In the November 2010 press release, FTC Chairman Jon Leibowitz said, “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”

The MARS rule has a three-prong approach – it bans advance fees, requires certain disclosures and prohibits certain claims:

Advance Fees

Mortgage Relief companies may not collect any fee until they have provided the homeowner with:

• a written offer from their lender or servicer that the consumer decides is acceptable; and
• a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer.

Required Disclosures

In any advertising and in communications directed at individual consumers (such as telemarketing calls), the mortgage relief companies must make the following disclosures:

• they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
• the lender may not agree to change the consumer’s loan; and
• if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Further, these companies must also disclose in their communications to consumers that

• they can stop doing business with the company at any time,
• can accept or reject any offer the company obtains from the lender or servicer, and
• if they reject the offer, they don’t have to pay the company’s fee – said fee must also be disclosed

Prohibited Claims

The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

• the likelihood of consumers getting the results they seek;
• the company’s affiliation with government or private entities;
• the consumer’s payment and other mortgage obligations;
• the company’s refund and cancellation policies;
• whether the company has performed the services it promised;
• whether the company will provide legal representation to consumers;
• the availability or cost of any alternative to for-profit mortgage assistance relief services;
• the amount of money a consumer will save by using their services; or
• the cost of the services.

In addition, the rule prohibits mortgage relief companies from telling homeowners to stop communicating with their lenders or their representatives.   Further, these companies must also have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Lastly, it is a violation of the MARS Rule for any person to provide substantial assistance or support to a MARS Provider when that person knows or consciously avoids knowing that the MARS Provider is engaged in any act or practice that violates this Final Rule. (16 CFR Section 322.6).

Q&A:

What Exactly Are Mortgage Relief Services?

Mortgage Assistance Relief Services (MARS) are services offered or provided to a Consumer for consideration that are intended directly or indirectly to assist the Consumer with regard to:

1. Stopping or postponing a foreclosure sale;
2. Negotiating or arranging a Modification of a Dwelling Loan;
3. Obtaining a forbearance in the timing of payments due on a Dwelling Loan;
4. Negotiating or arranging any extension of the time period for curing a default or reinstating the Dwelling Loan;
5. Obtaining a waiver of an acceleration clause or balloon payment in a Dwelling Loan;
6. Negotiating or arranging a short sale, deed-in-lieu of foreclosure, title reconveyance, sale/leaseback or any other disposition of the Dwelling other than a sale to a third-party purchaser;
7. Offering or conducting a Forensic Loan Audit which is a legal analysis of mortgage loan documents for the purpose of finding compliance violations under federal and/or state law or regulation for the alleged purpose of helping Consumers acquire leverage over their Servicers;
8. Marketing of services to assist consumers in selling a   Dwelling to a third party if the intent of the sale is to enable the Consumer to avoid foreclosure; and
9. Marketing of refinancing options by Mortgage Brokers if offered to avoid a foreclosure.

Does MARS Apply to Attorneys?

Attorneys are fully exempt if they:

1. Provide mortgage assistance relief as part of the practice of law;
2. Are licensed to practice law in the state in which the consumer for whom the attorney is providing mortgage assistance relief services resides or in which the consumer’s dwelling is located;
3. Comply with state laws and regulations that cover the same type of conduct the rule requires;
4. Deposit any funds received from the consumer prior to performing legal services in a client trust account and withdraw fees only as they are earned; and
5. Comply with all state laws and regulations, including licensing regulations, applicable to client trust accounts.

Does MARS Apply to Real Estate Agents?

It appears from examination of the language contained in the Supplementary Information in the Federal Register that the intent was to avoid including real estate brokers and agents handling sales of real property in the definition of MARS.  However, it is certainly clear that real estate agents and brokers handling short sales, title re-conveyance or any other sale or endeavor undertaken in an effort to stop a foreclosure sale would be covered by the MARS definition.

The Supplementary Information states that the FTC does not consider the typical functions of real estate brokers, including showing homes, finding homes for Borrowers and listing homes for sale, to be MARS functions.  Nonetheless, any endeavor undertaken by a real estate agent or broker in an effort to prevent a foreclosure other than these typical functions, such as negotiating with a Servicer the terms of a short sale,WILL be considered a MARS activity.

The MARS rule is something with which everyone involved in, either directly or indirectly, assisting consumers avoid foreclosure will need to understand and be in compliance with.  It is broad and far reaching. The penalties for non-compliance with the FTC’s new MARS rule are $11,000 a day.

Related posts:

1. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
2. Mortgage Assignments are Not the Real Estate Investor’s Dream!
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

It is not light reading by a long stretch. Understanding the securitization process from the originator to the Trustee, locating and understanding the governing document, the Pooling & Servicing Agreement (PSA), is no simple matter. But we have done just that and analyzed numerous defective Assignments of Mortgage for New York City properties.  These banks and their respective attorneys flagrantly ignore the rule of law, routinely perjury themselves, do documents without authority, and directly violate the terms of the PSA.  These banks have also been paid over and over for the same loan because of the over-collateralization of these mortgage securities, but seek to enrich themselves further by availing themselves of the remedy of foreclosure.  And yet, the tax payer pays them yet again, via the Obama Administration, instead of taking that same money to make jobs to bolster our sagging economy.

