How to Remove a Judgment Lien from your property

January 6th, 2010

Many homeowners have found themselves in the position of owing money on a debt which they simply can not pay back, or have been sued by someone and failed to respond to the law suit. When this happens, the Plaintiff often will attempt to collect on their judgment by putting a lien on the homeowner’s property. Many of my bankruptcy client’s have come to me with just such a situation. This becomes an issue after a consumer’s unsecured debts have been discharged in bankruptcy. The reason is simple; the homeowner has a lien against their house post bankruptcy and they do not owe any money to the lien holder.

After a Chapter 7 discharge, a debtor may avoid a judicial lien by motion to the Court. To the extent lien impairs an exemption to which the debtor otherwise would have been entitled under the Bankruptcy laws. As a result, the bankruptcy court will grant a Chapter 7 debtor’s motion seeking to avoid a judicial lien if debtor’s equity in the property is less than the amount protected under the Massachusetts Homestead Act, which currently stands at $500,000 in value for the land and building, M.G.L. c. 188 § 1, and when the creditor’s lien fully impaired the debtor’s equity in the property. In re Lyons, 355 B.R. 287 (2006).

So what is the gist of all of this legal speak? When the collateral has no value, the creditor has no claim against it because it will be treated as unsecured, and thus the debtor may discharge that lien.

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Home Affordability Modification Program: The Troubling Reality

January 3rd, 2010

President Obama’s Home Affordability Modification Program (HAMP) was intended with the purpose of keeping homeowners in their houses.  Unfortunately, the idea was wonderful and the basic core concepts of the HAMP appear to be generated with good faith in mind but it lacks one key component—success in purpose.  In other words, HAMP is failing and the troubling reality of the program is becoming very clear. 

The HAMP was designed to get consumers to work directly with their mortgage company to get into a modification of their current mortgage payment.  The program was intended to make the modification so the consumer could actually make a payment that they could afford.  The amount of the payment is based upon the general economic principle that a mortgage payment should be about a third of the homeowner’s income.  The problem with this philosophy is that the principle owed to the mortgage company is too large to minimize to a third of the homeowner’s income or the homeowner’s income and other expenses cannot meet even the third payment.      

However, there are more problems on the surface of the HAMP.  Once a homeowner is initially accepted into the trial period, the homeowner is given the false hope that this is a final agreement.  The “trial” period is exactly that—“a trial.” It is not a final agreement.  A homeowner can make all the required payments asked of them in this trial period and still not receive a final agreement from the mortgage company.  The real issue is that a mortgage company is only required to “consider” the homeowner for the program. (See Home Affordability Modification Act 2009). A mortgage company is not required to do anything at all for the homeowner under the HAMP. 

The troubling reality of the program is that a homeowner could make three months of payments and still not have a final agreement and still be facing a foreclosure sale.  Unfortunately, the most common pattern that we are seeing with this program is that homeowners are making three months of the trial payments and then being denied without cause or for some superficial reason.  If this should happen to you, you should immediately seek a bankruptcy attorney to ensure protection of your home from a foreclosure sale. 

So what was once thought to be the hope of a nation is really a troubling facade.

If you have experienced the troubling reality of the HAMP, we want to hear from you.  Please email us at http://www.consumerdebtradio.com/contact.asp.

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Home Affordability Modification Program: How does it work?

January 1st, 2010

Everyone knows about President Obama’s program known as the Home Affordability Modification Program (“HAMP”).  Many have wondered if the program can help them save their home, but how does it work?  In brief, the HAMP was designed to save your home if you are struggling to pay your mortgage.  It was also designed for consumers to be able to work through the process on their own without the need of an attorney or a consultant. 

The HAMP process is not really that difficult. A consumer should review the mortgage company’s web site for all required documentation which is needed in order to be considered for the HAMP.  Once all the required documents are submitted the company will put the consumer’s request for review under the HAMP into a pool of thousands of other like consumers. 

It sounds simple right?  Well, there are many problems hidden within this simply process.  A consumer should keep in mind that the mortgage company in the HAMP is trying everything not to get the consumer into the review of the program.  What I mean by this is that the mortgage company is likely to reject a consumer’s request for not having all documents requested even though you’ve submitted them.  Also, the mortgage company is not going to stop foreclosure proceeding while the consumer’s request sits in the pool of thousands of request.  The biggest issue with this process is time.  The HAMP process is likely to take 3 to 12 months. 

