California Bankruptcy Attorney Blog

As Riverside County loan modification attorneys, we've been following the news since winter about an Obama administration plan to help the states it believes was hardest hit by the bursting of the housing bubble. Using funds from TARP, the "bailout" program initiated by former President Bush, the administration has set aside $1.5 billion for five states with particularly dramatic drops in their real estate markets: Arizona, California, Florida, Michigan and Nevada. The administration hopes to use the states' efforts as a "laboratory" to see how the nation as a whole could respond better. On April 27, the Wall Street Journal reported that proposals from all five states are submitted and under review by the Treasury Department.

Only three of the states have released details of their programs. California, which received the largest share of funding at $700 million, is not one of them. But among the states that did allow their programs to be made public, two themes emerged: help for people struggling with long-term unemployment, and writing down loan balances for qualified borrowers. In Arizona, three-quarters of the $125 million in funding will go to a program that matches banks' write-downs of up to $50,000 in loan principal. Another chunk of funding will help eliminate second mortgages that may be holding up loan modifications. Florida proposed to use the bulk of its $418 million to help unemployed borrowers make mortgage payments, for up to nine months. It will also help new homebuyers make down payments and fund legal services for foreclosure prevention.

In Michigan, the state's $155 million will go partly toward paying up to half the monthly payments for unemployed borrowers. Michigan also plans to use $31 million to encourage principal reductions for underwater borrowers, matching up to $10,000 in write-downs by banks. Many observers consider principal reductions the best way to stop foreclosures among deeply underwater borrowers, but opponents claim they would encourage borrowers to abandon their mortgage payments. For that reason, the Arizona effort narrowly targets borrowers with one home and no history of using HELOCs.

Our Pomona loan modification lawyers are disappointed not to see California's proposal, but very encouraged by the proposals we do see. We have advocated programs to write down principal since early in the housing crisis, in part because of studies showing they work. When a borrower is deeply underwater, paying a mortgage starts to look foolish -- and that gives the borrower an incentive to walk away. Restoring just enough equity to keep the borrower in place stabilizes the housing market and protects the investments of both the bank and the borrower. Similarly, experts now believe unemployment is a major driver of foreclosures throughout the United States, taking away borrowers' ability to make payments on homes that were once within their means. We look forward to seeing how well each state's programs address these problems and, if they work well, seeing them adopted across the United States.

Continue reading "Three States 'Hardest Hit' by Mortgage Crisis Announce Plans for Federal Money" »

As San Juan Capistrano bankruptcy attorneys, we were disappointed to see a recent article noting a disturbing trend: homeowners' associations hitting foreclosed and sometimes bankrupt homeowners with lawsuits over unpaid fees. Even when the home is in foreclosure or part of a bankruptcy proceeding, the Arizona Republic reported April 26, homeowners' associations are holding homeowners legally responsible for continuing to pay the fees. In fact, the HOAs are increasingly filing lawsuits against homeowners who don't pay fees, adding legal fees and court costs that increase the bill dramatically. Spokespeople for courts in Phoenix, Scottsdale and Chandler said the increase in claims is undoubtedly being driven by the economic downturn and bad real estate market.

The trouble is that even after foreclosure proceedings start, banks may leave the borrower's name on the deed. This makes the borrower the homeowner of record, which in turn makes him or her legally responsible for HOA fees. The article featured the story of Paul Cox, 32, who filed for bankruptcy protection after his work as a commercial real estate agent dried up. His debts were discharged in the spring of 2009 and he hasn't lived in the home for more than a year, but his bank has not foreclosed. As a result, he's still legally responsible for all HOA fees that accumulated after the bankruptcy finished. That's only $350, but legal fees added more than $1,000 to the total. Cox now makes $12 an hour and is starting "from the ground up again," he wrote in a court filing. His mortgage holder, Bank of America, could not immediately explain why it has delayed foreclosing on the home.

The article quoted an attorney who specializes in HOA law, who advised foreclosed clients to continue paying HOA fees until the foreclosure is complete. As Moreno Valley bankruptcy lawyers, we agree that that's one way to solve the problem -- but it requires an extra cash outlay from people who are probably financially strained. Ideally, homeowners' associations would have the taste to refrain from suing people who can't even afford their mortgage payments, much less their HOA fees. But since borrowers cannot count on that, those who expect to lose their homes might also consider delaying a bankruptcy until the bank actually forecloses. That way, the debt to the HOA can be discharged during the bankruptcy, and no new, non-dischargeable, fees will be accumulated after the bankruptcy ends.

