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Wash Homeowners Need Info on Foreclosure
Transcript of Wash Homeowners Need Info on Foreclosure
You should always contact your attorney or other expert to obtain advice with respect to any particular issue or problem.
Use of and access to this presentation and information contained within do not create an attorney-client relationship between the attorney author, Stafne Law Firm, and the attendee/viewer. The opinions expressed at or through this presentation are the opinions of the individual author and may not reflect the opinions of the firm or any individual attorney. General information applicable primarily to default and foreclosures in Washington on pre-2009 Mortgages.
-- This is not about the Real Estate Purchase or Sale Agreements, Title Insurance etc..
-- May not apply in commercial or agricultural property
-- All of this information is commonly available and assembled in an organized format. Small Print: PURCHASE 2005 2013 PAYMENTS DEFAULT ORIGINATION 2005 2013 SECURITIZATION DEBT COLLECTION 2005 SERVICING NOTE DEED OF TRUST PURCHASE MONEY MERS SYSTEM PRE-FORECLOSURE FORECLOSURE and EVICTION "Origination" - refers to the initiation and completion of the home loan process, which begins when a borrower submits their financial information to a bank or mortgage lender for loan processing. This reflects the "Primary" mortgage market place. -- Originator: Persons or institutions who work with you to do the loan application.
-- Sometimes involves mortgage brokers, loan specialists, etc..., and can be large banks (Chase) or small mom and pop shops (Frank's EZ mortgage). Their Goals are: (1) interest you in buying a mortgage product; (2) submitting paperwork to close loan.
Generally, Salespersons don't usually get paid unless they close the loan; so incentive to close. They will earn all or a piece of the Loan Origination Fee, and/or any other fees they can get. All fees should always be fully disclosed on the HUD-1 and/or Good Faith Estimate.
The originator(s) will assemble Application: submission documents, credit report, signatures etc..., and then submit the application to the loan program (internal or external).
Underwriter will issue a decision: approve, condition, suspend for more information or deny.
Obviously getting more customers, more approvals, for less work, would make the business of origination more profitable. Theories of Liability for Originators Liar Loan - common practice of accepting borrowers stated income and taken at word. Became more of a problem where Brokers encouraged omission of known information leading to disqualification under loan program or different terms. One of the factors responsible for misrepresentation of risk (see securitization) or predatory loans (see below)
Fair Lending/Discrimination - terms based on race, ethnicity, marital status. E.g., Countrywide. For example:
-Countrywide's 2 step pricing model: set a median interest with range, and allowed loan officers to negotiate within range without standards or oversight.
- Statistically White borrowers receive Prime rate mortgages, Hispanic received Subprime; and, Officers Encouraged married borrowers to apply for credit in one spouse’s name to have their non-applicant spouses give up all their rights and interests in the property.
More Traditional Fraud and Scam - Inducing Homeowners into executing fake mortgages. For example: a Broker, title agency induced homeowner to refinance using the equity in her home by using a "straw buyer", (fake purchaser) with favorable credit score, purchaser is approved and pockets money, leaving new lender to foreclosed upon property. Scam was sophisticated enough to provide receipts of fake mortgage payments.
Predatory Lending of Adjustable Rate Mortgages - "imposing unfair and abusive loan terms on borrowers" i.e., sale of a loan to persons unlikely to repay with surprise terms. Practices include: (1) charging more for extending credit to riskier borrowers (see also discrimination above); (2) not presenting that a loan is negotiable; (3) Misrepresenting or failing to disclose terms; e.g., balloon payment or negative amortization; (4) disproportionate fees, packing hidden fees and/or fee nondisclosure; (5) targeting older or financially unsophisticated persons who could qualify for mainstream product; (6) "strip" or "flipping" frequent refinancing that result in little or no economic benefit to the borrower and are undertaken with the primary or sole objective of generating additional loan fees, prepayment penalties, and fees from the financing of credit-related products (7) single premium credit life insurance; (8) false appraisals
Interest Rate Control/ARM interest overcharges.- e.g., LIBOR. Lawsuit Limitations For Origination Issues Some Culpable Parties Insolvent or Difficult to Locate
Other Culpable Parties difficult to prove involvement
Statute of Limitations, equitable tolling and the "Discovery" rule. Examples:
TILA - you generally have one year rule for statutory and actual damages to run (three years under certain extension). If fraudulent, misleading, and deceptive practices concealed the TILA violation, then arguably the action is tolled and begins to run when wrong was discovered.
