California Bankruptcy Attorney Blog

Vincent Howard and our San Bernardino County foreclosure defense lawyers wrote recently about the president's announcement of a new refinance program. On Feb. 2, President Obama released more details of that program, as the Los Angeles Times reported. Making a political move in an election year, the president proposed to expand the Home Affordable Refinance Program to a wider group of homeowners. The program already helped people who were slightly underwater and might not otherwise qualify for a refinance, but it was limited to those whose loans are backed by Fannie Mae and Freddie Mac. Under the new proposal, homeowners whose loans are owned by any lender or investor would qualify. The plan also includes a "homeowner's bill of rights," a set of federal standards intended to fight abuses and deceit by lenders.

According to a breakdown by Time magazine, borrowers would need to have a credit score of at least 580 to qualify. Their loans could be no larger than the FHA loan limits for the area; in southern California, this is $729,750. The residence must be a single-family home occupied by its owner -- likely an attempt to exclude investment homes -- and the borrowers must owe no more than 140 percent of the loan's value. Thus, for a home now valued at $100,000, the borrowers could not owe more than $140,000. And borrowers must have missed no payments in the last six months and only one payment in the six months before. Those who are further underwater than 140 percent may still be able to qualify, but only if their lenders are willing to write off some principal. The loans would likely be shorter-term loans that allow quicker equity-building in exchange for higher monthly payments.

The Federal Housing Administration would back the refinanced loans, with funding from a "financial crisis responsibility fee" of 0.15 percent on some liabilities of larger financial institutions. This is a proposal Obama has made before, and it has already been decried by Congressional Republicans as a tax on banks that could hurt the economy. Republicans also questioned whether it's wise for the FHA to take on more risk. Some financial observers saw irony in the fact that the lending standards for these refinances would be lower than they currently are in the market; borrowers would need to have a job, but not to submit tax returns or have the house reappraised. Unemployed borrowers might even qualify after submitting more detailed information. Political observers expected that the plan wouldn't get through Congress and suggested that it was proposed more as an election issue than a serious plan.

That's unfortunate, because Vincent Howard and our Anaheim foreclosure defense attorneys would be delighted to see more help for homeowners stuck in homes they can't refinance or sell. Thanks to the housing downturn, people who bought their homes at higher points in the market now routinely find themselves underwater; roughly half of all homeowners in the Inland Empire are believed to owe more than their homes are worth. Even when they've done everything "right" by conventional standards, they have no home equity. This is disappointing when the borrowers plan to stay put, but it's devastating for people seeking to move for a job or refinance to get some relief from high interest rates. Vincent Howard and our Murrieta foreclosure defense lawyers routinely represent people put into this position by predatory or otherwise unfair lending practices.

Continue reading "President Releases Details of Refinance Plan for Underwater Homeowners Not Backed by Fannie and Freddie" »

The Corona foreclosure defense lawyers at Howard Law, P.C., have written here several times before about calls for widespread reductions in loan principal for homeowners whose homes are underwater. This solution is strongly opposed by the banking industry and its lobbyists, but economic studies have shown that it's the best, and possibly the only, way to help the housing market recover from its downturn. A Jan. 25 article in the Washington Post reinforced that call, quoting economists from Moody's and other organizations not generally considered political. They say more and more economists believe principal reductions would be most effective, echoing calls fair housing advocates have made for several years. The article contrasted this with the approaches taken by President Obama and the Republicans seeking to replace him, both of whom proposed less drastic solutions.

The president's proposal outlined in the article would allow refinances even for borrowers who are underwater. This would allow them to take advantage of the current very low interest rates, freeing many from the high interest rates they were locked into during the housing bubble. The cost savings to each homeowner is estimated at $3,000 a year, which economists say would allow more consumer spending. Republican presidential candidates are mostly calling on government to avoid interfering with the market, which they say would allow it to "hit bottom" and begin a correction. Some have also called to revoke regulations; former Sen. Rick Santorum called for a tax credit for people who sell at a loss. One expert in the article called this a choice between an Obama plan that won't do much and a Republican plan that would subject individuals to "years and years of grinding your way out."

The economists in the article agreed that neither approach will be sufficient to get the housing market corrected. Rather, they called for widespread forgiveness of principal, because being underwater is a key predictor of whether the homeowner will be forced to default or choose to walk away. Either way, this creates a foreclosure, which causes more problems for the market by creating a backlog of foreclosed homes for sale, pushing prices lower and putting more borrowers underwater. Several studies have concluded that forgiving principal is the fastest way to stop this cycle, but the proposal would be very difficult to get through Congress, as a recent Philadelphia Inquirer article noted. Congress, particularly the Republican-controlled House, has consistently opposed efforts to "cram down" loans, even in limited circumstances such as for Chapter 13 bankruptcy filers.

Led by partner Vincent Howard, our team of Tustin foreclosure defense attorneys continue to be disappointed at the lack of political will to pass this solution, even when it comes paired with concessions to bankers or self-limiting factors such as only being available in bankruptcy. We believe many of the objections raised by the banking industry are red herrings disguising the industry's fear of losing profits, even when those profits come at the expense of individuals and the overall U.S. economy. Indeed, a study by the Cleveland branch of the Federal Reserve Bank found in 2010 that doom-and-gloom predictions made about a cramdown program for family farms in the 1980s had never come true. Fewer than a third of the predicted bankruptcies were filed, and lending interest rates did not increase more than the economy of the time would merit. Vincent Howard and all of our Bellflower foreclosure defense lawyers would prefer to see facts like this used when making decisions now.

Continue reading "Economists Call for Principal Reductions to Solve Persistent Housing Market Problems" »

Vincent Howard and our team of San Bernardino foreclosure defense attorneys have followed California's progress in the "robo-signing" settlement talks with great interest. Attorney General Kamala Harris has made waves in the past months by refusing to sign on to the national settlement, calling it inadequate to compensate Californians for the many losses they incurred in the housing crash. Indeed, she has launched her own investigations, including some in cooperation with Nevada. According to a Jan. 25 article from the Los Angeles Times, Harris and her team were invited back to negotiate by further concessions from lenders, but ultimately did not receive an offer they felt was sufficient. A spokesperson for Harris told the media that the settlement would prevent her and other AGs from pursuing their current outside investigations.

