Foreclosures Are More Profitable Than Loan Modifications?

The Washington Post printed an article today stating that in many cases, it’s more profitable for the lender to foreclose rather than work out a loan modification with the homeowner.

Finally, we have someone telling the REAL truth about why lenders aren’t modifying more loans!

A lot of people have been scratching their head trying to understand why lenders aren’t modifying more loans, especially given the government’s financial incentives to lenders to modify more loans.

As usual, the lenders are acting in their own self interests because they can. Remember, your taxpayer dollars are shoring up their bottom lines and now they don’t have to negotiate with you because they already have your bailout money.

It’s hard for me to imagine how it could be more profitable for a lender to foreclose rather than working out a loan modification given the falling home prices.

Of course, there are other reasons why modifications supposedly aren’t working. I keep hearing a lot about how lenders are woefully understaffed and underequipped to handle the sheer volume of homeowners who are asking for help right now.

This is just a weak excuse for the lender’s failure to act. Unemployment is at a record high in this country. CitiMortgage, Wells Fargo and Bank of America have a talented pool of unemployed workers who need jobs. Why aren’t they hiring more people?

So how can you fight foreclosure and save your home?

First, get a loan audit before you do anything else! Go here to learn more about how you can get a loan audit. If you can’t afford to have a professional auditor perform the audit, I’ve written a Do It Yourself Audit eBook that you can purchase.

Modifying a loan without a loan audit is a bad idea for several reasons.

First, if there are predatory lending patterns in your documents and you don’t know about them, and you modify the loan, you waive your rights to pursue the lender in court for the bad loan you originally received.

Second, if the lender lied to you by failing to disclose all the details of the loan, this is leverage against the lender to get a better loan modification instead of just accepting the standard loan modification they give everyone else.

Third, follow up with a competent professional who will aggressively represent your interests in forcing the lender to modify your loan fairly. I suggest you use an attorney for this – a good one will almost always get you a better result than you can get on your own.

I know, it sucks to have to hire an attorney. Many people got into this mess because they didn’t understand the documents they were signing, and a home is the biggest investment most people will make in their lifetimes. It’s worth it to pay someone to do it right.

Finally, consider filing a lawsuit against your lender if your loan stinks of predatory lending. When more people stand up to the banks, this nonsense of the banks not helping people will stop. We’re all held accountable for our actions as individuals; why shouldn’t the banks be called out for screwing homeowners and refusing to help them? I am working hard on finding attorneys who will be good partners for homeowners, so contact me for a referral if you need one.

If you have questions, post them in the forum or send me an e-mail: Christine@DesertEdgeLegal.com.

Governor Brewer Signs Legislation Gutting Anti-Deficiency Statutes in Arizona

Today I received an e-mail from Alan Langston, Executive Director of the Arizona Real Estate Investors Association, regarding Arizona SB 1271. He says :

“Undoubtedly you have heard and read a lot about legislation that was recently passed and signed by Governor Brewer that basically guts the protection of property owners and allows for ”deficiency judgments” to be entered for the difference between what the foreclosure property sells for and the amount of the loan. It is important to note that the Arizona Statutes providing this protection had been on the books since 1971 and in most states since the Great Depression. There is no question this is bad legislation. It was hurried through the legislative process through a “strike everything” that totally replaced language in an entirely unrelated bill dealing with the criminal justice system. The “strike everything” tactic was one of the primary reasons that no one who represents property owners noticed the legislation and no one other than the banking interest testified at the committee meetings.

Since this came to light we have been very active. You, as an investor, are a stakeholder in this and need to be heard. I have had many conversations with our lobbyist planning and executing our strategy. We have worked very closely with the lobbyist for the Arizona Association of Realtors (AAR). There has been plenty of maneuvering behind the scenes as different stakeholders on different sides of this issue try to build their coalitions. I sent a letter to Governor Brewer last Wednesday requesting the special session be amended to include this legislation pointing out many of the issues. Our focus is to have this law repealed, so that it (if reintroduced in the next legislature) can be fully vetted with all stakeholders participating in the debate.