Consumer Protection Act - 4 years from accrual.
Some Litigation best suited for Class Action/Public Government Action
Social Stigma of certain claims- e.g., RICO was designed to go after organized crime, while it could be adapted to banks, convincing the court often necessitates up front presentation of concrete evidence and risks sanctions.
Costs... Truth-In-Lending Act (TILA) violations: e.g., failure to adequately disclose terms, conditions and costs to the consumer at origination. Remedies for violations may include actual damages, legal fees and costs, and rescission.
Homeowners Equity Protection Act (HOEPA): Extended cancellation rights under TILA under certain circumstances and limits the terms of high interest/fee loans: pre-payment penalties beyond and balloon payments within five (5) years are prohibited. 15 U.S.C. 1640(a)(4)(A violation may result in the borrower recovering all finance charges and fees paid.)
Consumer Protection Act: Unfair and Deceptive Practices. The consumer may recover actual damages, treble damages (up to a maximum), and attorney's fees. Two types of actions may be brought under the law: 1) By the Attorney General or 2) By a consumer (under more stringent requirements). Plaintiff must prove: (1) the business engaged in an unfair or deceptive act or practice; (2) which occurred in trade or commerce (broadly construed); (3) which had a public interest impact; (4) injured the plaintiff’s business or property; and (5) which was caused by the unfair or deceptive practice.
RICO and Little RICO: An “enterprise” involved in a “scheme to defraud” as evidenced by two or three predicate acts.
Contract Formation Defenses: e.g., unconscionable terms, fraud, misrepresentation, mistake... more often deployed as defense when mortgage obligation is being enforced, but can still go to origination.
Other?/Criminal Prosecution Some Causes of Action for Origination ORIGINATION Two Party relationship: It is between you and your lender…. It says in exchange for the purchase money I promise to pay you in installments and interest
It is generally considered “commercial paper”* typically governed by the Uniform Commercial Code or “UCC” as adopted in Washington.
Another type of commercial paper is a Check…
How is a Note transferred?
Negotiation... The Note is: Negotiation Done by Endorsement by an authorized person.
"John Doe Vice President of Biggo Banco to Banco Neuvo"
"John Doe V.P. Biggo Banco" Only Banco Neuvo can now enforce the Note, Only a person authorized to sign for Banco Neuvo can do a subsequent endorsement. Anyone who has physical possession of the actual note can now enforce the Note Think like a check, 2 types of endorsements. For example a Note made out to Biggo Banco can be endorsed as follows: A written instrument legally conveying property to a trustee used to secure the Promissory Note obligation
You agree to (nutshell):
Give a “power of sale” to a neutral third party (called a “trustee”) which they can use to sell your home for the benefit of a “beneficiary” if you are found to default in your promissory note or Deed of Trust obligations. What is the Deed of Trust? Securitization: the “pooling” of mortgages and subsequent selling of the consolidated debt as Mortgage Backed Securities, i.e., bonds, pass-through securities, or collateralized mortgage obligation (CMOs).* These are marketed and sold to Investors whose money is funneled back through the system.** and ***. * After being sold to an “Sponsor/Seller” then to a “Depositor”, the Note/DoT is typically pooled with 3000-5000 other Notes/DoT in a Trust or Special Purpose Vehicle (SPV) then a newly issued stock, bond, certificate, etc. based upon the value of that newly formed business (SPV/Trust) is sold to an investor by a stock broker. an entity who for various tax, balance sheet and bankruptcy reasons
** Individual securities are often split into tranches. Each tranche has a different level of credit protection and/or marketed “risk exposure.” think of these as differently rated “bonds”, with certain predicted returns on investment, some have fixed and some have floating interest rates. These are then assigned priority for the payments the homeowner makes. Think of this as a cascading waterfall of cash payments.
*** In certain investment products there are guarantors, credit default swaps or derivatives, and trustees. Guarantors make the product more attractive to investors by essentially insuring partial guarantees the principal and the interest payments, in exchange for a fee. A credit default swap or derivative is “hedging” risk of default (betting on the default). Further a “trustee” (not to be confused with Trustee on the Deed of Trust) is appointed to manage and protect the asset pool and investors’ returns. These parties complicate who actually owns or makes money off of your mortgage payments. Securitization Question: who owns my mortgage debt?