Continue reading "Bankrupt, Foreclosed Homeowners Being Hit by HOA Fee Lawsuits" »

As Chino Hills unfair debt collection attorneys, we were disappointed to see a federal appeals court ruling that removes liability from debt collectors who incorrectly garnish debtors' bank accounts. InsideARM reported April 20 that the appeals court ruled in favor of a collections law firm in Lee v. Javitch, Block & Rathbone LLP, No. 08-4485, (6th. Cir. April 13, 2010). The law firm, Javitch, had already won a default judgment against Norma Lee when it filed for a non-wage garnishment of her bank account. In order to do that, it had to sign an affidavit stating it had a reasonable basis to believe the bank had property of Lee's that was not exempt from garnishment under federal or Ohio state law. Unfortunately for Javitch, it turned out that Lee's bank account consisted only of Social Security disability payments, which are exempt from garnishment.

Lee proved this and had the money returned, then sued Javitch. The law firm did not have a reasonable basis to believe the account was not exempt, the claim said, and thus it had violated the Fair Debt Collection Practices Act. A federal jury in Ohio agreed with her and awarded $49,603 in damages, plus attorney fees. Javitch appealed, arguing that it did have a reasonable basis. On appeal, the dispute centered on whether Javitch should have further investigated the situation by subpoenaing Lee's bank records after the judgment was final. Javitch called an expert who argued that this was not at all the industry standard, and that some law firms didn't even believe it was legal. Lee called no witnesses to dispute this, and the Sixth Circuit concluded on the basis of this "unanimous testimony" that Javitch did have a reasonable basis to sign the affidavit.

This ruling is disappointing for our Azusa debt collection abuse lawyers, because it allows debt collection law firms to proceed with a garnishment before verifying that they are legally entitled to that money. In this case, Norma Lee racked up nearly $200 in bank fees due to bounced checks and was unable to access any of her Social Security disability payments until she got a court order returning the money. At trial, she claimed the stress from this situation affected her health, which was already poor because of a surgical complication that limited her use of one arm. Someone in this situation can't afford to have money disappear from a bank account, which is precisely why Social Security is exempt from garnishment. The Sixth Circuit's decision allows debt collectors to create many more Norma Lees, all of whom would have to go to court to regain the money that was always rightfully theirs.

Continue reading "Sixth Circuit Rules Debt Collectors May Garnish Bank Accounts Without Subpoenaing Bank Records" »

Our Corona loan modification attorneys were interested to see a recent piece in the Los Angeles Times suggesting that the housing market is starting to recover -- at least in coastal areas. On April 21, the Times reported that mortgage default notices dropped by 40.2% statewide in the first quarter of 2010, compared with the same period in 2009. Mortgage default notices are the first step in a foreclosure and are generally sent after the homeowner has missed at least three monthly payments. The information comes from San Diego real estate information firm MDA DataQuick, which also said foreclosure sales dropped 1.7% from the first quarter of 2009 and 16.1% from the last quarter of 2009.

The newspaper hailed the numbers as evidence that the foreclosure crisis may be ending. Several economic analysts agreed, noting that other real estate indicators, such as the sale price of homes, suggest the market is improving. However, they also pointed out that this recovery, if it is one, may not be taking place at all or as quickly in areas with above-average unemployment. Those areas include the Inland Empire and the Central Valley, including Fresno, Bakersfield and Modesto. The newspaper noted that unemployed homeowners may be able to get help through new initiatives from the federal Home Affordable Modification Program, which allows unemployed homeowners to reduce mortgage payments significantly for three to six months while they look for jobs. But a spokesman for the California Reinvestment Coalition, which advocates for fairness in financial services, said the program is still fundamentally flawed because it relies on voluntary participation by lenders and financial incentives.

