Thursday, April 30, 2009

Senator Durbin I feel your pain!

After a disappointing vote rejecting on Senate Bill 61 entitled the Helping Families Save their Homes In Bankruptcy Act Senator Durbin commented,

"I am sick and tired of being asked to give billions of dollars to these banks when they won't in any way help the people who are facing mortgage foreclosure," Durbin said. "They're not renegotiating these mortgages and they refuse to support an effort to add legislation that would give them the keys to the courthouse door."

He added, "The American Bankers Association and the Community Bankers Association walked away from the table."
Ryan Grim reported on the,

"The banking and real estate industry has funneled roughly $2,000,000 into Landrieu's campaign coffers over her 12-year career, according to data from the Center for Responsive Politics. Bayh has taken in about $3.5 million. The financial sector is Nelson's biggest backer; he's taken $1.4 million from banks and real estate interests and another $1.2 million from insurance firms. Tester has fielded roughly half a million in his two years in office.

That's about nine million dollars -- far, far less than one percent of the amount taxpayers have spent to bail out the financial industry."

I hope we will all remember every member of the Senate who took money from the leading banking institutions as part of their campaign contributions and or voted against the Cramdown Bill.

Banks Stongly Oppose Cramdown Bill (Sen. 61)

Of course banks are against the bill. But the banks are shooting themselves in the foot.

By forcing homeowners into foreclosure by refusing reasonable loan modifications and rejecting a cramdown will only serve to glut the housing market with an endless supply of REO houses. When supply goes up, and few borrowers can qualify to purchase it will only drive the price of homes down even further. This will make put more and more homes in the category of being tremendously upside down. As a bankruptcy attorney if the homes get too far upside down, I strongly urge homeowners to walk away and let the banks have it. Why. . . because in three to four years, they will have saved up enough of a downpayment and their credit will have healed enough to buy their own home, or the equivalent home for 40% less than what they would have paid had they stayed in their own home. With rents going down substantially its a much better plan in the face of there being absolutely no remedy available for these upside down loans. The cramdown would have fixed that problem.

A cramdown modification basically achieves a much better result for the investors than foreclosure. With a cramdown, the borrower gets the house at fair market value and continues paying the loan based on the new value. The investors now get paid and the homeowner is motivated to keep his or her home. In a foreclosure, the investors end up losing 9% to 12% of what they would have gotten because now they have to pay the cost of foreclosure AND they have to pay the cost of reselling the home. Not only that, the investors have to pay the cost of maintaining the home until it is resold.

It makes no sense that banks would not want to try to keep people in their homes with reasonable loan modifications. But I see it daily. There has been a decided trend among many banks to absolutely refuse to give much by way of modification plans. Many have only offer special forbearance agreements which most homeowners will breach when they cannot afford the balloon payment at the end of the agreement.

It is ridiculous that the Banks are opposed to allowing a cramdown for a limited period of time for a limited number of loans. How is that going to drive up risk in the future if future loans would not be subject to a cramdown?!?!

Please call you senator today. Demand a cramdown!

If you senator failed to vote in favor of the cramdown, please remember them at election time.

R. Grace Rodriguez, Esq. - LORGR.COM

Tuesday, April 28, 2009

American Banks and Lenders Shooting Themselves in the Foot in Opposing a Cramdown Bill

“Cramdowns” – would give bankruptcy judges the power to modify the terms of mortgages for individuals who have filed for Chapter 13 bankruptcy protection. Judges would have the ability to reduce interest rates, lengthen loan terms, and cut principal payments on the residence. Note that bankruptcy judges already have this power on rental properties and on other personal property. This means that everyone who is upside-down on their mortgage would have the incentive to pay their reduced mortgages and keep their homes. This would mean fewer homes on the market for ready and available borrowers. Fewer homes on the market means that this would increase the values of homes. The net affect is to economically make a cramdown unnecessary because the loans are equal to what the homes are ultimately worth.