Answer: If it has been securitized, then many investors, including: foreign entities, banks, investors…. there is no way for the average homeowner to know because of the Servicer and MERS hide that from you. Default - Failure to fulfill an obligation, e.g., making a payment on the loan. The process of addressing your default with alternative options before the bank takes your house (what they claim is their last resort). Under the FDCPA, 15 U.S.C. 1692, a debt collector is someone who regularly collects debts owed to others. This includes collection agencies, lawyers who collect debts on a regular basis, and companies that buy delinquent debts and then try to collect them. What Options? Pre-Foreclosure Options Funnel Bank Options:
Get you to pay – think squeezing blood from a turnip.
Short Sale – Bank lets you sell your house for less than what you think is owed on it.
Cash for Keys/Deed in Lieu – Cash for you to move out, they take the house, sometimes you issue them a deed.
Modification – changes in interest, principal, term (length or adjustable/fixed).
Forbearance – short term suspension of payment until you are back on feet, or rolling of past due payments and fees into loan thereby curing default (you pay interest of the missed payments, interest, and fees for the life of the loan)
Become a renter – go through with foreclosure and rent your house from bank.
Mediation - Take them to Mediation for a better deal.
File Bankruptcy – Receive protection of a temporary stay from debt collection; homestead protections.
Sue the Bank – Bring some form of civil or quite title action. Refinancing is replacement of an existing debt obligation with a debt obligation under different terms.
Modification is an alteration of your current debt to avoid foreclosure.
Forbearance is a temporary reprieve from payment usually because of a special circumstance.
There are different programs and guidelines (e.g., SMP, HAMP, etc…). Homeowners typically will not know if their loan is eligible without more information. Most homeowners rely on their servicer to determine eligibility before they understand what the likely result is. Some general thoughts:
An affordable payment is calculated to be 38 percent of your income
Primary residences usually only qualify, loan has to have originated before a certain date.
Loan to market value ratio is ninety percent or greater.
At least three payments past due.**(note efforts being made to provide non-default programs) Is the bank collecting from me illegally?
Federal Regulation protects you from unfair debt collection practices, including:
§ 805. Certain Communications in connection with debt collection (e.g., calling you at 6 a.m.)
§ 806. Harassment or abuse (e.g., profane language, threats)
§ 807. False or misleading representations (e.g., how much money is owed, claiming they are they party owed, failure to validate)
§ 808. Unfair practices (e.g., threatening foreclosure when they don’t have a present right to foreclose)
Could lead to civil liability Why Securitize: Likely Explanations:
Specialization: (1) Avoids taxes by shifting it to specialized entities who get better rates or avoid taxes altogether. (2) Avoids putting assets on certain companies balance sheets (think money laundering assets).
Issuing Securities, shifting long term risks to default “betting” on Wall Street
Shifts the risk of your default to certain parties (Investors – Municipalities, Pensions, 401Ks, etc.)
Provides different investment products
Allows for additional opportunities for certain companies to make money if you pay your debt (guarantors fees) and not pay your debt (credit default swap fees). Servicing: collects and tracks payments and sends statements, usually a subsidiary of a bank (e.g., BAC HOME LOANS, LLC, CHASE HOME FINANCING, LLC), then subsequently is responsible for disbursing appropriate payments to the real party of interest (Note Owner/Holder/Investor) Question: When you pay your debt, is it being paid it to the right person?
Answer: There is no way to know because of the Servicer.
Question: Do I have a right to know?
Answer: Perhaps if you ask the right questions, some theories:
- A Qualified Written Request under RESPA - you have a federal right to ask the Servicer questions about your mortgage loan. Failure to answer questions they are required to answer or lying could mean recoverable damages.
- Your Deed of Trust Agreement - may say whether you have a right to know about transfers. Most say they do not have to give you “prior notice”, however, this does not necessarily mean they do not have to give you any notice. Nearly all home mortgages are funneled into a system by banks called MERS. MERS is effectively a database which is suppose to track each time your mortgage (DoT) and beneficial interest in your mortgage (Note) is resold.
If your Deed of Trust document has “MERS” listed as the “beneficiary” then you absolutely have MERS. If your instrument does not have MERS, it does not mean your mortgage was not placed into MERS eventually. We believe most mortgages between 2002-2008 went into MERS.