There will be meetings this week with legislators to discuss this issue. We will be in these meetings representing your interest along with other stakeholders. The first meeting is tomorrow with the sponsor of the legislation, Senator Pierce.

I want to be clear. We have our work cut out for us to have this repealed. This is signed law. But, it is just as clear that all stakeholders weren’t heard. This law affects homeowners, owners of second homes and vacation property, investors, builders and others. It has the ability to devastate personal wealth, sharply increase bankruptcies, significantly slow our fragile real estate market, curtail investment in property, increase lawsuits and more. We will have a full discussion of this legislation and what has transpired during our August 10th AZREIA meeting. The workshop at 5:15 features our lobbyist. It was originally scheduled to cover all legislative activities that affected you, the real estate investor. It will be altered slightly to allow time to cover this issue in full.” 

Essentially, this law removes the deficiency protections on investors of real estate. That means if you own property as an investment, and you lose it to foreclosure, the lenders can now pursue you for the deficiency. I can’t figure out why she would allow this law to be passed, because it’s going to discourage investment in Arizona and push a lot of investors into bankruptcy to get out from under these judgments. It runs counter to Arizona’s best interests.

This is a great example of our elected officials representing the interests of the BANKS and not the citizens.

Arizonans, call Governor Brewer’s office TODAY at (602) 542-4331 and tell her you want this law repealed!

Questions to Ask Before You Hire a Loan Modification Company

It’s too bad that the vast majority of loan modification companies have ruined it for the fewer numbers of companies who are legitimately helping people. It’s sickening to think that homeowners are being scammed because they are vulnerable as a result of their mortgages and the dire economic situation in this country.

I am asked a lot of questions about loan modification companies, which is why I compiled this list of things you should ask before you hire a loan mod company.

1.           Are they properly licensed?

California requires that loan modification companies be licensed.  Arizona, where I live, will begin requiring a license for loan modifications in 2010.

Ask to see a copy of their license or do your research online before hiring them. Run a Google search on the company and see what comes up. You can also check the BBB and your state’s Attorney General website for information.

2.           Are they supervised by an attorney licensed in your state?

Beware of this one! Many loan mod shops are advertising that they are “attorney backed” or “attorney supervised.” These terms are meaningless. It means they are trying to make you believe that a licensed attorney is on staff and to give the impression that they have an edge over the next company. You should be immediately suspicious.

Bar associations have strict rules about referral fees and lawyer affiliations with non-attorneys. Attorneys are prohibited from paying referral fees to non-lawyers, so you should be suspicious of any loan mod shop who says they are “attorney backed” or “attorney supervised.”

I don’t know any attorney who is going to risk their law license for a few leads from a loan mod shop. It’s just not worth it.

I recommend you hire a law firm that specializes in loan modifications and foreclosure defense. These law firms are sometimes hard to find. I know because I spent months looking for an attorney who would even speak to me about helping homeowners. If you need a referral, send me an e-mail at Christine@DesertEdgeLegal.com and I’ll point you in the right direction.

Also, I see bloggers and other commentary on the internet from people who say that you should hire “an experienced real estate attorney.” I’m an expert when it comes to TILA/RESPA, and most real estate attorneys I’ve met with are clueless about this new area of law. Foreclosure defense has really only been around for about a year and as I mentioned in a previous post, lawyers have been slow to get into this area of law for various reasons.

Unless an attorney has been practicing in foreclosure defense for the last year, they are not positioned to get you a decent loan modification or represent you in a lawsuit against your lender. So forget all this nonsense about real estate attorneys being the best type of lawyer to hire, because is most cases, it’s just not true.

3.           Does the loan modification company have a money back guarantee?

I’ve seen this one backfire too. A couple of my clients hired me to do an audit, and they found a loan modification company on their own, who told them that an attorney was on staff.

