Sunday, December 16, 2012

How NOT to Shoot Yourself in the Foot with a Loan Mod

How NOT to Shoot Yourself in the Foot with a Loan Mod

Reference Case:  http://docs.justia.com/cases/federal/appellate-courts/ca5/12-50064/12-50064-2012-10-03.pdf

 

Okay, let’s suppose you want a HAMP loan mod so you can stay in your house after losing your job and becoming unable to make mortgage payments.

 

You might like these ways of shooting yourself in the foot

 

1.       Lie on the Loan Mod application by claiming you cannot afford payments when you can.

2.      Take the Trial Payment Plan (TTP) reduced payments, and spend the excess on needed home improvements.

3.      Fail to follow the Loan Mod steps PERFECTLY

4.      Sue the lender for not granting the loan mod when you fail to follow those steps perfectly.

 

Borrowers need to consider some related realities:

 

1.       First of all, a Loan Mod IS A CONTRACT.

2.      Second, the Bank does not have to approve the loan mod except in accord with written, signed agreement.

3.      Third, borrowers still owe principal and interest on the existing loan until they and the bank execute the loan mod agreement

4.      Fourth, a loan mod constitutes a stupid investment for most people because of the hardship the balloon will impose and the percentage of payments that constitute interest.

 

I have attached a USCCA for the 5th Circuit opinion for Case No. 12-50064 (Pennington & Smith v. HSBC and Wells Fargo Bank) with yellow highlighting to illustrate the above points.  The litigants sued the lenders in Texas state court, the banks removed it to USDC, the USDC dismissed it, and the USCCA affirmed the dismissal. 

 

The court pointed out that one appellant stupidly admitted having enough money to make the normal mortgage payment, and another claimed to have spent the excess on home improvements.  That alone justified denial of the Loan Mod because the bank won’t give a loan mod out unless the borrower suffers dire impossibility of making payments.

 

Mortgagors need to understand that they commit a federal crime by lying on a loan application, and that could land them in prison with a hefty fine to pay.

 

Mortgagors need to understand that if they make a mortgage payment 5 minutes after the close of business on the due date, the bank can foreclose on the loan in accordance with the terms of the note and mortgage security instrument.  Lenders don’t have an obligation to give a grace period, even if they charge a late fee.

 

Borrowers cannot validly complain if lenders use foreclosure as a strategy to turn over the loan.  As any student knows, banks want to make money from loans, and they best do that through payment streams, tax benefits, securitization, insurance, origination fees, and keeping the loan “fresh.”  By “fresh” I mean keep the loan new enough so that the vast majority of the payment constitutes interest.  Fresh means less than 3 years old, and certainly less than 5 years old.  Lenders want borrowers to sell the house so a new owner will get a new loan on it.  They want borrowers to refinance and blow the money on luxuries they don’t need.  They want to collect insurance payoffs for their losses when borrowers stiff them.  They want to foreclose so they can get a shill to buy the house for as song at auction and flip it to them cheap so they can make more on resale.  Sure, some lender ambitions backfire and leave them with a ton of real estate in their inventories. But they love fresh loans, and they would never do a loan mod if not financially beneficial to them.  That’s why they require a huge balloon payment on the back end.  They know most borrowers will not have the ability to pay it, and the bank will foreclose on them anyway.

 

The Loan Mod – a SERIOUS MESS, not good for most mortgagors

 

Allow me to put this whole Loan Mod mess in perspective for you.

 

You have mortgage woes and you want the bank to cut you a break.  So you go groveling to the bank for a loan mod, the bank strings you along, you get behind on your mortgage, the bank denies the loan mod because YOU DID NOT QUALIFY, and the bank forecloses on you.  You have NO CLOUT.  You cannot negotiate your way out of a paper bag.  Your rainbow at the end of the tunnel becomes a firestorm from hell.

 

You sue the bank for stiffing you in the loan mod, and the court throws you out, minus several thousand for the cost of the lawsuit.

 

You hire a foreclosure defense attorney who bilks you $10K to $20K to keep you in the house a while longer.  But you lose the house anyway because you cannot convince the court or the trustee that you don’t owe the money.

 

You get NO MERCY.  Pardon the expression, but YOU become the attorney’s BITCH, the servicer’s BITCH, and the Bank’s BITCH.  You got ZERO respect and you still lost a fortune.  You became DOG-MEAT and the bank became the DOG.  And your foreclosure defense LAWYER fed you to that DOG.

