Foreclosure Defense

Published on: July 11, 2011

Suggested Short sale Contract Language to Help Avoid Deficiency Judgments

short sale.jpg When listing and selling a home in a short sale, homeowners should consider including language to limit recovery of any unpaid amounts by the mortgage company (known as the deficiency balance). In Florida, we recommend this limitation be placed in the Purchase and Sale Contract. This way when the lender/bank agrees to the short sale, they are in essence agreeing to the terms of the contract between the buyer and seller. It is no different than if you wrote in “as-is” to limit your liability as to the condition of the property. I’d recommend something like the following be inserted into the contract:

The sale of this property is contingent upon the lender’s acceptance of all sale/purchase contract terms including a complete discharge/forgiveness of debt of any remaining deficiency amounts on the loan. Accordingly, the bank’s acceptance of this short sale agreement will constitute payment in full of both the first and second mortgage notes on this property and represent a waiver of any future lender right to pursue an action and/or judgment against the owners/borrowers to recover any deficiency amounts arising from this short sale transaction.

Published on: June 27, 2011

Florida foreclosure courts shutting down

By Christie D. Arkovich, P.A.

The special foreclosure courts in HIllsborough county are shutting down the end of this week. Does this mean the foreclosure crisis is finally at an end? Not exactly.

In 2010, the Florida legislature approved legislative funding to the Florida court system to help eliminate the backlog in foreclosure cases. Filing fees shot up from approximately $300 to $900 – $1900 for foreclosure plaintiffs. A budget surplus of $100 million in the court trust fund existed. In Hillsborough County alone, this money was used to hire and assign six judges solely to foreclosure cases. Their goal was to eliminate 62% of the backlog which existed last year. I’m not positive, but this goal may have been met, I know it was on target a few months ago. However, the legal challenges to the cases have increased dramatically, and foreclosures are slowing. Due in large part to the defective affidavit backlash, foreclosure filings dropped off a cliff early last fall and have remained low to date. The $100 million surplus has turned into a $72.3 million deficit. In May, Governor Scott had to approve last minute funding to keep our courts open.

Today, I found out that In three days time, these six judges are going to have to find other work as the foreclosure special divisions in Hillsborough County are shutting down because funding was pulled.

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Published on: June 25, 2011

Watch out for Aggressive HOAs in Hillsborough and Pinellas Counties, Florida

By Christie D. Arkovich, P.A.

It has been my practice to advise clients to remain current on their Homeowners Association dues (HOA) even though they are behind or in foreclosure on their first mortgage. Today, an article appeared in the St. Pete Times describing a local company Prop. Inc. and its purchase of 71 properties in Hillborough County, Florida in the past eight months. The company appears to be run by several ex-cons although what they are doing is perfectly legal.

Homeowners Associations have become much more aggressive in the past few months. We have seen HOAs file motions to intervene in some of our pending foreclosure defense cases in the Tampa Bay area and then move to set the action for trial even when the homeowner and the bank do not want to go to trial. Perhaps a trial modification or forbearance agreement is even in place. Attorney

Published on: June 17, 2011

HAMP releases second mortgage HELOCs

By Christie D. Arkovich, P.A.

I have discussed the many second mortgages that can be removed or stripped off clients’ property in a Chapter 13 bankruptcy due to the low home values in Florida. Today, I’d like to discuss other possibilities to remove a second mortgage that we are seeing. Today for instance, I received a call from a client who filed a Chapter 7 with us awhile back. She now has received approval for a HAMP waiver of her second mortgage or home equity line of credit. A complete waiver, paid in full. She also has completed a modification under HAMP for her first mortgage. Now the home is affordable and it makes sense for her to keep it. Chase was the servicer this client was working with so it may be worth the time to continue to deal with large servicers to obtain these results.

We also are seeing clients being approached with offers to satisfy their second mortgages in full for about 10 cents on the dollar (i.e. $6,000 lump sum payment to satisfy a $60,000 2nd mortgage). Usually this happens after we file a Chapter 13 threatening to strip the second mortgage, but sometimes it may come out of the blue. For a client who qualifies for a Chapter 7, they then have the option of converting to a Chapter 7 to discharge other unsecured debt and not remaining in a lengthy 3-5 year Chapter 13 Plan. Another option is that the client could simply dismiss the Chapter 13 voluntarily if they have no other debt and are current in their first mortgage or able to obtain a modification.