They paid the $4000 upfront fee, got the money back guarantee in writing and were happy…… until the loan mod company called and said they could no longer honor their money back guarantee because of circumstances related to the borrower’s situation.

When my clients asked for their money back, the loan mod shop refused to give them a full refund because they had already worked on the file. These “circumstances” should have been disclosed before the homeowners paid them the money.

If you don’t get an unconditional money back guarantee in writing, you should be suspicious, and even if you do, I’d still be suspicious. This is only the case if you hire a non-attorney loan modification shop.

If you hire a lawyer, they will most likely not give you a money back guarantee. However, if you get scammed by an attorney, you can go to the bar association and file a bar complaint. In my opinion, it’s worth the peace of mind. A lawyer is going to think twice about scamming clients because they don’t want to risk losing their license.

4.           Does the company perform a loan audit and use the findings as leverage for a modification? What if the loan stinks of predatory lending? Will the attorney agree to pursue litigation if warranted?

I heard a statistic today that said 85% of borrowers have mistakes, undisclosed fees or hidden finance charges in their loan documents. A loan audit is ALWAYS the first step in a loan modification. If the company isn’t conducting a loan audit, don’t bother hiring them.

Any attorney who is well versed in foreclosure defense will tell you that a loan audit is always the first step, (sometimes they know what they’re talking about) because it shows you where the causes of action are to use as leverage against the lender.

Many of the loans I’ve audited have enough problems to use as leverage for a decent loan modification (not necessarily a principal reduction, however), which, for many clients, is their desired outcome.

However, there are other clients whose loans just stink of predatory lending and they should pursue the lender in federal court for violations of TILA/RESPA.

Here’s the problem: as I referenced in an earlier blog post, lawyers have become afraid to pursue lawsuits! It’s the craziest thing I’ve ever seen. Who would have thought lawyers would ever be afraid to go to court?

I know of one law firm that says they will not sue lenders because it will impact their ability to get loan modifications for their clients. I’m not a lawyer (yet) but I think this is a load of crap.

If a law firm had a reputation as aggressive and not afraid to pursue litigation, the lenders would push the mod paperwork through a lot faster because they know the law firm would sue them. The threat of litigation is usually a good incentive to move faster.

5.           Who is making money on my loan modification? How many parties are involved?

I’m a firm believer that if you’re adding value for others, you should be fairly compensated. It’s completely reasonable for a loan mod shop or law firm to pay people for legitimate services provided, such as the loan audits or marketing fees.

However, I object to the multi-level marketing and other schemes perpetuated upon homeowners when it comes to loan modifications.

I attend a lot of networking events here in Phoenix, and it seems like everyone is hawking loan mods these days. It scares me to think that people with no legal experience are pushing people into loan mods without any discussion of loan audits or predatory lending. When you modify a loan, you essentially waive any claims you have under TILA/RESPA. Wouldn’t you like to know if you could pursue your lender for a better loan modification before you get their boilerplate modification agreement? I certainly would.

Or worse, the person selling loan mods is a former mortgage broker. Many of these people are partly responsible for this mess we’re all in. A lot of mortgage brokers were selling products to borrowers without fully disclosing their fees and acting in their own self interests, instead of selling the borrowers a product that was in their best interest.

My point is, you should ASK who is handling your file and who is making money on it.

Federal Mortgage Program Isn’t Helping the People Who Need it the Most

Many homeowners were hopeful earlier this year when the President announced the Making Home Affordable program. A key part of the $75 million Making Home Affordable plan was a loan-modification program that compensated lenders for lowering the mortgage payments of borrowers who were making less money because of the recession. The government offered banks and borrowers bonuses for making loan modifications work. Most of the big lenders agreed to participate.

A record 5.4 million people are behind on their mortgage payments. Thus far, only 240,000 people have received loan modifications through the program.