These banks are posting record profits for 2010 as our country fails to recover for lack of not only jobs but of credit.  The purpose of the TARP funds was to give an incentive to the banks to extend credit but they failed to do so and really decreased lending.  Congress, in their haste, failed to include any strings in that gift package.  The Wall Street Journal indicated that such failure was the reason for the decreased lending:

The fact that loan portfolios are shrinking at many of the largest TARP recipients underscores how few strings Treasury Department officials attached to the infusions. That has made it hard to prevent banks from using the money to pay dividends, make acquisitions and fund bonuses for top executives.

Pioneers saw what the banks were doing – getting rich from tax payers’ monies and then enriching themselves further through foreclosure of these overcollateralized securities or peoples’ homes. They fought the banks in court by going back to the basics and not just blinding accepting the banks’ right to foreclose on their “security”.  It started with “produce the note” because the whole mortgage industry had gotten sloppy and couldn’t locate their documents.  But then it went further, questioning whether the bank really owned the Note and if you could foreclose on a mortgage once it had morphed into a security. MERS‘ role was being investigated and foreclosure defense lawyers questioned whether or not it could bring a foreclosure action as plaintiff, because it did not really own the Note as well as failed to maintain a proper chain of assignment.

These very foreclosure defense attorneys and judges, inundated with millions of foreclosure actions, started to see an hideous pattern and the same names over and over again, executing assignments, affidavits of merit etc.  Brooklyn’s own Judge Schack has been on the forefront of demanding legal compliance from the banks and making them account for their failure to adhere to the law as well as outright committing fraud.  Our courts have been on the forefront of insuring that homeowners’ rights are not trampled – that the banks act in excellent faith and when they don’t – holding them liable for it.  The banks and their attorneys step very carefully into our courts these days for dread of the ultimate punishment – dismissal of their action with prejudice.

I reckon 2011 is the year we take back our country from Wall Street and the banks. The tide is turning.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
3. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants

Events:

In person networking is vital – online networking often starts the relationship but in-person cements it.  I posted several events in the NY metro area that are not be missed including the NYC Business Networking Event – Luxury Series (7/27) and Queens Real Estate Group Summer Soiree (7/28) among others.  Extend your knowledge by taking a class – Dealing with Banks: REOs and Small Sales or  a webinar such as Understanding Titles & Closings for Real Estate Investors .

Small Sales

Small Sales are now the focus of the real estate loss mitigation community and the banks have finally realized that a small sale is the premier solution as the return, dollar for dollar, is far superior to foreclosure and REO.  Check out the webinar, Understanding Fannie Mae, Freddie Mac HAFA Small Sale Rules to make sure you are abreast of the new rules.  Watch some of the new videos, like Internal Bank Form Gives Insight Into Small Sales vs Foreclosure or Citimortgage Changes Small Sale Policy Again! as the banks are constantly changing how the game is played. Visit the forums as some of our own gurus post their tips and experiences.

Remember, the S&P Real Estate Networking Site is a "members-only" site so apply for membership now (it is free!) for exclusive access.

Delight in your summer!

Related posts:

1. Landlord/Tenant Law Resources on Scanlon & Pinto, PLLC Networking Site
2. Mortgage Assignments are Not the Real Estate Investor’s Dream!
3. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry

“In today’s market, FHA research finds that acquiring, rehabilitating and the reselling these properties to prospective homeowners often takes less than 90 days. Prohibiting the use of FHA mortgage insurance for a subsequent resale within 90 days of acquisition adversely impacts the willingness of sellers to allow contracts from potential FHA buyers because they must consider holding costs and the risk of vandalism associated with allowing a property to sit vacant over a 90-day period of time.”

The online real estate community was buzzing yesterday as news of this waiver spread quickly. The investor “gurus” are, of course, rejoicing and spreading the news far and wide, without a careful read of the Waiver itself.  The intent of this temporary policy change is to allow investors to take title to a property, rehab it and sell it quickly. It is not a panacea for those investors who pick up a property at a discount, seeking to flip it for a profit in a “back to back” or “double” closing.  For those types of transactions, the 90 day seasoning rule is a non-issue if you utilize a land trust correctly.

HUD’s Mortgagee Letter 2006-14 clarified the Rule and Regulations set forth in 24 CFR 203.37a concerning the eligibility of properties for FHA insurance and the rules governing sales of property.  As I have discussed in a previous blog post,  Legal Analysis of FHA’s Seasoning Requirements, the real estate and mortgage industry routinely misunderstands and applies these eligibility rules incorrectly and it appears that the trend is continuing with this new Waiver.

