The offer forgave the balance of a mortgage. The whole thing. This probably sounds great. On one hand, it is great. Without knowing more about the value of the property, releasing a debt in excess of $130,000 is pretty significant. That is, until you find out that it was a second mortgage -- one that I would assume was 100% underwater. This may be great for that specific homeowner, in particular if the released debt brings the home back to zero or positive equity. 

But let's face it. When BofA releases the entire balance of a second mortgage, it is not really taking a haircut. In fact, it is 99.9% likely that BofA was never going to see a dime out of that second mortgage. BofA gets to credit itself a large sum of cash towards its required principal reductions, but suffers no actual financial harm. If the point of the foreclosure fraud settlment was to punish, then this doesn't seem like much of a punishment. It is the equivalent of sending a child to his room for a time out, but sending the child with a bowl of ice cream and a Nintendo DS. 

Have you seen or received a Bank of America offer letter? Let us know in the comments. 

The order denying Wells Fargo's motion to dismiss can be found here. The facts of the case, Sutcliffe v. Wells Fargo, are similar to those of Wigod v. Wells Fargo. The Sutcliffe court even cites to Wigod in its analysis of the issues. The Sutcliffes were put into a trial loan modification by Wells Fargo. They made their payments in a timely manner, but never received a permanent loan modification. Instead, they continued to make the trial payments, as instructed by Wells Fargo. 

Now comes the shocking part: Wells Fargo decided to initiate foreclosure proceedings instead. Actually, this is not very shocking at all. What would have once enraged and astounded me is now "business as usual." I do, however, remain hopeful that change is on the horizon. 

Wigod and Sutcliffe both speak to the idea that trial loan modifications contain an explicit promise (contract). If the borrower makes timely payments, and if the borrower's financial statement remains true and accurate, then the lender will offer a permanent loan modification. The promise to offer the loan modification is important, people rely on these representations to their detriment. 

I've seen many clients and potential clients over the years who were stuck in perpetual trial modifications. This uncertain and unpredictable position is a terrible one to be in. That courts are now recognizing the legitimacy of this breach of contract theory is a good thing. Instead of asserting the trial loan modification as a defense to a foreclosure, these decisions allow borrowers to bring counterclaims or file their own separate lawsuits. The only way to change "business as usual" is to force change by hitting banks where it hurts -- in the wallet. 

I look forward to seeing this area of law develop over time -- I plan to use these cases to support my client's claims.  

According to BofA, more than 200,0000 Americans will receive principal reduction offers. The bank is also stating that the offers will, on average, reduce mortgage payments by 30%. 

In order to be considered eligible for the modification, borrowers must: 

• Owe more on the mortgage than the property is worth today.
• Have been at least 60 days behind on payments on January 31, 2012.
• Have a contractual monthly payment for principal, interest, property taxes, hazard insurance and any applicable homeowner association fees totaling more than 25 percent of gross household income.
• Have a loan that is owned and serviced by Bank of America, or serviced for another investor that has given the bank delegated authority to do such modifications.

At least for the short term, those of you with Bank of America mortgages may want to keep an eye on your mail. If you have received an offer letter from Bank of America, let me know. I would love to see what is being sent. 

Here are the missing details so far:

• Are these letters simply an offer to begin submitting and re-submitting financial paperwork? Basically, are we going to see more of the same behavior we've always seen?
• Do most, if not all, of these principal reductions put the house at 0 equity or positive equity? If not, how far underwater will borrowers remain?
• If the modifications do not restore or zero out equity, how long will it take to regain equity based on the new, reduced payment?
• Are borrowers forced to accept the account balance as-is or is there room to contest bogus charges and fees assessed by servicers?

Without answers to these questions, I cannot assess whether these efforts will have any large-scale impact. While I am sure that, on an individual basis, some of these deals may be exactly what a particular borrower wants, I refuse to be enthusiastic without more data. 

Please consider this a call for more data. Let us know if you received a letter from BofA. 

For those of you who move forward with the BofA modification process, be sure to have an attorney review any offer before accepting it. You never know what may be hidden in the agreement. 

