Archive for September, 2011
In the practice of foreclosure defense, one of the issues I frequently run into is securitization of mortgages. We’ve talked about securitization on this site numerous times. There is also plenty of internet chatter about securitization–some of it legit, some of it little more than crazy talk out of people with way too much time on their hands.
I’ve explained the concept of securitization to many, many people–clients, other attorneys, and judges. After a thorough discussion, most have a basic understanding of the principles behind it. But I’ve often wondered what people would think if they saw it in action.
Well, here is your chance. You want to take on the bank? Good for you. Here’s a prospectus for an asset-backed trust (this one happens to be a Bear Stearns trust). The prospectus describes the trust, and is essentially the sales “brochure” to potential investors. Want to know how that trust was formed and operated? Here you go–the Pooling and Servicing Agreement. The Pooling and Servicing Agreement is basically the the operating manual for the trust. The posted links take you directly to the documents posted on SEC’s EDGAR website (which lets you search the filings for all publicly traded companies from the comfort of your computer).
You still want to take on the bank? Then you’d better understand every word of those documents (or similar ones) so you know exactly how the trust was supposed to have handled your mortgage. After all, you can’t know whether they did something wrong if you don’t know what they needed to do to be in the right. And then you’d better be able to explain it in terms that are understandable to your mother or grandmother, who has no understanding of Wall Street structured finance. Why? Because ultimately, that’s who’s going to be on a jury (if you make it that far) deciding your fate.
If this post seems a little snarky, I promise that’s not the intent. But I firmly believe that homeowners need to know what they’re up against, particularly if they have any inclination of doing it alone. It’s simply not enough to read Neil Garfield’s Living Lies blog, 4closurefraud.org, or nakedcapitalism.com. Those are great websites, don’t get me wrong, but there’s a big difference between reading commentary and analyzing the building blocks of securitization on your own. You need to be able to find, read, analyze, and comprehend the primary sources concerning your mortgage–the trusts’ prospectuses and pooling and servicing agreement.
Taking on the big banks in defense of a foreclosure is serious business, and homeowners should be prepared for the fight. Generalization about some case three states over isn’t going to convince any judge. You need solid evidence about YOUR mortgage, and that includes an analysis of the asset-backed trust that may, allegedly, hold your note. Just like the old saying, don’t go into a gun battle with a knife.
Another homeowner has avoided post-foreclosure eviction thanks to a last-minute temporary restraining order obtained by attorney Walker M. Duke of the Duke Law Office, P.C. A Dallas-Fort Worth family was facing eviction after being railroaded through, what attorney Duke called, a “ludicrous foreclosure process.” A Dallas County judge granted the temporary restraining order that directed the bank, their law firm, and the Dallas County Constable to suspend any efforts to move the homeowners and their belonging from their home.
The homeowners’ foreclosure defense attorney commented that this was one of the more egregious foreclosures based on the face of the documents involved. Duke noted, “The bank that foreclosed did several things–they conducted the foreclosure sale, sold the house, and transferred title through a deed–ten days before that bank supposedly even acquired any rights in the loan. That’s no conspiracy theory or securitization-based argument–that’s based on the bank’s own documents. You can’t sell what you don’t own.”
The temporary restraining order that stopped the eviction is a part of the homeowners’ ongoing lawsuit against the bank. Duke added, “This is a great opportunity to shed some more light on how fast and loose banks got with homeowners’ loans and the foreclosure process. I look forward to having our day in court.”
Struggling homeowners dealing with Bank of America should be on the lookout: Bank of America is ramping up its foreclosure processing, sending out more notices of default in August than in previous months. CNBC.com is reporting that on a month-to-month basis, this represents a more than 200 percent increase.
The foreclosure tracking firm RealtyTrac has confirmed a surge in recent notices of default, which is the first step in the foreclosure process for lenders (at least in non-judicial foreclosure states). This increase appears to be primarily in non-judicial foreclosure states, where no court order is needed for banks to proceed with foreclosures.
On a side note, many of Bank of America’s foreclosures are conducted by a company called Recontrust.
If you have received notice of a Bank of America foreclosure, or a foreclosure notice from any other bank for that matter, it is important to go on the offensive. While they may say they will work with you on a modification, don’t assume that entering the loan modification process will stop foreclosure proceedings–even if they tell you over the phone that it will! Speak with an attorney in your state about your rights and about what you can do to protect your home.
Pegasusnews.com out of Dallas is reporting that Dallas County District Attorney Craig Watkins plans to file a lawsuit against MERS for what is believed to be millions of dollars owed to the county for unfiled fees. Watkins says that every time a mortgage in Dallas County changed hands, lenders should have recorded the transaction with the county clerk, which would have generated a fee. By MERS “holding” mortgages as they were passed around from investor to investor, they were rarely recorded, which deprived the county of millions of dollars in revenue.
