Failure of Banks and Fannie and Freddie to Write Down Principal is Against Their On Interest

A column in today’s LA Times  makes a compelling case for Fannie Mae and Freddie Mac to rethink their adamant opposition to principal forgiveness. Michael Hiltzak’s analysis also highlights the hypocrisy of the still mysterious Attorneys General settlement.

The dirty little secret is that $17-25 Billion of the AG’s Settlement that is reportedly going to be devoted to principal reduction will actually provide more that $17-25 billion in value to the banks and other lenders. This additional benefit to lenders results because reducing the principal of loans increases the likelihood that those loans will paid.  As a result, the Net Present Value of the loans will be increased.

So the bulk of the “heralded” settlement is actually not a cost but a net financial benefit to the scofflaws that the AGs were supposed to be punishing.

Principal forgiveness is actually a win-win proposition for lender and homeowner when a loan is significantly under water.

Hiltzak explains it:

“The reason should be obvious. The most important factor in a borrower’s likelihood of default is the loan’s negative equity. Put simply, if you think you’re so deeply underwater that you won’t have equity in your home by the time you’re ready to sell it, or ever, then default looks more rational the more your ability to pay comes under strain.

The closer you are to breaking even or going positive, the more you’ll fight to keep the house. Forbearance doesn’t get you any closer to that point (you still owe the original principal, one way or another), but forgiveness does.”

Principal forgiveness recaptures the self-interest of the borrower to the benefit of both borrower and lender.

Even the Federal Housing Finance Agency, the agency charged with overseeing Fannie Mae and Freddie Mac told Members of Congress, that principal forgiveness can increase the net present value of underperforming loans.

So, you ask, if its good for lenders and good for borrowers, why isn’t there an effort to rewrite all under water loans in America?

One answer to the question is accountants (no offense to my brother the CPA, well, ok, maybe a little offense intended)

Lenders including Fannie and Freddie are carrying these non-performing loans on their books as if every dime promised is going to be paid.  Principal reduction requires that the lenders immediately write down those loans that will effect share prices in the case of the banks and create political risk in the case of the now federally controlled Fannie and Freddie.

The second answer to the question is a little more nefarious, servicers, including all of the big banks that have entered the still undisclosed agreement with Attorneys General charge investors, including Fannie Mae and Freddie Mac significantly higher fees when loans are in default. The percentage of loan proceeds to be paid to servicers increases, plus mortgage loan servicers have become masterful at creating other ways to pay themselves by way of forced place insurance and inspection costs. In foreclosure, the servicers get paid first and if there is not enough from the foreclosure sale, the investor pays the bill.

My hope is that as congress, shareholders and the general public figure this out sooner rather than later.

Imminent OCC Settlement with Bank Servicers Leaves as Many Questions as Answers

The imminent settlement between the 5 largest U.S.Banks and State Attorneys General will make it more important than ever for homeowners in distress to be represented by competent counsel.

A big part of the reason that the banks are signing onto this settlement, is that it will leverage the credibility of the Obama Administration and State Attorneys Generals to further their efforts to convince homeowners to sit on their legal rights related to legitimate claims they may have over lending and foreclosure practices.

Participating Banks are betting on the fact new modification promises may entice homeowners to walk away from real actionable claims against lenders, servicers and their vendors.

The settlement itself amounts to little more than moving around the deck chairs on the Titanic.  The math simply doesn’t work. The principal reductions promised will either be spread like peanut butter over millions of mortgages, too small to advantage either the homeowner (or the lender) in any significant way, or at the proposed dollar allocation announced today, will only benefit a fraction of the homeowners facing foreclosure.

The proposed $2000 payment to families wrongly foreclosed upon is exactly the minimum that a husband and wife would be entitled to under a Fair Debt Collections Practice Claim. Those of us who represent homeowners know that there are state consumer protection claims and tort claims available that could provide wrongly displaced homeowners will tens of thousand of dollars more.

The silver lining in the settlement is that it does not in any way limit homeowner defenses or counterclaims in the foreclosure process.  It is more important than ever for homeowners to be represented by competent lawyers.  For more information about representation in foreclosure in Ohio click here.

Why it Makes Sense to Hire a Real Lawyer to Defend Your Foreclosure

Lets face it, being a homeowner in foreclosure is an awful experience.

Homeowners served with a Notice of Default or a Foreclosure Complaint  often feel ashamed or embarrassed. Many are frustrated  and even angry that their good faith efforts to work with Banks, Investors and Loan Servicers to avoid this very event have literally fallen on deaf ears.

