The outlook for the New Year is grim if you own a home in Las Vegas and are not paying attention to your legal rights. Likely, you are one of the two-thirds of our valley’s property owners who are in an underwater position, most being more than 50%. Since property values are expected to drop further in 2011 along with demand and ability to purchase, it seems that local property values are in a death spiral.
Pundits predict that nationally, 1 in every 5 mortgages could be foreclosed on in 2011. Though the foreclosure crisis has persisted for the last three years, they say we are only one-fourth of the way through the troubled loans. Using that statistic and the, until now, popular dead beat borrower argument, 20% of our home-owning population is an irresponsible sub-prime borrower who should have never bought a home in the first place! Seriously, should the blame and the cure all be loaded on the tax-paying borrower?
What about the suspicious loans that were handed out freely, the documents the originators botched or left out all together, the securitization process that created huge pools of loans to be sold to trusting investors, the fabricated foreclosure fees and documents, and the filing of hundreds of thousands of false court documents? Is this the non-paying borrowers fault as well? Will we never call these banks to participate in the foreclosure crisis that they helped to create?
One can be optimistic only in the respect that there is beginning to arise a general understanding of how the banks function and why they are not incentivized to do anything other than position borrowers for foreclosure. As an originator bank (in charge of creating and processing the loan documents and sales), as well as the servicer bank, foreclosure serves several very important purposes: 1) it hides faulty and fraudulent documentation; 2) it avoids put-backs from investors who bought the securitized loans the banks sold; and 3) it creates default servicing revenue. In reality, the bank controls the process from start to finish and therefore, has opportunities to hide and avoid liability while earning a fee to do so.
The large number of foreclosures we continue to experience in Nevada does nothing other than breed more foreclosure and loss. Foreclosures must be avoided either through mutual consent between the lender and borrower or by enforcing legal foreclosure standards. The “dead beat borrower” argument is nothing more than an easy diversion from the real problems such as banks’ reverse-engineering loan documents, “robo-signing”, deliberately pursuing improper foreclosures, and manufacturing “junk fees” that cause or add to the pain of foreclosures. To date, the banks have enjoyed the diversion.
There is a ground-swell against these practices in small and large scale. Not only have borrowers begun to voice their disgust at bank practices, states have begun to take formalized action against the biggest offenders. Attorney General Masto filed a lawsuit against Bank of America for misleading and deceptive trade practices, making Nevada the second state to take such a stand.
Our local politicians, however, cannot be the only elected officials paying clear attention to the problem. We must all face this problem head on, and those we send to Washington must not continue to have their understanding clouded by politics and pockets. There can be no hope and no change unless we pay attention and demand that every player in this crisis be held accountable for their portion of the problem.
Servicer banks have created false and faulty documents, they have foreclosed on homes improperly and without right, they have preyed on the lethargy and ignorance of consumers, and they have been caught doing so in Nevada. By uncovering deceptive practices, faulty documents, improper procedures, and other technical and obvious arguments, you may be able to modify your loan, short sale with a release of the deficient amount, or gain other favorable results. But you must be willing to get involved. We have helped many clients who are frustrated and unable reach closure.
If you are a borrower who has failed to pay, you do have rights that can and should be protected. Sitting idly by is what the banks expect from you, what do you expect of yourself?
Tisha Black Chernine, Esq.
When one hears the word “insurance,” you automatically think you are “covered” from any and all “qualified” loss that exists under the umbrella of that coverage. Unfortunately, that does not appear to be true as all types of insurance from medical to long term disability have been the subject of movies and articles slamming the insurer’s failure to pay when the insured comes to collect on a valid claim. The same also appears to be true in the mortgage industry. The private mortgage insurance company, Old Republic, was sued last week by Bank of America for failure to pay on purportedly valid claims totaling approximately $160 million dollars. Bank of America should not be alone in their frustration as borrowers, many of whom have paid monthly for private mortgage insurance, are now liable for a greater deficiency on their short sale as a result of the mortgage insurer refusing to cover any of the difference. For example, in the event that someone sells their home with a $200,000 mortgage for $100,000 there is a deficient amount of $100,000. If we assume that the mortgage insurance company covers approximately 30% of the original note, as most cover somewhere between 20%-50%, then the deficiency balance the lender may now pursue the borrower for is only $40,000. The borrower, once liable for $100,000 loss, is only paying the $40,000 due to the mortgage insurance covering $60,000.00. However, when the mortgage insurance company fails to pay on claims, the borrower may now be facing a $100,000 suit from their lender. Considering the aforementioned, it is not only Bank of America and other lenders that are suffering from coverage denial but the borrowers who, unlike Bank of America, don’t have in-house counsel.
According to the latest developments, President Obama will pocket-veto a piece of legislation that critics say would make it easier for banks to process foreclosures and make it more difficult for borrowers to challenge foreclosure documentation. The bill in question, HR 3808, passed the Senate on September 27th by unanimous consent. The House passed the bill by voice vote in April. The bill would require state and federal courts to “recognize any notarization made by a notary public” licensed in any state, including electronic signatures. The motivation behind the bill was businesses’ argument that it is too easy for people to challenge notarized documents in court when notaries were licensed in different states. Ohio Secretary of State Jennifer Brunner stated on October 5th that if the bill became law it would make it harder for consumers to challenge foreclosures.
With foreclosure filings growing by the month, some judges are holding banks and loan servicers’ feet to the fire to prove they “own” the mortgage and that they know what information is in the filing.
As foreclosures increase, the nation’s largest mortgage financier has added 61,929 new REO properties to its inventory in the second quarter. In an effort to step up the unloading of these properties, FANNIE has created its First Look program. See, 
CoreLogic, a California-based research firm has released its inaugural report, a bimonthly study entitlted U.S. Housing and Mortgage Trends which states that we will be seeing “more distress with distressed home sales.” CoreLogic defines distressed sales as short-sales and REO sales.
Starting September 7, 2010, the Federal Housing Administration (FHA) will offer a new refinance program to qualifying underwater homeowners. To be able to participate in the program you must be current on your home loan, your credit score must be 500 or above, and the home must constitute your primary residence. Further, all lien holders related to the property must agree to the refinance and agree to write off at least ten percent (10%) of the unpaid principal balance. As most borrowers know, lenders are loathed to write off any of the principal regardless of the possible incentives. The program does, however, offer more incentives beyond new FHA-insured mortgages. The program contemplates certain incentives for any second lien holders to provide a full or partial extinguishment of the lien. HUD says interested homeowners should contact their lenders to determine if they are eligible and whether or not their lender agrees to write down a portion of the unpaid principal. Keep in mind that the present loan must be a non-FHA loan.
Rarely does a loan modification include a principal reduction. The typical 
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