No deal has officially been reached, despite nearly 16 months of investigation and negotiation and the original participation of AGs from all 50 states and Washington, D.C. The investigation has been plagued by politics, with conservative AGs arguing that the settlement is too aggressive and liberal ones countering that it doesn't go far enough. In particular, AGs in New York, Delaware, California, Nevada and elsewhere have opted out or threatened to and started their own investigations into lending practices. Harris said in late September that the settlement offer at that time did not include enough remedies from the five major lenders for the foreclosure crisis. She and the other breakaway AGs said they'd prefer to see efforts to stop foreclosures and their negative effects, going beyond addressing the fallout from robo-signing itself. The current deal still is not transparent enough or sufficient to address Californians' needs, a spokesperson said.

California's participation in the talks is considered important to any settlement because the state is so big -- and has the resources to bring large lawsuits on its own. According to the article, the latest proposal includes a $17 billion program that would reduce principal on loans that are "underwater," or larger than the value of the home. Another $5 billion would be earmarked for people directly harmed by robo-signing and other bad servicing practices, and $3 billion would help underwater homeowners refinance at a rate of 5.25%. (Current rates for a 30-year prime mortgage are 4 to 4.5%.) In return, the AGs would agree to release lenders from actions for improper servicing or origination of mortgages -- a provision that Harris and some colleagues believe would stop their existing investigations. Delaware has filed a lawsuit alleging MERS has engaged in deceptive practices; Massachusetts has sued five lenders, alleging they knowingly pursued illegal foreclosures.

At Howard Law, P.C., our Westminster foreclosure defense lawyers are pleased to see California sticking to its guns and pursuing a settlement that could provide meaningful help to people who were hurt in the housing crisis. That includes people who were directly harmed by robo-signing or other illegal and unethical behavior by lenders, as well as people who are suffering because housing prices have dropped through no fault of their own. Throughout the robo-signing scandal, lenders have downplayed their responsibility, arguing that there was likely no real harm from that particular kind of illegal behavior. This may or may not be true -- instances of wrongful foreclosures have been reported -- but there's certainly widespread harm from, for example, their refusal to give meaningful consideration to loan modifications. Vincent Howard and our team of Norwalk foreclosure defense attorneys applaud Harris for refusing to let lenders off the hook for their actions.

Continue reading "Kamala Harris Rejects Another Attempt to Include California in Robo-Signing Settlement" »

Vincent Howard and our team of Irvine foreclosure defense attorneys have been calling on this blog for years for more effective help for mortgage borrowers. So we were pleased to hear that California's Democratic delegation to the House of Representatives made the same demand to President Obama the morning after his State of the Union Speech. According to McClatchy Newspapers, 16 representatives met on Jan. 25 to make their case to the media, calling for the president to use executive power to create more aggressive, more specific relief. They want a meeting with Obama as well as principal reductions and a more sympathetic replacement for the current acting director of the Federal Housing Finance Agency. They also suggested cutting interest payments to zero for homeowners in bankruptcy, so that all of their payments would pay down principal.

Obama called for a new refinance program in his speech, which would be available to more homeowners than the previous refinance programs, but the legislators criticized it as well-meaning but inadequate. The Democrats took turns sharing stories of foreclosures in their districts and the resulting hardships to Californians. Judy Chu of El Monte noted that her district has had a foreclosure rate of 738 percent over a little more than two years; lenders own 12,000 foreclosed homes in the city of Covina. Loretta Sanchez of Anaheim said her brother needed a loan modification after his business line of credit disappeared in a bank failure and he had other business difficulties. She said he was convinced the loan modification would come through for him right up until he received a foreclosure notice.

Republican California House members dismissed the ideas, with Darrell Issa of Vista calling principal reduction "in every way wrong." Dan Lundgren of Sacramento suggested that writing down principal for those in trouble would be unfair to those who stayed out of trouble. The White House was neutral on the subject, saying the president would continue to pursue existing and proposed foreclosure prevention programs, and noting that California has received $2 billion in federal foreclosure aid. The acting FHFA director, Edward DeMarco, has said principal reduction for Fannie Mae and Freddie Mac mortgages could cost the government $100 billion to pay down the mortgages. The Democratic delegation disputed the number, but also warned that failing to intervene could prolong the crisis and the resulting political problems for Obama.

Led by Vincent Howard, our team of Santa Ana foreclosure defense lawyers agrees that principal reductions are an important part of any potential solution. However, we also agree that it will be tricky to get through Congress, given that body's historic lack of enthusiasm for principal reductions and mortgage cramdowns. A few years ago, banking industry interests shot down the idea of allowing cramdowns only for people in bankruptcy. This would of course be a limited group of people, since not everyone wants to take on the severe credit hit and emotional toll of bankruptcy -- but it failed even in a Democratic-controlled Congress. Nonetheless, the idea remains popular because economic studies (including a Fed study) show that it's key to any immediate housing recovery. That's why Vincent Howard and our Cerritos foreclosure defense attorneys continue to favor it.

Continue reading "California Democratic House Members Call on President to Do More for Struggling Homeowners" »

Led by partner Vincent Howard, our Claremont foreclosure defense lawyers have written here extensively about the Home Affordable Modification Program, HAMP, and its many problems. Less has been written about its sister program, HARP, which offers refinancing help -- possibly because eligibility is limited to people who are only slightly underwater at worst. But this may change in the coming days, since the president announced a new refinancing initiative in this week's State of the Union speech. Acknowledging that housing continues to be a thorn in the side of the economy, President Obama called for a refinancing program that expands eligibility to people who are further underwater. Details are not yet available, but the speech indicated that the program would be paid for with a tax on large financial institutions, a likely tough sell in the House.