As Rancho Cucamonga loan modification lawyers, we agree. After spending more than a year advocating for homeowners who need a loan modification to keep their homes, we believe lenders would rather look like they're making loan modifications than actually make them. That means they're willing to offer hope to homeowners, but when it's time to follow through, they frequently misplace documents, delay so long that they need updated documents or start a foreclosure in one department while another department is granting a modification. With numerous homeowners underwater, especially in the Inland Empire, there's no option to find another bank to refinance. Homeowners are stuck fighting a bureaucracy that, intentionally or not, seems designed to frustrate them into simply walking away.

Continue reading "Mortgage Default Notices Drop in California, But Inland Cities Still at Risk" »

Back in January, our Rialto debt collection abuse lawyers wrote about oral arguments in a Supreme Court case asking whether collection agencies may claim a good faith defense when they make mistakes of law. In Jerman v. Carlisle, McNellie, Rini, Kramer & Ulrich LPA et al., No. 08-1200 (April 21, 2010), a debt collection law firm asked the high court to decide whether it could use the "bona fide error" defense in the Fair Debt Collection Practices Act to defend itself from a lawsuit brought over a mistake of law rather than one of fact. The FDCPA allows debtors to sue debt collectors for violations of the Act, but says debt collectors may not be liable for violations that were not intentional and the result of a "bona fide error." Now, the New York Law Journal reported April 22, the Supreme Court has ruled in favor of consumers.

The lawsuit was brought by Karen Jerman, whose property Carlisle McNellie sought to foreclose on in 2006. In fact, Jerman had paid her mortgage debt in full. The law firm's notice to Jerman said the debt would be assumed valid unless she contested it in writing, which is a mistaken interpretation of the FDCPA. The law allows debtors to contest the validity of debts, but they need not do so in writing. Jerman did successfully contest the debt, and when her mortgage company acknowledge that she had paid it off, Carlisle McNellie dropped the case. Jerman then sued the law firm for its violation of the FDCPA. The federal district court found that Carlisle McNellie had violated the Act, but granted summary judgment to the firm, saying it was shielded by the bona fide error defense. The Sixth U.S. Circuit Court of Appeals upheld that decision, creating a split with the majority of circuits that had ruled that the bona fide error defense is only available for clerical and factual mistakes.

In its ruling, the seven-justice majority at the Supreme Court disagreed. Justice Sonia Sotomayor, writing for the majority, said there was little evidence that Congress had intended to extend the defense to mistakes of fact. Furthermore, she wrote, state laws similar to the FDCPA have explicitly excluded mistakes of law from their own bona fide error defenses. Debt collectors and their attorneys in those states have not seen the explosion of litigation that Carlisle McNellie suggested would arise from an unfavorable ruling. Justice Breyer, concurring, wrote that lawyers who are unsure how to proceed may seek an advisory opinion from the FTC. Justice Scalia also concurred, but disagreed with some of the logic behind the majority's ruling. Justice Kennedy dissented, joined by Alito, saying the decision allows more lawsuits against attorneys who make good-faith mistakes.

As Rowland Heights unfair debt collection attorneys, we can assure readers that collection agencies already routinely break or stretch the law, relying on consumers' ignorance of the law to protect them from lawsuits. If the majority had decided that debt collectors could use the "bona fide error" defense for mistakes of law, there would have been nothing stopping them from intentionally breaking the law, and defending themselves from the resulting lawsuits by simply claiming they had misunderstood the law. In short, such a decision would undermine the FDCPA and its intention to protect consumers from debt collectors' overreaching. That's why we're grateful that the majority decided in favor of consumers' rights.

Continue reading "Supreme Court Rules Debt Collectors May Not Use Bona Fide Error Defense for Mistakes of Law" »

A Wall Street Journal article on securitized commercial loans caught the attention of our Riverside commercial real estate loan modification attorneys. On April 21, the Journal reported that defaults are reaching a record high among commercial real estate loans that have been packaged into securities. Fitch Ratings reports that 11% of such loans are expected to be past due by the end of 2010, and 7% are already seeing late payments. Before the market crashed, the default rate was less than 1%. The newspaper blames the default rate on falling or missing rent payments as well as the inability to refinance because there's no market for new commercial mortgage-backed securities.

