Profound and Pervasive Misconduct in Mortgage Servicing is not a Secret

I highly recommend reading Federal Reserve Governor Sarah Bloom Raskin’s speech at the Association of American Law Schools Annual Meeting, Washington, D.C. January 7, 2012 

Have a read of this speech from Fed Governor Sarah Bloom Raskin, titled Creating and Implementing an Enforcement Response to the Foreclosure Crisis.

It is not a secret that mortgage servicers have been deceiving and continue to deceive homeowners.  We must then ask, why, the current administration continues to encourage homeowners to work with their mortgage servicer to access “help for homeowner” plans from campaign speeches that they promise but cannot and should not deliver.  Also, in spite of repeated demonstrable experience, homeowners continue to follow the blatantly onerous instructions of mortgage servicer representatives.  Unfortunately, the most vulnerable in our population are mostly the ones to follow this advice and end up in far worse financial positions than when they started.

The best way for homeowners to protect themselves from abuse is to work with their own independent Attorneys and Attorney affiliated specialists.  Effective Technical Group, LLC can start your preliminary analysis and review real options.  Real business solutions are possible for homeowners.   We refer proven Attorneys that can review your situation to determine if you have effective legal defenses and can work to protect your property rights.  Other options, besides legal strategies, consist of effective liquidation and strategically exiting to allow for quick reestablishment of your financial position.  That is what we call a plan to get out from under, which differs from the “help for homeowner” type plans that just continue to keep homeowners in distress and increase their negative equity.

Real business solutions are possible for homeowners.  We’ll show you, and your Attorney if you already have one, how to work only with experienced and knowledgeable professionals for the results that are best for you.

Lessons from the local supermarket…

During a quick stop at a local supermarket today, something very disturbing caught my attention. As I walked in, I passed the Western Union counter. I overheard an elderly gentleman on the phone seemingly arguing and saying something to the extent of “I’m just trying to get my power turned back on.” I concluded that he might be trying to send a Western Union payment for a utility bill. I immediately wanted to stop and help him. I certainly could have at least helped him with the difficulty he seemed to be having with whatever bureaucratic procedure he was attempting. I stopped myself from interfering because, yes, I do realize how inappropriate it would be to ask an elderly gentlemen that doesn’t know me if I can help him with a financial transaction. Inappropriate, and dangerous. I am experienced, trained and licensed to help people with sensitive financial matters but there is no way for this man to know that. And, unfortunately, he probably would have readily disclosed information to me which means, he would have readily disclosed information to someone that may be trying to rob or defraud him. My professional advice is to never discuss financial information with anyone that you don’t know or can’t check out no matter how much they are offering to help you. So, I walked away but I didn’t forget or pretend to forget what I witnessed.

There is no way of knowing how his attempted transaction was settled or if he was able to get his power back. The next part of my story is about what I felt when I passed him again on my way out. Still at the same counter but no longer on the phone. He was bent over a stack of scratch off lottery tickets with a coin attempting to reveal the cash he apparently needed today. As I saw that, I got a sinking feeling in my stomach. I’m sure that there are many people across our country that do their financial planning the same way. In front of me was the clearest example of why I remain committed to financial education and consumer advocacy. There wasn’t anything that I could do for this gentleman today but he did a lot for me and for the many other people that I can help. I’m sharing this story so that he can help you as well.

He reminded me of why I keep doing what I do despite how difficult it’s become through our current economic crisis. I’m sharing this story because I know my networks are full of other experienced and dedicated financial advisers whom I know think about changing to easier careers when times get increasingly difficult. Also, there are many with the skills and experience that consumers need now, more than ever before, that have already left the industry.

I certainly know how difficult swimming upstream has been over the last few years. There is much working against the American consumer these days. It seems overwhelming to think about changing the negative tides. It is daunting. Maybe we can’t stop the lobbyists, corrupt politicians or fraudulent corporations but we can educate the people. We can teach them how to protect themselves from the traps they are led into by the media and by many of our current politicians. We can teach them how to avoid the many dangerous “unintended consequences” of current social programs.

We can teach consumers to make better decisions to protect their financial independence. We can get involved in our local communities and share our stories, share our experience and expertise. I see the populous marching forward toward that Western Union counter where they scratch off their lottery tickets in an attempt to pay their utility bill to light and heat their house. I also envision people pulled out of that march and pointed in another direction through financial education. We can’t protect or stop them from the march. We can give them the tools to learn choices to opt out.

Buyer Beware means Buyer Protect Yourself

I’ve been reading some discussion about the warnings of buying foreclosed property.  I personally do not believe a novice homebuyer should enter into any distressed property purchase without their own independent, legal representation.  Many people outside of states like Florida take that for granted.  Most people do not know that in Florida, buyers are rarely independently represented.  Buyers trust that the seller accurately handle all legal matters in the property transfer.  Furthermore, those matters are usually handled by a title agent and seldom by a real estate attorney.  That has always been one of the things I disliked the most about real estate in Florida.  Even buyers outside of Florida who always have used their own attorney to consult on real estate purchases, easily go along with not needing the same when they purchase Florida property.  That is a very costly mistake to the consumer and to the market as a whole.  At this time when the market is consumed with increasing legal issues, it is important for any buyer to reconsider going along with transactions this way just because they’re told it’s the norm in the Florida market.

The dilemma in changing the status quo is that it has to be done en masse.  When independent legal representation uncovers reasons for deals not to proceed, there is usually a ready, willing and unrepresented buyer eager to step in and not ask the same questions.  Realtors and title agents cannot give legal advise.  They are actually prohibited from giving advice and open themselves up to liability if they do give legal advice.  At the most, they can, but are not required to, recommend that an attorney be consulted.  After that, it is the consumer decision.  Unfortunately, the consumer rarely has enough knowledge or information to understand why they need independent representation.  The nominal extra cost is far less costly than buying a home with potential legal encumbrances.  Moreover, it is hugely less costly than the cost to the industry and market when real estate is transferred erroneously.