HARP, the existing program, is available to borrowers who are current on their mortgages and owe no more than 125 percent of their homes' value. However, not everyone who is underwater met the original criteria, since there can be no recent delinquent payments and the loan must be owned by Fannie Mae or Freddie Mac. In October, the federal government announced that it would expand eligibility under the Fannie/Freddie loans. The current proposal, according to the Wall Street Journal, would build on this, in part by including people with loans owned by other institutions. Borrowers who are current on their mortgages would most likely take out FHA loans, but the article notes that Congress would have to change the current requirement for a 3.5% down payment. Like anyone taking out a new loan to refinance, they would need to apply and go through the usual closing process.

Analysts are pessimistic about the chances of the program in the House of Representatives, where Republicans control voting and generally oppose new taxes on banks. The tax in question was first proposed two years ago in January of 2010, with Obama calling for a "financial crisis responsibility fee" of 0.15% on the liabilities, other than domestic deposits, of financial institutions with at least $50 billion in assets. Analysts said it would raise $9 billion a year, but it faced strong opposition from banking interests and ultimately did not pass even when the House was controlled by Democrats. A real estate economist told the Los Angeles Times that the refinance proposal would not be as helpful as other potential interventions in the housing market, because it would likely just put more money in the pockets of people with current mortgages.

Vincent Howard and our team of Mission Viejo foreclosure defense attorneys would be pleased to see eligibility for refinancing expanded to more borrowers, even if this is not the ideal solution. Owing more than the home is worth traps borrowers in their homes, which is a serious hardship for people who are seeking to refinance loans they took out at the height of the bubble, under much higher interest rates. Indeed, many people who took out loans in that era were glibly promised that they would be able to refinance in a year or so, only to see their homes lose value or their subprime loans add to the loans faster than they could pay down principal. Ideally, however, the Temecula foreclosure defense lawyers at Howard Law, P.C., would prefer to see this initiative followed up by something that would allow principal reductions for people who are stuck in highly overvalued loans, something experts agree is the best solution to the housing downturn.

Continue reading "President Announces New Refinance Program for Underwater Homeowners Based on HARP" »

At Howard Law, P.C., Vincent Howard and our Loma Linda foreclosure defense lawyers handle a lot of cases involving mortgage borrowers who are suffering because of mistakes by their lenders and loan servicers. So we were interested to read a case in which an apparent mistake by a loan servicer hurt its standing as a creditor in a bankruptcy. In Perrino v. BAC Home Loans Servicing, the Bankruptcy Appellate Panel for the First U.S. Circuit Court of Appeals upheld a Maine bankruptcy court's determination that trustee Pasquale Perrino had an interest in a bankrupt couple's property superior to that of BAC, the servicing arm of Bank of America. When Sara and Douglas Trask refinanced their home, the lender accidentally described a different but adjacent property of theirs, a mistake revealed only when they filed for bankruptcy.

The Trasks refinanced their loan on the 1.74 acres their home is on in 2007. They also owned an unimproved 16-acre lot (Lot #6) directly next door. At trial, both sides agreed that while it is undisputed that the Trasks and the lender both intended to mortgage the house, the intended collateral on the mortgage securing their promissory note was actually described as Lot #6. After filing for Chapter 7 bankruptcy in late 2009, the Trasks filed an adversary proceeding to resolve the mortgage issue; Perrino later joined this. BAC, the successor in interest to the mortgage lender, argued that it had an equitable mortgage, among other arguments. After two hearings, however, the bankruptcy court found for Perrino, saying that as a trustee with the status of a lien creditor, his interest in the property was superior to BAC's. BAC appealed to the First Circuit's Bankruptcy Appellate Panel.

On appeal, BAC argued that the bankruptcy court should have allowed the mortgage to be reformed under Maine law allowing equitable reforms for mutual mistakes in fact. While this is allowable, the BAP wrote, Maine courts (and bankruptcy courts following Maine law) may not reform documents when a third party has intervened or has rights that would be affected. The trustee, as a hypothetical lien holder, is such a third party under well established bankruptcy law, the BAP said. However, BAC argued that any such lien holder would have had constructive notice of BAC's interest in the property, because anyone who inquired would have gone to the correct address listed on the mortgage and realized there was an error. The BAP disagreed. Using the street address of the adjoining house would not have raised an inquiry by a prudent creditor, the court wrote. Nor is it clear whether the properties do have different street addresses. Thus, it upheld the bankruptcy court.

Vincent Howard and our team of Costa Mesa foreclosure defense attorneys are always pleased to see homeowners left in a better position by lenders' errors. The fallout from the housing bubble has made it clear that many of them made serious mistakes in their haste to cash in when the real estate market was good. These range from failure to complete basic paperwork to entering wrong information on paperwork that was later adopted into state law. In some cases, it even veered into outright, knowing wrongdoing by lenders who lied about borrowers' incomes on forms or lied to borrowers about loan conditions, both serious legal matters. At Howard Law, P.C., our Long Beach foreclosure defense lawyers have been able to help clients whose loans have major flaws like these, either fighting off foreclosure or in some cases canceling loans through the Truth in Lending Act.

Continue reading "Bankruptcy Pane Allows Trustee to Avoid Mortgage With Incorrect Property Description - Perrino v. BAC Home Loans Servicing" »

At Howard Law, P.C., Vincent Howard and our team of Highland foreclosure defense attorneys were interested to see a case in which a mortgage lender was penalized for failing to foreclose after the borrowers gave up the property. In Canning v. Beneficial Maine, Ralph and Megan Canning of Sanford, Maine, filed for Chapter 7 bankruptcy after falling behind on their mortgage payments, and ultimately agreed to surrender the property. However, after the surrender and after their discharge, Beneficial Maine wrote the Cannings to demand that they repay the considerable balance on their underwater loan. They reopened their bankruptcy case and filed an adversary proceeding to require Beneficial to either repossess or give up lien to the home. The bankruptcy court found that the collection letters violated the Cannings' discharge, but that failure to foreclose did not.

