Iowa Legal Aid Foreclosure Defense Project IHOEP 2010 Spring Conference April 6, 2010 John F. Gianola Managing Attorney firstname.lastname@example.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.