How to ensure that this process works for you?  You really will need to either make a commitment to setting aside at least two hours a week to follow up with the mortgage company for updates and to ensure that the mortgage company continues to review your request.  Alternatively, you could hire a professional like an attorney to ensure that the mortgage company continues to review your request and to ensure that the process is documented.

Overall HAMP is a simple process, but be prepared to dedicate the required time to prepare the documents and also for the long review process.

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Home Affordable Mortgage Program Calculation

December 25th, 2009

Many Consumer’s have heard of the Home Affordable Modification Program (“HAMP”). This is the Federal loan modification program. However, what most consumers do not realize is that the calculation of a new mortgage payment is very guideline specific. The following is a detailed explanation of how the program calculates the new or modified payment under HAMP.

The goal for borrowers, as they seek a HAMP Modification, is a Front-End Debt-to-Income of 31%. In plain English this ratio measures the percentage of monthly gross income that is consumed by debt and housing payments. This rate considers the value of consumer expenses compared to the borrower’s gross monthly income. This calculation begins with the reduction of mortgage payments by the investor to no more than 38%. The subsequent reductions by the lender, to get to the target of 31%, rest on the reduction of the borrower’s interest. If, however, the reduction reaches the floor of 2% without reaching 31%, the borrower may need to account for the difference with annual increases of the interest rate.

Once the lender reduces mortgage payments to no more than 38% Front-End Debt-to-Income ratio, the Federal Government will match further reductions in monthly payments down to 31% Front-End Debt-to-Income ratio for the borrower. At this point, lenders may capitalize arrearage.

The target Front-End Debt-to-Income (DTI) is 31%. The Standard Waterfall step that results in a Front-End DTI closest to 31% without going below 31% will satisfy the Front-End DTI Target. Front-End DTI is the ratio of PITIA to Monthly Gross Income.

  1. Gross Monthly Income—the amount before any payroll deductions.
  2. The total first mortgage debt and monthly payments (PITIA). This includes principal, interest, taxes, insurance, and homeowners association and/or condominium fees.

The calculation to reduce the interest rate to reach the Front-End DTI Target is subject to a floor of 2%. The interest rate reduction shall be made in increments of 0.125%, with the goal of bringing the monthly payment as close as possible to the Front-End DTI, without going below 31%.

If the modified interest rate is at or above the highest interest rate allowed by the original mortgage note, the modified interest rate will be the new note rate for the remaining loan term. If, however, the modified interest rate is below the maximum allowed rate in the note, the modified interest rate will be in effect for the first five years, followed by annual increases, until the interest rate reaches the interest rate cap, of up to 1% per year. The interest rate will be fixed once the interest rate reaches the interest rate cap. If the Front-End Debt to Income target has not been reached, the term of the loan shall be extended up to 40 years

It should be noted that there is no requirement to use principal reduction under HAMP, but servicers may forgive principal to achieve the Front-End Debt-to-Income target. Consumers should recall that the goal is to reduce Front-End DTI to 31%. By forgiving principal, monthly payments (as part of the PITIA calculation) are drastically reduced, thus reducing to overall ratio.

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Posted in Loan Modifications, foreclosure | 3 Comments »

Foreclosure or Bankruptcy – Which Is the Lesser of Two Evils?

December 25th, 2009

In the past, “bankruptcy” and “foreclosure” were dirty words. But in today’s economy, they’re realistic solutions to financial black holes brought on by job joss, medical catastrophe, or predatory mortgage lenders and credit card companies. If you’re a homeowner struggling with financial disasters, you probably know that you need to decide whether a foreclosure or a bankruptcy is the lesser of two financial evils.

If you choose bankruptcy, you may be able to eliminate credit card debt, medical bills, court-ordered judgments, and even debts for overdue utilities. With a discharge of these overwhelming debts, you can often keep up with the mortgage, thus saving the family home.

In contrast, choosing foreclosure means you’ll lose the house… but the house may not be worth saving if its value is less than the remaining mortgage. Homeowners who’ve worked with us have chosen to rent, or sometimes they own investment properties that they can move into, such as a multi-family house.