Another point not to be missed is that Realtors and Title Agents only earn their income if a deal closes.  Of course I am not suggesting that they would hide something material that they are required to disclose just to earn a commission.  But, unfortunately, sometimes they do not want to know more than necessary to avoid uncovering something to kill their deal.  When property closings are halted because of thorough due diligence, we shouldn’t discourage due diligence we should demand that matters are consistently conducted properly.  Consumers need to educate themselves to research the correct information and not just believe what they are told.  Moreover, it is much more prudent to be advised by someone that has no incentive in the sale being completed.  A legal opinion on a real estate purchase is in the same scope of a home inspector or appraiser that give an objective opinion and get paid their professional fee regardless of if the deal closes.  Unfortunately, many people think it is bad if anyone of the independent professionals uncover something material that would end the sale.  On the contrary, the fee paid to uncover that before purchasing is money well spent.

Consumers often are told that they shouldn’t be concerned with buying distressed property because they’re protected by title insurance or that foreclosures are handled accurately through the courts.  Also, they are given the opportunity to review the title search provided by the seller and seller’s agents prior to closing but it’s usually not provided until just prior to or even at closing.  Many consumers lack the experience and knowledge to read and evaluate the true terms of the title search or title insurance.  I’d equate a consumers title review to when my mechanic opens the hood of my car to show me that he did the repairs correctly.  For those of you that don’t know me personally, I have no idea what happens under the hood of my car so I don’t rely on my own evaluation of this work, makes sense, eh?

There are many misconceptions in the field that discourage consumers from seeking independent legal representation.   Most people do not understand the details and/or function of title searches and title insurance.  A familiarity of the terms sometimes comes from working in the industry but most people don’t bother to learn more.  First of all, title insurance will only pay to correct clouds on the title that were missed by their thorough due diligence at the time the policy was issued and only if not included in the exclusions of the policy.  Title insurance will not compensate a purchaser for the cost of their purchase, that is a common misconception.  They only are required to correct title flaws within the scope of what the policy covers.

Secondly, what the courts do and what the title company is responsible for are 2 entirely different things.  We know that we have many irregularities in our courts and allegedly, one of the reasons that properties are transferred several times between lenders after foreclosure judgement is to make unraveling a sale to an “innocent” buyer further removed from a potentially “faulty” sale.  The banks know what they are doing.  Consumers, government regulators and sometimes even the courts are no match for their highly skilled legal maneuvering.

Lastly, in the field, I’ve been noticing that the foreclosure mills have created their own title searching departments providing title for the title underwriters to review when issuing policies.  Anecdotally, I have found inconsistencies when I’ve run independent parallel title searches.  “Liar title policies” follow the same underwriting lack of quality control as “liar loans” do.  That, I believe is the next shoe to drop.  At the bare minimum, a buyer should hire an independent title agent to provide a separate title search, which usually only costs about $150-$200 in my market.  If/when that search doesn’t match the one provided by the seller, it’s an opportunity to investigate.  It might also be an opportunity to report the inconsistencies to title underwriters and/or regulators.

These are just a few reasons why our current market is making it increasingly important for all buyers and sellers to take responsibility for independent and professional due diligence in title work and every other detail in the transaction.  IMHO

It’ll Hurt You More Than It Will Hurt Us…

Call me crazy but I’m going to suggest that increased down payment requirements would not destroy our real estate market.  IMHO, the scare campaign about this issue is more of the bank lobby propaganda to distract from the real problems and avoid accountability.  I think it’s clear that it’s just their spin against the QRM rules.  It’s another example of “don’t try to punish or regulate us or it will be harder on you than it is on us”  You can read the spin at the link here:

http://www.realtor.org/press_room/news_releases/2011/05/mortgage_requirements

 

And now, let’s do some math…

Although the statistician in me cringes anytime that I read “According to NAR Research”  and data quantified as “recent” “less than” and “typical” are very difficult to calculate accurately, I wanted to post this to highlight a different perspective. 

If “recent” home buyers are making less than 20%, and Zillow (another over-relied on source for data vomit) calculates that nationally, homes values fell 8.2 percent from a year ago, “recent” homeowners are adding to the percentage of negative equity homeowners.  My anecdotal evidence indicates that “recent” buyers actually make less than 5% down payment with the increasing market share of FHA mortgages.  For example, let’s try some basic math, FIVE minus EIGHT = NEGATIVE 3,  now, recent homebuyers, what do you own??? 

That oversimplified example is my attempt to explain a different perspective on these data.  IMHO, I believe that it clearly shows that lowering down payment requirements for new mortgages is humongously far away from where our focus should be applied.  Property values are plummeting because of other factors.  The increased reliance on low down payment FHA loans and even 100% financing USDA loans aren’t doing anything to stop the decline in property values, are they?  Data are clear, let’s understand what they really mean. 

Look, something shiny over there!!! 

While I’m on this rant, here’s one more small equation:  14 years for a “typical” person to save 20% down payment EQUALS 14 years for a “typical” person to make up 20% lost equity,  in theory, but…  making up lost equity takes longer because of inflation, decreasing earning potential through the years and escalating costs not to mention increasing balances on most mortgages due to foreclosure avoidance “help”

So, if you’ve lost equity, fill in the blank:  _______% lost equity divided by 20 multiplied by 14 = the length of time to regain your lost investment in a vacuum.  Add the other factors that increase that time and you have the truth of the numbers.

Where will you be in 14 or 28 or 42 years?  There are real options and financial planning solutions that make business sense but that involves weeding through all the propaganda and taking personal responsibility for your own solution.

On Responsibility

To paraphrase one of my heroes, Uncle Milty, the government doesn’t have any responsibility, buildings do not have any responsibility, banks do not have responsibility but individual people do.  Individual people have responsibility to themselves and to help others.   Individuals make the decision whether or not to remain consistent with that responsibility in everything that they do. The current state of our industry has uncovered serious challenges to ethical business practices, corporate values and individual responsibility.  The gratitude that I have for these challenges in our industry is abundant.  I am grateful for the enormous opportunities we’ve been given to learn and grow.  Many people have overlooked these great opportunities but it’s never too late. 