FAQS:

1. Does it have to be a property bought through a small sale, bank auction or an REO to be eligible under the Waiver?

No. There are no requirements in the Waiver concerning the status of the property itself.  It is not necessary to demonstrate the distressed nature of the property.

2. So I can get a property under contract, do a contract with a potential FHA buyer and close with my FHA buyer the same day or the day after I buy the property?

No this transaction would not be eligible for FHA insurance. The waiver is really of the requirement that the real estate contract be executed on the 91st day after the investor takes title to the property. The requirement that the investor own the property is still in effect and therefore Contract Vendees and Assignments of contract are still prohibited.  Further, an application for an FHA mortgage cannot be submitted to a Lender for consideration without a fully executed Contract.  Therefore, Back to Back Closings will be impossible.

3. So I can close a week after I take title?

Virtually impossible for several reasons. I venture that there are nearly no Lenders in this post-bubble market that will take an application for an FHA mortgage and be in a position to close a week later.  I am going to stretch that to probably 30 days.  This is certain if your sale price to your FHA buyer is 20% or more higher than your acquisition price (do the math – its not that hard to hit that number – especially in certain areas of the country where housing prices are below $50,000). If the sale price exceeds the 20% threshhold, the investor will have to document the increase in value with supporting documentation and/or a second appraisal and the Lender will have to obtain a Property Inspection Report (see paragraph 2 of the Waiver).  This report will not be ordered prior to application submittal and as discussed previously, that doesn’t take place until there is a fully executed Contract of Sale.

4. I found this fantastic property that my buddy picked up 2 months ago for $120,000.00.  He rehabbed it and I am in contract to buy it from him for $220,000.  I want to flip it to an FHA buyer for $250,000.00 can I do it?

You will have to wait until the 91st day after you close title to enter into a Contract of Sale with the FHA buyer. The Waiver will not apply if there is a history of prior flipping activity in the 12 month chain of title (see paragraph 1(c) of the Waiver).

5. In April, the Treasury’s Small Sale Program goes into effect and there should be a lot of distressed properties coming on to the market. The Waiver is going to be a huge help in moving those properties!

No, it isn’t.  Apparently, government offices do not communicate with each other before issuing rulings – one of the requirements under the Treasury small sale program is that the Contract include a representation that the Purchaser will hold the property for 90 days post-closing.  Perhaps the Treasury will revise its Directive and remove this offending language (which, as I had discussed previously, is extremely small-sighted).

Conclusion

Investors should rejoice as finally they are receiving the recognition they deserve: properties are moving because of their hard work and without the proper incentive, it wouldn’t happen. Instead of being the black sheep of the real estate community, investors are a major part of the solution.  This Waiver is what investors need to get the properties rehabbed, sold and occupied to ameliorate the problem of abandoned and blighted homes. It is not a license to flip and should you wish to engage in that type of activity, you will not be able to use this Waiver to accomplish your goals.

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

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.

Related posts:

1. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
2. Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna
3. Mortgage Assignments are Not the Real Estate Investor’s Dream!

The first tale I saw on small sale flipping yesterday was reported by the Sarasota Herald Tribune.  In typical fashion, using strong words such as “schemes” and “scams” (I despise those words by the way) which clearly demonstrate the bias of the author, theyappear to  imply that small sale flips, in and of themselves, are fraudulent.  I believe the Home Equity Theft Reporter has a better take on the subject, as indicated by their post title: “Small Sale Flipping Fraud: Use of Inflated Appraisals, Straw Buyers, Sale Terms Undisclosed to Lenders All Indicate that Scammers Are Still At It“. I recommend reading it.  I would also add to that small list of fraudulent activities, non-arms length transactions and realtor fraud.  Also, read the FBI Press Release on Operation Terrible Deeds and more specifically, the US v. Bills case (page 4-5 of the Press Release) for a description of small sale fraud.  Note the use of straw buyers, the lies to the homeowners etc.

There is nothing incorrect with flipping properties as long as you do not engage in the fraudulent activities enumerated above.  If you tell, in writing, in your Contract of Sale that 1) you are a real estate investor and 2) you intend to immediately resell the property for profit, you have satisfied the disclosure requirement.  As far as the allegations that investors are “fooling” or “tricking” the small sale bank in accepting a “low-ball” offer, that is pure rubbish.  The small sale lender is free (and usually does) to order an independent appraisal or BPO to determine value and based upon that report, among other information, makes a business choice as to what it will accept as a small payoff. This is a business choice based purely on economics.

Personally, I reckon inflated appraisals is a non-issue in this age of the Home Valuation Code of Conduct (HVCC).  Mortgage brokers can no longer order their own appraisals and as such, the sphere of influence is greatly reduced if not eliminated. The other fraudulent activities have been discussed ad nauseum throughout the blogosphere and if you don’t know by now you shouldn’t include straw buyers in the mix, or have side  agreements, well, you should stay far away from real estate investing.