Washington requires that any change in an interest in real property be recorded in the County where the real property is located. This includes a “power of sale” under a deed of trust. It costs between ~$20.00-$70.00 per recorded document. This is needed to give the public notice of title to the property. MERS was setup to avoid these fees by effectively “faking” that it is the “beneficiary” i.e., person who can tell the trustee to foreclose. Certain language in the Deed of Trust attempts to legitimize this… We will get to all that when it comes time to foreclose.
In 2012 the Washington Supreme Court in the Bain and Selkowitz decision decided that if MERS cannot be a beneficiary for purposes of non-judicial foreclosures (more on that later), but did not decide conclusively the legal effect of the MERS System on other entities foreclosure on MERS Deeds of Trust. For now, just remember that MERS pretends to own your mortgage so the banks can resell it a bunch of times without paying those recording fees or telling the people of the State of Washington (and you) about it. MERS 101 Common Complaints/Problems:
Faxing, re-faxing, re-faxing; lost paperwork
Leaving messages for customer service who never call back;
Misrepresenting the process;
No negotiation on terms, rates, etc…
Bank cannot find paperwork
Offers made by mail which expire before arriving.
Meanwhile…. You are getting debt collection phone calls and letters and threats of foreclosure from the same servicer (these may be violations of your rights!!)
Servicers also make money off your default:
Pocketing fees for modification (Temporary/Trial Payments)
Pocket fees if you default & later collect your debt
Pocket fees if they foreclose The Modification Process Can Lead
To More Problems Coming to New Terms With Bank Homeowner Problem: What kind of deal do I qualify for? The servicer generally won’t be able to tell you or agree to a deal until you attempt to qualify, this may mean you go into default and do not qualify for the program. (There have been several cases of the Servicer advising the homeowner to stop making payments) Advantage: Cheap and efficient
Disadvantage: Cannot seek a deficiency judgment.
The vast majority of foreclosures in Washington are non-judicial. Advantage: Seek a deficiency judgment (whatever is left over after the house is sold, they can try to get from the borrower)
Disadvantage: expensive, takes a long time, because the bank has to prove they are entitled to foreclose… (how do banks explain securitization, missing documents, etc…)? Non Judicial: Trustee (neutral third party) Judicial: Hire an Attorney, start a lawsuit and go to Court Two types: Judicial and Non-Judicial Foreclosure Notices from the Trustee will say who the Beneficiary is.
Be sure to see WHO the Trustee Says is the Beneficiary…
Washington Law defines Beneficiary as:
"Beneficiary" means the holder of the instrument or document evidencing the obligations secured by the deed of trust, excluding persons holding the same as security for a different obligation.
Because of Securitization and MERS, there is a dispute in Washington about what “Beneficiary” means. It may mean:
anyone who holds the promissory note, or their agent, has a right to foreclose; or,
because the banks securitized the mortgage, and severed the note from the deed of trust, no one can take your property when you default. This means you still owe the debt, but the non-judicial foreclosure option is not available to take the home.
Sometimes the person claiming to hold your note and the right to foreclose doesn’t have it OR the note is not properly endorsed. This may mean this person has no right to foreclose on your home.
Judges and/or legislature in Washington will be deciding
the outcome of this dispute…. The Beneficiary Many things could have happened to your mortgage documents which pose a problem for the bank to foreclose on your home….
Collapse or bankruptcy of financial institutions;
All the re-sales turning your mortgage into a stock owned by investors;
Using MERS to avoid written recording; and,
Deception to investors and homeowners, so the banking entities can be paid multiple times for the mortgage.
This created a need for the bank to manufacture a foreclosable record so they can foreclose when you default.
“robo-signing” is the practice of a bank employee signing thousands of documents and affidavits without verifying the information contained therein.
“Assignments of Deeds of Trust” from MERS, are recorded when it comes time to sell your home, usually by a robosigner. (Look for a document signed by a “Vice President of MERS” in the County records.)
Forgery. Documented cases on program 60 minutes of mass forgeries of missing documents. Missing Documents,
Forgery, and Robo-Signing Banks best friend Neutral OR Many non judicial foreclosures are performed by a “Successor” or “Substitute” Trustee rather than the original trustee. This is typically a “foreclosure mill” sometimes closely associated with a bank or law firm working for the bank (who will do the eviction).