In the context of our mortgage and banking crisis, it’s much too simple, and somewhat irresponsible, to think personal responsibility means those “deadbeat” homeowners should pay their mortgage.  Those lucky enough to not have any financial hardship through this difficult economy also probably have the resources to research and educate themselves further about the true issues.  Stopping at the “deadbeat” homeowner explanation is irresponsible as it is a choice to not want to know the truth.  It’s also quite dangerous because the real problems harm the entire society. 

Homeowners are lying to themselves if they think that they are protected just because they’re paying their mortgage on time. With all the increasing public awareness about the real problems, it makes it increasingly difficult to stick to the easy explanations that may have been providing security.  In the face of the fear that a real problem would require action, many people find comfort in conforming to the easy explanations.  If it’s just about the deadbeat homeowners, then it’s not about them, and they don’t have to do anything about it.  They can continue to go about their regular routine.  But, the neighborhood plight, community deterioration, immobility of labor force, plummeting property values, drain on public resources and all the other social ills will continue until we all start paying attention to the real problems and all take individual responsibility.

Those not lucky enough to avoid financial hardships that have gotten caught up with a distressed mortgage are avoiding their individual responsibility as well.  In the years I have worked directly with this population, I have witnessed all levels of misconceptions.  Homeowners have been misled, lied to and defrauded.  They’ve been harmed by banks, brokers, servicers, attorneys, non-attorney negotiators, realtors, title companies and a variety of different gurus alike.  Many of our most vulnerable populations barely had a fighting chance to avoid the scams.  Most did. 

Most homeowners have the physical and mental capacities to obtain the resources necessary for the due diligence that their hefty financial decisions require.  When did financial security and strength become something that is easily obtained?  Something that important should be hard to get and to keep.  Something that important should be fought to obtain and to protect.  It certainly isn’t something that should be left to the good graces of a government or a corporation to bestow upon people.  Don’t get me wrong, I still blame the government and the banks for creating our current crisis but blame doesn’t matter to personal responsibility.  Blame is only helpful to excuses.  Excuses won’t help us.

Many homeowners that have been misled and harmed by mortgage companies, whether through origination fraud, predatory servicing or loss of property values, came to believe that they were entitled to be helped. The most vulnerable populations should indeed be helped but that cannot happen if the majority of homeowners that have the strength to help themselves eschew their responsibility.  Again, I’m not referring to a responsibility to make a mortgage payment; I’m referring to their responsibility to use their capabilities to fight for the truth.  If capable people chose not to stand up for themselves and demand justice from their adversaries then there is no justice for anyone. 

I realize that it is not easy.  I’ve seen firsthand how many capable and brilliant homeowners were duped by their mortgage representatives.  With the increased public awareness about these practices, homeowners have more responsibility to ask questions and do thorough research before they make decisions.  And because the deck is stacked against the truth, when they are indeed misled and lied to, they need to take responsibility for reporting and documenting the actions.  Mortgage disputes are a legal matter.  Many homeowners have really been abused and harmed but instead of taking the responsibility of hiring the right lawyer to pursue legal action, they wait for someone to volunteer to help them. 

We can learn from our mistakes.  Many homeowners that I work with have come to realize that maybe when they bought their house and got their original mortgage, they should have known more.  They’ve realized that they should have made sure the person giving them advice had the right experience and a proven reputation.  They realized that they should have done more research to verify that the things they were told were true.  They should never have believed anything that wasn’t documented in writing. 

I’ve always said that mistakes are our most well spent tuition although they can be expensive.  One way to lower those tuition costs is to learn from the mistakes of others.  When faced with the multitude of options in a distressed housing market, we now know from our own past experience or from what we’ve seen with others that we cannot avoid personal responsibility for our actions.  We are responsible for our decisions and are not protected from harm because “everyone else was doing it” or “that’s what we were told.” Once we take that on, we need to go even further because even when we are using our full capabilities we are still susceptible to fraud in the current environment.  The only way to stop it and protect those that are weaker is by taking responsibility to expose it, document and report it and pursue legal remedy through the courts.

There is no reason why a capable homeowner with a real dispute shouldn’t use their resources to hire the right attorney to pursue legal action.  That is the only responsible thing to do.  How much sense does it make to wait and hope that the corporation that harmed the homeowner will volunteer to help? How much more does it cost to expect that the government will help?  I try to stay philosophically neutral but I think it’s clear across the spectrum of political philosophies that the facts show government help, at minimum, is ineffective.

It all circles back to personal responsibility.  If a homeowner is harmed they need to take personal responsibility to pursue remedy.   It’s easy to join the entitlement crowd of people that think they should be helped.  If everyone could just be helped then no individual would have to work so hard to protect their financial security.   If a homeowner believes and knows that a bank has harmed them, they have a duty to take action so a more vulnerable homeowner doesn’t get hurt as well.  The way we take action is in the courts.  If a homeowner doesn’t believe that they’ve been truly harmed enough to hire an attorney and pursue legal action, they shouldn’t expect that the government or anyone else should help them.

The cards may have been stacked against many of us but we are Americans.  It is in our blood to overcome adversity.  We prevail and succeed despite our challenges and some would say because of our challenges.  We don’t sit back and wait for someone else to help us.  We don’t follow along with the crowd without asking questions.  We don’t turn away when we see someone weaker than us is being abused.  I admit that the confusion in our society today is rampant and the challenges are increasing.  We know we rise to greatness when the challenges seem insurmountable.  Maybe up until this point the challenges weren’t insurmountable enough but they are now.  We need to rise to the greatness that I know exists.

Permission to publish with Proper Attribution and Credit

Diana Cessna is a Real Estate and Mortgage Industry subject matter specialist.  Diana Cessna is not an Attorney and none of her opinions should be considered legal advice.

The opinions and views presented about industry topics are impartial and not necessarily shared by any brokerage firm and/or any other affiliated company.