The Cannings bought their home in 2007 and found themselves unable to refinance a year later because of a price drop. This led to a default and their Chapter 7 bankruptcy petition in 2009. With their petition and a separate letter to Beneficial, the couple indicated that they would surrender the home. Their trustee filed a notice of abandonment and Beneficial dismissed its foreclosure voluntarily two months after the bankruptcy filing. The Cannings received their discharge in June of 2009, and in August of that year, they received a letter from Beneficial demanding payment of the outstanding loan balance. Their bankruptcy attorney responded by reminding Beneficial of the bankruptcy discharge and demanding that Beneficial either foreclose or release the home's title, or he would seek sanctions in court. Two more rounds of letters in this vein followed, and the bankruptcy lawyer finally filed an adversary proceeding over the failure to foreclose as well as the demand letters violating the discharge order.

In a hearing, a Beneficial employee testified that it hadn't foreclosed because that would cost more than the property was worth. The bankruptcy court found that Beneficial's letters and stance were plain violations of the bankruptcy discharge. However, it found that the failure to foreclose did not violate the discharge, because it did not coerce the Cannings to pay or violate their surrender rights. The Cannings appealed.

In its analysis, the Bankruptcy Appellate Panel for the First U.S. Circuit Court of Appeal affirmed the trial court's decision. The law of the First Circuit does not require creditors to take possession of surrendered property, it said. Debtors like the Cannings are no longer personally liable for a debt discharged in bankruptcy, but the lien survives. However, under In re Pratt, Beneficial may be liable for impermissibly failing to discharge the mortgage. In Pratt, an auto dealer declined to repossess a car that was so old as to be worthless, leaving the debtors who had surrendered it the financial liability of maintaining it but no way to sell it to a junkyard. The Pratt court found that this violated their discharge by coercing them to reaffirm the debt. The Cannings relied heavily on Pratt, but the BAP found differences; the value of the home could go up, and there does not appear to be significant cost associated with maintaining it. Thus, the BAP upheld the bankruptcy court.

Vincent Howard and our team of Garden Grove foreclosure defense lawyers have seen this situation before. When a home is deep underwater -- the Cannings apparently owed about $110,000 more than the most recent appraisal said the home was worth -- the lender may decide it's not financially worthwhile to pursue a foreclosure. This is its legal right, but it sticks the borrowers with the costs and headaches of maintaining a home they no longer actually own. In some cases, this includes the cost of homeowners association fees, which banks are legally responsible for paying after a foreclosure, thanks to the 2005 changes in bankruptcy law. Though the Cannings do not appear to have that obligation, it's not hard to think of other potential liabilities raised by homeownership -- taxes, maintenance, insurance and more. Part of the job of our San Diego County foreclosure defense attorneys is to help borrowers eliminate or minimize this kind of liability.

Continue reading "First Circuit BAP Finds Lender Did Not Violate Discharge by Failing to Foreclose - Canning v. Beneficial Maine" »

Led by Vincent Howard, our Norco foreclosure defense attorneys have avidly watched the litigation by our neighboring states against Countrywide Financial. That company (through Bank of America, its successor in interest) settled in 2009 with states charges that it had engaged in consumer fraud in its mortgage lending. In particular, it faced accusations that it steered borrowers into loans it knew they couldn't afford, and sometimes engaged in race-based "reverse redlining." Perhaps not surprisingly, two of the states participating in that settlement were hard-sit southwestern neighbors of California's, Nevada and Arizona. Arizona made a splash in late 2010 when it sued Countrywide again, alleging failure to keep to the terms of its settlement. Now, the Ninth U.S. Circuit Court of Appeals has declined to hear an appeal in that case.

Arizona's lawsuit was originally filed in December of 2010, alleging violations of Arizona law in loan servicing by Countrywide, Bank of America and related companies. It accused the companies of continuing widespread consumer fraud, in large part because of the way they handle loan modification requests. According to the complaint, the defendants misrepresented to customers whether the customers were eligible for loan modifications in the first place; when and whether they would be approved for a modification; why the lender declined to make a loan modification; and whether and when a foreclosure would take place. This violates the part of the 2009 settlement requiring an $8.4 billion commitment by Bank of America to provide loan modifications, the lawsuit said.

Bank of America sought to remove that case to federal court under the Class Action Fairness Act, arguing that the state of Arizona was seeking relief for a large group of consumers. In an opinion from March of 2011, the Arizona federal court disagreed and remanded the case to Arizona state court. The federal district judge said CAFA does not apply because the state had filed a parens patriae action, which means it was acting in the interest it has in the well-being of its people. Thus, the district court said, the state was the real party in interest, rather than a discrete group of Arizona homeowners, and CAFA does not apply. The case was not filed as a class action, it said; nor does it raise a federal question or involve bankruptcy jurisdiction. Bank of America appealed the issue to the Ninth Circuit, which declined to hear an appeal in an order dated Jan. 3. Judge Gould, dissenting from that order, argued that hearing the case, consolidated with a related appeal from Nevada, would help resolve opposing decisions in Arizona and Nevada district courts.

The Fullerton foreclosure defense lawyers at Howard Law, P.C., will look forward to reading about the Ninth Circuit's decision in the Nevada case. Though we believe there was no basis to claim CAFA is involved in this case, the Ninth Circuit's dissent suggests that at least one Nevada judge disagrees. If that's upheld, it could mean major changes for the way all states file parens patriae actions. Those actions include the original Countrywide lawsuit, which led to the 2009 settlement, as well as any other consumer protection action pursued by a state attorney general rather than an individual. (Indeed, California is one of the few states that allows "public attorney general" suits.) Vincent Howard and our team of Murrieta foreclosure defense attorneys would prefer to see attorneys general allowed to do the necessary work of protecting their states without undue roadblocks.

