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.

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

Small sale transactions are essential to go properties in furtherance of rebuilding our economy. They directly benefit several parties including:

• the distressed homeowner: unburdened by debt he cannot afford without the same level of credit score hurt a foreclosure would cause as well as possible deficiency judgments;
• the real estate agent: earns commissions (provides jobs etc);
• the small sale bank: removes nonperforming assets from its books,  usually at far less of a loss than if the property became an REO; and
• real estate investors: acquiring properties at a discount provides incentive to negotiate as well as to seek out qualified purchasers

Part of the fallout from the real estate market crash is a rash of negativity aimed directly at real estate investors.  They, along with mortgage brokers and other members of the real estate community, are being made the scapegoats for the Housing Bubble.  I’m going to clue you in on a small secret – it really wasn’t them.  Not that there weren’t unscrupulous investors, loan officers etc. – far from it.  Point the finger directly at the Banks and the Government. The Banks needed those deals to package up and sells as mortgage backed securities on Wall Street.  When there was not enough product, they lowered their standards to bring in more loans. They blatantly ignored fraud reports and lended on questionable properties. The banks made exotic loan products and recklessly offered them without regard to ability to pay.  The Government wanted to increase homeownership among minorities – hence ACORN. It made several programs and incentives to push the percentage of homeownership way above the standard amount.  I am also going to point the finger at the American Homeowner who chose to use their home as an ATM, or who lied on their loan applications because they needed to compete with the Joneses.  Lets also add real estate agents to the mix who fought for higher and higher appraised values and selected comparables for their Broker Price Opinions (BPO) to influence the appraiser to come in higher. (RANT finished)

These very parties, who irresponsibly handed money to unqualified buyers on overvalued properties, as part of their attempt to pass the blame to real estate investors, are throwing around the “fraud” mark with regard to flipping small sale transactions (for more discussion on Small Sale Fraud please read my prior blog post). In an attempt to curtail the investor’s ability to flip these properties, some banks are including “no-flip” clauses in their small sale approval letters. I have seen this language in Bank of America, GMAC, EMC,Countrywide to name a few.  There are varying forms of this language from purporting to restrict the transfer of the subject property for 30 days post closing to voiding the transfer and reinstating the note and security agreements, post-closing, if the bank determines that there was fraud.

The simplest language to address in the 30 day post-closing restriction on transfer.  Lets review basic contract law and the doctrine of privity.  Basically a contract does not confer rights or impose obligations upon anyone except for the parties to it. The contractual relationship is between the homeowner and the bank. The small sale approval is a settlement of the debt obligation between these parties.  The bank has no contractual relationship with the investor and/or buyer and therefore this language, purporting to impose a restriction on the investor/buyer, is unenforceable against the investor/buyer. With respect to the other no-flip clauses, Bob Massey does an brilliant job of explaining how to handle those banks in his video:

I have located an underwriting bulletin from Stewart title which addresses these problematic clauses in small sale approval letters.  It indicates that such language makes the transaction “uninsurable”.  As Massey suggests, request that the clause be removed from the small sale approval letter as title will not insure the transaction and provide a copy of the title bulletin to support your argument. You might have to bypass the negotiator and contact a supervisor but this should be sufficient to persuade them to delete the offending language.

What have you encountered and what has worked for you? Please comment!

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. PropertyShark University – Short Sales Class – Tues June 17, 2008 – Don’t Miss It!!!
3. Buyer $5,000 Short – How to Close the Gap…from a NY Point of View

No related posts.

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

Related posts:

1. Treasury Department’s “Making Home Affordable” Program Attempts to Tackle 2nd Lien Dilemna
2. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
3. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock

Those engaged in foreclosure defense should take a closer look at loans originated by TBW  when structuring their defense strategy…

Florida Company Reaches Multi-state Agreement Over Non-traditional Loans

Carrie Bay | 06.25.09

Taylor Bean & Whitaker Mortgage Corp. (TBW), a wholesale lender based in Ocala, Florida, has agreed to pay 13 states and the District of Columbia $9 million in fines after regulators took a closer look at the company’s nontraditional mortgage loans made in 2006.The examination alleged TBW, currently one of the 10 largest wholesale mortgage lenders in the United States, altered borrowers’ income and asset information in order to qualify applicants for mortgage loans they couldn’t afford and place them into so-called exotic loans, such as interest-only mortgages, payment option adjustable-rate mortgages, and stated income loans.

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

Tags: TBW, subprime, mortgage, forensic, foreclosure, default, realestate, loan, loanmodification, shortsale

Related posts:

1. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
2. Washington Mutual to end 2 complex mortgage types
3. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants

I find it utterly incredible that Patterson credits New York’s 23% decrease in foreclosures in 1st Quarter 2009 as compared to 1st Quarter 2008 (compared to a 24% increase nationally) to his New York Foreclosure Prevention & Lender Responsibility Act of 2008 where the credit should lie in New Yorkers’ steadfast resolve to be represented by attorneys for the largest transactions of their lives.

While politicians continue to churn out legislation after legislation eliminating borrower choice, capitalism and so forth, perhaps the Department of Justice’s position that lawyers make an unfair monopoly in the area of real estate closings should be revisited as the lawyers are the only ones out there who can preserve our freedom to choose and protect the average American from being misled into a toxic mortgage. 