However, The trustee or successor trustee shall have no fiduciary duty or fiduciary obligation to the grantor or other persons having an interest in the property subject to the deed of trust. AND The trustee or successor trustee has a duty of good faith to the borrower, beneficiary, and grantor.
Unanswered legal question: can certain foreclosure mills qualify as trustees because of their close relationships with banks or law firms who work for banks?
To become a successor trustee, and get the power to foreclose (when homeowner defaults), they generally need to be appointed by the “beneficiary” and recorded. This appears to be done when MERS transfers the “beneficiary” status from itself to the new beneficiary and the new beneficiary immediately selects the new trustee.
However, robo-signing and/or forgery may be common.
Also look for the location of the foreclosure mill (they can be in trouble if not providing Washington Contact information). The New Trustee Postpone. The sale can be postponed by the trustee up to a maximum of 120 days from the original sale date. (If they exceed they have to restart the sale).
Snooze and Loose (Waiver). If the homeowner doesn’t stop the auction (lawsuit, mediation, bankruptcy, cure default) before it happens, then they won’t get the house back unless the Trustee failed to give proper notice or a limited amount of other events occurred. (Fraud, rigged bidding at the auction, etc.)
Bidding. The “Beneficiary” can bid the total amount of the debt owed. If a bid is accepted and is more than what is owed on the mortgage(s) + administration costs, then the extra money goes to the homeowner (rare in this market).
Trustee’s Deed. After the sale, the trustee records a new deed to the purchaser.
If the homeowner has made it this far… they should ask who bought the home, for how much, and how did they pay for it? Trustees (Foreclosure Mills) are known for assigning the interest in the DoT after the auction has occurred…this raises several other potential legal issues that may affect the trustee’s strict compliance with the law. The Sale Eviction The last step is to obtain a right to possess the home; ownership and possession are distinct rights under the law.
If the former homeowner had tenants, they enjoy both State and Federal protection from eviction and in some cases the new owner (usually the bank or Freddie Mac/Fannie Mae) will be required to honor the lease and/or be entitled to rent.
Eviction requires the following additional steps, which the occupant may be liable for the costs to perform:
Appropriate Notice of Right to Possess 20 days after the Trustee Sale
Summons and Complaint (which should be answered or risk default)
An Unlawful Detainer Hearing (called Show Cause hearing)
The hearing will grant a “Writ of Restitution” a document given to t
The Sheriff will post the writ with a return date
When sheriff returns, he can supervise moving the occupants personal property
(and occupant) to the street.
Under certain circumstances occupants enjoy a “Right to Request Storage” for a
certain period of time. This means rather than moving possessions to the street
the new owner must keep the possessions in a safe place (typically the garage of
the home) for a certain period of time (typically a month) and can charge a
reasonable fee for storage. If it is not claimed by such a time, the new owner
may sell or dispose of the possessions, reimburse their costs and send the remaining money to the former owner.
If you are at the eviction stage, may be too late to return your house, but it is not too late to sue for some kinds damages if you were wronged by the bank. Certain claims are still available two years after the Foreclosure Sale. Each person’s situation is different… Most situations will benefit most by mediation or modification if they can afford new terms and are not too late in the process. Do not immediately assume you are a direct and/or actionable victim of bank fraud. (But recognize we are all indirect victims of the conditions leading up to the economic bailout)
Recognize you have options when faced with default… but:
Be aware of scams…
Be aware at any given time the bank may or may not be acting on your side…
Be aware that any choice you make has costs and risks.
Understand what you are signing up for and make sure your goals and objectives match up with the person who is doing the job for you.
Know not everyone can provide free help. Don’t expect the Government to fix the problem for you. HELP YOURSELF!
Think about doing your own investigation to save money. When Should I Seek Help? Take Away for Homeowners on default/foreclosure:
Appreciate the state of things (you and the banks have made some decisions leading up to this point and it could be very complex).
Act early to protect your rights (the law does not reward those who sit on their hands);
Adequately ARM yourself with enough knowledge to understand your situation and the various options available to you.
Appreciate it can take awhile to remove someone from their home when they default.
Where possible try to be strategic (choose the strategy right for you and maximize time, money and efficiency);
Make objective and informed decisions (try to take emotion out of the equation); and,
Decide and appreciate what you can and cannot do. Take Aways