Continue reading "Ninth Circuit Rejects Appeal by Bank of America in Arizona Lawsuit Over Countrywide - Arizona v. Countrywide et al." »

Vincent Howard and our team of Corona foreclosure defense attorneys were interested to see a recent ruling that penalized a loan servicer for sleeping on its rights. As a rule, this is more likely to happen with borrowers, who don't have the legal know-how or financial resources of a large bank. However, legal requirements involving deadlines and paperwork apply to both sides -- and thanks to the robo-signing scandal, courts are more likely to pay attention to paperwork mistakes at large lenders instead of dismissing them as routine. A paperwork mistake was behind the ruling in BAC Home Loans Servicing v. Grassi et al., in which a Maine couple was permitted to sell their condominium after their servicer, BAC, failed to object to the request. BAC did notice after the fact and raised a variety of arguments for reopening the issue, but the First U.S. Circuit Court of Appeals Bankruptcy Appellate Panel rejected the appeal.

Anthony Grassi and Kelley Lovejoy-Grassi of Maine filed for Chapter 7 bankruptcy in September of 2008 and converted the bankruptcy to Chapter 13 in January of 2009. More than a year after filing their amended plan, the Grassis filed a motion to sell their condo free and clear of its liens. The purchase price offered was $137,300; the condo had a total of $550,000 in two mortgage liens plus a $10,000 lien from its condo association. Like all such notices, it permitted the sale to go forward if no lienholder objected; the documents were served on all relevant lienholders. However, no party objected and the sale went through. After the sale order was granted, BAC filed a motion to reconsider and file a late objection, explaining that it missed the deadline because of bureaucratic errors. It also argued that the proposed sale price was not necessarily a good-faith offer, since it fell below the lien amount as well as a BAC broker's estimate. The bankruptcy court disagreed and chided BAC for sleeping on its rights.

BAC appealed both the denial of the motion to reconsider and the price issue. The First Circuit's BAP started by noting that numerous federal courts have agreed that a lienholder's silence can be taken as implied consent or a waiver of objection to this type of sale. BAC admits that it received notice and simply failed to respond in time, the court,said, so it must bear the consequences. A motion to reconsider a previous order is an extraordinary remedy that should be applied only in narrow circumstances, the court noted, including when the court made a serious legal error or the motion presents newly discovered evidence. This case presents no such problem, the court said. Though BAC attempted to present the sale as an error of law, the BAP did not believe the record supported this. It was silent on the issue of whether the purchase price was fair, deferring to the bankruptcy court. Thus, it upheld the sale.

Our Huntington Beach foreclosure defense lawyers are always pleased to see cases requiring loan servicers and lenders to bear the consequences of their own mistakes. That's because it's far more common to see cases in which financial companies' mistakes cause hardship for clients like ours. In particular, borrowers seeking loan modifications have found that no step of the process is free from red tape and serious mistakes. Some of these mistakes incorrectly keep borrowers from qualifying for loan modifications when they meet all requirements; others allow the foreclosure arm of the lender to start a foreclosure even though the borrowers were told they were safe. Vincent Howard and all of our Santa Fe Springs foreclosure defense attorneys aggressively represent such people when they get tired of this poor treatment and assert their rights in court.

Continue reading "First Circuit Upholds Order Allowing Debtors to Sell Condo After Bank Failed to Object - BAC Home Loans Servicing v. Grassi" »

Vincent Howard and our team of Riverside County foreclosure defense lawyers were interested to see another ruling allowing a bankruptcy debtor to successfully avoid a lien on a manufactured home. In In re Barbee, the Bankruptcy Appellate Panel for the Sixth U.S. Circuit Court of Appeals found that Gary D. Barbee of Kentucky may avoid a lien on his manufactured home because the lender, U.S. Bank, never perfected its lien on the home. Barbee mortgaged the land and all improvements, including a double-wide trailer built onto the land. When he later filed for bankruptcy, he argued that the bank never perfected its lien because it never acquired title to the manufactured home. The bankruptcy court agreed, and after review, the Sixth Circuit BAP allowed that ruling to stand.

Barbee and Rebecca Gaunce borrowed about $75,500 from Countrywide to buy the land in 1999, encumbering "all improvements and fixtures" on it. They never acquired title to the home, but the record shows it was gutted and rebuilt as a non-mobile home in 1997. In 2009, Barbee filed for Chapter 13 bankruptcy; Gaunce filed a separate case in which there was no controversy with the lender. Six months later, the bankruptcy court allowed Barbee to pursue an adversary complaint alleging that the bank's interest is avoidable because it was not perfected by acquiring title. Both sides filed for summary judgment, with the bank arguing that Barbee lacked standing to bring the adversary proceeding in the first place because he also has no title and no interest in the home other than as an improvement or fixture on real estate. The bankruptcy court disagreed, ruling the lien avoidable because ownership was never noted on the title and the home had not been converted to real property.

In a ruling that relied heavily on the Sixth Circuit's 2011 manufactured home case, Countrywide Home Loans v. Dickson, the Sixth Circuit BAP upheld the bankruptcy court. The BAP in Dickson ruled that the debtor did have standing to avoid a lien even though she was not the trustee, and while the Sixth Circuit itself never reached the issue, the BAP adhered to that precedent. The BAP also ruled that the home is a part of Barbee's bankruptcy estate, because he has an equitable interest regardless of whether he has the title. However, under Kentucky law, a manufactured home is personal property, which means perfecting a lien requires noting it on the title or converting it n court. Bankruptcy law says a property interest must be created by state law or federal interest, the court said, rending the bank's mortgage argument incorrect. Other bank arguments were waived because they were used for the first time on appeal. Thus, the BAP agreed that the lien is avoidable.

Our San Juan Capistrano foreclosure defense attorneys are pleased to see another opinion requiring lenders to answer for the consequences of their inaction when it comes to legal technicalities. Very often, borrowers are the ones who suffer when lenders aren't prompt or make mistakes with paperwork, and it takes an experienced attorney like Vincent Howard to keep these mistakes from doing lasting harm. This case and Dickson rely to some extent on the fact that a manufactured home is treated as a different kind of property in Kentucky -- more akin to a car than a home. It's unclear whether this is true everywhere, but because Dickson reportedly created a split in the circuits, the issue is likely to be revisited. At Howard Law, P.C., our Oceanside foreclosure defense lawyers help clients find quirks like these that can help them fight a rushed or unfair foreclosure.

