to acceleration under Section 18 unless Applicable Law provides otherwise).  The notice shall specify:  (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument and sale of the Property. The notice shall further inform Borrower of the right to reinstate after acceleration and the right to bring a court action to assert the non-existence of a default or any other defense of Borrower to acceleration and sale.  If the default is not cured on or before the date specified in the notice, Lender at its option may require immediate payment in full of all sums secured by this Security Instrument without further demand and those remedies permitted by Applicable Law may be invoked.  Lender shall be entitled to collect all expenses incurred in pursuing the remedies provided in this Section 22, including, but not limited to, reasonable attorneys’ fees and costs of title evidence.

NOTE:  I have included, as a PDF below, an excerpt from the standard mortgage with this provision, as it applies to a non-judicial foreclosure state.  Note that this default requirement is not always found in paragraph 22; I have seen some mortgages include it in other paragraphs of the mortgage.

Paragraph 22 requires lenders to provide borrowers with an opportunity to cure their mortgage loan default prior to foreclosure, and requires in this notice specific disclosures.  This paragraph is also referred to as the “right to cure” notice or the “default” notice.

Not surprisingly, lenders often mess up these simple notices.  Can a paragraph 22 defect be a valid foreclosure defense?  In Massachusetts, only a notice with a defect sent after July 17, 2015 will invalidate a foreclosure (per the Supreme Judicial Court’s Pinti v. Emigrant Mortgage decision).  Interestingly, other states interpret the paragraph 22 requirement differently; many Florida courts require “substantial compliance” for paragraph 22 of the standard mortgage, in which a minor defect will not void a foreclosure by itself.

While the Supreme Judicial Court in Massachusetts made the paragraph 22 defense only applicable to those notices sent after July 17, 2015, I think there is a good argument  to be made that this only applies to post-foreclosure cases, and not pre-foreclosure.  In other words, if a homeowner has received a deficient paragraph 22 notice and raises a challenge before foreclosure, there is a strong argument to be made on equitable grounds that the foreclosure should be stopped.

Facing a foreclosure?  Contact me to see if a paragraph 22 defense can be used to help you save your home.

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Recommended Resource: Understanding the Secondary Mortgage Market

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As I have written before, many homeowners are surprised to learn that the local bank they borrowed money from to buy their home often no longer owns their loan.  The reason for this is the secondary loan market: lenders routinely sell mortgage loans not long after the promissory note is executed.  The reason for this is that the lender gets a better return on their investment by selling the loan early, which provides them with more money to lend for new mortgage loans.

I recently came across a blog post from Freddie Mac’s website explaining the secondary mortgage market.  The blog post is obviously pro-Freddie Mac, but does provide a good overview of this process.  I recommend it for anyone interested in learning more about mortgage lending.

Massachusetts Appeals Court Issues Decision on “Hold the Note” Requirement for Foreclosure

 

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The Massachusetts Appeals Court issued an important appellate decision this week on the “hold the note” requirement for Massachusetts foreclosures.

First, a brief background.  A promissory note is a written contract to pay a certain sum of money at a specific point in time.  When a homeowner purchases a property, they sign a promissory note with the lender, promising to repay the borrowed money (and with it, grant the lender a mortgage to the property; a security agreement allowing the  lender to foreclose if the money isn’t repaid).  A promissory note is a legal agreement that can be sold to another entity (known in law as a negotiable instrument).

“Negotiability” is the essence of promissory notes for residential home buying: the original lender of the home rarely holds the note for the duration of the loan, and generally sells it on the secondary market (with Fannie Mae, Freddie Mac, and securitized trusts being the common buyers of these loans).  Many homeowners are shocked to realize that the entity they borrowed money from is often out of the picture not long after the home is purchased.

These transfers of promissory notes became a real problem for banks and lenders during the foreclosure crisis.  With so many foreclosures happening at once, banks had difficulty getting their paperwork in order, with some foreclosing entities performing foreclosures without actually owning the underlining loan.  In Eaton v. Federal National Mortgage Association, the Supreme Judicial Court held that a foreclosing entity needs to hold the promissory note, or act on behalf of the noteholder, to do a valid foreclosure (this requirement applies only to foreclosures occurring after the date of the Eaton decision: June 22, 2012.).