But neither bankruptcy nor foreclosure is an easy, one-size-fits-all, solution. For example, a bankruptcy stays on your credit report for 10 years, while a foreclosure is there for 8 years. Because a foreclosure drops off a credit report 2 years earlier than a bankruptcy, many homeowners believe it’s a “better” solution. But many reputable credit counselors report that a foreclosure has twice the negative impact on a credit score as a bankruptcy. It’s extremely difficult to get a new mortgage after losing a property to foreclosure. And some individuals who’ve gone through foreclosure report that they haven’t qualified for apartments they wanted, even though they’re able to afford the rent after the mortgage is gone.

On the other hand, we’ve seen that individuals who’ve gone through bankruptcies are better candidates for future financing, and often receive it earlier than individuals who’ve gone through foreclosures. The reason is simple: bankruptcy erases debt. After a bankruptcy, you don’t owe anything to anyone. Your income is yours again. And creditors also know that you can’t file for bankruptcy for another 8 years, so you can’t walk away from any new debt that you incur.

In some cases, a homeowner may be so far behind on the mortgage that a foreclosure is inevitable. There are two typical solutions. First, the homeowner could file for bankruptcy right before the foreclosure. If the mortgage lender sells the property for less than the mortgage owed, the difference between the foreclosure price and the mortgage (which the homeowner would ordinarily have repay to the lender) is discharged through the bankruptcy. Second, mortgage lenders know very well that homeowners can discharge this difference in bankruptcy instead of paying it back. So they’ll often wait to foreclose, which gives the homeowner an option to do a short sale (to be discussed in an upcoming blog).

In short, if you’re a homeowner struggling with debt, you have a lot of options. If you’re facing a financial crisis that may end in either foreclosure or bankruptcy, talk to an experienced attorney who can help you determine your best option. The right decision can save you years of financial trouble.

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Short Sales

December 25th, 2009

If your home is in jeopardy of foreclosure and a loan modification is not an option to save the home, a short sale may be the next option.  A short sale is simply the sale of a home for less than the value of the mortgage owed on the property.  It is no secret that most home values have declined below their original purchase value.  Short Sales are a good option if the homeowner simply does not want to save their home and needs to get out from underneath the debt of the mortgage.  The best part of a Short Sale for the homeowner is that if the home sells for less then the value owed to the bank, the homeowner is released from liability coupled with a release of tax liability pursuant to the 2007 mortgage forgiveness relief act.

More specifically, a short sale, also called a distress sale has significant benefit for the lender because the lender avoids the expenses and hassle of seizing a delinquent customer’s property. In addition, lenders realize that they could lose money if the borrower’s home is auctioned in a foreclosure proceeding.

To decide whether or not to accept a short sale, lenders look at various factors. Those factors are:

  1. Whether the seller truly has a hardship limiting his or her ability to pay the mortgage.
  2. Whether it would be cheaper to simply repossess and sell.
  3. How many other properties the lender has in default.
  4. Whether there are cosigners on the mortgage who can be held responsible for the balance covered on the mortgage.

Even when borrowers engage in a legitimate short sale, there is no guarantee of success.  It’s difficult to have an agreement where the interests of all parties are satisfied. One has to take into account the interests of the lender, homeowner, agent, buyer and investor who held the mortgage. Also, if the husband and wife were divorcing, then both would have to agree to have a short sale.  With regard to managing a short sale, it’s important that sellers review loan documents with an attorney to make an informed decision.  Also, is recommended to that you hire a law firm specializing in loss mitigation to help get you through the process. 

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How the HAMP loan modifications affect your credit score

November 20th, 2009

For many consumers, their existing home mortgage obligation has outpaced their ability to pay it back.  Many homeowners have suffered some form of a hardship, be it from the loss of a job, an illness, a divorce, or other similar type of situation.  For those in such a situation, many have turned to President Obama’s loan modification program called the HAMP program.  This is a great program because it allows a reduction in mortgage payments for 5 years.  However, what many Consumers need to understand is how this program may or may not affect their credit score.

Many mortgage companies are reporting the modified mortgages to the credit bureaus as a “rolling 30-day late” while the modification are in its 90-day trial period. Homeowners are deemed “delinquent” during the trial period because the modified payment amount is less than the original mortgage payment amount, but the homeowner is not yet officially in the modification program.

THIS IS NOT HOW A LOAN MODIFICATION SHOULD BE REPORTED

Homeowners who are current on their mortgage when they enter into the trial modification period should not be reported as late, according to servicer guidelines for Fannie Mae, Freddie Mac, as well as other loans (”non-GSE loans”) being modified by HAMP-participating servicers.

