Foreclosure

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					      Iowa Legal Aid
Foreclosure Defense Project

 IHOEP 2010 Spring Conference
         April 6, 2010
           John F. Gianola
         Managing Attorney
       jgianola@iowalaw.org
   Mortgage crisis: What went wrong?

• “The difference between a     • “Mayhem and
  good loan and a bad loan is     foolishness.” – Niecy
  that in a good loan the         Nash, Clean House
  lender succeeds when the
  borrower succeeds. In a bad
  loan, the lender benefits
  from the borrower’s
  misfortune …” – Rachel
  Anderson, CRL
 What is the Foreclosure Defense Project (FDP)?

• Specialized project at ILA to assist homeowners facing foreclosure.
• Primary assistance to Iowa Mortgage Help (IMH) clients.
• IMH funding allows assistance to clients without regard to ILA’s stringent
  income guidelines.
• After intake, cases assigned to an attorney in one of ILA’s 10 offices
  statewide. At least one attorney in each office handles foreclosure
  defense. Two ILA attorneys do only foreclosure defense.
• Clients provided spectrum of services, such as: Legal counseling, pro se
  document preparation, and court representation -- depending on needs of
  client and available resources.
• Consultation with and training for IMH staff.
• Property subject to foreclosure must be primary residence of client.
Iowa Mortgage Help helps ensure homeowners
           get legal assistance.
Non-LSC funding helps Iowa Legal Aid reach
  more homeowners facing foreclosure
       Goals of FDP in litigation
• Work in partnership with IMH counselors to
  leverage mortgage servicer cooperation.
• Familiarize courts with common defenses to
  foreclosures. Stop rubber-stamp judgments.
• Prevent unnecessary loss of homes.
Foreclosure litigation stories
 “I’m Krystal. I sign 400 mortgage assignments a day.”
         A mortgage assignment factory tale.