 

Dangers of Incomplete Short Sale Settlements

I appreciate the hard work and dedication of the Realtors  that handle short sales with integrity.  Nevertheless, a Realtor or title company cannot avoid a conflict of interest when advising a homeowner about their short sale options without an Attorney completing a thorough deficiency analysis.  You see, the only way a Realtor or title company gets paid is if the short sale closes.  I would never suggest that Realtors do anything that is not in their clients best interest but there is always a risk of that because of the nature of the relationship.  Therefore, one of the reasons that Realtors should make sure an Attorney is consulted is to protect themselves from that perception.
 
Another reason is because Realtors and title agents do not have the experience and training to know all the repercussions of each transaction.  Whether the homeowner is affluent or not, a deficiency analysis is important right from the start to determine if a short sale is indeed the best option.  Lower income homeowners with fewer assets actually may not benefit from a short sale.  If they have legitimate legal defences, they may be better off staying in their home as long as they can until they can save enough money to move on. 
 
If a family is truly in financial hardship and they sell their home in short sale, where are they going to live?  If they can’t afford their mortgage payment, how long are they going to be able to afford rent?  Ill advised short sales are one of the reasons for families becoming homeless.  With the proper legal defence or bankruptcy tools, a family in real financial distress can stay put where they are stable and secure until they are in a stronger position to negotiate a settlement and move on.  In these situations, it’s also critical that they are protected by an Attorney because of the banks’ illegal attempts to preserve or access a non-abandoned property.

Also, if there is an active foreclosure case against your homeowner, there are very specific legal procedures that need to be filed to eliminate any future action.  A satisfaction in a short sale approval often doesn’t satisfy other legal action and may not even be with the correct party.  I have seen many instances of short sale approvals that were misunderstood to satisfy the debt completely and with all parties.  This clearly should  be a red flag to buyers of short sales.
 
Other issues that are often overlooked are taxes.  Some properties actually have recapture taxes upon sale that are not identified.  Homeowners that received the homeowners tax credit when they purchased their homes have specific repayment and tax liabilities upon sale that differ based on individual circumstances.  Other homeowners may have had other types of down payment assistance or state bond funds at the time of their purchase that can become negative repercussions to the settlement.

And, of course, the seller liability for forgiven debt is all too often not addressed.  There are very specific legal and accounting rules that sellers may benefit from if settlements are done with the correct legal procedures.  One of the biggest misconceptions is that all forgiven debt on owner occupied property is not subject to income tax under the Mortgage Forgiveness Debt Relief Act of 2007 until 2012.  Only qualified indebtedness on owner occupied property is exempt under this act.  Including as much of the forgiven debt as qualified indebtedness requires detailed specificity.  If not done correctly, your distressed homeowner who exits their home with an incomplete short sale settlement will get socked with an enormous tax bill while they’re struggling to pay their new rent.  
 
These are all things that I’ve seen overlooked all too frequently in the field.  Individual short sales cannot be handled and settled the same way for each homeowner.  The individual legal proceedings, types of mortgages, plaintiffs and homeowners authentic financial capabilities are among the details that need to be professionally analyzed by an Attorney whose compensation isn’t tied to the funding of the short sale.   
 
I know how much misinformation is out in the field.  Different professionals, including Attorneys, may have different strategies and opinions.  I have approached this banking and housing crisis from my regulatory and finance background.  I have thoroughly researched and experienced several strategies over the past 4 years.  Thankfully, the resources and information that we have is continually improving.  I am confident that the Attorneys and other professionals that I work with have the best options for distressed homeowners. 
 
If I can ever help you with any clients, please contact me.

Diana Cessna is a Real Estate and Mortgage Industry subject matter specialist.  Diana Cessna is not an Attorney and none of her opinions should be considered legal advice. The opinions and views presented about industry topics are impartial and not necessarily shared by any brokerage firm and/or any other affiliated company.

The Real Danger from Force Placed Insurance

Mortgage lenders require that homes be insured. In the event that borrowers let insurance lapse, lenders may take out their own insurance on the property, which protects the lender’s interest but is paid for by the borrower.  On the surface that makes sense.  If those deadbeat homeowners cannot keep their house insured they deserve to be punished severely.  If they can’t maintain their $1800 annual policy, then the banks are going to force them to pay for a $7800 policy.  After all, the bank has to keep their collateral for the mortgage protected. 

So what does it really matter if the bank owns or has an interest in the insurance company that they use.  The bank needs to make money and if we don’t let them, we might have to bail them out again.  They deserve to get a kickback of $2000 from that $7800 force placed insurance.  They worked hard to find the properties that needed it.  It’s also hard work to manage the escrow accounts so that there is no documentation to show the homeowners policy had never lapsed. 

You see, once the inflated force placed insurance is advanced into an existing escrow account or a new forced escrow account, a homeowners’ mortgage payment can go up astronomically.  In cases were the homeowner had sufficient coverage that never lapsed, all they have to do is call their friendly and helpful mortgage servicer and fax in proof of coverage and it should be reversed.  Well, we know how friendly and helpful our mortgage servicers are and how well they receive those faxes. 

Once a homeowner starts that runaround, it very easy to get lost in the shuffle.  In the past, when homes had equity, many homeowners gave up and just paid off the loan with a refinance because it was so difficult to get the errors corrected and they were easily shown all the other advantages to refinancing.  Now that is not an option, the homeowner spirals into default.

So, this is one of the ways I’ve seen it in the field.  A homeowner is current on their mortgage payment of $1400 per month, their taxes and insurance are paid in full annually and all is fine.  All of a sudden, they get a notice from their servicer saying that because there was no proof that the insurance was renewed; the servicer had to advance $7800 to pay for the required insurance and set up a new escrow account.  Because the borrower didn’t pay for their own insurance according to the servicer’s records, they cannot be trusted to continue to pay for it on their own so they now have to pay the new insurance through escrow.  The homeowner sees that this is clearly a mistake because first of all, their annual insurance is only $1800 and it was renewed and paid in full faithfully.  No problem, they just call their servicer, let them know and are told it’ll be adjusted. 