As for non-arms length transactions, this one is simple: 1) Don’t involve yourself in any sort of transaction whereby the homeowner is going to keep possession of the property and 2) Realtors: if you are the listing agent you cannot be the investor.  These two roles are diametrically opposed.  Your fiduciary duty is to get the highest price possible for your client, the homeowner.  If you make a low offer and set up a second transaction at a higher price, that is prima facie proof that you have violated your duty.

Some other suggestions: Structure your transaction so that every document you submit is legitimate.  No back dating deeds or title, no fake HUD-1s, etc. If you are going to sign a HUD-1, there had better be a real estate transaction to support it.  Make sure each transaction can stand on it own – use transactional funding and do not fund the first transaction with funds from the 2nd.  In my opinion, this is an issue of “appearances” not law, but in the current market, a wise choice. Make sure that you have a excellent team behind you with experience and a working knowledge of the law in this area.

Related posts:

1. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
2. Mortgage Assignments are Not the Real Estate Investor’s Dream!
3. Seasoning and FHA’s Time Restrictions on Resales – a Legal Analysis

This investigation comes as no surprise – I have been speaking with clients and those who wanted to jump on the loan mod bandwagon about the New York Foreclosure and Lender Responsibility Act of 2008 and its effect on them, but often to deaf ears.  Most people weren’t even aware of the Act or just shrugged their shoulders and continued with business as usual.

NEW YORK, NY (June 9, 2009) – Attorney General Andrew M. Cuomo today announced his office is taking legal action against a leading New York foreclosure rescue company for charging illegal up-front fees and engaging in consumer fraud. The company targets homeowners facing foreclosure by claiming that it can save their homes, but often fails to provide the services promised.

The Attorney General’s Office served a notice of intent to sue on American Modification Agency, Inc. (“Amerimod”) and its owner and President Salvatore Pane, Jr. Amerimod is headquartered in Uniondale, NY and claims to operate in all 50 states, servicing thousands of consumers nationwide.Today’s notice is part of Cuomo’s investigation into the so-called “foreclosure rescue” industry. Cuomo’s Office also has also served subpoenas on fourteen other companies in New York and across the country that offer loan modification services.

Capitalizing on the current economic downturn and housing crisis, these companies scour foreclosure notices and filings and prey on consumers desperate to save their homes from being foreclosed. The companies promise that they will negotiate with the consumers’ banks to lower mortgage interest rates, lock in fixed rates, get late fees and past due payments forgiven, and even reduce principal balances. The Attorney General’s investigation is in response to complaints from homeowners across New York that these companies fail to deliver as promised, charge illegal, up-front fees and use misleading advertising to lure consumers into services that oftentimes leave them further in debt, facing a worsened threat of foreclosure.

“This economic climate has bred an environment in which scam artists and opportunists are able to prey on vulnerable consumers on the brink of losing their most valuable possession – their home,” said Attorney General Cuomo. “Companies that charge homeowners up front fees for loan modification services, place homeowners into contracts that don’t tell cancellation rights, or lure consumers with misleading claims violate not only our trust but the law. Today’s notice and the subpoenas issued nationwide are part of my Office’s multi-tiered effort to stamp out this kind of abuse and protect homeowners across the country.

”The Attorney General’s investigation into Amerimod found that the company charged homeowners heavy, up-front fees in advance of providing any services, a violation of New York law. In addition, the company uses misleading advertising full of unsubstantiated claims that it has success rates of 90 to 100 percent and that it is fully licensed. Amerimod also fails to provide contracts that include required notice of right to cancel, and fails to provide Spanish-speaking consumers with Spanish contracts, also in violation of New York law.

CUOMO ANNOUNCES INTENT TO SUE ‘AMERIMOD’ LOAN MODIFICATION COMPANY IN INVESTIGATION OF FORECLOSURE RESCUE SCAMS TARGETING HOMEOWNERS NATIONWIDE

Tags: loanmodification, mortgage, scam, Cuomo

Related posts:

1. Foreclosure Defense Bar: Heads Up! Forensic Exam of TBW Mortgage Corp Loan Docs Could Be Fruitful
2. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants
3. Real Estate Law Update: New York State Decisions of Interest

The IRS's willingness to subordinate or even release Tax Liens is monumental and will provide relief to those homeowners trying to refinance or sell their properties to get out from under their often bone-crushing debt.  I cannot tell you how many closings have been postponed or adjourned indefinitely because of an IRS Tax Lien popping up in title. 
- Kathleen

IRS Speeds Lien Relief for Homeowners Trying to Refinance, Sell
Carrie Bay | 12.17.08
The Internal Revenue Service (IRS) yesterday announced an expedited process that will help prevent a federal tax lien block on the refinancing of mortgages or the sale of a home by financially distressed homeowners.

If taxpayers are looking to refinance or sell a home and there is a federal tax lien filed, there are options, the IRS said in a press statement. Taxpayers or their representatives, such as their lenders, may request that the IRS make a tax lien subordinate to the claim by the lending institution that is refinancing or restructuring a loan. Or, under certain circumstances, taxpayers or their lender representatives can petition the IRS to fully dismiss its claim if the home is being sold for less than the amount of the mortgage lien, the IRS clarified.