Homeowners who were delinquent when they entered the modification trial period, however, will continue to be reported as delinquent during the trial period.  See below for more detail.

If your loan is owned or guaranteed by Fannie Mae, see page 12 of Fannie Mae Servicing Guide Announcement 09-05R for information about credit reporting for HAMP-modified Fannie Mae loans. It says:

“If a borrower is current when they enter the Trial Period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the last business day of each Trial Period month at the modified amount during the Trial Period. If a borrower is delinquent when they enter the Trial Period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards.  In both cases the servicer should report the modification when it becomes final.”

If your loan is owned or guaranteed by Freddie Mac, see page 5 of Freddie Mac Publication 800 for servicer instructions re:  credit reporting of modified loans.  It says:

“Borrowers, who are current when they enter into the Trial Period and make payments by the 30th day of each month, report as current, but on a modified payment.  Borrowers, who are delinquent when they enter into the Trial Period or do not make payments by the 30th of each month, report according to borrower’s delinquency and workout status. Notify when borrowers have completed the modification.”

If your loan is NOT owned or guaranteed by Fannie Mae or Freddie Mac, see page 22 of  “HAMP Servicer Supplemental Directive 09-01? for information about credit reporting guidelines for modified non-GSE loans.  It specifies the following:

“The servicer should continue to report a “full-file” status report to the four major credit repositories for each loan under the HAMP … on the basis of the following: (i) for borrowers who are current when they enter the trial period, the servicer should report the borrower current but on a modified payment if the borrower makes timely payments by the 30th day of each trial period month at the modified amount during the trial period, as well as report the modification when completed, and (ii) for borrowers who are delinquent when they enter the trial period, the servicer should continue to report in such a manner that accurately reflects the borrower’s delinquency and workout status following usual and customary reporting standards, as well as report the modification when completed. More detailed guidance on these reporting requirements will be published by the CDIA.”

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Understanding the new credit card laws

November 15th, 2009

http://www.flickr.com/photos/41191908@N08/3853039190/Credit cards, if used properly, can be useful and convenient tool, and can even help build a strong credit score that will assist you with future borrowing.  However, owning a credit card makes it easy to spend money you don’t have and when the interest is taken into account, consumers can build massive debt.  According to The Nilson Report, April 2009, In the average American owed $10,637 in credit card debt.  The U.S. Census Bureau reported that credit card debt is growing and predicted that about 181 million Americans would owe credit card debt by 2010. That figure is up from 163 million Americans in 2008. As a nation we have become a plastic society, using our credit cards instead of actual money in our pockets.

The Credit card companies understand the temptation that has been provided to their clients and in the past have made it extremely easy for consumers to obtain credit cards.  Recently, these same credit card companies have significantly increased interest rates, decreased spending limits and targeted young consumers with little experience managing their own finances.  In order to combat this practice, the Federal Government has recently passed the Credit Card Accountability, Responsibility and Disclosure Act which will take effect in February 2010.

There are many sweeping changes to the way credit card companies conduct business.  the following are some of the key changes including restrictions on raising interest rates permanently on borrowers who are delinquent 60 or more days. If the Consumer pays on time for 6 straight months, the credit card interest rate must be reinstated to the original lower rate.  

The new law also requires that the advertised low interest rates must have a minimum 6 month period of time and prohibits increased rates in the first year a cardholder has a new account.  This is important because it limits the Consumer’s liability on initial purchases.

The law also addresses late fees and penalties for paying your bill by phone, mail, or online and makes it unlawful to access additional fees to accept payments in this way.  In the past, if a consumer wanted to pay at the last minute by phone, they would have to pay an extra fee, which is not lawful any longer.

Finally, the law also includes several measures aimed at protecting young consumers and college students, who until now have been blindsided with offers of easy credit.   The law requires that consumers under the age of 21 will now be required to have co-signers, such as parents or other adults over the age of 21, who will take on joint liability for any card debts that are incurred.   This will essentially end the marketing campaigns on college campuses.  “Young people thrown on college campuses can be extremely vulnerable to these practices,” says Brad Lazarus, principal at Omega Advisors, a Chicago financial planning firm.  Some credit card companies offer students nominal gifts, free food or free T-shirts just for applying. But the Credit Card Accountability, Responsibility and Disclosure Act makes this practice unlawful at application sites on or near college campuses.  As an additional protection of the most vulnerable consumers under the new law, credit reporting agencies can’t provide the credit reports of under-21 year old consumers to credit card companies unless the consumer specifically requests that they do so.

