Northern California Bankruptcy Lawyer

On The Bankruptcy Soapbox

The Soap Box

Legacy of the Mortgage Lending Frenzy Returns

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Just when I thought that most of the pain from the mortgage lending bubble of a decade ago was behind us, we arrive at a painful milestone.

Those 10 years-interest only loans from 2006 and 2007 are resetting.

Instead of being interest only, they now move to principal and interest.  And the balance originally borrowed for 30 years, has to be repaid in the remaining 20 years of the loan.

Ouch.

Yet, many homeowners I’ve talked to are only vaguely aware that the earth under them is about to shift.  Or have only a vague plan about what to do now that it has shifted.

How amortization works

Amortization is the mathematical formula that tells you how much you have to pay each month, at a given interest rate, in order to pay off a loan over a given number of years.

The standard home loan in the US is a 30 year loan.  The fixed monthly payment is calculated so that by the end of thirty years, you have repaid the amount borrowed and the interest that the loan accrued over those three decades.  In the early years, most of the payment goes to interest.  As the principal is reduced, interest is a smaller share of each payment.

Suppose you borrow $300,000 at 5% , amortized over 30 years.  The monthly payment is $1610. In the first month, $350 goes to pay off principal, and $1250 goes to interest.

By the last payment, the principal is fully repaid.

But let’s look at the same 30 year loan, assuming it was interest only for 10 years, and the entire loan is repaid in the remaining 20 years of the loan term.

In year 11, the payment moves to $1980 per month.  The first payment in the amortization period is $780 is principal and $1250 is interest.

Coping with mortgage reset

In the best of all possible worlds, you saw the reset coming and have the increased cash flow available to make the larger payments of principal and interest payment.  Good work.

But if the increased payment finds you still budget challenged, you’ve got a problem.

Your choices include refinancing the loan, replacing the existing loan with a new loan, with a life longer than the 20 years remaining on your current loan.

Modification of the loan with the current lender may be an option, though you usually have to show some evidence of hardship to qualify for modification.  The government-regulated loan modification programs have expired.

You can use this juncture to consider selling the home, if it’s time to relocate, downsize, or escape the work involved with home ownership.

Lastly, you can look at your options to eliminate other expenses from your budget to free up cash, or other ways to increase your income with a second job or getting a housemate.

Don’t forget that  Housing and Urban Development offers expert housing counselors, free of charge.

 

 

 

 

Worthless Mortgage Liens Keep Homeowner At Risk

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mortgage after bankruptcy

The client originally had his choice of bankruptcy chapters.

He could file Chapter 7, get quick relief, and put “everything” behind him.

Or his could file Chapter 13, propose a plan that would strip off liens and pay the taxes that would survive the Chapter 7.

He chose 7, and briskly got a discharge.

He forgot that the mortgage lender was a predator.

Return of the lien

Then he called me again. Seems that the Chase, holder of the junior lien on his house, sent him a letter about their lien and their continuing rights to foreclose.  They had their sights on him.

Could they do that? he asked.

Could they?  Sure.  It’s a bankruptcy basic that liens survive a discharge, unless the bankruptcy judge orders otherwise.  The lienholder couldn’t sue him for money, because he’d gotten a discharge, but they retained their lien rights, including the right to foreclose.

Would they?  Not in a million years, on the numbers in his case.  The house was underwater as to the senior lien.  If the second place lien foreclosed, they acquire a property with the first lien still in place and then they owe the first a monthly payment.

Not going to happen.

Lien laying in wait

But, the second can sit there, waiting until either property values go up (a lot, in this case) or until he pays down the first.  They can then grab the value created.

We offered the collection agency for Chase a couple thousand for the release of the lien.   They wanted ten times that much.

The power of Chapter 13 then became crystal clear to my client.

Power of 13

In Chapter 13, the court can void the junior lien without any payment to Chase.

My client has income taxes that survived the Chapter 7 because they were too recent to discharge.  He can pay pay the taxes and pay a chunk of his attorneys fees through the plan.

Chase doesn’t get to bargain or hold out.  If the evidence shows Chase’s lien attaches to no value in the property, after calculating the balance owed to senior liens, Chase is wiped out.

It’s too bad that it takes a second bankruptcy case to accomplish this.  But sometimes, these things don’t become clear until the dust settles.

Image courtesy of Flickr and orangejack. 