Their mortgage bill comes and added to their $1400 mortgage payment is an additional $1300 required escrow payment.  It states that since the borrower didn’t pay back the $7800 that was advanced for the insurance that they needed, the servicer is gracious enough to let them pay that back in installments added to their monthly bill.  And, in addition the new escrow is set up so that they don’t have a problem paying the bill in the future; they are now required to pay installments for the next bill when it comes due. 

So, our homeowner calls their friendly and helpful mortgage servicer again.  Now they’re told that there is no record that anything was sent in to prove that they had paid for their own insurance so IF that is true, they need to fax it in again.  The customer service rep tells them that once she gets that, she’ll try to get the amount reversed and adjusted to the borrowers existing policy but cannot remove the new escrow account that was established for future payments.  That is something they can request from a different department but they will have to pay for a new appraisal to show that they have at least an 80% equity position to qualify for the escrow account to be removed.  Oh, and by the way this might take 6-8 weeks so just go ahead and send the payment that is due on the statement to avoid having the mortgage marked late.  Don’t worry, they’re told, once everything gets corrected, it’ll all be refunded.

So, our homeowner who is always on time with the mortgage payment now has to pay almost a double payment while they wait for this to be corrected and adjusted.  Unfortunately, they do not have the money to make a double payment but can pay the $1400  that is the correct payment so they send that in.  That payment is returned or put in suspense by the bank because it did not match the amount due and now the mortgage is classified as delinquent.  The next call that the homeowner makes to their servicer routes them straight to the loss mitigation department after looking up the loan number that is now flagged in the computer as a delinquent loan.  That customer service rep has no idea about any insurance adjustment or previous conversations about corrections but graciously offers to help the homeowner apply for a loan modification since they are having trouble with the current payment.  The loan modification program might just be what they need to get their payment lowered.

I think enough of us, by now, know what happens from here.  This deadbeat homeowner is indeed behind on their payments.  No bank or servicer is going to foreclose on a homeowner who isn’t behind on their payments, right?  Why should we defend homeowners that are not making their payments? 

You might read this and think you’re savvy enough to not let this happen to you.  If so, that’s great.  But who isn’t savvy enough to avoid this?  Our most vulnerable segments of the population really get bulldozed here.  But, a homeowner doesn’t have to be elderly, uneducated or out of the country serving in the military to be susceptible.  Many homeowners, brilliant in their chosen fields, have no idea of how this banking bureaucracy works and rarely are available to spend their days waiting on hold to reach someone and repeatedly fax documentation.  Many brilliant doctors, scientists, child care providers and engineers are completely consumed with what they specialize in that they don’t have a chance of catching this kind of abusive servicing.  Also, when and if they do, many people still believe that the bank cannot possibly make these kinds of “mistakes” and not correct them accurately.  

The front end of the force placed insurance scam forces homeowners into default when their payments skyrocket to pay for the inflated insurance that was placed in “error” by their servicer. The unethical and criminal actions on the back end of this with kickbacks and not paying out claims are what is finally is coming out in some of today’s headlines.  The frong end of this problem is what I’ve seen.  Because of those back end activities, homeowners are in danger.  Anyone working in the field directly with homeowners has seen at least some version of this through the years.  This is not new.  Today’s environment of negative equity and servicing monsters puts these abuses in fast forward.  

The front end of the force placed insurance scam is what destroys families, harms children and ruins communities.  Homeowners need their own Attorney that specializes in Foreclosure Defense whether they are delinquent on their mortgage or not.  It is increasingly dangerous for homeowners to try to handle any problems that they have with their mortgage on their own.  The most vulnerable segments of our population need to know that they can get their own Attorney to protect them.  Even the most sophisticated and intelligent professional, cannot possible understand the tricks within this bureaucracy. 

If you or anyone you know thinks that they may have been abused by a servicer, please contact me for a free, no obligation consultation.  Especially if you know someone elderly or in the military, we need to reach out and help them.

How Realtors are Reacting to the New FTC MARS Ruling

Permission to publish with proper attribution and credit

The new national rules about Mortgage Assistance Relief Services have done more than finally given us an acronym that matches the out of this world nonsense we deal with in today’s real estate market. It has finally gotten the attention of Real Estate Brokers. The real estate agents that work under a Broker’s license have, up until recently, had no real limitations about how they work with clients in short sale. Now, the Brokers are clearly made aware of hefty fines and penalties for any agent acting outside of the scope of their licensing and providing any mortgage assistance without being in compliance with the new FTC rule.

Some Brokers are instructing their agents that they are not allowed to list short sales at all any more to avoid any risk of liability. This unfortunately creates a dangerous void in the industry. Latest statistics from Core Logic show that “at least half of homeowners with a mortgage owe more than their homes are worth in 17 of 386 U.S. counties.” The state with the most counties with underwater homeowners in this survey is Florida. With this many homeowners in negative equity, we cannot pretend that short sales are going to go away. Homeowners and banks need Realtors to list and sell short sales. The fewer Realtors willing to do that, the more limited the homeowners’ options get and more likely they will face foreclosure.

Other Brokers are mandating that all short sales are to be referred to an Attorney. The problem here is that most distressed homeowners do not have the financial resources to hire an attorney. Moreover, as that homeowner proceeds through default to foreclosure, the banking and real estate expertise of their attorney is critical. There is certainly a shortage of attorneys that specialize in this area and that are willing and able to provide service at what distressed owners can pay. Nevertheless, the legal and tax ramifications of a short sale can only be addressed by an attorney.
Much of this information is new to Realtors that have been working with short sales for several years now. Many Realtor Short Sale Specialists have a high success rate. How they define their success rate is questionable. A threshold question that I ask a Realtor working in short sale is to identify the most important element in a successful short sale. Those that answer and believe that it is getting the highest price for the property are on the wrong path. I’ll even go as far as saying that if that is a goal, the Realtor is not representing the homeowner, they are working in the best interest of the bank. The Realtors that work under this philosophy have good intentions; they do truly believe that they are doing the right thing. They often are following the instructions of the bank and that has proven to be the way to get a short sale closed for them.