The process to request a subordination or dismissal of a tax lien takes approximately 30 days after the submission of the completed application, but the IRS said it will work to speed those requests in the wake of the economic and housing downturn.
“We don’t want the IRS to be a barrier to people saving or selling their homes. We want to raise awareness of these lien options and to speed our choice-making process so people can refinance their mortgages or sell their homes,” said Doug Shulman, IRS commissioner.

“We realize these are hard times for many Americans,” Shulman said. “We will ensure we have the resources in place to resolve these issues quickly and homeowners can complete their transactions.
”Typically, a federal tax lien is an involuntary lien on real estate for nonpayment of income or property taxes, and takes priority over bank liens securing the same property, placing the lender at a less than advantageous position in attempting to collect a debt from a delinquent borrower who also owes taxes. In some cases, a federal tax lien can be made secondary to another lien, such as a lending institution’s, if the IRS determines that doing so will ultimately help with the collection of the tax debt – a process called subordination.

Taxpayers or their lender representatives may apply for a subordination of a federal tax lien if they are refinancing or restructuring the mortgage. Without lien subordination, taxpayers may be unable to borrow funds or reduce their payments, the IRS clarified, since lending institutions generally want their lien to have priority on the home being used as collateral.
Taxpayers or their representatives can also apply for a certificate of discharge of a tax lien if they are giving up ownership of the property, such as selling the property, at an amount less than the mortgage lien. The IRS may also issue a certificate of discharge in other circumstances if the taxpayer has sufficient equity in separate assets, can substitute other assets, or is able to pay the IRS its equity in the property. Without a tax lien discharge, the borrower may be unable to complete the homeownership change and the ownership title will remain clouded.
The IRS also urges people to contact the agency’s Collection Advisory Group early in the home sale or refinancing process so that it can start work on their requests. People sometimes delay informing lenders of the tax liens, which only serves to delay the transaction, the IRS said.

Currently, there are more than 1 million federal tax liens outstanding tied to both real and personal property. The IRS issues more than 600,000 federal tax lien notices annually.

For additional information on the IRS' lien relief for homeowners and their lenders, click here.

DSNews.Com Default Servicing In Print and Online – Formerly REO Magazine

Tags: taxlien, refinance, mortgage, refinance, small sale, real estate, closing, subordination, release, claim, IRS, Internal Revenue Service, tax

Related posts:

1. Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna
2. FHA Limits on Cash Out Refinances drops to 85%

I have been advising everyone in the real estate industry, that New York’s Foreclosure Prevention and Lender Responsibility Act went into effect September 1, 2008 and includes, among other items, strict requirements for those who seek to perform loss mitigation on behalf of distressed home owners.  These requirements include written, notarized contracts with a right to cancel and a prohibition against collecting fees upfront except for attorneys and non-profits. It seems to me that these loan modification companies are ignoring the law at their peril.
- Kathleen A. Scanlon, Esq.

Daniel Massey November 30, 2008

Shelly Ann Bell was only a month behind on her mortgage in August, but with the interest rate scheduled to adjust upward and $4,000-a-month payments staring her in the face, she knew it would soon be impossible to keep up.

So when the 28-year-ancient nurse manager got a call from a man promising to help modify the mortgage on her single-family home in Springfield Gardens, Queens, it sounded like a way out of her troubles. She says she paid $2,150 to the Loan Modification Group, a Florida-based company, and was told to stop making monthly mortgage payments. She’s now five months behind, and in danger of losing the home she bought in 2007 so her 3-year-ancient son could grow up with a backyard.“I haven’t gotten a loan modification,” she says. “I haven’t gotten anything from them.” The company could not be reached for comment.

With citywide foreclosures up 50% over a year ago, some of the same bankers and brokers who sold unaffordable, subprime loan officers are now joining the rapidly growing ranks of mortgage modification consultants. While some members of what an online ad called one of the “fastest-growing job markets in the country” run legitimate businesses, housing advocates say many are taking people’s money and doing small or nothing in return.

The burgeoning industry has caught the attention of the FBI’s New York office and the state attorney general. At best, loan modification companies provide homeowners with a service they could get for free from their lenders or nonprofit housing counselors, says the U.S. Department of Housing and Urban Development. Frequently, they question homeowners for thousands of dollars up front, which is illegal in 12 states, including New York, unless the fee is made to a lawyer or nonprofit. As part of the sales pitch, homeowners are often advised to stop making mortgage payments, putting their homes in further jeopardy of foreclosure.Often, the companies do small to facilitate an affordable mortgage modification, advocates say.

Firms bombard homeowners with mailings and phone calls; they scour public records for homeowners whose properties are in danger of being foreclosed, and they advertise on Craigslist.