Continue reading "Sixth Circuit BAP Allows Debtor to Avoid Unperfected Mortgage on Manufactured Home - In re Barbee" »

At Howard Law, P.C., our Riverside County foreclosure defense attorneys have written here many times about the paperwork problems that have flooded the courts since the mortgage crisis. This includes some instances of shady or semilegal behavior by lenders, such as robo-signing, post-dating documents and failure to check into evidence. However, we have never read a case in which the lender was accused of outright forgery, until Sutter v. U.S. National Bank, a Sixth U.S. Circuit Court of Appeals decision. Daniel and Sheryl Sutter refinanced their Michigan mortgage in 2004, but never signed a mortgage at the closing. The refinance proceeded normally otherwise, but the Sutters began missing payments and filed for Chapter 13 bankruptcy. U.S. National Bank, the assignee of the mortgage, filed a proof of claim with an attached mortgage bearing false signatures. The bankruptcy court ultimately decided to impose an equitable mortgage, but the district court voided the mortgage outright and the Sixth Circuit agreed.

The Sutters caught the forgery because they had arranged to close the loan in Sacramento, California, where they happened to be vacationing at the time their refinance closed. The forged mortgage expressly said it had been signed and notarized in Michigan. The Sutters used the forgery to object to the proof of claim, then filed an adversary proceeding seeking to disallow the claim or avoid the transfer of the debt. The bankruptcy court granted both requests and expressly reserved the right to decide on an equitable mortgage. The court then allowed the trustee to sell the mortgage back to the bank for $30,000, then abandon the home to allow foreclosure to finish, in exchange for a waiver of any additional claims on the estate. The Sutters appealed to the district court, which sent the case back for an equitable mortgage ruling. The bankruptcy court imposed an equitable mortgage, holding that the Sutters had gotten the benefit of the mortgage and the assignee did not have unclean hands. The district court voided this on appeal, however, saying the mortgage was void because no transfer ever occurred.

U.S. National appealed the ruling that there was no mortgage on the property and that the original mortgage was void under Michigan law. After dismissing some threshold issues, the Sixth Circuit considered the question of whether the mortgage is void in Michigan. It is undisputed that the Sutters could not have signed the mortgage; U.S. National admitted that forgery by its predecessor was the most likely explanation, and steps have been taken to penalize the notary. Furthermore, the Sixth said, caselaw says a forged mortgage is void ab initio in Michigan, even when innocent successors in interest are affected. An equitable mortgage is possible, the court noted, but Michigan does not allow an equitable mortgage when one party has unclean hands, and assignees stand in the shoes of their predecessors. Thus, U.S. National cannot benefit from an equitable mortgage. Finally, the court dismissed claims that the Sutters would inequitably get a "free house" from this decision, since they intended to grant a mortgage in the first place. Filing for bankruptcy is not inherently inequitable, the court said, and the Sutters will remain obligated on the unsecured note they actually did sign.

As Irvine foreclosure defense lawyers, we're pleased to see the courts take such a firm stance on the rights of mortgage borrowers to be free of illegal and deceptive conduct. The case ultimately did not leave the Sutters in a great position, since they were ultimately unable to receive a bankruptcy discharge. (They converted to Chapter 7 but were unable to obtain a discharge because they had filed a previous Chapter 7 case.) However, nor did it allow the forgers or their successors in interest to benefit from patently illegal behavior -- and that's as it should be. It's becoming clear that during the mortgage bubble, when the Sutters refinanced their home, many untrustworthy companies sought to make a quick dollar from refinances like this one, without regard to the risk of the loans. In this case, apparently it was also done sloppily and fixed in a blatantly illegal manner. Led by experienced attorney Vincent Howard, our San Diego County foreclosure defense attorneys aggressively defend cases with these kinds of improprieties.

Continue reading "Sixth Circuit Affirms Voiding of Mortgage Due to Banks Alleged Forgery of Signatures - Sutter v. U.S. National Bank" »

In legal terms, a lien -- a legal encumbrance on property that secures a debt, like a house or a car -- cannot be enforced unless it is "perfected" by meeting standards set out by state law. Since the housing downturn began, some bankruptcy filers have sought to avoid debts by claiming they are based on liens that were not perfected, but this is a tough claim to prove. That's why the Claremont foreclosure defense lawyers at Howard Law, P.C., were interested to see a case where the Sixth U.S. Circuit Court of Appeals agreed that a lien had not been perfected, canceling a large debt owed by a couple from Kentucky. In Salyersville National Bank v. Bailey, Jackie and Peggy Bailey took out two secured loans from the bank, but were unable to pay even in bankruptcy and ultimately had their home repossessed and sold. They had reaffirmed the debts, thinking the loans were secured, but this was later proven false. In this action, the Sixth voided their reaffirmation based on mutual mistake.

The Baileys filed for bankruptcy four months after filing for divorce (actions that often go together, in our experience as Anaheim foreclosure defense attorneys). They had taken out a loan secured by their home and another secured by their truck, and reaffirmed both debts in the bankruptcy. However, they stopped paying after reaffirmation, in part because the truck had been stolen and partially destroyed. For the truck-secured loan, the bank then filed an unsecured claim. The bankruptcy trustee sued to avoid the mortgage because it had never been perfected, an action that was settled by an agreement to sell the property at auction, with the proceeds going to the estate. If the bank bought the property, the agreement said the avoidance action would be dismissed and the mortgage still in effect. The bank bought the property from the trustee at auction and immediately sold it to a third party for a $33,400 profit, then filed an unsecured claim in the bankruptcy for the full balance owed on the mortgage.