Trial periods are nothing new, but they have been significantly abused in the past. Bank of America is no stranger to keeping borrowers stuck in a series of perpetual trial modifications only to ultimately deny a permanent loan modification a year later. Although the Vallejo family has been given a glimmer of hope, they are still left at the mercy of Bank of America.

Keep in mind that the foreclosure fraud settlement is less than strict when it comes to enforcing the terms of the settlement. It is entirely possible that this deal could fall apart, yet be an error that does not require reporting or that does not pass the threshhold for number of errors required to trigger a violation of the settlement. Hopefully this specific situation will work out for everyone involved. 

If you are attempting to obtain a loan modification from your mortgage lender and are hoping that the foreclosure fraud settlement will lead to a principal reduction or other favorable terms, do not forget that until there is a fully-executed, permanent loan modification in place, there is no true guarantee that your servicer or lender will follow through on its promises. Although Illinois law may protect borrowers in these situations, using recent changes in the law to your advantage will require filing a lawsuit or a counterclaim in an existing foreclosure case. 

For borrowers seeking predictable outcomes, the foreclosure fraud settlement is still an unknown factor. 

In her recently released report, "The Ongoing Impact of Foreclosures on Children," Julia B. Issacs of the Brookings Institution describes children as the "invisible victims of the foreclosure crisis." She notes that court filings and foreclosure documents do not indicate the number or presence of children in a property.

In Illinois, courts are often unaware of the presence of children in a property facing foreclosure. In my experience, most judges are unaware unless the homeowner appears in court to defend the case. In many situations, the judge is informed on the day that a sheriff's sale is to be confirmed. Unless the homeowner has a valid reason to set aside the sheriff's sale, Illinois state judges are only able to extend the timeframe in which a homeowner must vacate the property -- usually by 30 days -- which only delays the inevitable. 

The inevitable -- being uprooted from a home -- is what tends to affect children the most. The study estimates that there are 267,000 children in Illinois that are affected by foreclosures. It also demonstrates that children who move frequently experience negative educational outcomes. For each move in the middle of a school year, children experience a reduction in math and reading scores by one-tenth of a standard deviation. This is equivalent to spending one month out of school. The study also notes a correlation between mid-year moves and dropout rates. 

The study also makes policy suggestions, suggesting that school systems could utilize programs similar to those for homeless children to allow children to remain in their original school. This added stability may help mitigate the impact on educational outcomes for children affected by foreclosure. However, the main policy suggestion is one that I have suggested on this blog more times than I can count -- incentivize loan modifications and principal reductions to keep families in homes and decrease the number of foreclosures. Unless we find a way out of the foreclosure crisis, we probably won't muddle our way out for another 5 years at minimum. Those 5 years can be critical for our nation's children. If we want to raise a generation of well-educated, productive adults, we need to protect our children and ensure the best-possible educational outcomes for them. 

When a creditor obtains a money judgment against an Illinois debtor, it will generally issue a "citation to discover assets." This procedural maneuver requires the debtor to appear in court, be sworn in, and answer questions about his or her assets. If the debtor does not appear, a "rule to show cause" may be issued. This means that the debtor must provide the court with a valid reason for missing the citation to discover assets date. If the debtor does not appear in court on the rule to show cause, then the judge may issue aa civil attachment order for contempt of court. 

Reports of this practice have been making the rounds in the media lately. Illinois Attorney General Lisa Madigan has gone on the record stating that these "illegal abuses" of the law must stop. On March 29, the Illinois House passed HB 5434, the Debtor's Rights Act of 2012, which is designed to stop these debt collection practices. 

The changes would require notification of a citation to discover assets to better disclose exemptions to debtors and also require that creditors provide a worksheet to allow a debtor to prepare for a citation hearing. Most importantly, the changes would prohibit the issuance of a body attachment unless the debtor is served with the notice of the rule to show cause. This service must be either personal or abode service and it must be made by the sheriff or other permitted process servers. Personal service occurs when a debtor is personally handed the notice of the rule to show cause. Abode service occurs when a member of the debtor's family who resides at the debtor's residence is served with the notice of the rule to show cause. Effective abode service also requires that a copy of the notice be mailed to the debtor as well. 

