Held Up Without a Gun (or a Home)

Imagine living in one home for over 30 years. You’ve poured your hard-earned money into this home with the hopes of making it as safe and comfortable as possible for you and your family. In a very fundamental way, your world is that home.

Then, one day there’s a knock at the door. You answer it, only to find cops standing there. Their guns are drawn and they’ve come with only one message. Eviction. The bank has sent them and you’re to be out of the house immediately.

The reason?

You missed one mortgage payment.

If this scenario sounds far-fetched, we’d invite you to check out a recent article on The Huffington Post that details how this horror came about. A story where the bank employed high-pressure tactics to rush a signature on a load modification the full details of which either were never presented to the borrower or were intentionally misstated as stealth means to initiate the foreclosure process.

Stories of this kind are far too familiar. And despair only creeps in when one thinks of how fraud has so thoroughly tainted the foreclosure process and the extent to which the government is complicit in enabling this corruption. Sad, tragic, criminal.

Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

Retroactively Naked?

The Massachusetts Supreme Judicial Court once again finds itself considering a case that may have national implications. For close observers of the foreclosure crisis, you may remember the Massachusetts court’s opinion early last year in Ibanez. We blogged on the significance of that case, as well, for it was the first ruling by a state high court on the issue of whether banks can foreclose on homeowners if they, the banks, can’t prove they hold the mortgages due to shoddy or incomplete documentation.

Now comes Eaton v. Federal National Mortgage Association (Fannie Mae). This case is another in a series challenging the right of a party trying to foreclose on a property when ownership and/or the ability to prove ownership through proper paperwork are in question.

The intriguing wrinkle in Eaton is whether or not the foreclosure can be challenged and compensation enforced retroactively or whether such retroactivity exacts too high a cost or permanently clouds title.

The details of the Eaton case are fairly straightforward:

They involve “a note given by Henrietta Eaton to BankUnited and a contemporaneous mortgage to Mortgage Electronic Registration Systems (MERS).  The mortgage was later assigned by MERS to Green Tree servicing and the assignment did not reference the note.  The Eaton Home was subsequently foreclosed upon by Green Tree which assigned its rights under the foreclosure to Fannie Mae which sought to evict Eaton.  Eaton sued, charging that the loan servicer did not hold the note proving that Eaton was obliged to pay the mortgage.”

Nearly a dozen amicus briefs have been filed in Eaton addressing whether the decision should apply prospectively or retroactively.

In an unprecedented move, the Federal Housing Finance Agency (FHFA) weighed in:

FHFA asked the court to apply any decision to uphold the lower court decision prospectively rather than retrospectively.  It’s argument:  applying a ruling retroactively would be “a direct threat to orderly operation of the mortgage market.”   FHFA also said “Retroactive application of a decision requiring unity of the note and the mortgage for a valid foreclosure would impose costs on U.S. Taxpayers and would frustrate the statutory objectives of Conservatorship.”

“There presently is no mechanism or requirement under Massachusetts law to record the identity of the person entitled to enforce the note at the time of foreclosure,” FHFA said.  “Therefore, a retroactive rule requiring unity of the note and mortgage for a valid foreclosure would potentially call into question the title of any property with a foreclosure in its chain of title within at least the last twenty years.”

Opponents, however, argue that the legal principle that a party cannot foreclose on a “naked mortgage” (one separated from the note) is so well established in property law as to remove it from controversy.

How the Massachusetts court decides could lead to a surge in claims from homeowners looking to overturn seizures, affecting the fate of tens of thousands of homes foreclosed on in that state in the last few years. How this decision could ripple out and influence how other states facing a similar situation handle the matter is also worthy of our attention.

Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

Accelerating A Fraud-Prone Process? Or Ameliorating It?

A bipartisan State Senate panel passed a foreclosure bill this past Monday aimed to expedite the mortgage foreclosure process. To say the legislation was met with mixed reactions would be an understatement.

While the bill contains certain consumer-friendly measures, like heightened requirements of ownership proof for parties trying to foreclose on a property, many foreclosed homeowners believe the law would only diminish their rights even more. Under particular scrutiny is the part of the legislation that provides for a special court hearing that would more easily speed a property into foreclosure.