 

 

Don’t Fall For Your Mortgage Lender’s Insurance

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lender home insuranceIf the mortgage company provides your property insurance, you are not in good hands.

No matter how much time it saves you.

Your lender is not a good neighbor when it comes to insurance.

When your insurance lapses

Somehow my client let her homeowners insurance lapse.  She wasn’t worried about it, she told me, because the mortgage lender had gotten insurance on her home.

She was content, she said, to let the lender take care of that complication in her life.

Only the complication wasn’t being “taken care of” because the lender’s force-placed insurance didn’t protect my client or her interest in her home. [Read more…]

The Absolutely Essential Step Before You List Your Home For Sale

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Selling your home?  Before you interview a realtor, before you lift a paint brush, or clean a closet, you need to write a letter.

A letter to the servicer of your mortgage.

Insisting on full disclosure of what charges, fees, expenses and other “stuff” they want to collect from you at closing.

For all you know, they’ve stuffed your loan full of fees, not authorized by law or agreement,  that pad their bottom line, and suck money out of your pocket.

Or, they’ve misapplied your payments or failed to note a mortgage modification.

So, your first step in selling your home is to get a handle on the loan payoff, while there’s still time to strip the mistakes and the junk fees from the payoff demand.

Why tackle your loan first?

Start with your loan because while federal law requires them to make full disclosure if you ask, they get 30 business days to do so.

So it may be a month and a half before you have their first response.  And if you don’t agree with the figures they produce, it takes longer still to resolve the dispute.

All too often, the inflated payoff demand doesn’t surface until your sale is about to close.  Maybe the payoff demand from the servicer bears little relation to the mortgage statement you’ve been receiving monthly.

And with a sales contract in place, a deadline for closing, and a buyer’s loan commitment about to expire, too many sellers are forced to accept the servicer’s numbers or lose the sale.

They end up paying too much because there’s no time.

Since good information takes time, start here first.

How to make a Request For Information

The Dodd Frank Act beefed up your rights as a home loan borrower to get information from the servicer of your loan.  Time lines were shortened;  broader inquiries were permitted.  And some consequences created for failure to respond.

Here are the essentials of a Request for Information under Reg. X 1024.36

An enforceable request must

  • Be in writing
  • Identify the borrower, the loan and the property address
  • Indicate that the property is your principal residence
  • Set out the information you seek
  • Be sent to the specially designated address of the servicer for RIF’s

The last requirement, delivery to the servicer’s designated address, that trips people up.  The magic address is often found on the back of the monthly mortgage statement.

Sometimes the address designated uses the previous name for the kind of request we’re talking about: Qualified Written Request.  Servicers usually have the address on their website, tho it may require digging to find it.

Don’t send an RFI with your payment.  Don’t ask for it over the phone.  You have a right to good answers only if you follow the procedures in the regulation.

What to ask the servicer

If you are selling your home, you want a payoff figure, itemized.

RFI example

Chances are you know what the principal balance is.  It’s the other stuff that doesn’t necessarily appear on your statement that you want to flush out.

Are there late fees, escrow deficiencies, non-interest bearing balances, inspection fees, appraisal fees, processing fees.

You get the picture.  Fees, fees, fees.  For too many servicers, the money is all in the fees.  Find out ahead of time what you are facing.

Heading to sale

With your RFI in the mail, you can turn to the myriad of other things to do to get your house on the market.

Mark your calendar for 30 business days so you know when to expect good information.

If you get a response and you don’t agree with it, call the servicer.  Complain to the CFPB.  Ask a HUD certified housing counselor for help.  Get an attorney.

Consumer rights are only meaningful if they are used.

Inherited Homes Now Come With Full Measure Of Consumer Rights

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mortgage servicing rightsHalf a loaf is what you too often got when you weren’t the original borrower on a home loan.

Whether you inherited the property or it was awarded to you in a divorce, you get shortchanged by the mortgage lender.

Even with  a court order from a divorce or a deed from the probate court making you the owner of the property, too often the bank holding the mortgage loan didn’t accord you the full set of rights they had to give the original borrower.

While the law says you own the property, the mortgage lender says “so what?”

But that just changed.

Starting in April, 2018, CFPB amendments to RESPA and TILA  rules extend mortgage servicing protections to successors in interest in real estate.  Those who inherit property, or are awarded a home in divorce, now have the same federal rights with respect to the home loan as the original borrower.