Published on: June 13, 2011

Strategic Defaults – When it’s Time to Walk Away From Your Home

By Christie D. Arkovich, P.A.

underwater mortgage.jpg Have you been considering walking away from your house payments and mortgage? According to a recent CNN article, many homeowners are getting ruthless and voluntarily choosing to walk away. We are seeing this more and more among our foreclosure defense and short sale clients. Sometimes it is better to take the credit hit and save money on huge mortgage payments on an underwater asset. Home values have continued to slide another 11% in Florida in February when compared to the same month in 2010. CBS MoneyWatch reports that 47% of Florida homeowners are underwater.

Fannie Mae reports in a recent survey that the number of homeowners who would even consider walking away has increased from 15% to 27% this year. This is despite Fannie Mae’s threat to withhold Fannie Mae backed financing for strategic defaulters that it made over a year ago.

So what should you consider before you make such a decision? Well, first of all, if you have a good job, assets and a strong credit report, you can be a target for a deficiency lawsuit later down the road as Florida is a “recourse” state. Banks and other owners of mortgage debt have up to five years to pursue you to collect the unpaid balance. The question is will they? If you look good to them on paper, it is more likely you will be sued for a deficiency. If this is the case, or you think your finances will pick up over the next few years, you may want to consider a short sale to at least try to open negotiations for a full or partial deficiency waiver. Alternatively, many clients elect to file bankruptcy now while they qualify to order to obtain closure and gain the certain knowledge that they cannot be sued later.
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Published on: May 15, 2011

Principal Reduction down from $130,000 to $49,000!

By Christie D. Arkovich, P.A.

Elusive principal reductions are hard to come by, but we recently scored a very big win on behalf of one of our prior foreclosure clients turned Chapter 13 client. This week Ocwen agreed to a reduction in principal from $130,000 to $49,000 at 2.625% interest. This family’s principal and interest payment dropped to $224. Escrow is anticipated at another $200 for taxes and insurance.

This Bartow, Polk County, Florida family had lost their employment in 2008. By the time they obtained new employment nearly two years had passed and a foreclosure lawsuit was filed by MERS as nominee for Home 123 Corporation in 2008. A HAMP mod was denied during the foreclosure process. Prior to a foreclosure judgment being entered, the family filed a Chapter 13 in a final effort to keep their home. One of the problems was that the arrearage was $31,000 all of which had to be paid in the five year Chapter 13 plan. Moreover the home was valued now at $50,000 per the most recent tax assessment while $130,000 was owed on the home on a first mortgage. In bankruptcy, we as debtor’s counsel filed an objection to the Proof of Claim on the basis that proper documentation was not filed. Missing endorsements demonstrated a lack of standing on behalf of the mortgage company, among other problems.

A couple weeks before trial, we arranged a conciliation conference with opposing counsel and their client. Our clients were again considered for a HAMP modification which was denied a second time. We offered a new amortizing mortgage of $50,000 at 30 years at 5% interest. Ocwen came forward with an independent modification of something even better: $49,000 at 2.625 %. Payment $224 plus escrow. Hard to beat. Clients jumped at the offer needless to say.

To give credit where credit is due, I have no idea how much of this was because of Ocwen or because of our stellar legal wrangling 🙂 I have heard of Ocwen reducing principal elsewhere in the nation, but have seen no reports locally. In an article in DSNews.com a site for those in the mortgage default servicing industry, Ocwen has explained in their experience negative equity increases the likelihood of a re-default 1.5 to 2 times and that approximately 15 percent of all Ocwen loan modification involve some element of principal reduction.
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Published on: May 14, 2011

Dissecting your Credit Score

By Christie D. Arkovich, P.A.

Fico 2.bmp Fico 1.bmp A lot of our clients in the Tampa Bay area have questions regarding how exactly their credit score will be impacted by a short sale, foreclosure, or a bankruptcy.

A recent article by FICO, Banking Analytics Blog, researched these very questions.

The FICO study focused on three sample consumers with credit scores of 680, 720 and 780. As shown by the charts above, the answer depends a lot on what the existing credit score is. The higher your score is, the longer it appears to fully recover. However, after 18 months of otherwise good credit, this impact may be minimized.