So what’s the problem? The lenders are the problem.

Many lenders were required to offer a trial period with lower payments if the mortgage was backed by Freddie or Fannie.  However, once the trial periods were over, they did not give the homeowner a permanent modification.

Other lenders are revoking modifications! Some housing counselors in Arizona speculate that it is more profitable for lenders to foreclose on homes rather than modify the loans.

Despite federal incentives for lenders to modify loans, they would rather foreclose on your home than negotiate to keep you in the home.

What really makes me angry about the mortgage mess? The lenders screwed the American people when they closed these loans. I’ve seen it in the loan audits I’ve done. If you don’t think you were screwed, get a loan audit and see what gets uncovered. Every file I’ve audited has problems!

Next, the American taxpayers wrote these lenders a BIG check under the TARP (Troubled Asset Relief Program, a/k/a “bailout”) to prevent them from collapsing. 

As I’ve mentioned in another post, now that these lenders’ bottom lines are shored up with your taxpayer dollars, they don’t have an incentive to work with homeowners. They’ll just take your house.

Wake up America! This is happening before your eyes, and it’s time to fight back! 

Call your congressmen, senators, governors and the President’s office and pressure them to do more to save your homes. Get a loan audit to look for predatory lending patterns with your loan and use those findings to force the banks to negotiate with you if you want to save your home.

Don’t wait for the government to bail you out — take action on your own behalf!

November Home Sales and Prices in Deep Plunge

According to cnnmoney.com, the number of home starts in November dropped 8.6% even when home prices are dropping at a record rate.

“Lawrence Yun, the Realtors’ chief economist said that price drop was the largest the Realtors had ever recorded and probably the worst decline since the Great Depression.”

Other points of interest:
- There are 4.2 million unsold homes on the market. That represents a 11 month supply.
- Existing home sales are at 1997 levels
- In Nov. the median existing home sold for $181,300 or down 13.2% from a year ago.

Read the full article here.

Coldwell Banker is Having a 10% off Sale

Not really, but it’s a great marketing ploy. They have me writing about at 8 pm on a Friday night! Coldwell Banker is asking sellers to cut 10% of their listing prices to spur home sales. This may actually help to sell some homes on the tipping point, but I don’t see how this will work for most would be sellers. Most sellers still believe the bubble prices are real, and refuse to give into the declining housing market.

Many homeowners are at break even or under water on their homes. So, a 10% reduction in price emotionally won’t /can’t happen, just yet… Standard & Poor’s/Case-Shiller index, shows homes have dropped 20% in the last 2 years. Prices will continue drop and drop drastically but it will take another 6 months and the massive recession we are facing to force the true market price of real estate. The

Eighth Straight Month of Decline

Is Lawrence Yun, chief economist for the Realtors serious? Read this quote.

Yun said he believed the drop in sales, which left activity in October 20.7 percent below the level of a year ago, was nearing its end. He said a greater willingness of lenders to start offering jumbo loans again and the use of Federal Housing Administration-insured loans in place of subprime mortgages will help generate a rebound. Read the full story here.
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Mortgage Melt Down Video

PBS has a very well done video piece on the Mortgage Crisis. You can check out the video here.

The Synopsis:
This week, NOW travels to North Minneapolis to investigate the mortgage meltdown that has left the city scarred with boarded-up and abandoned houses. What’s happened in communities like this one has investors everywhere shaken. Wall Street firms are stumbling and markets around the globe are nervous. Economists worry the mortgage bust may lead to a recession.

NOW connects the dots to see the extent to which recklessness, corruption and greed created this subprime mess that now threatens to undermine our entire economy. David Brancaccio talks to Rep. Keith Ellison, who grew up in North Minneapolis and who has pushed legislation to address the crisis. He also talks to Ameriquest whistleblower Mark Bomchill, who explains the competitive “boiler room” culture that encouraged brokers to aggressively push mortgage products they knew clients would be unable to repay.