If this bill is signed into law, it should go a long way towards stopping this practice. The added service requirements mean that debtors receive more specific, documentable notice of the proceedings. Those who fail to heed that notice must still be given an opportunity to appear in court before the body attachment can issue. 

These added consumer protections are great, but one can never discount the power of a well-planned bankruptcy in situations such as these. If creditors already have judgments against you, it may be worthwhile to consider filing a Chapter 7 or Chapter 13 bankruptcy. Until this bill passes the Senate and is signed into law, the automatic stay and the discharge injunction remain powerful protections. Even after this law passes, it simply provides another layer of protection that is bolstered by the automatic stay and the discharge injunction. Again, if you are already at this stage of collections, it is probably high time to consider a bankruptcy. 

AG Madigan stated:

"We need to give homeowners a fighting chance to save their homes from foreclosure. The best way we can help is by providing distressed borrowers with legal representation to ensure they have an advocate to fight for them in the courtroom and that they will be treated fairly in the process."

She also noted that the housing market is a significant sector of the economy that has shown limited signs of improvement:

"Providing critical resources for legal assistance programs will create a domino effect in the marketplace. Helping a family stay in their home benefits not just that family but the surrounding community, as well as local and state governments, all of which must happen to stabilize the housing market and revitalize the economy." 

Although the Attorney General's office has not announced which legal assistance programs would receive the funding, it is certainly sorely needed, in particular for those home owners who cannot afford to hire an attorney. Legal aid programs have limited funding and can only help a finite number of people at one time.

This influx of new funding should enable those organizations to provide service to more home owners, hopefully levelling the playing field for Illinois residents who are facing foreclosure. 

Have you ever wondered why your loan modification documents were lost, re-requested, and then lost a second time? Companies like Litton Loan were not receiving the documents. The documents were, in fact, ending up at an outsourcing firm in India. This is because Litton Loan, like other mortgage servicers, was not ramping up its loss mitigation staff. It was ramping up its collections staff. 

Per Chris Wyatt, this led to a corporate culture where loan modifications were often denied due to missing documents -- documents that could not be verified because they had been received by a company on a different continent. In Mr. Wyatt's own words:

"They could have addressed the crisis way earlier. Had companies changed their philosophy and said, 'You know what? We're not going to beef up our collections staff; we're going to beef up our loss mitigation staff.' Had they done that and come up with loan modification scenarios that were reasonable and put people into more affordable payments early on, we wouldn't be where we are now." 

The drive to maximize profits, as opposed to minimize foreclosures, has left us where we are now. I highly recommend The Great American Foreclosure Story to anyone interested in learning more about the foreclosure crisis, its causes, and its effects. 

The CFPB has set two main themes for the rules that it is considering: the current lack of transparency and the current lack of accountability. 

On the transparency side, the CFPB's fact sheet states:

"Mortgage borrowers deserve full transparency in dealing with their servicers. They should not be kept in the dark about how their payments are applied or when their interest rate will change, nor should they experience bill shock over an insurance charge they did not expect."

In furtherance of this goal, the CFPB is considering several rules. The first would require that servicers provide clear monthly statements that break down payments by category (principal, interest, fees, and escrow). It would also require servicers to itemize all fees and charges, as well as provide loss mitigation information for delinquent borrowers. 

Another transparency rule being considered is one that would require servicers to provide warning to borrowers before an interest rate adjustment. This warning would explain the means of determining the rate change and its date of effect, a good-faith estimate of the amount of the new payment, and a list of alternatives for customers who cannot afford the new monthly payment.

Also interesting are the requirements being considered for force-placed insurance. Most servicers will automatically purchase homeowner's insurance for borrowers if it is suspected that the borrower does not have a policy. The new rule would require servicers to ask for proof of insurance twice -- once at 45 days before charging for insurance and again 15 days prior. It would also require servicers to accept any reasonable form of confirmation, which could go a long way towards combating the "we didn't receive proof/your proof wasn't the required format" issues that many borrowers have faced. Perhaps most importantly, when the borrower has an escrow account used for purchasing insurance, the servicer would be required to continue the borrwer's policy, even if the borrower is behind on payments. 

