99 Homes: Fact v. Fiction

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When foreclosure defense comes to the big screen, you know I’m going to see it.  I took a break from work this weekend to watch 99 Homes, a movie about the 2o1o foreclosure crisis in Florida.  Overall, I thought it was a great movie that brought to life many of the issues I confront with foreclosure defense.   The movie tells the story of a father who, after losing his job, is foreclosed.  In need of work, he ends up getting hired by the same realtor who evicted him, and falls into the sleazy work of foreclosing people who were in his same situation.

For this post, I want to discuss the facts v. fiction of the depiction of the foreclosure/eviction process as shown in the movie.  Bear in mind that I am a Massachusetts attorney, which has a different foreclosure process than Florida.  However, many of the issues remain the same regardless of the state where a foreclosure occurs.

FACT

  • Difficulty in Contacting a Loan Servicer/Bank is a Major Reason Why Foreclosures Occur 

99 Homes does a great job of showing how a homeowner’s inability to successfully work with a loan servicer/bank is often the reason for foreclosure.  Too often, I have seen banks willfully ignore loan modification applications for qualifying homeowners and create excuse after excuse for refusing to properly consider homeowners for loss mitigation assistance.  99 Homes shows how the banks’ refusal to properly offer this assistance has forced many homeowners into foreclosure.

  • The Court Process is Not “User Friendly”

99 Homes shows many of the homeowners attempting to represent themselves in court, with disastrous results.  The movie takes place in 2010, when courts were flooded with foreclosure cases, and many judges simply pushed these matters through.  While things are better now, the court process can still be very difficult to understand, especially for a lay person.  For foreclosure defense, a homeowner should strongly consider seeking the assistance of an experienced lawyer with these matters.

  • The Federal Government is a Major Owner of Foreclosed Properties 

The realtor in 99 Homes often discussed how “Fannie/Freddie” were two of his largest clients.  Fannie Mae and Freddie Mac are government-sponsored entities who are the owners of many mortgage loans across the country.  When a foreclosure occurs, these entities often become the owner of these homes.

  • “Cash for Keys” Is a Popular Means of Shortening the Foreclosure/Eviction Process

The movie depicts the use of “cash for keys” for settling post-foreclosure eviction cases: the bank offers the homeowner a cash settlement (usually $3,000-$5,000) to immediately leave the home.  “Cash for keys” isn’t a terrible option for homeowners who wish to leave their homes and need financial assistance in doing so.  A homeowner interested in this deal should still consult an attorney to discuss this option.

FICTION

  • A Homeowner Facing Foreclosure Can Be Out in a Matter of Days

99 Homes seems to suggest that a homeowner can be out of a foreclosed home in a matter of days.  In Massachusetts, the entire foreclosure process can take 2-3 years, which leaves homeowners with the time necessary to try and save their homes.  Sooner is always better than later in fighting a foreclosure, but rarely does a homeowner only have a matter of days to deal with a foreclosure.

  • Homeowners Have Limited Means of Fighting Foreclosure

Many of the homeowners in the movie are depicted as having few, if any, defenses to foreclosure.  In reality, homeowners have many more defenses available, such as a loan servicer’s refusal to properly consider a loan modification and failure to send the required notices required by the mortgage and law.  Not all of these defenses will work for each homeowner, but homeowners often do have means of defending themselves in these cases.

In need of assistance with foreclosure defense?  Contact me for a consultation.

Fannie Mae’s Standard Loan Modification Program

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Fannie Mae announced last week that it dropped the interest rate for its standard loan modification program.  The new rate is now 4%–competitive with today’s market rates.

Fannie Mae’s standard loan modification program is an alternative to the federal government’s Home Affordable Modification Program (“HAMP”).  The program is available for homeowners whose mortgage loans are owned by Fannie Mae and who are delinquent on their loana.  Similar to a HAMP loan modification, a borrower must have verified income and a hardship (a reason for needing a loan modification).  Fannie Mae loan modifications are an option for borrowers who do not qualify for a HAMP loan modification or were not able to make payments under a prior HAMP loan modification.

Unlike HAMP, Fannie Mae standard loan modifications require considerably less paperwork.  However, these loan modifications often come with a slightly higher interest rate than HAMP modifications and may not allow for as much principle forebearance.

Fannie Mae  standard loan modifications can be a great option for many struggling homeowners trying to avoid foreclosure.  While the interest rates are often higher than HAMP loan modifications, the advantages of obtaining a permanent modification without the burden of an extensive application process make it a great option for many homeowners.

