The Florida Bankruptcy Law Blog

Mortgage Lenders Paying Homeowners To Find Short-Sale Buyers

Are mortgage lenders finally “getting it?” Since the beginning of the housing crash so many homeowners have expressed to me their frustration trying to work with their mortgage company to arrange a reasonable short sale of their real estate. These homeowners could not comprehend why the mortgage lender believed it was in their interest to foreclose on a property and then own the real estate instead of working through a short sale to dispose of the property to a ready and willing buyer. 

Bloomberg online published an article indicating man banks now believe that moving property off their books through cooperative short sales is a better solution than foreclosure. The article states: 
Lenders have routinely delayed or blocked such transactions, known as short sales, in which they accept less from a buyer than the seller’s outstanding loan. Now banks have decided the deals are faster and less costly than foreclosures, which have slowed in response to regulatory probes of abusive practices. Bloomberg’s article says that banks are releasing personal liability and are even offering troubled homeowners cash bonuses up to $35,000 to find a short sale purchaser for their upside down property. 

If true, this is welcomed news for homeowners stuggling to dispose of upside down properties. My question is, why did it take the banks so long to realized the mutual benefits of short sales? 

 

 

Foreclosure and Stay Relief Denied When Mortgage Lender Cannot Demonstrate Proper Assignment of Mortgage Instruments

As most know, during the years leading up to the real estate crisis mortgage lenders originated individual home loans and then assigned packages of these loans to investors who converted the packages to mortgage securities. The assignment process involved an intermediary organization called Mortgage electronic Registration System, Inc. (“MERS”) which held millions of mortgages as an agent of the original lender and essentially served as a mortgage storage bin to facilitate mortgage transfers during the securitization process.

Attorneys defending mortgage foreclosures often as part of their defense challenge the plaintiff lender’s standing to bring a foreclosure suit. The challenge is based on whether the mortgage was properly assigned from the original lender to the investor that holds the mortgage and is bringing the foreclosure action. A recent New York bankruptcy court decision denied a mortgage lender relief from the bankruptcy stay to pursue a foreclosure because the court found that the lender could not properly substantiate his legal rights as assignee of the original lender and MERS.

In this case the original lender assigned the mortgage note to MERS as “nominee”. The assignment provided that MERS “holds only legal title to the rights” in the mortgage. MERS assigned the note to another lender as a trustee of an investment trust. The court held that the assignment from MERS to the trustee did not adequately evidence what rights in the note were being assigned. The court concluded that the assignee lender/trustee lacked standing to foreclose the mortgage and was not a party in interest. Therefore, the court denied relief from the banrkuptcy stay necessary for continuation of the foreclosure process in state court. In re Lippold Case No. 11-12300, Southern District NY.

Chapter 13 Mortgage Mediation Seminar Reports Program Success

Last month I attended a seminar about mortgage modifications in Chapter 13 bankruptcy. There were several points that warrant a series of blog posts.

One speaker compared mortgage mediation in the context of a Chapter 13 bankruptcy with mortgage mediation in a state court foreclosure. He explained why the homeowner usually has a better chance to save his home by filing Chapter 13 and requesting mortgage mediation.

The speaker stated that only four percent of state court mediation results in permanent loan modification whereas about 60% of bankruptcy court mediation produces a permanent loan solution. Many homeowners have two or more mortgages on their home; state court mortgage mediation affects only the mortgage foreclosed. Modification of a first mortgage, for example, does not change junior mortgage payments. Chapter 13 “strips” off unsecured second mortgages. A modified first mortgage together with a stripped second mortgage provides greater financial relief to the homeowner. Also, Chapter 13 bankruptcy reduces credit card payments, and reduction of unsecured debt payments makes it easier for homeowners to afford a modified mortgage.

Even mortgage companies fare better in a bankruptcy. Even though a Chapter 13 plan provides the stripped second mortgage, credit card lender, and other unsecured creditors a much reduced payback, these creditors at least get some money through the bankruptcy. A foreclosure often leads the homeowner to file Chapter 7 bankruptcy in order to wipe out 100% of his debt.

Another Court Says Reaffirm Personal Liability On Mortgage Or Face Foreclosure

Another bankruptcy court decision on reaffirmation of mortgage loans. Bankruptcy debtors have always understood that they had to reaffirm their liability for car loans if they wanted to keep the car through bankruptcy. Many debtors over the years believed they did not have to reaffirm secured loans such as home mortgages. A Middle District bankruptcy court ruled a couple years ago that a mortgage lender could demand the homeowner reaffirm personal liability on mortgage debt. If the debtor refused to sign a reaffirmation agreement then the mortgage lender could take the house just as a car lender could repossess a car if the debtor did not reaffirm the car debt.