With all of the erroneous and fraudulent filings (robo-signing, etc.) that have exacerbated the foreclosure process in Florida’s besieged real estate market, people have good reason for concern.

Stay tuned for more information as this bill moves to the Senate floor for further debate.

Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

If They Snooze, They Lose

The 4^th District Court of Appeals recently reaffirmed in Haber v. Deutsche Bank National Trust Company that a lender cannot prevail in a foreclosure action if it fails to refute the borrower’s affirmative defense regarding notice and opportunity to cure.

The language of most mortgage agreements concerning this issue reads as follows:

Lender shall give notice to Borrower prior to acceleration following Borrower’s breach of any covenant or agreement in this Security Instrument . . . The notice shall specify: (a) the default; (b) the action required to cure the default; (c) a date, not less than 30 days from the date the notice is given to Borrower, by which the default must be cured; and (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the sums secured by this Security Instrument, foreclosure by judicial proceeding and sale of the Property.

In order to be entitled to summary judgment, the mortgagor must refute all of the affirmative defenses or show that they are legally insufficient. Woodrum v. Wells Fargo Mortg. Bank, N.A., 73 So. 3d 873, 874 (Fla. 4th DCA 2011) (citing Frost v. Regions Bank, 15 So. 3d 905 (Fla. 4th DCA 2009)).

If banks continue to follow this process without correcting it, they’ll continue to lose at either the trial or appellant level. Let’s remain vigilant in making sure they don’t succeed by cutting even more corners.

Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

When the Owner’s Away, the Holders Will Play

One of the more increasingly common (and bothersome) practices making its way through foreclosure cases is when the plaintiff is not the owner of the note, but only the servicer. The argument goes that the servicer is entitled to foreclose because it’s the holder of the note. In this telling, mere possession of the note, indorsed in blank, permits the holder to foreclose.

This approach raises a number of questions, however. Is ownership effectively rendered irrelevant? And if possession of the note was all that mattered, could one logically conclude that a thief, someone who stole the note, is in fact entitled to foreclose? Are we simply to accept that anyone can foreclose if you hold the note?

To adjudicate these matters, what do Florida laws and case decisions have to say?

Florida rules require that the plaintiff be both “owner and holder.” (See Rule 1.944) And as far as case law is concerned, despite its oft recitation by plaintiffs’ attorneys that the decision renders holding the note—and not ownership—as paramount, the ruling in Riggs v. Aurora Loan Services, 36 So. 3d 943 (Fla. 4^th DCA 2010), didn’t concern ownership since that matter was not at issue. The plaintiff in Riggs had demonstrated that it was both “owner and holder.” So, the claims of plaintiffs’ attorneys notwithstanding, just because ownership in that case was not in question doesn’t mean that the issue is immaterial.

Another tack plaintiffs have been taking to justify prosecution is under the theory of agency. Here, they argue, even if the holder isn’t the owner, because of the servicer’s agreement with the owner, it can now foreclose with the owner’s consent. The plaintiff effectively acts as agent of the principal by prosecuting the case. But this raises the question of when an agent can bind a principal.

Because there’s no foreclosure case law in Florida that addresses this agency issue, we can look to other areas of the law that have taken up the theory. Villazon v. Prudential Health Care Plan, 843 So. 2d 842 (Fla. 2003), laid out certain requirements of when an agent can bind a principal. The principal must acknowledge the agent’s power; the agent has accepted the responsibility of representing the principal; and the principal retains control over the agent’s actions.

Applying these principles to foreclosure cases, we can judge whether the plaintiff-servicer has met its burden of establishing agency. A big problem appears immediately, however, when the plaintiff-servicer admits it doesn’t know the identity of the actual owner. How can the agent be acting, by supposed consent, on behalf of the principal when that agent doesn’t even know the identity of the principal? This seems to undermine the first and third requirements established by Villazon. How would the servicer show that the owner of the note authorized the servicer to foreclose? The servicer would have to prove the owner acknowledged the servicer’s power. And absent introducing he servicing agreement into evidence, or providing testimony by the owner as to the servicer’s authority, the servicer should not be able to unilaterally foreclose.