‘Bout time.

Now, if you are a successor in interest on a home, you are now entitled to make a Request for Information about the loan; dispute the lender’s accounting; and participate in loan modifications, just as if you’d been the original borrower.

Who are successors?

In a stroke of efficiency, the new CFPB rules adopted the list of protected successors from 20 year old federal law.

The Garn-St.Germain Act created a list of transfers of real property that are excepted from enforcement of a contractual “due on sale” clause.  Transfers that don’t fall in the list of exceptions can trigger a foreclosure since the note is now due in full.

The protected transfers include

  • a transfer by devise, descent, or operation of law on the death of a joint tenant or tenant by the entirety;
  • a transfer to a relative resulting from the death of a borrower;
  • a transfer where the spouse or children of the borrower become an owner of the property;
  • a transfer resulting from a decree of a dissolution of marriage, legal separation agreement, or from an incidental property settlement agreement, by which the spouse of the borrower becomes an owner of the property;
Now, acquire property by any of these kinds of transactions and you have the full complement of rights under RESPA and TILA

Getting confirmed as a successor

Under the new rule, the definition of a “borrower” is expanded to include a confirmed successor in interest.

When a successor makes a written request of a mortgage servicer that indicates that the person making the request may be a successor, and provides enough information to allow the servicer to identify the original borrower and the loan in question,  the servicer has duties to the requestor.

Within specified time frames, the servicer must indicate what documents are needed to confirm that the person making the request is a protected successor.  The document request must reasonable under the laws of the jurisdiction, the situation of the successor, and the documents already in the servicer’s possession.

Borrowers have rights

As a confirmed successor in interest, all of the RESPA and TILA protections are available to you.

It does not matter for these purposes that you aren’t liable on the underlying loan.  Your property is liable, and thus you can invoke your rights to get information, challenge errors, have payments properly credited, and be considered for loss mitigation.

More

New rules/better information for borrowers in bankruptcy

More about the new Request for Information

California’s better way to pass real estate at death

 

 

 

No Foreclosure If Loan Modification In Process

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foreclosure roofline 650 taberandrew

The cruelest trick played on homeowners trying to modify their mortgage was dual tracking.

One side of the bank assured the borrower that their loan modification application was being considered and they didn’t need to worry.

All the while, the other side of the bank was conducting a foreclosure sale.

The borrower wakes up to find that they are no longer homeowners.

No more.

New federal rules prohibit dual tracking

Mortgage lenders are now prohibited by federal law from conducting a foreclosure while a mortgage modification application is under consideration.

Regulation X – Real Estate Settlement Procedures Act

Before a foreclosure is begun, the lender or their servicer must take steps to let the borrower know what options exist to keep the house.  The mandated timeline creates a four month interval between delinquency and starting the foreclosure in which alternatives can be explored.

Live contact with borrower

Mortgage servicers must attempt to make live contact with borrowers who become delinquent within 36 days of the delinquency.  A voicemail message doesn’t cut it.  Reg. X §1024.39

The servicer must describe the kinds of loss mitigation options that are available and they must establish a single point of contact for the borrower with the servicer.  Reg. X § 1024.40

No foreclosure can be instituted until 120 days have passed from the first delinquency.  More importantly, if a complete loan modification application has been submitted to the the servicer by the 120 day point, no foreclosure can be begun.  Reg. X §1024.41

Last minute help

If the borrower misses the 120 day deadline for submitting a loan modification application, there’s still protection in the new rules.

If a loan mod application is made more than 37 days before the foreclosure sale, the servicer cannot conduct a foreclosure sale until it issues a decision on the application.

The new rules deal with a myriad of variations on these timelines.  The theme in the rules is consistent:  federal law requires a decision on a loan modification application before the foreclosure train chugs down that track.

If the servicer breaks the rules

The new rules have teeth.

Borrowers who believe their servicer has failed to follow the rules can sue the servicer.  If you can prove your case, you can collect your actual damages as a result of the violation; your costs of suit; and your attorneys’ fees.

These regulations implement provisions of the Dodd Frank legislation; they became effective January 10, 2014.

Another arrow in homeowner’s quiver

These rules do not preempt other rights that homeowner’s have in this arena that give them greater rights.