County officials have estimated the uncollected fees between $50 million to $100 million. “Counties are suffering financially,” District Attorney Watkins said, “If the fees were paid, they would not have to [struggle].” The district attorney says he felt this lawsuit was necessary to protect the interests of Dallas County citizens. “It’s because of the nefarious activities of some of these entities that the county has been harmed,” he adds.
As a Dallas County attorney and resident myself who has seen the county’s budget woes first hand (the Dallas County courts are, after all, paid for by Dallas County revenues), I understand the District Attorney’s position of needing to sue MERS. And as one who had to pay filing fees for my own house, I appreciate the seeming lack of fairness as to who shoulders these costs. Now, I’m not a big fan of excessive government fees and taxes, but I also understand the need for paying a reasonable fee for legitimate government services. Homeowners must pay to record their deeds, but Wall Street investors don’t have to? Doesn’t quite seem fair, does it?
Good luck to Dallas County in their lawsuit against MERS. And if/when the county recovers, please fix the potholes on my street!
“How do I stop my foreclosure?” This is one of the most common questions I get asked. Nevermind the news headlines about robosigners, nevermind the legal jargon and Wall Street gibberish–homeowners usually have one primary question: how do I keep the bank from foreclosing on my house. It’s a difficult yet fair question, and it cuts to the heart of what I do as a Texas foreclosure defense attorney (and what my colleague, Charles Parson, does as a Utah foreclosure defense attorney).
I will tell you what I do to stop foreclosures in Texas, which is a “non-judicial” foreclosure state. In non-judicial states, banks generally do not need a court order to foreclosure on a property. All that is required is the filing of a few documents with the local county clerk and sending notice to the homeowner.
Well, I will tell you what I do to stop a foreclosure in Texas in a moment. First, I will explain the context of a foreclosure.
A “foreclosure” is the sale of a property. State laws dictate the method and manner in which foreclosures are to be done. In Texas, foreclosure sales take place on the first Tuesday of the month on the courthouse steps (this is something that will vary from state to state). A foreclosure sale is exactly that–a sale. It does not mean the sheriff or constable is going to kick you out of your house. While it certainly can be a scary process, you will sleep in your own bed in your home the day after a foreclosure sale. Removing you from your home, which most people think of in terms of having the sheriff put your furniture out on the street, takes a separate judicial purpose, known in Texas as a “forcible entry and detainer” action. It’s basically a separate lawsuit, and you should have plenty of notice about it. Being foreclosed upon does not mean you are instantly kicked out of your house.
Many people have the misconception that simply hiring a lawyer will automatically get their foreclosure stopped. I wish I had that magic wand. The reality is that hiring a competent foreclosure defense lawyer probably gives you the best shot at stopping a foreclosure, but there are unfortunately no guarantees. In a non-judicial state like Texas, the laws are set up where the bank can foreclose unless they voluntarily pull the foreclosure sale (which are frequently called a trustee’s sale or substitute trustee’s sale) or a court orders that the foreclosure be stopped. This is where I come in as a foreclosure defense attorney.
I always first try to negotiate with the bank and the trustee who is conducting the foreclosure sale (in Texas, Chase, Wells Fargo, U.S. Bank, PNC, and Citi usually use outside law firms to serve as substitute trustees and conduct the foreclosures; “Recontrust” usually conducts Bank of America foreclosures, particularly since BAC Home Loans was absorbed back into BoA). To gain as much leverage as possible, I look at several things. First and foremost, I look to see if the technical notice and filing requirements were followed. They usually are, so I then look at the substantive issues.
The first substantive issue I look at when I fight a foreclosure is the chain of title. Most counties are pretty good about putting their property records online, so there is usually quite a bit to examine for irregularities. Do the dates match up? Was the note and deed of trust assigned by a defunct entity, such as IndyMac Bank, F.S.B.? At this point, I am looking for errors that appear on the face of documents.
If there are no glaring defects in the chain of title for the note and deed of trust, I then look at securitization issues. Who noticed the foreclosure? In many instances, an asset-backed trust will claim to be the current mortgagee and be the party ordering foreclosure. Was an asset-backed trust in the chain of title? If the answer to either of those questions is a ‘yes,’ then I look up the securitization trust’s public filings with the U.S. Securities and Exchange Commission. The SEC has a very good search tool called EDGAR that allows you to search their records. Among other documents, I read the trust’s “pooling and servicing agreement” and its prospectus. Both are pretty long, pretty dry documents, but they are important in fighting a foreclosure.