Like their residential counterparts, commercial mortgage-backed securities are bundled and sold to investors who then have a small interest in a variety of loans. Interestingly, however, the Journal reported that special loan servicers handle commercial mortgage-backed securities whose underlying loans are in trouble. The newspaper said $70 billion in commercial loans are in the hands of such companies, and Deutsche Bank AG estimates that servicers have restructured $13.7 billion worth of those loans. One modification strategy the article cited was the practice of dividing mortgages into "good" and "bad" pieces, then allowing the borrower to pay only the good part of the loan until it matures, at which time the bad part comes due. Investors in the bad part delay or, less commonly, avoid taking a hit. Supporters say is in everyone's best interest compared to taking the losses from a foreclosure and liquidation.

As Los Angeles commercial real estate loan modification lawyers, we always thought this was true --of both residential and commercial loans. However, we suspected that many lenders disagree, at least in the arena of non-securitized CRE loans. In the residential real estate market, securitization was blamed for lenders' reluctance to perform loan modifications, because lenders had trouble getting agreement from every investor. It would be ironic if securitization was actually an advantage in the commercial market. It's unclear why investors in the bad part of a divided loan are willing to risk losing their investments, but the situation could be very helpful for commercial investors who are suffering, allowing them to add another weapon to their arsenal for negotiating a loan modification.

Continue reading "Commercial Real Estate Loans Packaged Into Securities Defaulting in Record Numbers" »

Our Chino loan modification attorneys have watched the market closely enough to believe that banks are probably slowing down foreclosures intentionally. So we were disappointed but not surprised by an April 13 article in the North County Times suggesting that Bank of America has increased its foreclosure auction notices. ForeclosureRadar told the newspaper that Bank of America's ReconTrust N.A. division sent out hundreds of notices of auction, which is one of the last steps in the foreclosure process, in northern San Diego County and southwest Riverside County. They gave the affected homeowners a date of auction, which in some cases was in as little as three weeks from the notice's arrival.

The notices went to 391 southwest Riverside County homeowners and 230 North County homeowners, the article said. Both of those numbers represent significant increases over the numbers for February; respectively, a 67% jump and a 69% jump. They were an even bigger jump over March of 2009, when the lender sent 31 auction notices to both regions combined. ReconTrust was formerly the foreclosure division of Countrywide Financial, the mortgage lender that became the poster child for subprime lending, suggesting that the homeowners may be struggling with subprime loans. Bank of America said the rise in auction notices comes because more borrowers are out of government-imposed foreclosure moratoria and have run out of options like the federal Home Affordable Modification Program. But analysts noted that these loans could have been foreclosed on months ago, and that Bank of America may be trying to take advantage of a strengthened California housing market and the conventional spring and summer buying season.

Our Oceanside loan modification lawyers agree. We recall reading last year that some banks claimed there was no "shadow inventory" of unsold foreclosed homes, but this article tells a different story. Bank of America told one agent in the article to get ready for a large influx in May, suggesting that the bank has control over when properties come to market. It makes sense that lenders would want to control when they sell foreclosed properties, because a flood of them would cause real estate prices to plummet and reduce the bank's chance of recouping its investment. But delaying is not necessarily great for the market, and depending on how it was done, it may also be bad for the foreclosed borrower. If banks' delaying tactics extend to drawing out the foreclosure by offering false home for a loan modification, they may have essentially used borrowers as unpaid custodians of the properties, in exchange for nothing more than false hope.

Continue reading "Foreclosure Analysis Firm Says Major Mortgage Lender Has Increased Auction Notices" »

Our San Bernardino County bankruptcy attorneys wrote in January that 2009 saw the highest number of bankruptcy filings of any year since the 2005 reform act. We're sorry to say that March of 2010 set a similar record, with the most bankruptcy filings of any month since the reform bill. In fact, Time magazine reported April 5, March's filings increased 35% over the number of filings in February and 19% since October of 2009, the last month with a record number of bankruptcy filings. Chapter 13 and Chapter 7 filings in March totaled more than 158,000, or about 6,900 a day. The American Bankruptcy Institute predicts that 2010's number of filings is likely to surpass 2009.