 

All because you failed to follow a workable, sensible strategy.  You probably think no such strategy exists because if anyone could win for you, those foreclosure defense lawyers could.  If never occurs to you that you became a victim of legal malpractice in that failing foreclosure defense.

 

Key to Winning:  Professional Mortgage Examination

 

But I have GOOD NEWS for you.  A winning strategy DOES exist.  It will put YOU in the driver’s seat of your mortgage.  It will make you the BIG DOG.  It will let you turn the lawyer into your bitch, and the bank into DOG MEAT.  The winning strategy is:

 

GET YOUR MORTGAGE EXAMINED FOR TORTS, CONTRACT BREACHES, and ERRORS.

Walk from the house if the exam shows no causes of action – you will lose it anyway

If the exam shows causes of action, NEGOTIATE OR SUE FOR SETTLEMENT

 

Do you SEE?  That’s as easy as 1-2-3:  Exam, then walk or settle.

 

What does the exam do?  It lets you NEGOTIATE FROM A POSITION OF STRENGTH.

 

When the bank sees that the exam uncovered fraud in the loan application or appraisal (typical), its officers will prefer to settle with you through a loan cram-down – a reduction of the balance to the value of the house, and a refinance at the going rate for 30 years with NO BALLOON.  Now THAT is a sensible mortgage you can probably afford.

 

Furthermore, the bank knows that if you sue, the court might award you PUNITIVE damages as well as compensatory damages.  That realization will incline them toward giving you the house free and clear to avert the lawsuit.  And if you actually have to sue, a competent attorney might obtain a substantial cash settlement for you, as in this case.

 

Maybe You Should WALK from the House

 

Mortgagors who rush into a loan modification desperately want to stay in their homes.  They feel comfortable and at home there, like the house has become another arm, leg, or vital body part.  In reality the house IS just a house, whether or not you consider it home, and you can easily make another house or an apartment your home.  You will soon feel at home there and become accustomed to it.

 

Consider also that memories of a house and the family activities in it ARE NOT REAL.  They are only memories of times, places, and events that no longer exist.  So you have no need to treat them as though they are real.

 

Most families have out-grown their houses.  They have added or lost family members and either have too much or not enough living space.  Too much means you waste money on utility bills and maintenance.  Not enough means you get in each other’s way.  Either way, you need to economize and MOVE TO ANOTHER HOUSE.

 

Furthermore, many houses become run down and need tens of thousands of dollars in repairs and refurbishment – new roof, lawn, shrubs, tree trimming, paint in and out, gutters, pool deck, awning, carpets, windows, curtains/blinds, appliances, plumbing, etc.  Some houses become infested with mold or termites or other pests, and unsafe for human habitation.  If you have a hard time affording payments, you certainly cannot afford all those improvements and repairs and you should MOVE TO ANOTHER DWELLING.

 

Worst of all, houses have become very bad investments as values have plummeted to 2/3 or ½ of their former values.  Most mortgagor owe more than the actual value of the house, and you should MOVE TO ANOTHER DWELLING and get out from under your bad investment.

 

Most banks will cooperate in short sales or keys-for-cash deals that actually conserve your credit rating somewhat.  Most people could make such a deal and leave the house broom-clean, then qualify for a government-sponsored mortgage after two years of good credit reports.

 

Consider these factors.  Maybe you should just walk from your house for the above reasons.  It will take a huge load off your mind.  By contrast, a loan mod will simply put a huge load on your mind.

YOU:  the Dog or the Dog-Meat?

 

I don’t feel certain that you grasp the simplicity and importance of the exam.

 

When you face foreclosure, that means YOU INJURED THE BANK by failing to make the mortgage payment.  And the trustee or court will force a sale of the house to pay off the debt.  And these days you’ll probably get stuck with a huge judgment lien against you that will last 20 years unless you can discharge it in bankruptcy.  And you will have RUINED your credit rating, so it can take 10 years before any lender will trust you again.  The FORECLOSURE ALWAYS HAPPENS when you don’t make your mortgage payments, and no foreclosure defender can stop it for long.  Sure, exceptions exist, but statistically the foreclosed borrower ALWAYS loses the house.