New York Governor Wants Stronger Mortgage Protections
Carrie Bay | 06.15.09

New York Gov. David A. Paterson has proposed legislation that would build upon the state’s subprime lending reform law enacted last year. The measure centers on providing additional protections for homeowners and tenants, establishing safeguards against foreclosure rescue scams, and preventing urban blight caused by foreclosed homes.According to Paterson, more needs to be done to prevent predatory lenders from taking advantage of New Yorkers. He also says lawmakers can no longer allow tenants who live in foreclosed properties to find their leases terminated without reasonable notice, nor can they let struggling homeowners who are looking for help lose their homes to loan modification scams.

For more please read: DSNews.Com Default Servicing In Print and Online – Formerly REO Magazine

Tags: loanmodification, subprimemortgage, foreclosure, tenants, wallstreet, realestate

Related posts:

1. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
2. DANGER ZONE – New York Post
3. Foreclosure Defense Bar: Heads Up! Forensic Exam of TBW Mortgage Corp Loan Docs Could Be Fruitful

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

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,

Related posts:

1. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
2. Foreclosure Defense Bar: Heads Up! Forensic Exam of TBW Mortgage Corp Loan Docs Could Be Fruitful
3. Mortgage Assignments are Not the Real Estate Investor’s Dream!

Carrie Bay 12/02/08

Investors of securities backed by Countrywide mortgages filed a lawsuit against the lender on Monday, alleging that Countrywide has no right to modify under-performing loans that were packaged and sold as securities.

In early October, Countrywide’s parent company, Bank of America, reached an agreement with 15 state attorneys general to settle claims against Countrywide regarding predatory lending practices. Under the deal, Bank of America agreed to modify as many as 400,000 Countrywide loans, reducing payments due on mortgages it services by as much as $8.4 billion.

Investors who now hold those loans are demanding that Countrywide buy back every mortgage it plans to modify under the multi-state settlement agreement. The lawsuit was filed by the law firm of Grais & Ellsworth LLP in the New York State Supreme Court, on behalf of Connecticut-based Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC, which bought the mortgage-backed securities (MBS).

The complaint claims that Countrywide is shifting the $8.4 billion modification cost to 374 mortgage trusts, related to two series of securitizations known as CWL and CWALT. The plaintiffs say they do not oppose the settlement reached between the attorneys general and Countrywide, but are seeking resolution from the court that the lender “is required to buy any loan on which it agrees to reduce the payments.

“The complaint also said that if the trusts involved “are forced to absorb the reduction in payments occasioned by Countrywide’s settlement of the allegations against it, then the value of the securities that those trusts sold to investors will decline,” causing hurts to the bond investors.

According to lawyers for the plaintiffs in the complaint, Countrywide and Bank of America would be liable to pay hundreds of trusts a total of about 80 billion dollars for loans it has promised to modify, a Reuters report said. Countrywide has denied it is required to repurchase the loans it intends to modify, and said it was considering the interests of investors when it agreed to the October settlement. Bank of America said it was “disappointed in this attack on a program intended to keep at-risk families in their homes” and help stabilize the spiraling housing market.

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

Tags: subprime, loan modification, Countrywide, Bank of America, wall street, mortgage backed securities, real estate, mortgage

Related posts:

1. Short Sales & No-Flip Clauses in the Approval Letter – Removing a Roadblock
2. DON’T SAY I DIDN’T WARN YOU! NY Attorney General’s Crackdown on the Loan Modification Industry
3. Fannie and Freddie – What Went Wrong and Can It Be Fixed?

More than a Million Homes in Foreclosure in Latest Report – June 5, 2008

NEW YORK (CNNMoney.com) — More than one million homes are now in foreclosure, the highest rate ever recorded, according to a trade group which warned Thursday that number will continue to climb.The Mortgage Bankers Association’s first quarter report showed that a record 2.5% of all loans being serviced by its members are now in foreclosure, which works out to about 1.1 million homes. That’s up from the 2% of loans, or about 938,000 homes, that were in foreclosure at the end of 2007.

More than a million homes in foreclosure in latest report – Jun. 5, 2008

Tags: foreclosure

         Proposed NY Senate Bill Would Enforce Upkeeping of Foreclosed Homes

Kerri Panchuk
| 06.03.08       New York State Senator Jeff Klein is one of several lawmakers
supporting New York State Senate Bill 7028, a piece of legislation that
would require the “winning party” in a foreclosure action to ensure a
home is cared for properly, especially if a local neighborhood
homeowners’ association requires that specific maintenance measures
occur.Senate Bill 7028 specifically says, “Where a final judgment for
the holder of a mortgage has been rendered in an action to recover any
part of the mortgaged debt, it shall be the duty of the prevailing
party to enter into control and possession of the foreclosed property
and to maintain it in a safe and habitable condition until said
premises are sold.”

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

Related posts:

1. Mortgage Assignments are Not the Real Estate Investor’s Dream!
2. Washington Mutual to end 2 complex mortgage types
3. NY Governor Looking to Expand Protections for Defaulting HomeOwners, Tenants