After spending months dealing with a loan servicer who puts their own interests ahead of both you the homeowner and the owner of your loan, a foreclosure defendant’s mailbox ( and voice mail) now fills with offers of “help”, many from people who have very little ability to help the situation but who are quick to offer false promises of hope.

The Ohio Attorney General announced another lawsuit against a Stark County Mortgage Modification Scam. I brought the first enforcement action against such criminals back in 2008 and the problem continues to plague Ohio Homeowners.  We just filed a class action case against such a company in Sizemore v. The Modification Group.

There is legitimate help for people who want to modify their mortgages and access modification help and government programs in Ohio. Save the Dream Ohio is a program I am very proud to have helped create. It has helped thousands of Ohioans access assistance at no cost.

Sometimes, however, legal leverage is necessary to drive self interested Mortgage Servicers and investors to the table.  In a large majority of loans originated between 2001 an 2008 there are significant problems in the history of loans on the lender’s side.

In a surprising number of cases the mortgage servicing industry has responded by literally forging documents for presentation to courts to attempt to fix fatal problems in the sale and assignment of the mortgages of homeowners who are in foreclosure. See 60 Minutes report on robosigning.

Many lawyers who solicit homeowners in foreclosure are no better than the phony modification mills.  Some try to push homeowners into cookie cutter bankruptcies leaving legitimate defenses that a surprising number of homeowners have on the table.  Other lawyers do nothing more than try to run out the clock on the foreclosure process without aggressively attacking the real legal issues that could result in a flat out dismissal of a foreclosure complaint or put pressure on a lender to enter into a meaningful modification, including on involving a reduction of principal.

That is why it is critical for homeowners who have been sued for foreclosure to interview and hire lawyers who are willing and able to put the cutting edge issues regarding the proper ownership of mortgages, robosigning fraud and standing directly in in front of the court.

Beware of easy and cheap solutions.

Look for lawyers who have successfully litigated motions to dismiss and who are willing to do the painstaking work of forcing a lender seeking foreclosure to prove every single element of their case.

The discovery process will allow a lawyer for a homeowner to dig deep into the ownership of your note and the business practices of those seeking to foreclose, often yielding defenses to foreclosure ( or even claims against the lender, servicer or their foreclosure mill lawyer) that cannot be identified in any other way.

Careful scrutiny of authority of people signing affidavits, assignments and endorsements can break the chain or ownership of notes and result in dismissal of foreclosures.

High quality legal work is available to homeowners in foreclosure for no more than the cost of a reasonable monthly mortgage payment. Not only will good lawyers keep you in your home for longer, aggressive legal tactics push lenders to the negotiating table or force dismissal of foreclosure lawsuits all together.

For more information contact Law Office of Marc Dann Co. LPA or 216-373-0539

Ohio Supreme Court To Address Standing in Foreclosure Cases

From Dick Davet:

About U.S. Bank  v. Duvall

The Ohio Supreme Court announced two separate decisions relating to Duvall on Wednesday, April 6, 2011.  In respect of the U.S. Bank notice of appeal and filing seeking a discretionary review, the Court dismissed the appeal in Case No. 2011-0171.  Interestingly, FOUR Supreme Court Justices dissented from the dismissal!

See:

http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2011/2011-ohio-1618.pdf

http://www.supremecourt.ohio.gov/Clerk/ecms/resultsbycasenumber.asp?type=3&year=2011&number=0171&myPage=searchbycasenumber%2Easp
But also on Wednesday, the Supreme Court DID certify the conflict previously identified by the Court of Appeals on the U.S. Bank motion in Case No. 2011-0218:

http://www.supremecourt.ohio.gov/rod/docs/pdf/0/2011/2011-ohio-1618.pdf

http://www.supremecourt.ohio.gov/Clerk/ecms/resultsbycasenumber.asp?type=3&year=2011&number=0218&myPage=searchbycasenumber%2Easp
The net effect of these two decisions is that the Ohio Supreme Court is going to hear and determine this certified question in respect of the U.S. Bank v. Duvall decision:

“To have standing as a plaintiff in a mortgage foreclosure action, must a party show that it owned the note and the mortgage when the complaint was filed?”
See:  http://www.sconet.state.oh.us/tempx/187169.pdf

For More Information on Foreclosure Defense Contact:

Law Office of Marc Dann Co. LPA

216-373-0539

www.dannlaw.com

New York Attorney General Takes On New York Foreclosure Mill

New York Attorney General Eric Schneiderman has issued subpoenas to The Baum Law Firm according to today’s New York Times

The Baum firm is engaged in the very same conduct as Ohio Foreclosure Mill Lerner Sampson and Rothfuss.  Here is how the New York Times Describes the new probe:

“Scrutiny of the Baum firm has increased in recent months after significant errors surfaced nationwide in legal paperwork used by banks to seize delinquent borrowers’ homes. For example, documents detailing how much borrowers owe have been signed by bank representatives who say they have not verified the information. Other problems involve the questionable notarization of documents, or paperwork indicating that the foreclosure process was begun without providing proof that the entities involved had the legal right to foreclose.”