Once these plaintiff-servicers purport to act on behalf of the owners of the note, basic principles of law regarding agents and principals must apply. See, again, Villazon. That case obtains and requires some burden of proof on the part of the foreclosing party.

Tip of the cap to Mark Stopa’s blog for writing about this issue recently.

Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

Forced To Show Its Face

New York State is investigating the practice of forced-place insurance. The question is whether banks like Wells Fargo and Citigroup, among others, fraudulently steered distressed homeowners into overpriced insurance policies.

Forced-placed insurance has boomed during the financial crisis as homeowners have struggled to pay their mortgages, and, at the same time, lapsed on their home insurance payments. Banks customarily require that their mortgage-backed homes be insured; a measure that enables a way to collect if their properties are damaged.

As The New York Times article linked above states:

In general, mortgage servicers are allowed to take out insurance policies on homes after a homeowner allows existing coverage to lapse. Though homeowners have little choice and sometimes little notice about the new plans, they often end up shouldering the costs of the insurance through their mortgage payments.

The increased cost is to be expected to some degree because homeowners who missed insurance payments on old policies are risky customers. However, [the financial services agency in New York investigating the matter] views some of the increases as exorbitant. For instance, in one case . . . a homeowner who paid $2,000 a year to State Farm ended up paying $6,000 a year to a new insurer.

Potential wrongdoing may occur when both mortgage servicing and insurance units are within the same company or affiliated in some way. That introduces a potential conflict because companies may have an incentive to place homeowners in policies offered by their affiliates rather than looking for the best rates on the open market.

Along with all the legal battles being fought nationwide over foreclosure abuses, this could be yet another hurdle for our largest banks to overcome. And the problem, once again, is that the financial industry has brought about circumstances that may be holding up economic recovery. In this instance, with home insurance, some homeowners have found it more difficult to refinance their loans after banks tied this compulsory insurance to their debts.

We’ll keep you up to date as this investigation unfolds.

Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

The Chase Stops

The behemoth that is JP Morgan Chase’s collection machine has come to a screeching halt. It appears the bank has suddenly stopped filing lawsuits to collect consumer debts.

Without an explanation by Chase, we don’t know if this move is permanent or if the bank plans to pursue indebtedness some other way.

Some within the industry speculate that the halt in consumer suits is due to the greater scrutiny Chase’s collection strategies have come under lately. Recent troubles in state courts and a whistle-blower’s claim that Chase falsely overstated the balances of thousands of delinquent accounts threaten to expose less than above-board ways in which the bank allegedly went about collecting debt.

Given how much of the foreclosure crisis the several years was exacerbated by rampant documentation irregularities within the industry, would anyone be surprised if banks like Chase have resorted to similar shoddy practices when pursuing consumer debt?

You can read more about the JP Morgan Chase news over at American Banker.

Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

High-End Home Sales Getting Boost From Low ‘Jumbo’ Rates CNBC.com | 12 August 2010

While record-low mortgage rates aren’t doing much to spur regular home sales, the higher end of the housing market is getting a significant boost from the decline in so-called jumbo rates-mortgages of $417,000 and above.

An economy suffering from high unemployment and falling home prices has left many potential buyers unable take advantage of the lower conventional rates.  But it’s different for those seeking bigger jumbo loans for the more-expensive homes.

“Sales volume for homes worth more than $1 million across the country are up more than 35 percent from last year at this time,” says Walter Maloney, spokesman for the National Association of Realtors (NAR). “Homes between $700,000 and a million are also on the rise by some 29 percent over last year. There’s no question that’s because of the historic low jumbo rates.”

Just how low are the current jumbo rates? Last year at this time, a 30-year fixed jumbo rate was averaging more than 6 percent. It’s now at an all time low average of 5.07 percent. And the re-finance rate for a 30 year jumbo is currently at 5.30 percent. A fifteen year jumbo is at the historic low average of 4.68 percent.

The reason for the rate decline is simple, say the experts: banks, which have a part in setting jumbo rates, have money to lend and see the benefits in doing so at lower rates.

