Blackacre 2.0HAMP | Blackacre 2.0

NY Appellate Division Overturns LI Couple’s Mortgage Victory

Kathleen A. Scanlon — Sat, 04 Dec 2010 04:22:22 +0000

On November 16, 2010, the NY Appellate Division delivered a stunning blow to the foreclosure defense community when it reversed the trial court’s choice in Indymac Bank v. Diana J. Yano-Horoski, 890 N.Y.S.2d 313 (Suffolk County, 2009)

In the highly publicized choice, Judge Spinner had not only vacated the Judgment of Foreclosure, but ordered that the mortgage and note be cancelled in their entirety. Spinner blisteringly castigated the plaintiff and characterized its course of conduct as “wholly unsupportable at law or in equity, greatly egregious and so completely devoid of excellent faith that equity cannot be permitted to intervene on its behalf. Indeed, plaintiff’s actions toward defendant in this matter have been harsh, repugnant, shocking and repulsive to the extent that it must be appropriately sanctioned”.

The Appellate Division held that the such a severe sanction was “not authorized by statute or rule” and the bank was not given “honest warning that such a sanction was even under consideration”. Further, the court held that the trial court’s equity powers did not include the “authority to cancel the note and mortgage since there was no acceptable basis for relieving the homeowner of her contractual obligations to the bank” noting that a judgement had already been entered in the bank’s favor. The court’s opinion can be found here.

Judge Spinner has gotten the attention of the banks in a huge way – his three recent decisions, Indymac Bank v. Yano-Horoski (cancelling note and mortgage), Wells Fargo v. Tyson (awarded $155,000 in hurts to the homeowner) and Emigrant Mortgage v. Corcione (awarded $100,000 in hurts to the homeowner) has made him the hero of the foreclosure defense community and a fearsome figure to the foreclosure plaintiffs. Spinner just issued another crushing choice on December 1st in U.S. Bank v. Mathon 2010 NY Slip Op 52082(U) granting Defendant’s Order to Show Cause, staying all proceedings and scheduling a hearing for possible sanctions against the Plaintiff and other possible remedial relief based on the bank’s appalling terrible faith dealings on a loan modification. The Banks’ attorneys no longer entrust their cases to junior associate,s when appearing in his courtroom at mandatory settlement conferences, because apparently, the risks are too fantastic.

Am I shocked at the Appellate Division’s reversal? Not at all – I really predicted this would be the outcome. As you get higher up the food chain, it gets to be more about policy than law sometimes. The Yano-Horoski trial court choice would have set a perilous precedent and sent shock waves through the mortgage credit industry. A mortgage is a debt security and should a judge just cancel such a debt based upon broad powers of equity, what bank would lend on a home in such a climate? And if the bank were willing to risk it, at what cost to the consumer? The banks would need to insulate themselves against the risk of mortgage cancellation and the way they do that is by increasing the profit margin dramatically. Also, lets look to the every day people who are paying their mortgage every day, even if their house is underwater – what would be their reaction if all of sudden, homeowners left and right were given free houses? The outrage would start to build (if it hasn’t already) – and they would start to wonder why should they pay their mortgages?

I believe that the parties will quietly come to a settlement, probably sealed of course, and the Horoskis will receive a nicely, modified loan with a stout principal reduction and the bank has a stellar precedent on the appellate record.

U.S. Treasury: Putting the ‘Short’ Back in Short Sales?

Kathleen A. Scanlon — Sun, 06 Dec 2009 03:33:16 +0000

Any real estate professional, who engages in small sale negotiations, is fully aware of just how frustrating the process can be or even downright impossible. There are financial incentives for mortgage servicers to drag out the process as long as possible. It takes weeks, sometimes months, to get a response from the banks, who often misplace packages and request that they be faxed over and over again. This past Monday, but, the U.S. Treasury has issued guidance in its new Home Affordable Foreclosure Alternatives Program (HAFA) which takes effect April 5 , 2010 (supposedly, many servicers are already modifying their programs to be compliant). In small, HAFA provides incentives in accepting a small sale or a deed-in-lieu of foreclosure (DIL) on a loan eligible for modification under the HAMP program. HAFA applies to loans not owned or guaranteed by Fannie Mae or Freddie Mac (they will be implementing their own versions of HAFA shortly).