All of this investigation is geared towards giving me leverage in negotiating with the bank or their lawyers.
If the foreclosure cannot be stopped agreeably, the next step I take (in appropriate cases) is filing a lawsuit and application for a temporary restraining order. Here, I am literally seeking an order from the court that immediately stops the foreclosure dead in its tracks. Temporary restraining orders are, as their name implies, temporary. In Texas, they last 14 or 28 days. To make them longer-lasting, I ask the court to convert a TRO into a temporary injunction (which lasts the life of the lawsuit).
A TRO is not automatic. They are up to the sole discretion of the judge, as is the longer-lasting temporary injunction. This is why I usually first attempt an amicable resolution–because the homeowner’s fate is not in the hands of the judge at that point. If a judge will not grant a TRO and the bank will not voluntarily suspend the foreclosure proceeding, the reality at that point is that there is very little that can be done to stop the sale. That does not mean the lawsuit is over, and it does not necessarily mean an eviction is imminent. I have had some very effective negotiations post-foreclosure. However, it does put the homeowner in a more difficult position because, at least in Texas, the law is stacked against the homeowner.
Of course, there are many more details to stopping a foreclosure, but this is an overview of part of the process that I go through on behalf of homeowners. As I’ve preached before, it is critically important to be proactive. Don’t sit back and simply wait (and hope) for your foreclosure to get pulled or for documents to magically fall into your lap, because it won’t without some work. There are no shortcuts, and what may have happened to some homeowner in a different state 1,000 miles away has nothing to do with your house–and judges know this. To quote the Oakland A’s general manager, “Hope is not a strategy.” You or your lawyer has to do the homework and do the dull reading. It is what will give you an advantage and create the best chance to stop the bank from foreclosing on your house.
CNBC is reporting that the response to President Obama’s recent proposal to refinance more borrowers into lower interest rate mortgages was at best underwhelming and at worst scathing. The plan would expand the government’s so-far disappointing, Home Affordable Refinance Program (HARP), which helps current but underwater borrowers with Fannie Mae and Freddie Mac loans to refinance.
“Mr. President, the housing market is the foundation of the U.S. economy. It is cracked and chipping away,” writes Florida real estate consultant Jack McCabe in an editorial in the Herald-Tribune.
“The walls are beginning to cave. Your answer, anecdotally, seems to be put a new roof on it.”
McCabe is calling for principal write-down for troubled mortgages, not refinances for borrowers who are current on their monthly payments. The argument so far against principal write-down is that it would cost banks and investors (including Fannie Mae and Freddie Mac) too much.
Unfortunately the plan, which could allow borrowers with more than 25 percent in negative equity to refinance, is being deemed too costly as well. While the Congressional Budget Office estimated it would cost investors in the original mortgages between $13 and $15 billion (while potentially saving 111,000 borrowers from defaulting), analysts at JP Morgan Chase say it would cost more:
If such a policy were successful on a large scale, it would clearly devalue higher coupons, and would threaten lower coupons with incremental gross supply. A more modest HARP overhaul, while less disruptive, still forces investors to require more conservative valuations until details emerge.
All these arguments, however, may be moot, as the overseer of Fannie Mae and Freddie Mac, the Federal Housing Finance Agency (FHFA), which would have to approve the refinance effort, is sounding wildly cautious. In a statement following the President’s speech, Director Ed DeMarco states, “If there are frictions associated with the origination of HARP loans that can be eased while still achieving the program’s intent of assisting borrowers and reducing credit risk for [Fannie Mae and Freddie Mac], we will seek to do so.”
He goes on to say, however, that there are “several challenging issues to work through,” and then he uses the word “uncertain” twice in characterizing any outcome.
While DeMarco doesn’t detail said “frictions,” they are vast and not limited to investor cost. First of all, too many borrowers probably still wouldn’t qualify if they just did away with the loan to value ratio of 125 percent. Of the 838,400 HARP refinancings done so far, only 62,432 had LTVs (loan-to-value) above 105 percent, according to Jaret Seiberg at MF Global.
“We believe lenders are reluctant to HARP a loan if they fear the borrower is so underwater that they might default anyway,” writes Seiberg.
Then there are issues of loan origination dates, put-backs on loans that default and borrower qualifications. Frictions. Beyond the friction, however, is the simple fact that a refinance program, while potentially an economic stimulus, is not a housing stimulus and shouldn’t be characterized as such. The HARP program is and always was for current borrowers and does nothing to address the millions of non-current borrowers, bank-owned foreclosed homes and falling home prices.
Today is a day to just be Americans and be grateful for this wonderful country in which we live. Things may be tough. People may be struggling. But they’ve been tougher. People struggled more. We got through it and we will again.
God bless all of us, and God bless America.