“Lenders are getting more comfortable making high end loans these days,” says Greg McBride, senior financial analyst at Bankrate.com. “They’re using their cash reserves to make the loans and see a profit in having rates lower right now.”

Unlike conventional mortgages, jumbo loans by definition exceed the conforming loan limit of $417,000 set by Fannie Mae and Freddie Mac. Jumbo rates are loosely tied to long term treasurys but they are traditionally higher because of the risk involved for the banks in making a larger loan.  But the risk seems worth it, even in today’s sluggish economy as foreclosures rise and unemployment remains high.

“People at the higher incomes are not so much worried about their jobs as others might be. And they have the money to come up with 30 percent down.” says McBride. “There is some pent up demand for the more expensive homes. The lower rates are helping release that demand.”  While banks seems ready to make the bigger loans, they are putting borrowers through the same tough underwriting rules that conventional loan borrowers face.

“Banks are asking for every piece of financial information they can,” says Mitchell Hochberg, a consultant and principal at Madden Real Estate Ventures. “They are being very strict on all the paperwork when it comes to home buying or re-financing.”  Strict or not, the banks are lending and refinancing jumbo loans at much higher volumes than last year.

“Sales are fairly good right now,” says Alan Rosenbaum, president and ceo of Guardhill Financial, a mortgage banker and brokerage company based in New York. “But what’s even better this year is the refinancing. We’ve had significant volume there. I’d say that even getting a half a point now on a jumbo refinance is good with these rates.”

Like their conventional brethren, the question over how far jumbo rates will continue to fall remains mostly unanswered. No one can say for sure whether the economy can sustain them if inflation fears force the banks and the Federal Reserve to make lending harder.
However, the question about their rising has a more definitive answer.

“There’s no way to tell where rates will really go on conventional or jumbo loans,” says Lawrence Yun, chief economist at the NAR. “I do expect them both to remain low. But it’s clear to say that if they do go up, it will hurt housing. They aren’t the only factor in the housing market. There’s the jobs picture and home prices. But having the conventional or jumbo rates go up will definitely not help.”

How Would Portability Work Within Amendment 1?

How Would Portability Work Within Amendment 1?

Friday, January 18, 2008 12:28:47 AM

In part two of his look at Amendment 1, News 13′s Scott Harris explains how portability would work.

To understand portability, you have to understand how the Save Our Homes 3 percent annual cap works.

We’re going to work through a simplified example here.

Let’s assume you bought your home in 1994, the year Save Our Homes took effect. The Property Appraiser lists your new home at $100,000 market value, which is what you pay taxes on.

The next year, two things happen — the homestead exemption kicks in for you, which we will ignore for simplicity sake, and your Save Our Homes benefit begins.

Assuming a steady market value increase of 5 percent a year (the green line), the assessed value (the orange line) only goes up 3 percent.

Now in 2004, 2005, and 2006, the market prices jumped dramatically. The 3 percent cap saved homeowners a lot of money. Your savings are the difference between the two lines on the graph.
For example, by 2008 your market value is about $335,000. But because of Save Our Homes, your assessed value is only $150,000. Therefore you save the taxes on $185,000. Depending on your millage, or tax rate, that probably amounts to between $3,000 and $4,000.

If you were to sell your home and purchase a new one, you would lose that $185,000 benefit.
Your new home, taxable and assessed value will be the same for that first year, just like back in 1994. Your taxes are now based on the $335,000 figure (the brown line). The Save Our Homes 3 percent limit still applies for future years, but anytime a home is sold, the assessment resets.

You can see that the Save Our Homes benefit is more valuable the longer you stay in the same home. You can see why your neighbor who has the same house as you do, pays about half your taxes, because he bought it five years before you moved in.

So what does portability do?

You get to carry that $185,000 benefit with you to your new home. It’s “portable.” Your assessed value in your new home (shown in pink) starts at $185,000 below the market value, and the 3 percent cap continues for future years.

Remember your neighbor who is paying half the taxes you are? With portability, he’ll always pay half your taxes. Of course, you’ll always pay half the taxes of somebody who doesn’t buy a home in Florida until 10 years after you first bought a home.