• BOA is the plaintiff, acting as Trustee for MBS pool.
• Mortgage assigned by First Franklin to BOA as successor to
  LaSalle as Trustee for another MBS pool.
• Notary Stamp for assignment out of Idaho where neither First
  Franklin nor National City had a single branch in the state.
• Krystal (who executed the assignment) works for Security
  Connection which manufactures assignments for several
  clients.
• Krystal has never worked in banking industry; never
  independently confirms any facts set forth in the assignment;
  and does about 400 assignments a day.
                      Not so fast
• Borrower signed note and mortgage with Home Loan Center
  in 2007.
• May 18, 2009: BAC Home Loans served 30-day notice to cure.
• February 11, 2010: BAC filed foreclosure petition. FDP filed
  motion to dismiss.
• February 24, 2010: BAC was assigned the mortgage.
• Court dismissed foreclosure because BAC was not the “real
  party in interest.” Petitioner must show that it has ownership
  of note and mortgage at time petition filed.
               Read the contract
• FHA note and mortgage.
• Note: “Note does not authorize acceleration when not
  permitted by HUD regulations.”
• Mortgage: “… regulations issued by *HUD+ will limit Lender’s
  rights, in the case of payment defaults … and foreclosure.”
  And “ *mortgage contract+ does not authorize acceleration or
  foreclosure if not permitted by the regulations of *HUD+.”
• In essence, the parties agreed that HUD regulations would
  govern their relationship regarding default and foreclosure.
  (Opposing argument: The provision only governs relationship
  between mortgagee and feds.)
          Read the contract (cont.)
• 24 CFR 203.604: Requires opportunity for face-to-face
  meeting before three monthly payments are unpaid.
• 24 CFR 203.606: Must ensure that all servicing requirements
  are met prior to foreclosure, including loss mitigation efforts.
• Borrower attempted to contact lender re workout options
  with no response. Finally offered the potential for
  reinstatement only after judgment was entered.
• Court denied MSJ on basis that lender needed to prove
  compliance with HUD regulations.
                      The flood
• Borrowers entered into a forbearance agreement in spring
  2008 with servicer #1 to help catch up on delinquent
  mortgage. Borrower made several payments.
• A revised agreement was created by servicer #2 in summer
  2008 but payments were still sent to servicer #1. Not all
  payments credited by servicer #2.
• Home flooded in 2008. Borrower lost job and could not make
  mortgage payments. Received FEMA funds and applied for
  Jumpstart. Did not qualify unless they were in “good
  standing” regarding mortgage.
• Servicer #2 would only consider a workout if borrowers made
  four monthly mortgage payments up front, which they could
  not do.
                 Flood (cont.)
• Borrowers inquired about HAMP in early
  2009, but no reply from servicer (servicer later
  reported that investor would not consider
  HAMP mod).
• Foreclosure filed in May 2009.
• FDP resisted MSJ on these grounds:
  – HAMP compliance, improper notice to cure, and
    breach of contract for not cooperating to obtain
    flood insurance.
                    Flood (cont.)
• HAMP compliance: Servicer is not supposed to pursue
  foreclosure pending HAMP evaluation. Ruling: OP only offered
  an affidavit that generally stated the borrower was considered
  for HAMP, nothing more. (Court acknowledged affidavit of
  IMH counselor)
• Notice to cure: Must state “exact date” that default must be
  cured (not merely state “thirty days.”) Ruling: Notice did not
  contain “exact date.”
• Breach of contract: Insurance provision in standard
  Fannie/Freddie mortgage. Insurance proceeds should first be
  applied to repairs, if “economically feasible.”
                    “Gibberish”
• Default entered against borrower who did not file Answer to
  foreclosure.
• FDP moved to set aside the default.
• Prior to foreclosure, borrower was “tenacious” in
  communicating with servicer regarding potential workout.
  “Numerous and duplicative” requests for information were
  sent to borrowers, who responded to each one.
• Last letter from servicer stated that it still needed “the
  following information:” (blank) -- Court: “gibberish.”
• Borrowers “repeatedly told that ‘something’ could be worked
  out.”
• Ruling: Borrowers were “misled” into default.
               Follow that note!
• Borrowers signed note and mortgage with Freemont
  Investment & Loan.
• MERS listed as “nominee” on mortgage.
• Foreclosure petition alleged that MERS assigned the
  N/M to HSBC Bank (the petitioner). But N/M
  attached to petition lacked any evidence of
  assignment or endorsement to HSBC.
• Ruling: MSJ denied. No evidence HSBC is “real party
  in interest.” Also, servicer (Litton) failed to consider
  borrowers for HAMP.
                  No standing
• Borrowers executed N/M with Fieldstone Mortgage
  Co.
• January 5, 2009: Notice to cure sent to borrowers by
  servicer (Litton).
• February 2, 2009: Mortgage assigned by Fieldstone
  Mortgage Co. to HSBC as Trustee for Fieldstone
  Investment Trust.
• Foreclosure filed by HSBC as Trustee.
           No standing (cont.)
• MSJ ruling:
  – PSA governs how mortgages may be acquired and
    foreclosed upon. The PSA and TSA only authorize
    mortgages that are “current” to be transferred to
    the trust. Thus, mortgage inappropriately
    transferred to the trust. Trustee has no authority
    or standing to bring foreclosure. Trustee only has
    authority granted to it by explicit terms of trust.
     “They won’t return my calls.”
• On 9/07, servicer notified Borrower that it had to raise a
  monthly payment to make up shortage in escrow. B continued
  to make original payment amount b/c could not afford
  increase.
• In summer 2008, B entered into forbearance agreement (5
  inflated payments to be considered for mod). B made all
  payments.
• 1/09, B received notice that he was approved for a mod. B
  waited for further instructions.
• 3/09, B notified that mod denied because “we were unable to
  come to a mutual agreement.”
• Week later, payments returned to B because they were “not
  enough to bring loan current.”
 They won’t return my calls (cont.)
• B called servicer. B informed that his payments were returned
  b/c he was selling property (news to the B).
• 4/09, B received notice that property was not for sale.
• One week later, foreclosure petition served on B.
• One week later, B received new forbearance offer to be
  considered for mod. B started putting payments aside
  pending resolution of foreclosure.
• MSJ filed. FDP resisted.
• Based on potential mod offers by servicer, judge directed
  opposing counsel to consult with servicer for potential
  workout. OC came back and told court: “They won’t return my
  calls.” Judge dismissed foreclosure.
          Miscellaneous issues
• Workout agreement:
  – If mod, then follow up to dismiss foreclosure.
  – Does it cure the default?
• Forbearance agreements:
  – Should be carefully reviewed with borrower.
  – Questionable, especially if HAMP available and
    inflated payments.
• Farm/Ag use:
  – If combined Ag/residential, then mandatory farm
    mediation.
                   Miscellaneous
• Spouses’ signatures on mortgage. If homestead, mortgage
  void if both spouses don’t sign.
• Tenants. Rights under Protecting Tenants in Foreclosure Act
  post foreclosure sale.
• HAMP:
   – Lost documents.
   – Written denial with reasons/ 30 day response period.
   – All foreclosure activity must cease pending HAMP
     evaluation.
   – Written certification that borrower not HAMP eligible prior
     to foreclosure.
   – Must communicate with foreclosure attorney re HAMP
     status.

				
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