The Baileys paid $37,000 toward the unsecured debts in bankruptcy. After the bankruptcy ended, however, the bank immediately sued them for balances owed on both loans. They moved to reopen their bankruptcy case and have their reaffirmation declared void. The bankruptcy court agreed to void the reaffirmation on the grounds of mutual mistake -- both parties had incorrectly believed the bank had security interests in the debts when the debt was reaffirmed. The district court in Kentucky affirmed, and the bank appealed.

In a reaffirmation, the Sixth Circuit observed, bankruptcy filers agree to exclude some debt from discharge at the end of their bankruptcy, a sacrifice they make in order to keep the property. On appeal, the bank argues that it was in fact a secured creditor, so there was no mutual mistake. This argument contradicts the past history of the case, the Sixth said. The bank had elected to treat the truck loan as an unsecured claim, in part because the vehicle's bad condition made it bad collateral. It cannot legally change its mind later, the court said. On the real estate, the trustee had disputed whether there was a perfected lien, resolved by the sale and the bank's unsecured claim. Again, the bank had waived its right to pursue a secured claim by acting as an unsecured creditor, the Sixth said, and being treated like one. The court also rejected the bank's argument that Kentucky law allowed it to enforce the reaffirmation even if it's a unsecured creditor. Reaffirmations of debt must be enforceable under state law, and Kentucky law allows cancellation of contracts made when both parties were mistaken about a material fact. In this case, they were mistaken as to whether the debts were secured, an extremely material fact for the Baileys. Thus, it affirmed the district and bankruptcy courts.

Our Escondido foreclosure defense lawyers are pleased that the Sixth chose to protect this couple from the legal maneuverings of their mortgage lender. As the Sixth noted dryly, "people do not generally agree to pay more than $150,000 in exchange for nothing." It's also worth noting that the bank was attempting to collect the full unpaid balance of the loan despite having collected $33,400 in the foreclosure sale -- essentially squeezing a profit from recently bankrupt (and divorced) people. Reaffirming a debt may make sense in bankruptcy cases where the filer wants to keep the home, but doesn't have a big enough exemption to do it. However, this puts the filer on the hook for large payments, and as this case shows, those payments will continue to be enforceable after bankruptcy.

Continue reading "Sixth Circuit Upholds Cancellation of Mortgage Debt Because Lien Was Never Perfected - Salyersville National Bank v. Bailey" »

Our Ontario foreclosure defense lawyers were pleased to see a recent announcement that California and Nevada will jointly investigate banks' fraud and wrongdoing during the foreclosure crisis. At Howard Law, P.C., we recently noted that our own state Attorney General, Kamala Harris, has broken away from the multistate negotiations with the banking industry to settle the "robo-signing" controversy of late 2010. Those talks had been focused on the revelation that banks had a widespread practice of signing legal affidavits without knowing whether they were accurate, which was at best a violation of legal procedures. At worst, the "robo-signed" documents could have allowed wrongful foreclosures to take place. Many courts responded by temporarily stopping foreclosures altogether, or putting stricter rules in place for foreclosure litigants.

Harris said in late September that she was leaving the robo-signing talks because she felt they were not offering sufficient remedies for the scope of the foreclosure crisis. The multistate group has taken several blows, including the departure of attorneys general from both liberal and conservative states and a federal settlement that critics said could undermine the AGs' talks. Harris and other more liberal AGs felt that the talks were an opportunity to discuss remedies that might curb foreclosures and the suffering they cause for both foreclosed borrowers and government agencies. Observers said the alliance between Harris and Nevada AG Catherine Cortez Mastro could further undermine those talks. However, they join AGs in several other states that have taken individual action, including New York and Massachusetts, which sued several lenders in early December for alleged irregularities in foreclosures.

The partnership between California and Nevada combines two neighboring states that were both hit hard in the foreclosure crisis. They are also both non-judicial foreclosure states, which means evidence of fraud will be less obvious than the fraudulent affidavits submitted in judicial foreclosure states. Their announcement said they will share litigation strategies, evidence and perhaps personnel between offices. Each has been busy on her own foreclosure investigations. In Nevada, Masto has widened an investigation of Lender Processing Services, a Florida foreclosure firm accused of robo-signing; Harris is also investigating the firm. Masto is suing Bank of America and its Countrywide division, accusing them of reneging on a settlement of an earlier predatory lending case, and Harris is investigating Bank of America, along with Citibank, Fannie Mae and Freddie Mac, for other reasons.

The Anaheim foreclosure defense attorneys at Howard Law, P.C., are pleased to see this partnership. California has major weight, as partner Vincent Howard has noted in earlier blog posts, because we have the most people of any state and a lot of economic importance. Adding Nevada to our independent investigations only adds more weight to any litigation that might eventually come out of the work, and Nevada is hard-hit in its own right. Unfortunately, we agree with Harris that the 50-state settlement talks were toothless; they dragged on for more than a year and were undermined from within and without. Given the actual criminal conduct at issue here -- and the grave effects on the lives and finances of ordinary borrowers -- our Pomona foreclosure defense lawyers do not feel it is unreasonable of the AGs to push for real penalties.

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The Rancho Cucamonga foreclosure defense attorneys at Howard Law, P.C., have written many, many times about the use of shoddy paperwork during the foreclosure crisis. This includes the admitted use of "robo-signed" documents in foreclosures; foreclosing without proof of ownership; and failing to offer genuine assistance to homeowners who come to the lenders for help, even if that means violating the rules of the Home Affordable Modification Program. So we were pleased to see the Dec. 1 announcement that the state of Massachusetts has sued five major lenders and the Mortgage Electronic Registration System, the private company they use to buy and sell loans, for foreclosure fraud. Massachusetts Attorney General Martha Coakley said she took action after waiting for more than a year for a settlement with the major lenders in the "robo-signing" investigation, who she said demand too much immunity for their actions.