Like any new law, we will have to see how they work over time.

While the rules don’t require servicers to modify loans, they do require servicers to refrain from foreclosing while a loan modification application is pending.

Image courtesy flickr and taberandrew.

Sloppy Mortgage Servicers Prey On Borrowers

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banks behaving badly

 

Given the way they behave, you’d think mortgage servicers actually flew a pirate flag over their operations.

They cash your check for the mortgage payment, then who knows what they do with it and what they credit it to.

Outside of bankruptcy, screw ups in handling your payments are a breach of the contract between you and the lender.  The servicer is the agent for the lender.

Good luck in getting the real story about what’s going on, and call up a miracle to get it fixed.

But, if you’ve been through Chapter 13, you’ve got a teammate in the fight to get proper credit for your payments:  the bankruptcy judge.

Because in, or after, a Chapter 13, getting the loan accounting wrong violates federal bankruptcy law. [Read more…]

What’s required to void a mortgage?

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When I was quoted on the front page of the Mercury News  about voiding home loans in bankruptcy,  I was inundated with inquires about how lien stripping in bankruptcy works.

So here goes:

  1. A voluntary lien, like a deed of trust securing a second loan, line of credit, or HELOC, can be voided only in Chapter 13 or Chapter 11.
  2. It can be stripped only if there is no equity in the property after deducting the payoff balances of the liens senior to the lien from the fair market value of the property.
  3. The lien is permanently voided only upon the successful completion of the reorganization plan.

Thanks to lobbying by the mortgage lenders more than twenty years ago, bankruptcy courts are prohibited from compelling any changes to mortgages liens secured only by the debtor’s home.

So, the work-around, if you like, is a finding by the bankruptcy court that the junior lien isn’t really “secured” by any value in the home.  If there is a dollar’s worth of equity in the property, the lien must remain. A dollar out of the money, and the whole lien is gone.

As a result the help for homeowners that can be provided by a bankruptcy reorganization is limited to voiding totally unsecured liens and to eliminating other debts of the homeowners.

Neither can the bankruptcy court  require the senior lender to modify a mortgage or to defend its decision to reject a modification.

Legislation passed by the House of Representatives in 2009 would have overturned the prohibition on modifying home loans and allowed judges to reduce mortgage balances to the present value of the home and alter other terms of the loan if the borrower was willing to file bankruptcy and successfully made the plan payments. The Senate defeated the bill, so bankruptcy judges remain powerless to weigh in on the tug of war between the mortgage bankers and the homeowners.

As always, you need to determine whether you should keep the house. and what the viability of a modified mortgage is.

You’ve got choices for a house even after you file bankruptcy.

Stripping off judgment liens

Eliminating tax liens

Cancel by Nick Youngson CC BY-SA 3.0 Alpha Stock Images

 

Why Your Mortgage Lender Won’t Send Statements After Bankruptcy

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Don't gag mortgage servicersLists of stupid laws are lots of fun, when they don’t really touch your life.

But the law that gags mortgage lenders after bankruptcy isn’t funny.

Preventing lenders from sending mortgage statements to homeowners after bankruptcy just sets families up for foreclosure and rewards servicers with the fees that follow default.

It’s just a stupid result that no one has fixed.

Bankruptcy laws collide

Two clients this week weren’t laughing when two different bankruptcy laws collided:

One law says that the lender’s lien on your home remains enforceable after bankruptcy.

The second law prohibits efforts to collect a debt after bankruptcy.

The survival of the lien after bankruptcy protects the secured lender;  the injunction against post bankruptcy collection protects the debtor.

But what if the debtor wants, and needs, to continuing paying?  The intersection of these two provisions thwarts both. [Read more…]

Shorted Thousands On Mortgage Interest Form

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How can you pay thousands of dollars in mortgage payments in a year, and get a  tax Form 1098 for a fraction of actual mortgage interest paid?

That’s what my client wanted to know.

His monthly mortgage payment is $2715.  The loan is currently interest only.  All the payments were made.

And yet, the Form 1098 from PNC says the year’s mortgage interest paid is only $1800.

So what happened to the other $30,780?  That’s a lot of money to go missing.

Welcome to the further screwed up world of mortgage loan servicing.

The short answer right now to the question I posed at the top is I don’t know yet.

But here’s what I suspect. [Read more…]

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Phone: (650) 694-4700

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