On the accountability side, the CFPB is considering rules that "would require common-sense policies and procedures for handling consumer accounts and preventing runarounds." These rules are designed to require servicers to maintain better record-keeping and accounting practices to avoid the mis-applied payments and missing documents that are standard operating procedure for servicers. 

One rule would require that servicers credit payments the day that they are received. If a partial payment is made, it can only be held in a suspense account until the account contains enough funds to make a full payment. Those funds would then be applied to the oldest delinquent payment. 

Another rule would appear to require servicers to update their information management polices and systems to minimize errors and speed up fixing errors. Servicers would be required to make information promptly available to borrowers, maintain records of borrower contact, better organize and manage loss mitigation documents, and promptly inform the borrower of further documentation required as part of the loss mitigation process.

Error correction would also be addressed via a rule that requires servicers to promptly respond to borrowers concerned about possible errors. The rule would require servicers to acknowledge notification of the error in 5 days and conclude an investigation in 30 days. The errors included under this rule would include: incorrect calculations of amounts due, credits or payments; payments of taxes and insurance out of escrow accoutns; inaccurate disclosures; inaccurate information about avoiding foreclosure; and the initiation or continuation of a foreclosure where the borrower has met his obligations under a trial or permanent loan modification. 

Finally, the CFPB is considering a rule that would require servicers to provide borrowers with access to a foreclosure prevention team throughout the lifetime of their loans. This would allow delinquent or financially distressed borrowers to get early access to assistance to minimize losses or get a loan back on track. 

With nothing more than a fact sheet describing broad strokes, it is difficult to evaluate the proposed rules. However, they seem to be a step in the right direction. When the rules are released for public comment, I will update the blog with my analysis. I plan to also provide my own comments to the CFPB when the rules are opened up for public commentary. 

This is unsurprising to any foreclosure defense attorney currently practicing in the United States. Quite simply, banks have not stopped robosigning documents, nor have they quit using previously robosigned documents in the pursuit of a judgment of foreclosure and sale. The New York Times reports that some judges are holding servicers and their attorneys accountable for facially flimsy or fraudulent documents. Unfortunately, the example of Judge Schack (a New York state Supreme Court judge in Brooklyn) remains the exception, not the rule. 

On a daily basis, I handle cases where affidavits, assignments of mortgages, and promissory notes are signed by a cast of familiar names. In some situations, the same individual signs as an officer of both the mortgage servicer and Mortgage Electronic Registration Systems, Inc. This is a tell-tale sign of robosigned foreclosure documents. Even if the foreclosure backlog was magically cleared overnight, it is doubtful that these practices would stop. So long as the mortgage servicing industry's underlying infrastructure remains, the chain of title for real property nationwide will always be in question. 

Let's face it. When servicers have difficulty identifying whether a first mortgage was modified via HAMP (a pre-requisite for modifying a second mortgage under the federal Making Home Affordable guidelines), we have a problem. It's not that modern database software cannot handle the flow of information. The problem is that it is less expensive for mortgage servicers to occasionally pay out damages to an injured homeowner than it is to fix the unreliable software. 

If the days of borrowing from a local bank, where you know each person involved in the loan underwriting process, are over, then we need to re-evaluate how the industry does business. The only way to force change is to make it more expensive to have bad software than it is to fix the software. No amount of slap-on-the-wrist fines levied by the federal government will change this behavior. Individual homeowners need to hold their mortgage servicers accountable and pursue them in court. When damage awards pile on top of fines levied by federal regulators, servicers may quickly find themselves nibbled to death by ducks.

Consumers have rights. Defending those rights is essential to changing the system for the better. A well-planned foreclosure defense or bankrutpcy can help you protect your rights and hold less-than-scrupulous lenders accountable. If yo'ure interested in learning more, contact us or download our new book.