The filings for Chapter 7 bankruptcy, which is called "liquidation," are rising higher than the Chapter 13 payment plan filings. This is interesting because the 2005 bankruptcy reform law made it harder to file for Chapter 7 bankruptcy, which allows some debt to be forgiven after the debtor pays as much as possible. The increase in Chapter 7 filings suggests that fewer people have the means to pay back debts using Chapter 13, even under the stricter test. Katherine Porter, a law professor at the University of California at Berkeley, told the magazine that the increase in Chapter 7 filings may also mean debtors aren't trying to hold on to their homes .Chapter 13 is generally considered the better bankruptcy option for people trying to keep a home. Because so many people face long-term unemployment, they don't have the means to pay a mortgage even under a payment plan. Furthermore, Porter said, bankruptcy judges don't have the power to modify mortgages on primary homes, giving them no flexibility and incentivizing troubled homeowners to walk away.

This situation is precisely why our Buena Park bankruptcy lawyers strongly favored mortgage "cramdowns" when Congress was considering them last year. Bankruptcy judges may restructure secured loans for second homes, cars, boats and almost any other property but a primary home. Lenders prefer this situation because it takes away the possibility of a loan modification they can't control, which is why they lobbied furiously against cramdowns. But if Porter is right, lenders' unwillingness to allow cramdowns (or make substantial loan modifications) has actually contributed to lost profits. Ironically, lenders may have helped create a situation for some homeowners where their smartest move is to let the home go into foreclosure. Banks may be able to hide this on their balance sheets, but homeowners in this situation lose all of their investments in the homes and ruin their credit for years.

Continue reading "Personal Bankruptcies Hit Highest Amount of Filings in One Month in March" »

As Riverside debt collection abuse attorneys, we were pleased to see a report that yet another debt collector has settled a lawsuit by a state attorney general alleging outrageous behavior. The Cleveland Plain Dealer reported April 13 that National Enterprise Systems, better known as NES, will pay $414,000 to settle a claim by Ohio Attorney General Richard Cordray that it violated the Fair Debt Collection Practices Act. Cordray's claim alleged several violations of the Act, including serious violations like withdrawing money from a debtor's account without authorization. Half of the settlement will be paid to consumers who complained to Cordray's office or the Better Business Bureau, and half will go to the attorney general's enforcement fund.

Nearly 400 people complained about NES to Cordray's office or the BBB, the article said. In addition to the unauthorized withdrawals, the collection agency is accused of calling consumers rapidly in a short time, which is considered harassment; failing to remove wrong numbers from accounts; failing to send proof of the debt to consumers who requested it; and agreeing to lower settlements before continuing to try to collect the full amount of the debt. All of these violate the FDCPA and Ohio's own state-law version, the Consumer Sales Practices Act. As part of the settlement, NES agreed to a consent order requiring it to keep recordings of collection calls for six months; keep paper records of its collection efforts for two years; and allow Cordray's office to inspect the files. It is barred from further violations of the law, although it admits to no wrongdoing.

Our Yorba Linda FDCPA lawyers are glad that an apparently abusive debt collector was identified and stopped. Unfortunately, our professional experience suggests that for every one that is the target of a well-organized claim like this one, there are many others that fly under the radar. Debt collection agencies are notorious for their abusive behavior, which is part of the reason for the FDCPA in the first place. In fact, the Federal Trade Commission receives more complaints about the debt collection industry than any other industry. Nonetheless, many people don't even realize they have rights under the FDCPA and similar local laws, which allows debt collectors to manipulate them with unrealistic threats and escape responsibility for their actions.

Continue reading "Ohio Debt Collection Company Settles Lawsuit Alleging It Harassed Consumers" »

Our Los Angeles County commercial real estate loan modification lawyers were interested to see a recent report on just how troubled the commercial real estate market may be. GlobeSt.com reported April 12 that Delta Associates, a private data analysis firm, has placed the total value of distressed commercial real estate in the United States at $187.4 billion. That number includes the value of REO properties, properties in foreclosure and properties that may be there soon. Furthermore, the total value has jumped by 10% since January and 33% since October. The numbers, compiled from data provided by Real Capital Analytics, put the Los Angeles and Orange County region as the third most troubled, after Manhattan and south Florida.