“You see one here and there, and then all of a sudden you realize it’s an epidemic,” says Jessica Attie, co-director of South Brooklyn Legal Services’ Foreclosure Prevention Project. “They sound very appealing. It’s hard for people to know many are not legitimate companies.”Attorney Adam Cohen of MFY Legal Services’ Foreclosure Prevention Project, says one of his clients paid nearly $5,500 to American Modification Agency, a Long Island company that also operates as Amerimod Modification Agency. He was drawn by a flier stating that AMA was the “only company that is registered, licensed, insured and bonded to modify mortgages in the United States that has a 100% success rate and money-back guarantee.”That cloak of professionalism is misleading, as there is no way to be licensed as a mortgage modification consultant, Mr. Cohen says. And AMA not only failed to produce an affordable modification for his client, but it also caused the client to fall $30,000 behind on his mortgage by telling him not to make his payments, Mr. Cohen says.

John Schaefer, an attorney for AMA, says the client was already substantially behind in his payments and that the company was able to facilitate a modification within 22 days, which the client reneged on. As for the claims in the flier, an AMA spokesman says the agency had “no record of authorizing or authenticating” the leaflet.

The company, which claims to have 400 agents, has raised concern among officials in New Jersey, where the Mercer County clerk recently issued a consumer alert that AMA purported in phone solicitations to be working with the clerk’s office.Law enforcement agencies are zeroing in. The Illinois attorney general last month filed seven lawsuits against modification firms that failed to negotiate workouts for clients. And the Colorado attorney general has filed 15 stop-and-desist orders against such companies.In New York, Attorney General Andrew Cuomo’s office is reviewing complaints, a spokeswoman says. The FBI’s New York office is also investigating.“We are aware of it and are working diligently to address the issue,” says Supervisory Special Agent Rachel Rojas. “This is a new scheme, and we assume it’s going to get worse.”

Free | Crain’s New York Business

Tags: loanmodification, subprime mortgage, American Modification Agency, foreclosure, New York law,

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Governor Patterson signed Governor’s Program Bill #44 into law today as it was passed by the NY Assembly (A.10817-A) and Senate (S.8143-A).  The law affects notice provisions in foreclosure actions including extending a “grace period” by adding a 90 Day Pre-Foreclosure Notice. It also extends restrictions and prohibitions to “subprime mortgages”, mortgage brokers, prohibits prepayment penalties on high-cost and subprime mortgages, and criminalizes residential mortgage fraud.  Lastly, it institutes certain requirements and restrictions on “Distressed Property Consultants” (those who seek to negotiate small sales, loan modifications etc.) including numerous strict requirements such as requiring written, notarized contracts with a right to cancel, prohibiting collection of upfront fees or collecting Powers of Attorney from distressed homeowners etc.  Attorneys, non-profit organizations, and lenders are exempt from these requirements.  , The NY legislative site contains the following summary:

SUMMARY:
FARLEY, MALTESE, PADAVAN, FLANAGAN, GOLDEN, LANZA, MORAHAN, RATH, TRUNZO
Amd SS1303 & 1302, add S1304, RPAP L; add R3408, CPLR; amd Bank L, generally; amd S5-501, Gen Ob L; add Art 187 SS187.00 – 187.25, amd S460.10, Pen L; amd S700.05, CP L; add S265-b, RP L
Requires lender and mortgage loan servicers to give borrowers with high-cost home loans or higher-priced home loans ninety days notice before certain actions are taken; establishes all home loans shall be subject to certain standards and limitations; makes the crimes of residential mortgage fraud in the first, second, third, fourth and fifth degrees; relates to distressed property consulting contracts.
CRIMINAL SANCTION IMPACT.
Governor’s Program

The  bill provides new protections for foreclosures of high cost loans. subprime  home loans and non-traditional home loans. See new RPAPL 1304, and definition of Lender in(5)(g) which seems to exclude the occasional private lender. But , the bill would also amend the form of notice currently required to be issued in the  foreclosure of 1-4 family owner occupied residential properties per RPAPL 1303 and it  adds a new Rule 3408 re mandatory judicial conferences in certain foreclosure actions. You would need to look at the definitions in each of these provisions to see if private lenders are ” exempt.”

 The following is a link to the legislative web site where you can obtain a copy of the bill  and the memorandum in support :

http://public.leginfo.state.ny.us/menugetf.cgi  (enter in the bill number: A.10817-A).

The Empire Justice Center, which advocates on behalf of New Yorkers, has provided a preliminary summary of the pertinent parts of the new law and provides an brilliant starting point for digesting the contents of this sweeping change to our real property laws:

119 Washington Ave.¿ Albany, NY 12210

Phone 518.462.6831 ¿ Fax 518.462.6687

www.empirejustice.org

Foreclosure Prevention and Responsible Lending Act of 2008

Summary of Program Bill #44 (A.10817-A/S.8143-A)

Sec. 1 – Amendment to Notice Required Under the Home Equity Theft Prevention Act   (amends RPAPL § 1303)

Amends the notice required under the Home Equity Theft Prevention Act (RPAPL  §  1303) to include language advising the homeowner to immediately contact a lawyer or legal aid office upon receipt of the summons and complaint to obtain advice on how to protect themselves.  Language also is added to warn homeowners about a broader array of foreclosure rescue scams.  The amended notice must be included with the foreclosure summons and complaint starting September 1, 2008.