Admittedly, there are a lot of details we ignored to keep this simple, but it should give you a framework to help understand the more detailed explanations that are on the various property appraisers’ Web sites.
As for Amendment 1 overall, read it yourself on your sample ballot or online.

Also, don’t wait and try to figure it out while you’re in the voting booth. Your fellow citizens waiting in line to vote after you will not appreciate it.

Interstate Land Sales Full Disclosure Act: ILSA

The Interstate Land Sales Full Disclosure Act: Will ILSA Provide an “out” for Florida Condo Buyers?

Three years ago in Florida, the market was so hot that condominium buyers would participate in a “lottery” to win the opportunity to buy a pre-construction condo. People would line up for city blocks to have the chance to buy a Florida investment property at pre-construction pricing. These days, a dancing gorilla or the offer of a new car couldn’t convince a prospective buyer to purchase a Florida investment condominium. Now that inventory is sky high and pricing is on a downward slide, we currently have little assurance about when condominium pricing may bottom out. So, what’s a pre-construction contract buyer to do?

There may be an “out” for certain buyers.

A federal law called The Interstate Land Sales Full Disclosure Act (“ILSA”) may provide Florida condominium buyers with an opportunity to revoke their pre-construction purchase contracts and obtain a recovery of their escrow deposit monies. In other words, if your developer fails to carefully follow ILSA’s specific filing and contractual requirements, you may have an “out” on your contract for purchase.

The U.S. Department of Housing and Urban Development (“HUD”) requires a developer to register with the department, file an annual report, amend as necessary, allow a 7-day rescission period and provide the buyer with a voluminous “Property Report” before moving forward with the purchase of a pre-construction residence, among other requirements. Frequently, a developer will prefer to avoid these strict ILSA guidelines if he or she can find an opportunity to do so.

There are a number of exemptions that your developer may take advantage of in order to avoid the burdensome filing requirements required by ILSA. If the building where you are buying contains less than 100 units, your developer may not have to register with HUD and he or she may be exempt from ILSA requirements. Note here that if your developer is selling a number of projects at the same time, it may be considered a “common promotional plan” and place your developer back on the hook to comply with ILSA guidelines.

The “two-year exemption” is a not-so-straight-forward provision that will allow a developer to avoid registering with HUD. In this situtation, if the developer contractually commits to complete construction within two years after execution of the purchase agreement, then he or she can avoid providing a Property Report and escape the burdens of ILSA in general. Remember, that two year commitment will then obigate the developer to finish your project within two years. If it is not completed, then you as a buyer may have a claim for breach of contract.

Keep in mind that The Interstate Land Sales Full Disclosure Act sets forth complicated law where specific facts will determine the ultimate legal outcome for both buyer and seller. Whether you as a buyer can rely on this federal law as your contract “out” will depend upon your developer’s legal preparation from the start.

Based on the current Florida real estate economy and the demise of the condo investor market, we should be seeing a good deal of litigation in 2008 where the buyer relies on ILSA for his or her purchase contract “out”.

Remember that Florida state law may also provide the buyer with multiple motivations to obtain pre-construction contract review by legal counsel. Always consult your attorney before making any decision that may ultimately impact your legal rights. Your financial future may depend on it.

By Charles A. Hounchell, Esquire
Please be advised that this article does not constitute legal advice nor does it provide any basis to form an attorney-client relationship. Nothing in this article should be copied without the express permission of the author.

Mr. Hounchell has a law degree from The University of Florida College of Law and he is a partner in The Law Offices of Charles A. Hounchell, P.A. � Attorneys & Counselors at Law, in Tampa, Florida. Mr. Hounchell obtained his undergraduate degree from The George Washington University in Washington D.C. and he obtained his MBA in International Management from the American Graduate School of International Management (“Thunderbird”) in Glendale, Arizona..

Mr. Hounchell is a licensed real estate agent with Smith and Associates, Inc. www.smithandassociates.com; www.livecasanova.com. He has lived in many different countries, including Spain, Brazil, Argentina, Mexico and Germany and he speaks Spanish and Portuguese. A significant portion of Mr. Hounchell’s law practice is concentrated on Real Estate Law.