The rate at which distressed properties are increasing has slowed, the report notes. In the first half of 2009, Delta Associates found that the number of distressed properties was doubling every three months. The report says the slowdown is in part because lenders have become more willing to "pretend and extend," which means granting extensions in the hope that the borrower will regain its ability to pay off the loan. However, more trouble lies ahead. In 2010 and 2011, $600 billion in CRE loans will come due, Delta Associates wrote, and not all borrowers will be able to pay them back. If that happens in large numbers, the report says, experts think as many as 350 banks could fail. The sector of the CRE market with the largest amount of distressed properties is retail, which has $41.7 billion in distressed properties. However, apartment buildings are slipping into trouble the fastest, gaining 14% since January.

As Torrance commercial real estate loan modification attorneys, we think this is bad news for the economy as a whole as well as CRE companies. If Delta Associates is right that more distress is coming this year, the slowdown in the growth of distressed properties may be nothing but a lull. If foreclosures pick up again, real property owners will certainly suffer, but so will the lenders they cannot afford to pay back. That could trigger a loss of access to capital across all businesses. As with residential mortgages, some of these CRE loans were undoubtedly high-risk loans made while the market was high. Now that the economy has crashed, tenants have disappeared and property values have dropped, the results of those bad investments have the potential to hurt everyone, not just the people who made them.

Continue reading "Report Places Value of U.S. Distressed Commercial Real Estate at $187.4 Billion" »

Our Irvine commercial real estate loan modification attorneys wrote last month about dire predictions by Congressional watchdog Elizabeth Warren. Warren, a Harvard professor and chair of the committee overseeing how TARP "bailout" funds are spent, said in her committee's February report to Congress that commercial real estate foreclosures could threaten banks with as much as $300 billion in losses. Warren built on that prediction in a recent interview with CNBC, the New York Times DealBook blog reported March 30. She told the financial network that half of all commercial loans will be "underwater," meaning the property will be worth less than the value of the loan, by the end of this year.

Warren made her statement as part of a larger interview on the health of the economy generally. However, she said she believes the commercial real estate failures will have a dramatic effect on the economy because they could bring down mid-sized banks. She said 2,988 banks have "dangerous concentrations" of commercial lending, and all of them will be threatened with a lack of stability if those loans fail. The situation may even be made worse, she said, by the fact that many banks are already suffering because of the subprime residential real estate crisis. If they are hit with further losses from the commercial market, Warren believes they will lose capital available to lend to small businesses -- something economists believe is essential to the economic recovery.

Of course, being underwater does not automatically mean you will default on the loan. But as Long Beach commercial loan modification lawyers, we know there's a strong correlation between the two, especially in commercial real estate. Residential mortgages are usually scheduled to be paid back over 15 to 30 years, but CRE loans usually come due in two to four years. That means commercial owners can't try to "wait out" the market in the time that residential buyers have. Usually, CRE borrowers refinance when they hit their due dates, but refinancing is not an option for most borrowers who are underwater. That means they have no choice but to default unless they can convince the lender to modify the loan instead.

Continue reading "Bailout Watchdog Predicts Half of Commercial Loans Will Be Underwater by 2011" »

One of the most commonly cited ways to make loan modification programs more effective is to require banks to write down the principal on loans. This reduces the amount owed by the borrower, which encourages borrowers to stay put and make payments even if they were very deep underwater before. It also reduces banks' profits, so our Riverside loan modification attorneys are not surprised that it hasn't caught on as a voluntary measure. Nevertheless, USA Today reported March 29, the Obama administration has announced major changes to its Home Affordable Modification Program, designed to incentivize lenders to write down principal.

The bulk of the new provisions focus on encouraging principal write-downs, though these are not mandatory. All lenders and loan servicers will now be required to consider writing down principal when they consider how to modify the loan. Those lenders that do reduce principal for first or second mortgages will get higher cash incentives. As an alternative to loan modifications, banks may refinance underwater first and second mortgages through the Federal Housing Administration. The new loans created under such a program can be worth no more than 115% of the home's value. Finally, the plan responds to the high unemployment rate by requiring lenders to offer a forbearance period of three to six months, during which time the homeowner can be required to pay no more than 31% of monthly income as a mortgage payment.

As Ontario loan modification attorneys, we like the ideas behind these changes to HAMP. HAMP has been heavily criticized for not helping many homeowners, and some of these changes are a direct response to that criticism. But as USA Today's FAQ notes, the program's success continues to depend on serious participation from lenders and loan servicers. That's bad, because their failure to participate meaningfully is one of the key reasons for HAMP's ineffectiveness. Banks wanted to be seen as participating, but they didn't want to actually grant many loan modifications because they were, and largely still are, very averse to further risks. To avoid actually performing most loan modifications, banks would give their clients the runaround, repeatedly lose paperwork or otherwise put up frustrating practical barriers.