 

The mortgage exam shows WHERE THE BANK INJURED YOU.  And when you can prove the bank injured you, your lawyer can attack them in court and the court will rule in YOUR favor, possibly voiding or rescinding the loan and awarding you a lot of money to compensate for your injury and punish the rotten, corrupt, greedy bank.

 

Without the exam, you become the dog meat.

With the exam, you become the dog.

 

You choose:  Dog Meat, or Dog – which one will you become?

Why Attorneys Should Love the Mortgage Exam

 

Foreclosure Defense attorneys love to get your money, and they love to do loan mods because they collect commissions.  Unfortunately, they must wait until AFTER the borrower and bank execute the loan mod contract before they can get paid their cut of the commission AND the borrower’s fee to the attorney.

 

But IF the attorney gets the exam done, the attorney can collect the money up front.  And then the attorney can negotiate the settlement with the lender, or sue the lender.  In the end, the attorney can negotiate a brand new loan for the borrower with better terms than the loan mod.  So in effect, the attorney can negotiate a loan mod of a different kind, but get paid up front for it, and not have to abide by a law that makes him wait for payment.

 

See this from the attorney’s perspective.  They always want up-front payment because they know they cannot trust clients to pay them after they deliver the service.  Why?  Because with respect to mortgages, they always lose when defending a foreclosure because the borrower has NO VALID DEFENSE for failure to make mortgage payments.  So foreclosure defense lawyers have to PRETEND they win when the court dismisses the case without prejudice because (for example) the plaintiff failed to verify the complaint, or assigned the note after filing the complaint.  THAT constitutes only a temporary setback, NOT A WIN.

 

The mortgage exam provides attorneys THE ONLY POSSIBLE AVENUE TO WINNING a cash settlement or the house free and clear for the foreclosure victim or mortgage victim.  And this remains true even for mortgagors who have an underwater loan but don’t face foreclosure. ONLY A COMPETENT MORTGAGE EXAM can provide the necessary tool for actually WINNING a substantial monetary award in lawsuit against or settlement negotiation with the lender.

 

Most foreclosure defense attorneys seem to HATE the mortgage exam idea because of their scheme for taking money from their frightened, desperate foreclosure victim clients.  Instead of saying “Pack your stuff and get out of that house because I cannot prevent the foreclosure,” they say “Pay me $500 to $1000 a month for as long as I can keep you in the house, and by the way, I’ll need $2000 retainer to get started on your defense.”  Then they cookie cut their old pleadings and to minimal actual work on the case documents.

 

The exam actually gives those lawyers a path to hard core wins for their clients, and to up-front payments for loan mods, but few seem inclined to embrace the exam.

How to Get Your Mortgage Professionally Examined

 

If you want a professional examination of your mortgage, appraisal, securitization, and foreclosure, contact me right away.  I will explain everything you need to do and how the exam works, and how to use it to get the lender’s respect.  I do not charge any money for any service I perform.

 

However, the professional examination company’s employees have to eat, and maintain an office and web presence, so it charges money for the examination.  You will deal with them, not me, for the examination, and you will receive your exam report within 7 business days after you provide the documents and payment.

 

It costs you nothing to investigate this opportunity to put yourself in control of your financial situation.  If you have mortgage that you contracted within the past 10 years, especially if you face the need for a loan mod, or you face foreclosure, send me your contact information or call me.  I’ll orient you free of charge, and put you in touch with an examiner if you decide you want a mortgage exam.  It can bring an end to your suffering and anxiety.

Conclusion

 

In conclusion, I believe almost EVERY mortgagor who contracts a loan mod under typical terms with the big balloon toward the backend effectively shoots himself in the foot with a BAD BUSINESS DECISION.

 

The only practical way to get a bank to modify a mortgage consists of getting a mortgage examination done, and taking the causes of action to the lender with a DEMAND for a cram-down loan for the present value minus paid-in equity fixed at the going interest rate for 30 years.  Or to sue for compensatory and punitive damages if the lender becomes recalcitrant.  THAT is a loan mod that make sense:  the house free and clear and no loan balance at all.  Let me know if you find a foreclosure defense attorney who can give you that without a professional mortgage exam.

 

  

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WARNING:  I do NOT function as  law practitioner, lawyer, licensed attorney-at-law, or legal advisor.  Construe my comments ONLY as speculation or general information, and NOT as legal advice for you or anyone else.  Consult a well-qualified attorney (good luck finding one) in all questions of legality or law.

 

Bob Hurt

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