Homeowners interested in this program should consult their loan servicer to see if they apply.  Generally, this program requires homeowners to make trial payment plans (“TPP”), which usually consist of three modified loan payments prior to receiving a permanent modification.  As with all loan modifications, homeowners should create a paper trail  and consult an attorney if they are not getting anywhere with their lender.

FAQ: What is a Principal Forebearance? Is it the Same as Principal Forgiveness?

FAQ

Question:  What is a principal forbearance?  Is it the same as principal forgiveness?

Answer:  No.  A homeowner applying for a loan modification often owes a great deal on his or her home.  As such, a loan modification attempts to make the payments affordable by restructuring the loan.  This usually starts with a term extension and interest rate reduction, but the final (and often most important) part of the process is what to do about the unpaid debt.  Often, the total, unpaid debt is too much to create an affordable payment, requiring the lender to forgive or forbear the debt.  Any homeowner in need of foreclosure defense needs to understood both of these loss mitigation options.

With principal forgiveness, the lender agrees to forgo a portion of the unpaid debt.  That part of the debt is gone, lowering the amount that the borrower owes.  The borrower, however, may still owe tax on this forgiven debt.

With principal forbearance, the lender agrees to take a portion of the unpaid debt and add it to the end of the loan, as a “balloon” payment.  This debt doesn’t go away, but it does remain due at the loan’s payoff.  This forbeared amount is almost always interest free.  Principal forbearance is one of the steps of the federal government’s Home Affordable Modification Program (“HAMP”).   HAMP, notably, does not require lenders to forgive unpaid debt.

Obviously, principal forgiveness is the better option of the two, as the owed debt is gone.  Principal forbearance, however, is not a terrible option for many homeowners committed to staying in their homes.  Homeowners should speak to a financial advisor for help in making this financial decision.

Recent News: Federal Report Shows Loan Servicers Offering Few Loan Modifications to Borrowers

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A recent report from the federal government shows that loan servicers are offering few loan modifications to borrowers through the federal government’s Making Home Affordable Program.  This program, created in the wake of the financial crisis, was intended to keep struggling owners in their homes.  Instead of providing a necessary defense to foreclosure, the program has become a mess, with many borrowers being rejected for loan modifications through the Home Affordable Modification Program (“HAMP”).  One article suggests that an astonishing 70% of all loan modification applications are denied by servicers.

I can count on my right hand the number of struggling borrowers who have been promptly considered for a loan modification by their servicer.  The majority go through months of back and forth communications with their lenders, who typically “lose” the required documentation or come up with absurd reasons for denial.

What’s a homeowner in need of a loan modification to do?  Create a paper trail of one’s efforts to apply for a loan modification and contact a lawyer if you are not getting the results you need.

 

Beware of Foreclosure Defense Scams

Beware of Foreclosure Defense Scams

In addition to the loss of homeownership for many Americans, the continuing foreclosure crisis has another dire consequence: the rise of foreclosure defense scams.  A recent story from New Jersey about a family losing their home due to a nationwide foreclosure scheme demonstrates the importance of struggling homeowners needing to be careful in seeking foreclosure defense assistance.

Foreclosure scams often involve attempts to provide loan modifications to struggling homeowners.  These often come from purported companies offering to assist with the loan modification process.  Often, they reference the Home Affordable Modification Program (“HAMP”)–a federal loan modification program.  Almost always, these scammers directly solicit homeowners through mail, the Internet, or phone.  These con artists often require homeowners to pay large, upfront fees and typically do little to assist with foreclosure defense.

How should struggling homeowners avoid these scams?  By staying away from any shady offer to assist with foreclosure defense.  I recommend that homeowners only accept help from a reputable attorney, a non-profit organization, or a state or federal government agency.  Private companies offering loan modification or other foreclosure defense assistance should raise a red flag for homeowners, if these purported businesses do not have proper credentials.
Let me add an important caveat to this advice: I’m not suggesting that those in need of foreclosure defense avoid seeking the help of anyone requiring a fee for their services.  While there are many free services available for homeowners trying to avoid foreclosure, these programs aren’t the best for everyone.  There are many reputable professionals–myself included–who do charge a fee for their work.  Homeowners should not rule out paying someone to help save their home, but do need to be diligent in making sure that their money goes to a reputable professional.