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Deed for Lease Program

November 10th, 2009

http://www.flickr.com/photos/stopforeclosures/Even if you don’t qualify for a loan modification through the HAMP or some other loan workout program, you may be able to qualify for the Deed for Lease Program by Fannie Mae (“D4L”). This is a new option for qualified borrowers or tenants of borrowers, who have Fannie Mae loans, who are facing foreclosure. According to Fannie Mae, the program will allow the homeowner or tenant to remain in their home by surrendering the deed to their home to Fannie Mae and in return be allowed to sign a lease through a deed-in-lieu of foreclosure transaction. Fannie Mae executives were quoted in an MSNBC report stating, “the rental program is designed to help delinquent homeowners who don’t qualify for a loan modification, but still want to stay in their homes”

The program is intended to keep families in their homes even after a possible foreclosure or transfer of ownership of their property back to the bank by executing a lease of up to 12 months. Investment properties that are tenant-occupied may also be considered as long as the borrower is cooperative in providing information from the tenant to facilitate the transfer of ownership.

A CNN report quoted Jay Ryan, a Fannie Mae vice president, “The program helps eliminate some of the uncertainty of foreclosure, keeps families and tenants in their homes during a transitional period, and helps to stabilize neighborhoods and communities”.

As stated in the November 5, 2009 announcement by Fannie Mae, In order to qualify for the Deed for Lease Program, the occupant of the property must have the ability to pay rent at the value the market bears, which can not be more then 31% of his or her monthly gross income. The home must also be the primary residence of either the homeowner or the tenant who will continue to occupy the property. The homeowner must not be more then 12 months behind on their mortgage payments and most importantly, the person responsible for paying the rent, will have verifiable income. In addition, Fannie Mae will inspect the property to confirm that the occupants have been keeping the property in good condition. The occupants will need to agree to be responsible for regular maintenance, to keep the property in good condition, and to permit marketing of the property for sale. Finally, the occupants signing the lease must agree to a credit review and all occupants over the age of 18 must have an acceptable background check.

At the conclusion of the 12 month lease term, there is the potential for a month-to-month extensions of the lease. There is also the potential to buy back the property from Fannie Mae at the end of the lease period if the homeowner can obtain the proper funding. The obvious benefit here is that the buy back price would be at current market value and not at the original mortgage value.  If the value of the home has decreased too much, it is also possible the Lender will want to continue to rent the property to the occupant in order to continue to generate cash flow.

To find out if your loan is with Fannie Mae go to:
http://loanlookup.fanniemae.com/loanlookup/

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Produce the Note (or mortgage)

November 8th, 2009

I recently came across a great article drafted by a former paralegal of our firm, Rick D. Misitano regarding foreclosure defense. Below are the pertinent parts of that article. When a lender can’t produce the original note, allowing a foreclosure to proceed puts the homeowner at risk of owing that debt again to another party in the future.

So, what happens when the lender tells the Court it can’t produce the original note, because it is lost? Let’s start with the basics. If a lender wants to foreclose on a property, it has to be able to show that it is, in fact, the appropriate person to whom the money is owed. That right to foreclose belongs only to the person who has legitimate possession of the original note, not a copy, not an electronic entry, but the original note itself with the original signature of the person(s) who allegedly owes the money along with appropriate raised notary seal and signature. So, if you are faced with a foreclosure, you have every right to demand that the person or entity trying to take your property, first prove to the Court that they have the legal right do to so in the first place by proving they have legal possession of the original promissory note.

Pursuant to Federal and Massachusetts law, a Lender Must affirmativly prove:

1. The person or entity has to swear and attest that it no longer has the original note;
2. The person or entity has to prove that it was properly in possession of the note and was entitled to enforce it WHEN it lost possession of the note;
3. The person or entity has to prove it didn’t “lose” possession simply because it transferred the note to someone else (i.e., it’s not really lost); and
4. The person or entity has to prove that it cannot produce the original note because the instrument was destroyed or its whereabouts cannot be determined or it was stolen by someone who had no right to it.

All of these matters have to be definitively proven by the person or entity trying to foreclose on the property. It is not the obligation of the borrower to prove or disprove any of this. The borrower can challenge the right of the person or entity trying to foreclose and demand proof.

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