Why is this wrong? Well according the new ruling, if the Realtor is working directly with the bank in the negotiation and not MARS compliant, they are subject to fines. But more than that, it is because the Realtor does not have the legal scope of knowledge to know the tax implications, homeowners deficiency risk and legal standing in their negotiation. When a homeowner is chugging away on their runaway foreclosure train, holding out for a higher price on their short sale can take away valuable time needed to stop that train. Moreover, the tax implications of their decisions can only be assessed by trained real estate and bankruptcy attorneys and CPAs.

When there is minimal or no deficiency risk, there is no reason to hold out for a higher price on a property. The property is in distress and needs a quick sale to minimize the financial and emotional harm to the seller. Once a property is selling for less than what is owed, and the seller does not have the money to pay the difference, the main element of a successful short sale is eliminating or minimizing the homeowners’ deficiency risk, whether it’s $5000 or $50,000 doesn’t make it any less of a legal breach of contract. The sale is either deficient or not. If it is, and the seller has no money to pay the shortage, they are breaching a legal contract and the settlement for that is strictly a legal matter.

Surprisingly, I’ve learned that even when faced with deficiency risk, that is when a full release is not attainable, sometimes if a consumer has a higher deficiency they have different tax and legal options. But, wow does all of that sound complicated. Because it is!!! And it is very specific to an individual homeowners’ financial and legal status that can only be determined by a legal professional and a CPA, not a Realtor.

If a Realtor thinks that they know what a customer’s deficiency risk is and whether it’s better to hold out for a higher offer they are already working outside their bounds. I try to recall traditional, non-distressed real estate and question what the Realtors role is in advising a seller whether or not to accept an offer. Of course, I know the seller will ask for the Realtors input but what Realtor would ever take the risk to tell a seller not to accept an offer because there might be a chance of a higher one. I don’t believe many Realtors did that in the past. Where I see them do it now is at the instruction of the banks. And now the harm that is done when time goes by waiting for a higher offer or not getting a higher offer is much more severe.

The new FTC MARS ruling tried to clarify that Realtors working within the scope of licensed Real Estate activity are not required to be in compliance with new guidelines. Unfortunately, I see that what Realtors think is within their scope varies. Maybe in the past, under non distressed sales, the Realtor was within their scope discussing whether or not a seller should accept an offer. (I’m actually not really sure about that) But clearly, whether or not to accept an offer that is part of a negotiation to breach their mortgage contract is outside the scope of a Realtor’s licensing and is strictly a legal matter. Advising and helping set a list price based on market analysis is clearly within the scope of a Realtors job. Determining that price or consulting about any other decisions based on the sellers delinquent or deficient mortgage is not.

The only thing that I can identify that is consistent in all this uncertainty is that there is a critical shortage of experienced and knowledgeable professionals filling the roles and providing the services that consumers need. This void is dangerous because it is easily filled by those that do intentional perpetrate fraud. Consumers need to educate themselves and know who is providing what services and whether or not it is in their best interest. Caveat Emptor.

Disclosures: Please consider my opinions merely a guide and verify, research and learn about these topics for yourself so you can protect yourself and your family. Document everything and remember to focus on common sense. If it doesn’t make sense, keep asking questions. I am not an attorney and none of my opinions should be considered legal advice. I am not a CPA and none of my opinions should be considered accounting advice.
The opinions and views expressed in these articles are solely the Authors and are not necessarily shared by any brokerage firm and/or any other affiliated company or business partners.

Diana Cessna
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Email: dianacessna@gmail.com

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Truth or Opinion or Both?

There are many industry professionals with varying opinions about the problems in our current banking and real estate crisis. Nothing is ever the way it is as much as it is the way it is perceived. Maybe the truth about all the complicated details will never be known. Maybe we can’t handle the truth. Nevertheless, I believe it is important to consider different perspectives and continue to ask questions.

I’ve debated at length about MERS and worked with professionals that didn’t realize the harm and damage caused by the system until they looked at it from different perspectives. I agree that it’s not the gun’s fault, it’s the shooter fault. The increased efficiency of tracking the mortgage and note ownership and servicing transfers of course are great benefits but we now know that many lenders do not have the supporting documents to prove those transfers. Moreover, documents like assignments and satisfactions have been presented to the courts that do not correspond to the time frames in MERS registration. Although we know how inefficient and delayed some counties were in recording documents, I don’t think that eliminating the requirement for recording was the answer. And I continue to ask how that was allowed to be eliminated just because the industry created its own registration system. Although it may not have been designed to avoid filing fees, it did avoid millions of dollars in filing fees. More dangerous though was that it did avoid the transparency of public recording. Dated doc and deed stamps recorded in public records are indisputable.

Tracking mortgages in real time was critical only because of the speed in which they were bought and sold and the speed in which consumers were cashing out and refinancing one mortgage after another. Of course there were sophisticated criminals orchestrating real title fraud and taking advantage of the system by multi-layering liens but it’s important to consider how/why the system allowed that. The more voluminous problems (and benefit to lenders) were the non-criminals, the average consumer that was bombarded with all the marketing and aggressive sales campaigns that convinced them to tap out and refinance as frequently as they could. To make it clear that this was a known harm, eventually, there were some states and local jurisdictions that tried to pull in the reigns by regulating policy that would require banks to show what’s called “benefit to borrower.” Those efforts were too little, too late and too watered down by the almighty bank lobby.

MERS real time tracking is a great tool to show existence and prioritization of liens but would it really be bad to wait for the public recording to support that registration before buying or selling that lien? The quick transfers were one of the ways the originators started the game of “hot potato.” The quality and compliance of that origination became less important the quicker they could bundle and sell those loans. The quality and compliance of other things in the secondary market, like rating agencies and servicing agreements could also be questioned based on eschewing accountability if the portfolios could be passed on to other investors quickly. Those details are outside my scope of expertise but important for experienced secondary market analysts to consider or at least address in some way. My expertise is really focused on the consumer level. It is very important for everyone to take responsibility for their own actions but to continue to say that the consumer bit off more than they can chew is not only too simplistic, it’s also clearly orchestrated propaganda to distract from the more complicated details. If the consumer did make a mistake when they took out their mortgage or if they were violated by a lender that didn’t comply to regulations at origination, the rapid transferring of ownership and servicing made it more and more difficult for them to get help or hold anyone accountable. MERS may be more transparent on the inside of the industry but many consumers and even their attorneys that are trying to help them do not even know about the MERS system.