However, the banks and others see a cramdown provision as a threat. They believe that it would be particularly detrimental for young individuals. They claim that banks and credit unions would be forced to raise interest rates to cover borrowers who file bankruptcy and lend only to the people who have several years of solid credit history. While it may be true that it would raise interest rates, the only reasonable response is . . "SO WHAT!" This means that it would be harder for the banks and lenders to give away loan money like it was candy. Afterall, this is exactly why we got into this mess.

Adam Levitin, an associate professor of law at Georgetown University has done significant research into mortgage modifications agrees with me. He also stated, “The question is not whether bankruptcy modification will result in losses,” he said. “It will. The question is whether these will be greater losses than lenders will incur in foreclosure, which is the only real alternative.” He further stated that "Mortgage modifications in bankruptcy offers unparalleled advantages over other potential solutions. It is the only solution that costs taxpayers nothing, it makes borrowers and lenders share the pain.”

Senator Dick Durbin's press secretary Max Gleischman is absolutely right. He said, “Doing nothing and letting the current housing crisis let itself play out has done more to drop home prices than a change in bankruptcy law will." I have to agree with him!

Monday, April 27, 2009

DON'T SIGN AURORA LOAN or QUALITY LOAN SERVICES "Special Forebearance" Agreement without seeing a lawyer first!

Interestingly every borrower I know who has been desperately awaiting word from Aurora to get a loan modification received a letter offering them a "Special Forbearance Agreement."

The terms generally are to pay for two or three months a lowered payment with a balloon payment of the balance of the arrearages paid in the third or fourth month. The Agreement provides the customary this is all there is language:

"This Agreement sets forth all of the promises, covenants, agreements, conditions and understandings between the parties hereto with respect to the subject matter hereof. This Agreement supersedes all prior understandings, inducements or conditions, express or implied, oral or written with respect thereto except as contained or referred to herein."

Over the telephone I have had three different agents assure me and my clients that this is just a test to see if they can really make the payments. If they really can make these payments then they will consider a more permanent loan modification. There is no way the borrower could prove this was ever promised because of the language in the Agreement. Even if they had a tape recording I can here some judge telling the borrower, "Well you should have known it wasn't true because of what was in the written agreement!"

But what I find to be absolute sneaky bad faith tactics is the "Customer's Admissions" paragraph which reads:

"Customer admits that the Arrearage is correct and is currantly owing under the Loan Documents, and represents, agrees and acknowledges that there are no defenses, offests our counterclaims of any nature whatsoever to any of the Loan Documents or any of the debt evidenced or secured thereby."

What this means to my lawyer mind is that if Aurora refuses to entertain any further negotiations with a borrower for a loan modification, you will have already waived any claim under California Civil Code Section 2923.5 & 2923.6 if any existed. If you had any claims that could have been brought in Bankruptcy court to reduce the claim on the loan, those too would be waived.

AND FOR WHAT??????? In exchange for a two month forebearance agreement? That is INSANE! Please before you sign anything with Aurora see an attorney. ANY ATTORNEY!!! Please don't give away your rights for bread crumbs!

Sunday, April 26, 2009

Theoretically speaking. . . has anyone tried this yet?

California Civil Code Section 2923.5 and 2923.6 creates a duty by a loan servicer to protect the rights of all members in a security pool:

California Civil Code
Section 2923.6

(a) The Legislature finds and declares that any duty servicers may have to maximize net present value under their pooling and servicing agreements is owed to all parties in a loan pool, not to any particular parties, and that a servicer acts in the best interests of all parties if it agrees to or implements a loan modification or workout plan for which both of the following apply:

(1) The loan is in payment default, or payment default is reasonably foreseeable.

(2) Anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis.

(b) It is the intent of the Legislature that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority.

(c) This section shall remain in effect only until January 1, 2013, and as of that date is repealed, unless a later enacted statute, that is enacted before January 1, 2013, deletes or extends that date."