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Published on: March 27, 2011

Cash for Keys – $21,000!

By Christie D. Arkovich, P.A.

Sheila Blair, FDIC chairman, announced Friday a new proposal to resolve the foreclosure fraud issues that have arisen, particularly in Florida, a judicial foreclosure state. It is being presented as a settlement of the fraudulent issues by the five major mortgage servicers. The nation-wide “cash for keys” program would provide homeowners up to $21,000 to voluntarily leave their home. I would presume that the program would require the homeowner to also waive any legal rights and claims against the mortgage company.

Interesting idea. Now the homeowner would have the funds to pay a down payment on a new performing loan on probably a less costly and more affordable home. Somehow they would be expected to qualify for financing despite the hit their credit will take giving up the present home.

Please note this is only a proposal (not a law or anything yet), and the banks strongly object to it. It is being targeted to only those homeowners who are 90 or more days delinquent. It is a step toward winding down HAMP which is expected to occur in the next year or two. Other proposals being discussed may include a menu of options available to a servicer including “cash for keys” or principal write down. There are a number of parties involved though for an agreement to be reached. The parties raising claims include the Department of Justice, all 50 state attorney-general, various banking regulators, the FDIC, the Treasury, and the new Consumer Financial Protection Bureau. You then have an industry full of banks and mortgage servicers on the other side.
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Published on: March 21, 2011

Principal Reductions Through Bankruptcy?

By Christie D. Arkovich, P.A.

Currently, the Bankruptcy Code does not allow a bankruptcy court to modify a bankruptcy debtor’s first mortgage on his or her primary home. It does not prevent a mortgage company from modifying a loan if it voluntary agrees, but nothing allows the bankruptcy judge the power to force a principal reduction for an underwater home.

It has been this Tampa Bay law firm’s opinion that eventually principal reductions will become more widespread. It has been reported that banks now hold only 15% of the nation’s home mortgages, and that the remainder are now owned by Freddie Mac, Fannie Mae and numerous securitized trusts. When this mess first began, banks held a much larger percentage of home loans which have now been transferred to Fannie and Freddie. I believe the banks should have been forced to eat the loans they made, but I digress. At least now the nation is in a position to permit principal reductions because it is much less likely to crash the five major banks.

NACBA (National Association of Consumer Bankruptcy Attorneys) has announced a proposal to address the dilemma of underwater homes. This new proposal, the Principal Paydown Plan, would provide:

1) Interest rate reductions to 0% for the first mortgage to allow the entire monthly mortgage loan payment to go directly to principal;

2) During a five year plan, the borrower’s minimum monthly housing payment would be calculated similar to a HAMP modification payment at 31% of gross income;

3) At the end of the five year period, the remaining principal balance would be amortized over 25 years at the Freddie Mac survey rate (running approximately 4.75% now);

4) The bankruptcy judge and Chapter 13 trustee would approve of the eligibility of the borrower and feasibility of the payments, something that they presently do in all Chapter 13 cases;

5) The borrower agrees to a general settlement of all claims against the lender and servicer and avoiding title and loan litigation.
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Published on: March 16, 2011

Good Bank v. Bad Bank

By Christie D. Arkovich, P.A.

Bank cracks.jpg On March 9, 2011, Bank of America Corp. (BAC) announced it is segregating its good and bad mortgages into two separate entities. After swallowing Countrywide, Bank of America is America’s biggest lender with 13.9 million mortgages. Often referred to as being too big to fail, frankly it is also too big to manage its mortgage loans competently and effectively as shown time and time again in our foreclosure defense practice.

The riskiest and worst performing “legacy” loans total approximately 6.7 million loans and include those that are currrently 60 or more days delinquent. It also includes those loans often referenced as toxic loans (negative amortizing loans, interest only, Alt-A, and subprime loans). Roughly, this totals approximately $1 trillion dollars.

Keep in mind BOA has approxmately $148 billion in equity. This equates to 15% of the $1 trillion dolllars of impaired assets. BOA is obviously and unquestionably insolvent. The FDIC should have locked the doors already. Some enterprising person or entity should consider filing an involuntary bankruptcy petition for them.

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