That also leads us to the current insane customer service nightmares that are tearing families apart all over the country. Up until recently, the general public knew very little about the role of a servicer in their mortgage. The general public and many industry practitioners still don’t know much about it. I’m pretty confident that I can say that there is no mortgage originator that ever comprehensively explained servicing to a borrower. The servicing disclosure was always read and signed by the borrower and they were told “all that means is that your payments will be sent to a different address.” Well, it turns out that it means a little more than that if they need help. I and many of my colleagues have written and spoken about the harm of mortgage modification. I have personally witnessed many consumers that could have avoided or mitigated their default by simply getting the advice of an experienced and knowledgeable financial and/or legal professional. Instead, they followed the instructions of the government and entered into the black hole of fake government programs like HAMP and took the advice of entry level customer service representatives who know very little about finance or mortgages. It is important for the consumer and the attorney that represents them to know that whatever the servicer negotiates is contingent on their contract with their investor. Also, the fees charged by the servicer that is managing a default buyer influence the procedure further. Moreover, the relationship that the servicer has with any subordinate liens is important to question. Maybe the consumer doesn’t want to or have to know all these details, but industry professionals and attorneys really should address these details. Dismissing the importance of these factors will continue to impede any real solutions.

Now the insider explanations of why the servicers cannot adequately handle the default buyers are a little different. One of my favorite reasons is that they are so overwhelmed by all the homeowners that decided to stop paying their mortgages. When the market started falling out, so many talented and experienced mortgage professionals lost their jobs. Unfortunately, they were not qualified to fill the need in the rapidly expanding default departments. One of the flaws that servicers may concede is that they greedily put profits first and wanted to staff up with less expensive entry level employees. At the risk of being marginalized as a conspiracy theorists, I considered that there may be other reasons that they didn’t want to hire experience and knowledgeable professionals. After all, most industry colleagues that I knew readily accepted lower paying jobs in other fields when they couldn’t continue working in the field of their expertise. Most industry professionals would have questioned why they couldn’t have access to the information required to verify the accuracy of statements on documents they were signing. They probably would have known there was something wrong with notarizing documents that were already signed by someone else that they didn’t witness. They probably had some training sometime in their career that made them aware that they should not sign someone else’s name to a document. Aside from the “Robo-Signing” technicalities, there is much more that an experienced professional could have done better in the process. Only experienced industry professionals know how to counsel a borrower about their mortgage options. It’s not as easy as reading a script and filing out a data form. If the servicer’s employees’ job changed so dramatically from just administering accounts to require them to essentially become mortgage originators, then the servicers are at the very least, negligent in their dealings with the consumers by not having experienced, trained and licensed originators filling that position. I would go further and say that by acting as mortgage originators, they violated numerous compliance and disclosure regulations.

Nevertheless, we still have to hear about all the borrowers that lied about their income. This is certainly true. Borrowers did lie about their income. I witnessed it first hand numerous times. After I did my due diligence on a borrower and advised that their income didn’t support their mortgage request, I repeatedly saw them accomplish their goals with another originator. There is a lot that I can explain about how that happened and why they really never had to lie but it is currently a moot point. Those buyers are long gone. They were out of this mess almost immediately. This is not who we are speaking about today. I will indisputably state that today’s “deadbeat” borrower is by no means strategic or purposely manipulating the system to their benefit. Today’s borrowers in default are the ones being manipulated by the system and are harmed by the continued lack of real response to the market fall out.

It’s common knowledge that TARP was never intended to help the consumer. The token “help of homeowners” programs that rolled out of it gave the politicians something to tell their constituents that were demanding to know “what’s in it for me?” The problem is that not many people were aware that these were just suggestions. There was never any requirement for the banks to implement or adhere to any of the program guidelines. Unsuspecting consumers thought that their government created a program to help them with their mortgage payments. And yes, many of these consumers were not late before they tried to apply for this “help.” The entry level administrators hired to take the applications from distressed homeowners and collect their documentation were put in the position to counsel and advise homeowners when they were at their weakest point. The process usually left the homeowner in a much worse financial position than when they started. There are many clear and accurate reasons why these modification programs fail.

It’s been suggested that these modification programs fail because borrowers lied about their income. High level industry professionals are saying that borrowers don’t want to send in information for their modification applications that will document their actual income because this would also document their original fraud. No matter how many times I re-read that last sentence, I can’t put my mind around it. The most disturbing part about it to me is the professional rank of the people that believe this is true. For this to be true, the original mortgage would have had to prohibit income and employment changes. Also, the document analysis and underwriting type guidelines for a modification are much more lenient than the worst subprime loans. Moreover, many of the stated income mortgages that the industry dubbed “liar loans” never required the borrower to lie or misrepresent anything. This could be another reason why they don’t want experienced industry professionals working for them anymore. We know about the aggressively sold “NINJA” loans. Borrowers were eventually not even required to state their income or assets or job. There was nothing at all to lie about except for the appraisal and credit score and those lies were controlled only by the lender.

The movement of real estate, which is the buying and selling of homes, is fueled by normal life events. Death, divorce, retirement, new births, job transfers, marriage, medical needs are all normal life events that would cause a family to buy and/or sell their home. In the past, if there was a financial distress and a family couldn’t afford the home they lived in, they sold and moved into a home that they could afford. They didn’t spiral into complete financial ruin. They certainly weren’t tricked into depleting all their assets and reserves before they vacated their home. That is what is happening today because of the poorly implemented efforts to help distressed homeowners. Whether a homeowner is paying their mortgage or not, most are in severe financial distressed with very limited mobility. Any one of the normal life events that would require a move could turn anyone into a “deadbeat.” This is not only because real estate was inflated to fraudulent values, now, it’s also mainly because values continue to rapidly decline. The current programs are not only failing to help distressed homeowners, they are rapidly pushing more homeowners into default. This makes it everyone’s problem. After almost 5 years into this mess, we need to stop accepting the easy answers and ask more questions.