Highlights of the HAFA program are as follows:

Servicers have 10 days to approve or disapprove a request for small sale.
Uses borrower financials and other documents already submitted for a loan modification.
Allows borrowers to receive pre-approved small sales terms before listing the property (including the minimum acceptable net proceeds).
Prohibits servicers from requiring a reduction in the real estate commission agreed upon in the listing agreement (up to 6 percent).
Requires borrowers to be fully released from future liability for the first mortgage debt (no cash contribution, promissory note, or deficiency judgment is allowed).
Uses standard processes, documents, and timeframes/deadlines.
Provides financial incentives: $1,500 for borrower relocation help; $1,000 for servicers to cover administrative and processing costs; and up to $1,000 for investors (note holders).
Caps proceeds to second lien holders at $3,000.00. (fascinating but I wonder at how those lien holders in the second position feel about this)

Requirements:

Loan must be HAMP eligible – Services must evaluate a buyer for a HAMP modification first before giving any consideration for a HAFA small sale or Deed in Lieu (DIL);
Property is borrower’s principal residence;
the mortgage is a first lien and was originated before January 1, 2009;
the loan must be delinquent or default reasonably foreseeable;
loan amount limit is 729,750 (on 1 family units);
borrower’s total monthly payment exceeds 31 percent of the home owner’s income and attested to by affidavit;
Sale must be an arm’s length agreement and the buyer must agree not to sell the property for 90 days (problematic and I believe will diminish the potential of this program);
Requires property to be listed with a real estate broker (I wonder who lobbied for this…so this has to be added on to the servicer’s Minimum Net Proceeds and thus increases the cost to Purchaser)

While I admire the government’s attempt at allieviating the small sale log jam, as usual, they overstep their bounds. The American people are being questioned to yet again foot the bill for the banks’ irresponsible lending practices to the tune of $3,000 per closing. Further, mandating that properties be listed with a real estate broker across the board is excessive and will, in effect, add to the buy price paid by the prospective buyer. The arm’s length rule eliminates family attempting to save the home and the 90 day prohibition against resale will chill real estate investor participation which plays a major role in moving houses (I find this restraint on alienation to be disturbing as well and question its enforceability). Lastly, I question how many second lienholders are going to participate with their payments limited to $3,000.00. Without their participation, it will be an exercise in futility as many of these homeowners have 2 loans.

New FHA Making Home Affordable Loan Modification Guidelines Announced by HUD Secretary Donovan Today

Kathleen Scanlon — Thu, 30 Jul 2009 16:56:17 +0000

Evidently the government is serious about getting these delinquent mortgages modified – here is another positive change to HAMP:
Press Release from HUD:
WASHINGTON – U.S. Department of Housing and Urban Development Secretary
Shaun Donovan today announced the Federal Housing Administration (FHA)
has implemented changes to its loan modification program to ensure
consistency with the Obama Administration's Home Affordable Modification Program. By August 15th,
FHA borrowers will be able to significantly reduce their monthly
mortgage payments by seeking a loan modification through their current
mortgage company or loan servicer under the new FHA-Home Affordable
Modification Program (FHA-HAMP).
"Today, we're bringing another vital tool to the table to help
struggling families who are desperate to keep their homes," said
Donovan. "Tens of thousands of FHA borrowers will now be able to modify
their mortgages in the same manner as so many others who are taking
advantage of the Administration''s Making Home Affordable program. This
is just the latest tool we are providing to help homeowners prevent
foreclosures through the Making Home Affordable program. Earlier this
month we announced an expansion of the Home Affordable Refinance
Program to borrowers who are up to 125 percent underwater. Together,
these actions will significantly increase the help available to
homeowners.
"The Helping Families Save Their Homes Act of 2009, signed into law on
May 20, allows FHA to give qualified FHA-insured borrowers the
opportunity to reduce their monthly mortgage payment by modifying the
mortgage through FHA-HAMP. FHA released the program's implementation
guidelines today. FHA expects all servicers to implement the changes by
August 15. The program permanently reduces a family's monthly mortgage
payment through the use of a partial claim, which defers the repayment
of mortgage principal through an interest-free subordinate mortgage
that is not due until the first mortgage is paid off.
FHA has used the partial claim option in the past, which allows a
lender to advance funds on behalf of a borrower, to reinstate a
delinquent loan that was up to 12 months delinquent. Now, this program
will allow HUD to bring the borrower's payment down to an affordable
level. This will be accomplished by bringing the mortgage current,
buying down the loan by up to 30 percent of the unpaid principal
balance and deferring these amounts in a partial claim.
FHA will pay an incentive to loan servicers for each FHA loan modified
under this program. A Mortgagee Letter, along with detailed
requirements for the FHA-Home Affordable Modification Program, was
distributed to all FHA lenders today. The implementation of this
program will further the Obama Administration's efforts to stabilize
the housing market by helping homeowners to stay current on their
mortgages and stay in their homes, therefore preventing the destructive
impact of foreclosures on families and communities.
Making Home Affordable, a comprehensive plot to stabilize the U.S.
housing market, was first announced by the Obama Administration on
February 18. More than 200,000 trial loan modifications are already
underway, tens of thousands of refinancings have closed, and
informational mailings about the program have been sent to more than
one million borrowers who may be eligible.
FHA borrowers who are experiencing difficulty making their mortgage
payments should contact their loan servicer or HUD's National Servicing
Center at (888) 297-8685 to determine if they qualify for the FHA-Home
Affordable Modification Program. The Mortgagee Letter, with detailed
information about the program, is available on the HUD website. Non-FHA
borrowers can find information about the Obama Administration's Making
Home Affordable program at www.makinghomeaffordable.gov.

HUD News Release 09-137