Principle Reduction for Mortgage Loans

A recent Wall Street Journal article discusses the ongoing conflict regarding principle reduction for mortgage loans.  As the article stresses, Fannie Mae/Freddie Mac—two of the largest holders of mortgage loans in the United States—usually do not permit principle reductions of loans (where the lender forgoes a portion of the unpaid debt).  Most loan modification programs, both government based and private, generally do not allow for a principle reduction; while the lender will "forbear" the unpaid debt (usually in a balloon payment at the end of the loan), the debt does not go away.  This reality is something I stress to each of my clients: while I always aim for a loan modification with principle reduction, it is never a guarantee.

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http://maforeclosurelawblog.sherwinlawfirm.com/2015/06/principle-reduction-for-loans.html

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"Strategic Default" and Foreclosure Defense

If you have been following the news in the last few weeks, you have probably heard about the New York Times's editorial Why I Defaulted on My Student Loans.  In this opinion piece, the author gives his reasons for not paying his student loans and encourages other borrowers in a similar scenario to do the same.  The article has generated alot of buzz, with several financial and legal experts criticizing this approach.  (Click here and here for good reads on this topic).  

With this in mind, I thought I would discuss in this blog post a related question I sometimes get regarding foreclosure:  does it ever make sense to do a "strategic default" on a mortgage loan?  Is it ever worth it to stop paying for a home?

If the goal is to live at the home for a few years rent free (without concern to the impact on one's credit history), then I suppose a default may make sense.  Otherwise, purposely deciding not to pay a mortgage loan is a bad idea.

As I have written before, getting a free home from a foreclosure defense lawsuit is an unrealistic goal.  The much more realistic goal is affordability: a loan payment that the borrower can pay. However, even with a strong case, foreclosure defense is tough. With that said, a borrower should never risk loosing their home in hopes of getting a free home or a reduced principle balance.  If a borrower is having trouble affording their home, they should try for a loan modification (and consult an attorney if they are not making any progress in this difficult process).  

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FAQ: What is a Right-to-Cure Notice? When Am I Suppose to Receive This Letter?

Question:  What is a right-to-cure notice?  When am I suppose to receive this letter?

Answer:  A right-to-cure notice is a letter that your servicer must send you prior to foreclosure that gives you an opportunity to reinstate your mortgage loan. The notice will state all of the past, undue mortgage loan payments and tell you the amount needed to make the loan current.  The law on these notices also requires the servicer to include specific disclosures, including the name and contact information of your mortgagee.  

An error in one of these notices may be grounds for challenging foreclosure.  However, after a foreclosure has occurred, a homeowner can only use this defense if they can prove "fundamental unfairness."  There aren't too many court cases on what this means, but the leading case in this area of law suggests that it has to be a major mistake.  Speak to a foreclosure defense attorney to learn if one of these defenses might help you save your home.

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Proposed Reforms for Massachusetts Property Tax Foreclosures

I don't write too often about property tax foreclosures, but it is a topic of increasing importance for Massachusetts homeowners.  A property tax foreclosure, compared to a standard residential mortgage foreclosure, is a judicial proceeding in court.  A homeowner facing one of these cases is at risk for losing not just their home, but all of their equity in the property as well.

With the increase in these cases in Massachusetts, several lawmakers have introduced An Act Relative to the Improvement in the Process for Collecting Delinquent Property Taxes, which offers several reforms for these cases.  The Massachusetts Attorney General recently came out in support of this bill, and her letter about this bill provides a good summary of tax foreclosures and how this bill would affect these proceedings.

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FAQ: Can My Home Be Foreclosed While I Am Applying for a Loan Modification?

Question:  Can my home be foreclosed while I am applying for a loan modification?

Answer:  Generally, no.  Recent loan servicing regulations prohibit "dual tracking", a procedure where servicers review loan modifications while simultaneously pursuing foreclosure.  These regulations restrict servicers from moving ahead with the foreclosure process while it is reviewing a loan modification application.  There are, however, time limits on this: submitting a loan modification the day before the scheduled sale will not necessary stop a foreclosure.

In addition to these federal regulations, there are other legal defenses that may be available to stop a foreclosure while a loan modification is under review.  Contact a lawyer if you find yourself in this difficult situation.   

    

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The Truth, The Truth, and Nothing But the Truth: Do Not Lie in Court!

A recent Florida foreclosure case demonstrates why you should always tell the truth in court, whether it be for a foreclosure defense case or any other matter.  In this case, the homeowner raised numerous arguments to the foreclosure, each of which the bank quickly discredited as the trial progressed.  In the end, the court dismissed her claims and lawsuit.  The homeowner was lucky: the judge could just as easily sanctioned her for perjury--both a civil and criminal offense.

As I have written before, foreclosure defense cases are already difficult matters to begin with.  Lying in court doesn't make them any easier, and runs the real risk of an angry judge and a lost case.  Even worse, lies like these make this area of law harder for everyone else, namely honest homeowners who have legitimate defenses to foreclosure.

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FAQ: What is MERS?

Question:  What is "MERS"?  I heard they hold my mortgage.  Can they foreclose me?

Answer:  MERS stands for "Mortgage Electronic Registration  Systems, Inc."  MERS is a national company that functions as an electronic database for mortgages.  In recent years, as mortgage loans are increasingly sold on the secondary market, the role of MERS has grown significantly; today, it is estimated that MERS holds title to 60 million loans.   

How does MERS hold a mortgage?  When a home is purchased, a homeowner typically gives a mortgage to the lender.  If MERS is involve, the mortgage is granted to MERS, on behalf of the lender.  MERS serves as an agent for the lender and, most importantly, its "successors and assigns."  In other words, MERS hold the mortgage on behalf of whoever is the owner of the loan.  Because it is typical for loans to be sold numerous times after the loan's origination, MERS is designed to hold the mortgage on behalf of the present owner.

Why was MERS created?  As it became more and more common for loans to be sold after origination, lenders realized that they would need to spend time and money on recording fees for the mortgage assignments.  MERS was created to eliminate the need for these numerous assignments.  Instead, lenders would merely need to grant the mortgage to MERS, who would hold it on behalf of the loan's present owner.

In Culhane v. Aurora Loans, a seminal Massachusetts decision on mortgage assignments, the First Circuit upheld the role of MERS in the mortgage industry.  As such, arguments that MERS has no authority to assign mortgages are largely meritless.  However, MERS' internal rules prohibit it from foreclosing in its own name. As such, when a lender is ready to foreclose, MERS generally assigns the mortgage back to the lender.   

MERS is often criticized for its secrecy; because of MERS, it can be difficult to determine who is the present owner of a mortgage loan.  However, despite these concerns, MERS' authority to hold and assign mortgages is established.

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