Sec. 2 – Ninety-Day Pre-Foreclosure Notice (adds RPAPL § 1304)

Starting September 1, 2008, lenders or mortgage loan servicers will be required to send homeowners with high-cost,[i] subprime,[ii] and non-traditional[iii] home loans a notice at least 90 days prior to the commencement of a legal action.  Notices must be sent to the borrower by registered or certified mail and by first-class mail, to the last known address of the borrower.     

            Notice language is set forth in the Act and must be in fourteen-point font.  The notice must state the number of days in default, the amount owed and the telephone number of the lender or servicer.  If the matter is not resolved in 90 days the lender can take action against the homeowner.  The lender or servicer must attach a list of at least five government approved housing counseling agencies in the homeowner’s geographic region that provide free or low-cost counseling.[iv]  The notice directs the homeowner to call the Banking Department’s Toll-Free Helpline or go to their website for more information. 

The 90-day period generally does not apply to mortgagors in bankruptcy, or if the borrower does not occupy that residence as their principal dwelling.  The notice and the ninety-day period must be provided once per year to the same borrower for the same loan.

Remedies:  A defendant may raise a violation of this section as a defense to a foreclosure action. 

Sec. 3 – Mandatory Settlement Conferences (amends CPLR Rule 3408)

Effective September 1, 2008, for residential foreclosure actions involving a high-cost home loan made between January 1, 2003 and September 1, 2008, or a subprime,[v] or a nontraditional[vi] loan where the defendant is a resident of the property, there must be a mandatory conference held by the court, within sixty days after the date proof of service of the foreclosure is filed with the county clerk, or on an adjourned date agreed to by the parties.  If the defendant appears pro se at the conference, the court may assign counsel.  The plaintiff may appear in person or by counsel, but if appearing by counsel the representative must be fully authorized to dispose of the case.  The court may allow the plaintiff’s representative to participate by telephone or video conference. 

For foreclosure actions which started prior to September 1, 2008, but where there is no final order of judgment, the defendant has a right to request a settlement conference.  The court shall request the plaintiff to identify if the loan is a high-cost or subprime loan and will send a notice to the defendant.  When requested, the conference must be held as soon as practicable.

Sec. 4 – High-Cost Home Loans (amends Banking Law § 6-1)

            >Additional prohibitions on “high-cost home loans”[vii] are added to Banking Law § 6-l, effective September 1, 2008, including a ban on payment option loans, prepayment penalties, teaser rates with a duration less than six months, and yield spread premiums (unless properly told and used to offset up front costs).  Lenders also are required to tell the taxes and insurance payment when they first present a potential monthly payment.  Starting July 1, 2010, lenders will be required to escrow for taxes and insurance.[viii]  

            Remedies:  Remedies for violations of Banking Law § 6-l remain the same.  These include actual, consequential and incidental hurts, statutory hurts, rescission, injunctive, declaratory or other equitable relief, and attorneys’ fees, depending on the nature of the violation.  Defendants may raise violations as a defense to a foreclosure action, as well.  The Attorney General and Superintendent of the Banking Department (“Superintendent”) are authorized to enforce the law.  

Sec. 5 – Subprime Home Loans (adds Banking Law § 6-m)

            Prohibitions and regulations are extended to “subprime home loans,”[ix] effective September 1, 2008.  Generally the prohibitions and regulations are the same as set forth for “high-cost home loans” including:  no negatively amortizing loans, including payment option loans; no financing insurance or other products unrelated to loan; no refinancing special mortgages; no loan flipping; no kickbacks or other payments to mortgage brokers for services not rendered, or not reasonably related to the value of excellent or services; no yield spread premiums that do not offset up front costs and are not properly told;  no prepayment penalties; and no teaser rates with a duration of less than six months.  Additional prohibitions are set forth in the Act.

Lenders making subprime loans must verify that the borrower has the ability to repay the loan, taking into account escrow payments, current and expected income, credit history, current obligations, employment status and other financial resources apart from the home.  If the loan is an adjustable rate mortgage (ARM), payment ability must be based on the monthly payment calculated at the fully indexed rate.[x]    

            Lenders must provide borrowers a counseling notice with a list of counselors, similar to the notice provided for “high-cost” loans and must tell the taxes and insurance payment amount the first time borrower is informed of monthly payment amount.  Starting July 1, 2010, lenders will be required to escrow for taxes and insurance.  Subprime home loans must include a legend at the top that the mortgage is a subprime home loan subject to Banking Law § 6-m.  Lenders are also explicitly prohibited from splitting loans or otherwise attempting in terrible faith to avoid coverage under the act.  