In this recent Appeals Court decision, Khalsa v. Sovereign Bank, N.A., the Appeals Court considered what a foreclosing entity needed to show that it was “holding the note” or acting on behalf of the owner of the loan.  In Khalsa, the owner of the loan was Freddie Mac (a government corporation who buys loans from lenders).  The loan servicer (who collects the loan payments on behalf of the owner of the loan) was Sovereign Bank, which was the entity who performed the foreclosure.  Under Eaton, Sovereign Bank could foreclose only if it had authority to act on behalf of Freddie Mac.

Easy enough to prove?  Not quite, said the Appeals Court.  The Court ruled that the question of whether Sovereign Bank had acted on behalf of Freddie Mac was a question of fact: a matter that needed to be decided at trial.  The Appeals Court considered the thousands of pages of documents and amply determined that a trial was needed to resolve this issue.  Simply put, Sovereign Bank wasn’t able to show that, undeniably, such a relationship existed.  The homeowner, in turn, also wasn’t able to prove the opposite: that Sovereign Bank had no authority to do the foreclosure.  As such, the matter needed a trial to be resolved.

I read two important “take home” lessons from Khalsa v. Sovereign Bankas it relates to foreclosure defense:

  1. Proving that a foreclosing entity “holds the note” at the time of foreclosure can be an arduous task.  Khalsa shows that these questions often need to be resolved at trial, which can make for an effective foreclosure defense.
  2. In a footnote at the end of the decision, the Appeals Court appears to reject the argument that simply recording an affidavit in the land records is proof, in and of itself, that a foreclosing entity “holds the note”  (an argument that lenders often raise against this foreclosure defense argument).  Khalsa suggests that while such an affidavit may be considered as proof for this purpose, this document does not by itself resolve these matters (especially in the face of conflicting and missing documents).

A copy of  Khalsa v. Sovereign Bank is below.

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Mortgage Forgiveness Debt Relief Act Extended to 2017

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In what has become a yearly tradition, Congress voted to extend the Mortgage Forgiveness Debt Relief Act to 2017.  This bill is incredibly important for foreclosure defense.  As I have written before, homeowners who have received loan modifications and done short sales often have a portion of their mortgage loan debt forgiven by their servicer.  Under the tax code, this forgiven debt is income, and can result in an enormous tax bill for homeowners trying to avoid foreclosure.  If this forgiven debt is taxable, the benefits of foreclosure defense would go out the window: the homeowner would save the home, but face a huge tax bill from the IRS.  Given this reality, the Mortgage Forgiveness Debt Relief Act is essential for foreclosure defense.  One would hope in the future, however, that the President and Congress would make this legislation permanent, and avoid the end-of-year drama of determining whether or not this important relief is extended.

Sherwin Law Firm Wins Foreclosure Appeal!

 

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Christmas came early for two of my clients this year.  I’m pleased to announce that I won a foreclosure appeal of a post-foreclosure eviction case this week in the District Court Appellate Division.  In this case, my clients were challenging the validity of the foreclosure in the eviction case, where the bank was attempting to remove them from the home on the grounds of a lawful foreclosure.  The basis of this foreclosure appeal was the lender’s failure to comply with the terms of the mortgage, an effective foreclosure defense following the Supreme Judicial Court’s Pinti v. Emigrant Mortgage decision.

In this case, which went to a full jury trial, the Trial Court denied our motion for a directed verdict, a request a defendant makes to end a trial on the basis that the plaintiff did not meet their burden of proof.  Simply put, because the bank never sent my clients the correct notice, the bank failed to perform a lawful foreclosure.

A foreclosure appeal requires an enormous amount of time: my records show I put over seventy hours of work into this case.  The effort, however, was well worth it, and just in time for the holiday season!  This is an important remindeer of the importance of hiring an experienced foreclosure defense attorney for help with a foreclosure appeal: the complexity of these legal arguments (and extensive appellate requirements) makes an appeal a project that only an attorney should handle.  If you are facing foreclosure and need to do a foreclosure appeal, contact me for a consultation.

A copy of the foreclosure appeal decision is below.

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Overview of the Massachusetts Foreclosure Title Clearing Bill

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Governor Baker signed into law the Massachusetts Foreclosure Title Clearing Bill last week.  This bill, which supporters have been trying to pass for years, imposes a deadline for challenging the validity of foreclosures in Massachusetts.  Here, I’ll present an overview of the Massachusetts Foreclosure Title Clearing Bill and what homeowners and lawyers need to know about this new law.