Are Mortgage Modification Applications exempt from banking compliance?

Permission to publish with proper attribution and credit

When the government passed their emergency bailout of the banks with billions in tax payer money, they attempted to give the tax payers the perception that the bailout was going to help them as well. That’s when the proliferation of modification scams really started to accelerate. Consumers were deceived into thinking that government programs were available to help them lower their mortgage payments. The President of the US, other government officials and the media spoke about these new programs. Was that an offer to extend credit? When consumers were told and continue to be told that programs are available to help them with their mortgage, shouldn’t they be required to receive full disclosure about fees, costs, obligations, and other aspects of credit? You really do not have to be a bank compliance officer to know that banks are required to disclose when they are charging you fees or changing any terms in your credit agreement.

When a mortgage is indeed in default, the contractual agreement does predetermine actions. The contract clearly documents things like late fees and terms of demand etc. Bottom line, when the borrower doesn’t pay, the lender takes the collateral, the house. There is no contractual requirement for any party to even consider any change in terms. Moreover, I contend that any application for or offer to consider a change in terms qualifies as a request for new credit, refinance if you will, and mandates compliance to all Federal and State banking regulations. No factor other than government policy has contributed more to the delay and errors in standard foreclosure procedures. Attempts at foreclosure alternatives have proven to be worse for the consumer, real estate market and economy as a whole. Propaganda and misdirection has harmed the weakest members of our population the most.

Let’s look at a mortgage modification application in this context. A homeowner is led to believe that there are new programs available to help with their mortgage. Most homeowners readily believe this because they think that at least some of billions of dollars that were given to the banks have to trickle down to them. They are told to call their servicer for this program, not to shop around for comparative options or other professional advice. In my experience, many homeowners at this point are not even late on their mortgages. Despite the fact that they are struggling because of a nationwide economic downturn, they’ve been maintaining their mortgage payments with traditional efforts like tightening up their budget. Now, the government tells them that they will come to the rescue and offer them new and innovative solutions. So they call their mortgage servicer and speak to a customer service representative.

Most consumers do not know that the customer service representative rarely has any mortgage experience or training and is usually not licensed or background checked. Nevertheless, they follow instructions and complete an APPLICATION for mortgage modification over the phone. They are asked all the details about their credit, income and assets. Under banking regulations, that is considered a full mortgage application. To confirm that, they are instructed to send in all their supporting financial documentation with all the sensitive details about their credit, income and assets. They are usually told to send that in over unencrypted general fax lines to the attention of a specific unverified department instead of any named individual. Any experience mortgage professional, from the past of course, already is starting to see the violations in this read.

So from here, what happens? It’s usually a bit of a paperwork shuffle that can last anywhere from a week to 6 months after this initial application with no information disclosed whatsoever. Whenever they end the paperwork shuffle, the next step is when the customer service representatives advise the homeowner of their new payment arrangement, usually referred to as a “trial modification”. This is all done verbally, over the phone. Nothing is sent to the homeowner in writing. They are simply told how much their new payment should be and usually asked to pay over the phone by EFT or Credit Card. This is where the scam gets ugly, especially for the homeowner that was never late.

They follow these instructions and start making the new payment and start bragging about how the new program works well and is saving their family money on their monthly payment. They were never told that by following these instructions and making the new payment, they immediately became delinquent on their mortgage. Moreover, that delinquent status triggered all kinds of late fees, accruing interest, default interest, property preservation costs, forbearance fees, legal fees, collection costs and forced escrows to all be added to the balance of their mortgage. Furthermore, they are never disclosed, even upon direct request, where the money paid through these new payments is allocated. Also, they usually do not know at this point that foreclosure proceedings have begun and their servicer is now their legal adversary.

This has tricked many homeowners that were never late and were trying every other option to avoid being late. Even if a homeowner was starting to have slow payments or in the beginning stages of delinquency when applying for this help, they were never given any disclosure about how the modification escalates the delinquency. The repercussions and costs of this option are never disclosed to homeowners until months into their trial modification when they are serious delinquent, in default and usually well into foreclosure.

At that point, they are thrown into my favorite category of “deadbeat homeowner”. What could they possibly be complaining about? They are not paying their mortgage. They’re deadbeats. They chose to default on their mortgage. So what if there may have been a few paperwork flaws along the way. That’s just a technicality.

So what happened to the banking regulations and compliance that was supposed to protect the consumer from making poor decisions based on misleading advertising about rates, fees and terms and conditions of credit? What happened to disclosure requirements? How is an application for mortgage modification different than an application for a mortgage refinance that mandates a rescission “cooling off” period after all terms are clearly disclosed? This allows borrowers to rescind their application if they determine that it is not good for them after they have all the complete information and before they have made any changes to their status or credit worthiness.

If somewhere in all the fine print of volumes of TARP or other legislation passed, banks were given waivers from compliance let’s just all pack up and leave now. Or is it worse that compliance to banking regulations is still mandatory, as they should be, and just repeatedly violated due to lack of enforcement?

I am not an attorney and nothing that I write should be considered legal advice but I’m pretty sure that we cannot just cancel federal and state laws. My dear friends like RESPA, TILA, ECOA et all need to be rescued. I take back all the grumbles that I ever made about any of my extensive compliance training through the years. Witnessing firsthand how egregiously consumers are harmed without these protections has certainly taught me the lesson never to complain about them again.

Disclosures: Please consider my opinions merely a guide and verify research and learn about these topics for yourself so you can protect yourself and your family. Document everything and remember to focus on common sense. If it doesn’t make sense, keep asking questions. I am not an attorney and none of my opinions should be considered legal advice

The opinions and views expressed in these articles are solely the Authors and are not necessarily shared by any brokerage firm and/or any other affiliated company.