Continue reading "Changes to Federal Loan Modification Program Encourage Principal Reductions" »

As Moreno Valley loan modification lawyers, we were pleased to read that the state of California is putting fraudulent loan modification companies out of business. The Orange County Register reported March 25 that two women face at least a year in jail for defrauding 160 homeowners who came to them for help getting their home loans modified. Mary Alice Yraceburu of Riverdale, 46, and 68-year-old Marianne Curtis of Costa Mesa pleaded guilty to 71 separate counts of crimes related to loan modification fraud. The women are accused of taking money from homeowners and then failing to try to get the loans changed.

Yraceburu and Curtis are accused of running a company called Foreclosure Freedom, which sent out fliers directly to homeowners. When callers responded, they were told that Foreclosure Freedom could negotiate a lower monthly mortgage payment in exchange for an up-front fee. They were instructed not to contact their banks directly. It is illegal in California for a non-lawyer to take an up-front fee for a loan modification. Not only were Curtis and Yraceburu not attorneys, the article said, but they had no real estate licenses or experience in the mortgage business. However, they did have felony criminal records. The guilty pleas are part of a plea bargain that reduces their sentences from up to 21 years in prison to about a year in jail. In exchange, Yraceburu and Curtis must pay back their victims $38,340.

Our Anaheim loan modification attorneys compete with fraudulent loan modification companies like these, but we do not exactly regard them as competition. Rather, we think they are a public menace that should be publicly exposed and taken to court whenever the evidence supports a criminal case. Homeowners who need loan modifications are typically at the end of their ropes, financially and emotionally. They can't afford to waste $2,000 or more on a fraud, but they are often under great stress and desperate, which makes them easy prey for fraudsters. That's why the California legislature made it illegal for non-lawyers to take up-front fees for loan modifications, and why prosecutors go after loan modification fraud so vigorously. We wish prosecutors many further successes.

Continue reading "Orange County Women Plead Guilty to Loan Modification Fraud on 160 People" »

As San Bernardino County loan modification lawyers, we were extremely pleased to read that a major mortgage lender will reduce principal on certain troubled home loans. The Los Angeles Times reported March 25 that Bank of America announced an ambitious plan to write off principal on about 45,000 adjustable-rate loans nationwide. All of the loans were acquired in the bank's purchase of Countrywide Financial, the now-defunct mortgage lender that was once the king of the subprime market. A spokesman for the bank said the largest block of such loans is in California. The plan is an attempt to head off a lending fraud lawsuit filed by the state of Massachusetts, separately from the multi-state lawsuit that ended in October of 2008.

Bank of America is not simply forgiving a certain amount of principal. Instead, it plans to offer a forbearance program to holders of especially troubled subprime loans, especially option ARM loans, who are at least 120% underwater and 60 days behind on payments. The bank will not suspend payments on part of such loans, lowering the borrower's payment. If the borrowers continue to make their payments on time for five years, the set-aside principal will eventually be forgiven. This is expected to protect investors who bought the mortgages bundled into securities, and who are now fighting loan modifications they perceive as threatening their investments. Experts hailed the program as groundbreaking because it's the first to use principal reductions as a primary tool, and said it could be a model for other lenders if successful.

Our Temecula loan modification attorneys agree, but we note that Bank of America didn't do this for entirely selfless reasons. The program was enacted under pressure from Massachusetts prosecutors, who had sued the bank for allegedly making subprime loans without investigating whether the borrowers had a realistic ability to pay them back. Furthermore, the Wall Street Journal's Deal Journal blog points out that Bank of America won't suffer most of the losses expected from writing down the principal, because most of the loans have been securitized and sold to investors, and the bank has already secured itself against losses from the remaining loans. Under those circumstances, the blog post asked why the bank didn't act earlier. We think that's an excellent question, but we still hope the model is successful enough to be adopted by other lenders.

Continue reading "Bank of America Announces Plans to Write Down Principal on Certain Mortgages" »