The complaint (PDF) accuses the lenders of foreclosing on some homes without any right to do so; using false documents in foreclosures; deceiving borrowers about their loan modification programs and practices, including foreclosures while in modification; and failing to comply with the Massachusetts law requiring property to be registered with government offices. That last allegation is a reference to MERS, which was created in the 1990s expressly to allow lenders to avoid using local land offices when they bought and sold mortgages. The foreclosure crisis has exposed many cases in which the chain of title between the original lender and the foreclosing lender is broken. In some cases, lenders have been accused of falsifying the required documents, such as assignments, in order to meet legal requirements for foreclosure. Some of the foreclosures that went through with these shoddy documents were illegal, the lawsuit alleged, citing many pages of examples.

The fourth allegation was that the banks were deceptive, though their servicing arms, in offering and implementing loan modifications. It noted that each bank defendant has claimed since the beginning of HAMP to be actively helping customers qualify for loan modifications. In reality, it said, the lenders have modified only a fraction of the eligible loans; and approved for a permanent modification less than half of those that did win a trial modification. In rejecting so many borrowers, the suit said, lenders frequently miscalculated borrowers' income by more than 5 percent, an error the commonwealth said was unacceptable "when the homeowner's ability to stay in their home hangs in the balance." They also lied to customers about the need to be delinquent before they would be considered, or the need to have a steady income, the complaint said. And some modifications were rejected after months of steady payments, it said, with foreclosure begun immediately. The commonwealth sought an injunction against the practices, a declaratory judgment forbidding the use of MERS and $5,000 for each foreclosure that violated the law.

As Garden Grove foreclosure defense lawyers, we applaud this lawsuit, which reflects many of the problems we've seen firsthand here at Howard Law, P.C. For example, at the height of media coverage of the foreclosure crisis, it was well known that lenders were incorrectly telling borrowers they had to go into default to be eligible for a HAMP loan modification. This is not just a delaying tactic; it hurts the borrower's credit and credibility in later loan modification or foreclosure defense proceedings. So do many of the other illegal practices around HAMP alleged in the lawsuit. Our lead Gardena foreclosure defense attorney, Vincent Howard, has handled numerous HAMP lawsuits accusing the banks of breaking HAMP rules in their eagerness to deny loan modifications to people who meet eligibility requirements. If Massachusetts prevails in this lawsuit, it could change national foreclosure practices for the better.

Continue reading "State of Massachusetts Sues Five Major Lenders With Allegations of Fraudulent Foreclosures" »

The Fontana foreclosure defense lawyers at Howard Law, P.C., represent a lot of clients who believe they were pushed around and mistreated by their lenders. While mortgage servicers and lenders have the same rights to legal remedies that everyone else has, some of the practices that have become widespread during the mortgage crisis cross the line into illegal or negligent behavior. Our lead attorney, Vincent Howard, has won many victories for clients who were foreclosed without a discussion of alternatives, for example, or issued a predatory loan to begin with. So we were interested to see a decision from the South Dakota Supreme Court about a bank's attorney who allegedly abused his position as a prosecutor to pressure an older woman into giving up title to her home. In Fix v. First State Bank of Roscoe, the court ultimately sent the case back for a new examination of a claim for intentional infliction of emotional distress.

Rita Fix sold her home to her son and daughter-in-law in 1997, but retained a life estate on the property. Two years later, the couple took out a farm loan from the Bank and borrowed against the home, which required Fix to sign a warranty deed to the couple. The Bank assured her in writing that she would retain possession even if the couple defaulted. In 2004, Fix filed for bankruptcy. In 2005, her son and daughter-in-law defaulted on their loan and conveyed the home to the Bank in lieu of foreclosure. The Bank sold the house and sought to remove Fix, despite its written promise. Fix sued the Bank in federal bankruptcy court, and the case eventually made its way to the Eighth Circuit, which ruled that Fix's trustee must bring each of her claims except the one for intentional infliction of emotional distress. She brought this in state court.

Meanwhile, the family was indicted in state court for a fraudulent scheme in which Fix's son sold grain in her name and had her send him the profits, in order to avoid having the income taken by the Bank to satisfy his debt. The son pleaded guilty, but the charges against Fix remained dormant despite her attorney's requests to proceed or dismiss. The county prosecutor on that case also represented the Bank civilly. He eventually approached Fix and offered to drop the charges if she would deed her house to the Bank. She modified her state-court lawsuit to include a claim for abuse of process against the prosecutor as well as the Bank, alleging they conspired to use the criminal case to resolve the dispute over the home's ownership. The prosecutor settled; the court dismissed the count for intentional infliction of emotional distress. The abuse of process count against the bank went to a jury, which found for Fix but awarded no damages.

On appeal, Fix argued that the trial court was incorrect to tell jurors she needed to suffer "extreme and disabling" emotional distress to recover for emotional distress from the abuse of process. The South Dakota Supreme Court agreed. The trial court incorrectly relied on a previous decision that was not a tort action like this one, it said. Indeed, that case said emotional damages were unavailable except in cases accompanied by an independent tort. For an intentional tort like abuse of process, the court said, South Dakotans may claim emotional distress damages without proving the heightened standard of "extreme and disabling" emotional distress. Because the jury received bad instructions, the high court reversed and remanded for a new trial. Fix had less luck with her other arguments, but the court also noted that any damages awarded on retrial, not just compensatory damages, should be reduced by the amount of the prosecutor's settlement.

As Aliso Viejo foreclosure defense attorneys, we're pleased to see penalties are again possible for what appears to have been an abuse by the bank and its attorney. Southern California's larger legal community makes this kind of case less likely in Orange County, but businesses and lawyers across the United States should be barred from abusing their power. At Howard Law, P.C., we very often work with mortgage borrowers who believe their lenders and loan servicers abused their power by railroading them into foreclosure. Often, these clients are facing a foreclosure after months of fruitless attempts to work with the lender on a loan modification, and sometimes after intentionally hurting their finances in order to qualify for help that never appeared. Our Perris foreclosure defense lawyers help clients hold these lenders responsible whenever they broke the law.

Continue reading "South Dakota Supreme Court Returns Case of Alleged Abuse by Bank Attorney to Trial - Fix v. First State Bank of Roscoe" »