A bankruptcy court in the Southern Division of Florida recently issued an opinion which reached the same conclusion. The court held that a debtor who is unwilling to reaffirm a home mortgage must either pay off the mortgage in full or indicate an intent to surrender the home to the mortgagee. The court pointed out that if the debtor does not want to reaffirm liability the mortgage lender is not required to foreclose. The court stated that if a debtor is unwilling to enter into a reaffirmation agreement and unable to pay off the mortgage the lender may nevertheless determine that it does not want the collateral and permit the debtor to stay in the home as long as the debtor makes satisfactory periodic mortgage payments. The bankruptcy code recognizes that the lender may take action to collect mortgage payment in lieu of pursuing a foreclosure. Case No. 10-40367.

Mortgage Mediation In Chapter 13 Bankruptcy Sabotaged By Lender Document Requests

Have you been jerked around by mortgage banks in court ordered mortgage mediation in Chapter 13 bankruptcy cases? Another local attorney spoke with me this week about how big banks are playing debtors and their attorneys in court ordered mortgage modification mediation.

The attorney’s client filed Chapter 13 in Orlando where the courts have for some time ordered mortgage lenders to participate in mediation regarding modification of Chapter 13 debtor’s home mortgages. His client has a first mortgage with a very big bank whose home office is in a very big state west of the Mississippi.

The court issued a standard mediation order requiring the bank to let the debtor know all the documents needed for mediation at least 14 days prior to the mediation. The lender requested documents, and the debtor provided documents requested.

As soon as the mediation started the lender announced that they could not evaluate the modification, provide hypothetical results, or in any way discuss the modification because– you guessed it— they needed still more documents. One of the main documents was an updated pay stub which the debtor said he had at home and could have provide if only the bank gave him just one days notice instead of the 14 day notice specified in the court order. The attorney told me that the mediation was adjourned in 10 minutes.

As a result, the debtor took off a half of day of work for nothing, and the debtor attorney wasted two hours of his time, for nothing. Sue for costs and sanctions? Not so easy to do.

Here’s the problem. Mediation is confidential. No matter how much the lender screws you over in the mediation you cannot introduce the conversation as evidence in court. In this case, for example, the attorney could not tell the court that as soon as the mediation began the lender made another document request.

Chapter 13 Bankruptcy Mortgage Mediation Seems To Be Working Well

Mortgage mediation in Chapter 13 bankruptcy is turning out to be more effective than mediation ordered in state court foreclosure cases. This, according to a report presented at a local attorneys’ meeting. Mortgage lenders express greater willingness to modify first  mortgages of debtors in Chapter 13 bankruptcy compared to other debtors already facing foreclosure in state court.

The explanations given are common sense. A Chapter 13 bankruptcy debtor eliminates or reduces other debts through bankruptcy which makes it easier to pay the first mortgage and therefore, more likely the modification will succeed. A Chapter 13 permits the debtor to pay only part of his unsecured debts and only part of a second mortgage payment, if any. The debtor pays his other creditors only what he can afford to pay based on current income and expenses. The reduction of all other debts permits the debtor to concentrate on paying his modified first mortgage.

Another explanation for Chapter 13 mortgage modification success is that the foreclosure law firms have only a few attorneys concentrating on bankruptcy mediation because bankruptcy rules make the mortgage mediation procedure more complicated than the standard state court mediation. With few attorneys involved, the mortgage lender’s process and response is relatively consistent and predictable.

Whatever the reason,  mortgage mediation program started in Orlando, Florida, bankruptcy court seems to be working.

Mortgage Modification And Bankruptcy: HAMP Directive Protects Bankruptcy Debtors

Many people forced to file bankruptcy against unsecured debts are also trying to save their primary residence from foreclosure by negotiating mortgage modification. Many of my clients and callers are very worried that a bankruptcy could mess up their mortgage modification effort. Not true.

In March, 2010, the government issued a Supplemental Directive under HAMP (Home Affordable Modification Program) designed in part to assist and protect bankruptcy debtors. Lenders must considered bankruptcy debtors’s request for mortgage modification, and homeowners in the midst of a trial modification cannot be denied HAMP modification if and when the file bankruptcy. Clients ask me often if they have to reaffirm their mortgage in bankruptcy in order to pursue mortgage modification. The answer is "no." The HAMP rule provides that Chapter 7 bankruptcy debtors who do not reaffirm their mortgages are equally eligible for mortgage modification. The Chapter 7 debtor can modify his home mortgage without personal liability in the event of subsequent default.

The HAMP directives have other important bankruptcy protections and rule. Discuss your mortgage modification with your bankruptcy attorney.