Sound Familiar?

For More Information about Foreclosure Defense

Contact: Law Office of Marc Dann Co. LPA.

www.dannlaw.com

216-373-0539

How To Remedy the Foreclosure Mess

A consensus has appeared to emerge, even among the legal and corporate players in the Foreclosure debacle that the status quo is unacceptable. The debate in State Attorneys General’s Offices, the new Federal Consumer Protection Agency and among the  Loan Servicers is trying to frame an appropriate remedy for the problem. Todays New York Times outlines how the debate is shaping up.

Unfortunately some important players remain in denial. According to the Times The acting comptroller of the currency, John Walsh, the top federal banking regulator said:

“… that while there were widespread problems with documentation and oversight of law firms and other crucial links in the foreclosure chain, only a “small number of foreclosure sales should not have proceeded.”

He clearly has not been litigating foreclosure cases in Cuyahoga County. The problems are much more widespread than anyone is willing to admit.

Others are just starting to wake up to the problem. HSBC has announced that it is suspending its foreclosure processes.

Some players want to assess penalties and damages and apply those funds to a renewed modification process. For the first time the idea of using assessed fines and penalties to buy down mortgage principal in underwater mortgages is being seriously considered. Although there is still no discussion of reeling in the Federal Housing Administration’s arbitrary, costly and anti-consumer policies.

Affidavits Not Enough to Prove Ownership of a Mortgage Note

Building on the landmark Wells Fargo v. Jordan Decision, Ohio’s 8th District Court of Appeals (Cuyahoga County) ruled this week that an affidavit alleging that a foreclosure plaintiff held the note prior to filing of a complaint for foreclosure is not sufficient evidence to support a foreclosure judgment.

In Deutche Bank v. Triplett, the court of appeals held:

“… Deutsche  Bank’s affidavit of ownership, sworn out more than a year after the

foreclosure complaint was filed, is insufficient to vest the bank with standing

to file and maintain the action.  Thus, if Deutsche Bank had offered no

evidence that it owned the note and mortgage when the complaint was filed,

it would not be entitled to judgment as a matter of law. Jordan, ¶¶ 22-23.

For More Information on Foreclosure Defense contact: Law Offices Of Marc Dann Co. LPA .

Lawyers for Foreclosing Banks Should be Held Accountable for Telling the Truth

Today, Jim Douglass and I filed suit against Ohio’s largest foreclosure mill, Lerner Sampson and Rothfuss on behalf of several home owners. The goal of the class action lawsuit is to seek damages for the thousands of Ohio homeowners who have had foreclosures filed against them by entities that didn’t have the right to foreclose.

The suit alleges that filing lawsuits on behalf of banks and investors who do not actually hold the notes or mortgages that are the subject of the lawsuit is a violation of the Fair Debt Collection Practice Act, Ohio Consumer Sales Practices Act and constitutes abuse of process. We have also alleged that Lerner Sampson and its staff members created and signed  assignments, endorsements and affidavits without having actual knowledge of the facts contained in those documents.

Click Here to see the complaint: class action complaint

The Cuyahoga County County Common Pleas Judges have recently enacted much stricter requirements for proof when lawyers like Lerner Sampson are seeking a judgment in a foreclosure case.

Our suit seeks justice for the thousands of homeowners who lost their homes, had their credit destroyed and suffered incredible emotional distress over that past several years.

Lack of Access to Lawyers Makes Forclosure Crisis Even Worse for the Working Class

See my commentary on this topic here.

FHA’s Could Help its Bottom Line And Help Homeowners in Forclosure At The Same TIme

Today’s New York Times reports that the Federal Home Administration may need an infusion of cash as its reserves have been decimated by the spike in mortgage defaults.  One way to save FHA money would be for the agency to intervene in foreclosure actions against insured homeowners. Government Attorneys would be in a great position to negotiate loan modifications that could save the agency millions if not billions nationwide.

If a FHA insured mortgage is foreclosed the federal government agency is required to make the mortgage lender whole for their loss including inflated collection and foreclosure costs.   Engaging with homeowners and lenders prior to foreclosure would take away this perverse incentive for lenders and loan services to march to foreclosure when a possible reduction in principal on the mortgage could keep homeowners in their homes, allow lenders to keep a paying customer  and save FHA tens of thousands of dollars per house. (see earlier post)

If the FHA doesn’t act, Congress should.