Background

The Massachusetts Foreclosure Title Clearing Bill is largely the direct result of the Supreme Judicial Court’s U.S. Bank v. Ibanez decision, which invalidated thousands of foreclosures across Massachusetts.  In Ibanez, the Supreme Judicial Court held that a mortgagee needs a valid assignment to perform a foreclosure, and the failure to have one at the time of foreclosure makes the foreclosure void.

The Supreme Judicial Court later held in Bevilacqua (a companion case to Ibanez) that a defective foreclosure can’t be fixed by simply going to court and asking the court to fix the problem.  The result of this made it extremely difficult to correct a void foreclosure. Consequently, homeowners who purchased these improperly foreclosed homes were stuck with properties that had bad title.

New Deadline for Challenging a Foreclosure

The Massachusetts Foreclosure Title Clearing Bill imposes a new deadline for challenging a foreclosure (akin to a statute of limitations).  Under this law, a homeowner has three (3) years from the recording of the affidavit of sale in the land records (usually done several months after the foreclosure sale) to challenge the foreclosure.  For foreclosures that occurred over three years before the effective date of this new law, homeowners have one (1) extra year to raise a foreclosure challenge.

A challenge to foreclosure can be brought on the offense (as a lawsuit against the foreclosing entity) or the defense (as a challenge to an eviction case brought by the bank, on the basis on a lawful foreclosure).  The law recognizes either type of action as a basis for challenging a foreclosure.

This law, importantly, is only about a homeowner’s right to reverse a foreclosure; the law does not impose a deadline on lawsuits bought solely for monetary damages.  The law recognizes that violations of Massachusetts foreclosure law are violations of the state’s Consumer Protection Law, which allows for monetary damages.

What is Required Under this New Law

The Massachusetts Foreclosure Title Clearing Bill requires a homeowner to bring a defense to a foreclosure within three (3) years of the foreclosure sale, or forever be barred from doing so.  The law requires a former homeowner to record a true and accurate copy of their lawsuit in the local registry of deeds in order to meet this deadline.

Possible Legal Challenges 

Now that the Massachusetts Foreclosure Title Clearing Bill is law, several legal challenges are expected to be raise against the legality of this bill.  Stay tuned.

Take Home Lesson

 

What’s the take home lesson of the Massachusetts Foreclosure Title Clearing Bill?  Sooner is always better than later in addressing a foreclosure. If you are a homeowner who may be impacted by this new law, contact me for a consultation.  The risks of not acting soon enough are greater than ever, and homeowners who have valid foreclosure defenses should not delay in acting on these important matters.

Sherwin Law Firm Helps Massachusetts Homeowner Beat Foreclosure

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I’m thrilled to announce that I helped a Massachusetts homeowner beat foreclosure, through one of my most successful (and hard fought) cases to date.  My client was foreclosed in 2009, as a result of a predatory loan that forced him into default.  I began representing this client during the bank’s post-foreclosure eviction (“summary process”) case against him, where the bank was attempting to evict him from the home on the basis of a lawful foreclosure.  To help him beat foreclosure, I developed a foreclosure defense based on the bank’s failure to send him proper notice prior to the foreclosure.

The case was anything but a cake walk: we went through a full jury trial and two appeals before settling with the bank.  The wait was worth it, however: my client has his foreclosure rescinded and a new loan modification, with a low interest rate and a $400,000 principle reduction.  My client did his part to save his home: he continued to work hard, save his money, and prove to the bank that he could make a modified loan payment.  In the end, both sides are winners: my client keeps his home, and the bank gets a fair return on its loaned money for the home (well in excess than the money it would have obtained from selling the home after an eviction of my client).

Is it possible to beat foreclosure?  As I always tell homeowners: absolutely.  I never promise that I can always succeed at a foreclosure defense, but I have found that many struggling homeowners have options to avoid foreclosure, in lieu of simply giving up and leaving their homes.  But, as I always say, homeowners need to do their part to beat foreclosure, by proving they can make reasonable, affordable payments on their mortgage loan.

To beat foreclosure, a homeowner should seek the assistance of an experienced foreclosure defense attorney.  While homeowners have the right to represent themselves in court (referred to as a pro se party) I have found that few homeowners are able to handle these tricky matters on their own.  The risks aren’t worth it: get the help of a professional if you are facing foreclosure (homeowners with limited income should contact the Massachusetts Attorney General’s HomeCorps program for assistance in finding a volunteer attorney).