            Remedies:   Borrowers are entitled to actual hurts for violations of Banking Law § 6-m, and may also be awarded injunctive, declaratory and such other equitable relief the court deems appropriate in an action to enforce compliance with this the law.  Borrowers may raise violations as a defense to a foreclosure action and the court may award, in addition to other hurts, attorneys’ fees to the defendant.  The Attorney General and Superintendent also may bring enforcement actions.   

Secs. 6, 13 – Restrictions on Mortgage Brokers (adds Banking Law § 590-b)

Mortgage brokers must act in the borrower’s interest, with reasonable skill, care and diligence and in excellent faith and with
honest dealing.  Brokers are prohibited from directly or indirectly accepting, giving or charging any undisclosed compensation, and must clearly tell to the borrower within three days of the loan application all material information that could affect the borrower’s ability to get the loan.  Brokers must present borrowers with a range of potential appropriate loan products.  Mortgage brokers and lenders, are prohibited from improperly influencing or attempting to influence the appraisal process relating to a home loan.

Remedies:  Borrowers are entitled to actual hurts, injunctive, declaratory and other equitable relief deemed appropriate by a court for violations of these duties by the broker, or for violations by a lender of the appraisal provisions.  The law allows for a prevailing defendant in a foreclosure action to be awarded attorneys’ fees, implying a right to raise violations as part of a foreclosure defense.  The Attorney General and the Superintendent may bring enforcement actions.

Secs. 7 – 12, and 14-16 – Regulation of Mortgage Loan Servicers. 

Mortgage loan servicers must be registered with the Superintendent, effective July 1, 2009.  The Superintendent must set up registration procedures, and is authorized to promulgate regulations for servicers including requirements for disclosures to homeowners regarding interest rate resets; requirements regarding pay-off statements time frames for which servicers must apply payments; and requirements for servicers to file reports with the Banking Department.  Also, the right of the Superintendent to examine the business records of licensees, and related provisions regarding business practice, are extended to cover servicers. 

Remedies:  The Banking Board may prescribe regulations, as well, including grounds for the imposition of fines or other penalty.  Other remedies are available to the Superintendent and the Banking Board already available in law for violations by other registered entities including an additional penalty to be paid to the people of New York. 

Sec. 17 – Affirmative Allegation of Standing (amends RPAPL § 1302)

            Foreclosure complaints filed on or after September 1, 2008 for high-cost and subprime home loans must include an affirmative allegation that at the time the proceeding was commenced, the plaintiff was the owner and holder of the subject mortgage and note, or has authority to institute the foreclosure lawsuit.  The plaintiff also must aver that they have complied with Banking Law Section 595-a and its regulations, Banking Law § 6-1 and § 6-m, and with the 90 day notice provision (RPAPL Sec. 1304). 

Sec. 18 – Prepayment Penalties (amends General Obligations Law, § 5-501(3)(b))

            Amends current prohibition on prepayment penalties on home loans that are prepaid after one year from the date of loan origination, to specify that “high-cost” and “subprime” loans cannot contain any prepayment penalties, pursuant to Banking Law § 6-l or § 6-m.

Secs. 19–25 – Criminalization of “Residential Mortgage Fraud” (Penal Law Article § 187)

            “Residential mortgage fraud” becomes a new criminal action for fraudulent loans originated on or after November 1, 2008.  The crime is committed by any person who prepares or provides materially fake information for purposes of getting a loan, or in filing documents containing fake information with a county clerk.[xi]  Borrowers applying for a residential mortgage loan who intend to live in the property are exempted
from the definition, unless they act as an accessory.

            Penalties:  Penalties vary based on the compensation received by the offender and range from a Class A misdemeanor to a Class B felony.  Various sections of Criminal Procedure Law, Penal Law and the Banking Law are amended to include “residential mortgage fraud” within their coverage.

Sec. 26 – Requirements for “Distressed Property Consultants” (adds Real Property Law § 265-b)

 “Distressed property consultants” solicit homeowners in default and promise to help them with a work-out, responding to a complaint, or other activities regarding negotiating with the lender.  The definition does not include attorneys, lenders generally, and bona fide not-for-profits such as housing counseling and legal services agencies. 

Effective September 1, 2008, there must be a written contract between the consultant and the homeowner that sets forth the nature of the service, compensation expected and contact information for the consultant.  The homeowner has a right to cancel the contract within five days and must be given a notice of their right to rescind, referrals to non-profit and government agencies, along with two copies of a “Notice of Cancellation” form that the homeowner may use to cancel the contract (language for the notice and form is set forth in the bill).  Consultants are prohibited from receiving payment for services before the full completion of such services, taking power of attorney from the homeowner and retaining original loan documents of the homeowner, among other things.

Remedies:  Violation may result in voidance of the contract, as well as actual and consequential hurts and costs should the homeowner be harmed.  If the violation was intentional or reckless, a court may award treble hurts and attorneys’ fees.  The Attorney General also may bring an action, including an action to enjoin the offender.  

Tags: Foreclosurelaw, distressed property consultant, new york, Governor Patterson, subprime, mortgage, settlement conference, high-cost loan, small sale, loan modification, real estate

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