So let's say a borrower gets foreclosed on in California. Despite the fact that the borrower had been actively engaged in loan modification discussions with their lender. Over the telephone representatives continued to reassure the borrower that their file is in review. However, they don't mention that the sale of their home is still going forward. (This is not an uncommon occurrence as many of you know dealing with Countrywide and Aurora).

Why couldn't you file for chapter 13 bankruptcy. Indicate the equitable interest in the home based on the lender's failure to comply with CC, Section 2923.6 & 2923.5 and that due to their violation they should restore title to the borrower. File an adversary complaint in the bankruptcy court alleging the violation. the damages are huge because now the borrower lost their home and are emotionally distraught over the loss of their home. AND the code provides for attorneys fees.

By doing it this way you have one Judge decide the value of the home for purposes of lien stripping any junior liens against the home, AND the same judge determines the cost of damages and reduces principle on the first mortgage after restoring the debtor's interest in the home?

Of course this would only apply to a borrower who has lost their home and are just now coming to consult you. I wouldn't want to take the risk of someone choosing to let the home go to foreclosure and then chancing it in bankuptcy court. But for the borrower who already lost the house, they could pursue this remedy. Would give them more time in their home and a shot to get the house back.

Note however, my idea of doing this also includes plan payments to the Trustee of the first mortgage based upon a reduced principle to fair market value, paying a reasonable percent interest each month.

I think there is a mistake bringing this sort of action in state court because of the risk that the second will foreclose on the property or take some action on the property. At least in bankruptcy the courts have more power to use equity in a legal sense to work out a fair adjudication regarding the home. You can get both the benefits of lien stripping of the junior liens and set the fair market value of the home.

Just a thought. Feel free to give some input on this idea.

Thursday, April 23, 2009


I am a member of the National Association of Consumer Bankruptcy Attorneys. We just received word from Maureen Thompson our Director for Legislation. She tells us that it looks the the cramdown bill, known as Helping Families Save Their Homes in Bankruptcy Act of 2009 (S. 61) is going to come up for a vote next week! This bill would give bankuptcy judges across the county the power to reduce the balance owed on a mortgage to fair market value. This bill is extremely important if most homeowners are going to be able to stay in their homes duing these tough economic times!

Unfortunately for the average homeowner, is not sufficiently organized to hire the largest lobbying firm in Washington DC to help get this bill passed. However, the National Association of Federal Credit Unions sure has the money and the clout to hire Patton Boggs LLP to try to squash the cramdown bill. Earlier this week, they informed Illinois Sen. Dick Durbin that it still had questions about Democrats' plans to let cash-strapped homeowners modify their mortgages through bankruptcy proceedings. They unanimously voted to oppse the cramdown bill.

Folks, this is a do or die vote. We the people have to come together and call our senators and insist that they vote in favor of this Bill. If you are facing foreclosure you owe it to yourself to be a part of those who lobby congress today! Tell them we need Senate Bill 61 today!Please contact your senator today and beg them to see that we need this bill if we are going to help people save their homes.

If you don't know who you senator is try this link:

This link will identify your representative and provide you information on how to contact them.

Here is the letter we got:

Dear NACBA Member:

There is now talk that S. 61, the judicial mortgage modification bill (as it has been come to be known) may be on the Senate floor for consideration as early as next week. If there turns out to be the case, we will have our work cut out for us in order to be successful. I recognize this isn't much notice, but that is the way the Senate works sometimes. So, this may be our best and only shot at getting this bill passed into law.

Please look to NACBA for updates tomorrow. Once we know what bill will be on the floor and what the process will be, we will send out updated talking points and information. Even if you have called/emailed your Senators in the past, we will be asking you to do the same again. Having said that, it will be most productive to hold off on those calls, emails and faxes until we know exactly what they are being asked to support. But, be sure to check your email; I expect we will be sending out multiple updates as new information becomes available.

Maureen Thompson

NACBA Legislative Director

Wednesday, April 22, 2009

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