Principle Reduction for Mortgage Loans

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A recent Wall Street Journal article discusses the ongoing conflict regarding principle reduction for mortgage loans.  As the article stresses, Fannie Mae/Freddie Mac—two of the largest holders of mortgage loans in the United States—usually do not permit principle reductions of loans (where the lender forgoes a portion of the unpaid debt).  Most loan modification programs, both government based and private, generally do not allow for a principle reduction; while the lender will “forbear” the unpaid debt (usually in a balloon payment at the end of the loan), the debt does not go away.  This reality is something I stress to each of my clients: while I always aim for a loan modification with principle reduction, it is never a guarantee.

“Strategic Default” and Foreclosure Defense

 

If you have been following the news in the last few weeks, you have probably heard about the New York Times’s editorial Why I Defaulted on My Student Loans.  In this opinion piece, the author gives his reasons for not paying his student loans and encourages other borrowers in a similar scenario to do the same.  The article has generated alot of buzz, with several financial and legal experts criticizing this approach.  (Click here and here for good reads on this topic).
With this in mind, I thought I would discuss in this blog post a related question I sometimes get regarding foreclosure:  does it ever make sense to do a “strategic default” on a mortgage loan?  Is it ever worth it to stop paying for a home?
If the goal is to live at the home for a few years rent free (without concern to the impact on one’s credit history), then I suppose a default may make sense.  Otherwise, purposely deciding not to pay a mortgage loan is a bad idea.
As I have written before, getting a free home from a foreclosure defense lawsuit is an unrealistic goal.  The much more realistic goal is affordability: a loan payment that the borrower can pay. However, even with a strong case, foreclosure defense is tough. With that said, a borrower should never risk loosing their home in hopes of getting a free home or a reduced principle balance.  If a borrower is having trouble affording their home, they should try for a loan modification (and consult an attorney if they are not making any progress in this difficult process).

FAQ: Can My Home Be Foreclosed While I Am Applying for a Loan Modification?

Question:  Can my home be foreclosed while I am applying for a loan modification?
Answer:  Generally, no.  Recent loan servicing regulations prohibit “dual tracking”, a procedure where servicers review loan modifications while simultaneously pursuing foreclosure.  These regulations restrict servicers from moving ahead with the foreclosure process while it is reviewing a loan modification application.  There are, however, time limits on this: submitting a loan modification the day before the scheduled sale will not necessary stop a foreclosure.
In addition to these federal regulations, there are other legal defenses that may be available to stop a foreclosure while a loan modification is under review.  Contact a lawyer if you find yourself in this difficult situation.

HAMP Extended to 2016

 

The Federal Government announced last Friday that the Home Affordable Modification Program (“HAMP”) has been extended to the end of 2016.  HAMP was set to expire at the end of this year; this extension provides homeowners with additional time to apply for this program, which provides loan modifications to struggling homeowners.

While this extension for HAMP is a good thing for homeowners, almost everyone agrees that this program––passed in the wake of the financial crisis––has fallen well below expectations, and has not helped everyone that it should have.  There are different opinions on why the program has not been successful, and I’ll give you mine:  loan servicers have made an absolute mess out of processing loan modification applications, to the point where homeowners simply cannot get their applications reviewed.  I suspect that if servicers gave these HAMP applications the attention they deserved, this program would be much more effective in helping those who need it.

Homeowners in need of a loan modification should continue to apply for HAMP, but need to create a paper trail in submitting their applications and consult an attorney if their loan servicer refuses to help them.

Firm News: Sherwin Law Firm Succeeds in Raising Foreclosure Defense Claims for Massachusetts Homeowner

I’m pleased to write that I recently won a decision from Plymouth Superior Court allowing me to raise foreclosure defense claims against a servicer and lender who claimed to have performed a lawful foreclosure against my client.  These claims resulted from the servicer’s repeated refusal to consider my client for a loan modification, despite my client following up with the requested paperwork requests for over nine months.  I raised claims under Massachusetts’s Consumer Protection Law (“Chapter 93A”), promissory estoppel, and breach of contract.
The battle is far from over.  Here, the Court has merely allowed me to proceed with litigating these claims; it doesn’t mean I have won . . . yet.  However, I am pleased to get this case off the ground.  Often, one of the toughest parts of foreclosure defense is convincing a court that you have claims worth pursuing.  I can’t say whether my lawsuit will be successful, but I’m looking forward to giving my client her day in court on these important matters.
Are you facing a foreclosure related to a loan modification denial? Contact me right away for a consultation.