How Will 2012 Work Out For Banks And Homeowners?

2012 begins with much still unsettled in the banking world, and how it all shakes out will affect millions of borrowers. Some banks are still reeling from the aftershocks of the mortgage-lending crisis, and massive lawsuits are currently pending against numerous large financial institutions, some with potential penalties large enough to make the survival of some banks questionable.

Housing’s Effect on the Economy

Much of the lingering malaise dragging on the economy is related to the behavior of the banks. Lending money to future homeowners triggers builders to build, meaning they have to hire carpenters, plumbers, electricians like the Electrician in Frankston and all the other trades to construct the home.
The workers constructing the home have to buy materials, driving additional economic activity. The mortgage crisis and accompanying foreclosure disaster has virtually shut down new home construction and all of the construction jobs that go with it.

No Fault but Their Own

It is difficult to have much sympathy for the banks and other lenders, as the mortgage crisis was almost entirely of their own making. Shoddy lending practices, inadequate oversight and large profits led to the inevitable collapse of real estate prices, and with it, the economy.

Unfortunately, We Are All In This Together

Currently, the some of the doldrums the economy is suffering from can be tied to the refusal of lenders to recognize that billions of dollars of apparent real estate value contained within their mortgages was illusory, created by their market manipulation during the bubble.
Consequently, vast numbers of loans are hopelessly overvalued, and their borrowers underwater. All of these loans need to be modified, with the principle reset to the “real” value of the property.
The Federal Reserve reports that the value of real estate has fallen by $4.2 trillion since 2006, but banks have failed to recognize this correction on their balance sheets.
Lenders have been resistant, because it means individual banks (and their managers) would have to recognize large losses. It is to their advantage to hold off as long as possible and leave the risk of loss on the borrowers.
With multiple lawsuits from states’ Attorneys General pending, some of this might begin to happen this year.

According to the LA Times, the settlement would “include a component for ‘principal write-downs,’ the reduction of mortgage debt for individual homeowners.”
Struggling homeowners need the real estate market to begin recovering, and for that to happen lenders have to begin lending. None of this is likely to happen until the real estate values reflected in mortgages begin to reflect reality.

Source: “Will 2012 Be a Good Year for Homeowners or Banks?” Huffington Post, 1/20/12

Huge Government Agreement With Banks May Provide Homeowner Relief

Real monetary assistance is in store for many homeowners in financial trouble, according to a Feb. 9 U.S. Department of Justice press release.

A coalition of federal and state law enforcement and regulatory agencies (including 49 of the state attorneys general) has reached a gigantic settlement with the five largest mortgage servicers in the U.S. – Ally Financial Inc. (formerly GMAC), Bank of America Corporation, Citigroup Inc., JP Morgan Chase & Co. and Wells Fargo & Company – for “mortgage loan servicing and foreclosure abuses.”
The $25 billion settlement grows out of the work of President Barack Obama’s federal-state-local Financial Fraud Enforcement Task Force that was formed to “investigate and prosecute significant financial crimes.”
In very basic terms, the government agrees to give up the right to pursue against the five banks under civil law the targeted banking law violations in exchange for those lenders providing significant financial relief to specific homeowners.

Although the government agencies give up the right to bring civil claims against the lenders for certain violations of mortgage-servicing laws, it does not block individual borrowers’ lender-liability claims. The government’s right to pursue criminal prosecution in these matters is also preserved. Other specific civil claims against the mortgage companies are also still reserved to federal and state government authorities.
In exchange, the banks have three years to fulfill their part of the bargain to the tune of about $25 million. Some of the major terms include:

  • Changing abusive and deceptive mortgage servicing practices
  • Dropping the principal balance on loans for some financially strapped borrowers
  • Refinancing certain underwater mortgages (those where the house is worth less than the mortgage balance)
  • Allowing forbearances for some unemployed borrowers
  • Granting relief to qualifying members of the military
  • Paying cash to the government for relief to certain people who lost their homes in foreclosure and for other related consumer programs

The agreement will be monitored by Joseph A. Smith Jr., the North Carolina Commissioner of Banks. Smith will have the authority to impose very large penalties for bank violations.
Consumers’ lawyers will be closely attuned to the governmental and bank rollout of these programs for homeowner relief.

Source: U.S. Department of Justice Press Release, “Federal Government and State Attorneys General Reach $25 Billion Agreement with Five Largest Mortgage Servicers to Address Mortgage Loan Servicing and Foreclosure Abuses”, Feb. 9, 2012

Foreclosure Overview

In Florida, the process of a foreclosure is controlled by the Florida Statutes. Foreclosure is a legal process a mortgage holder uses to obtain both legal title and possession of the property. When the lender (Mortgagee) loans money to the borrower (Mortgagor) there are many documents which are executed. The two main documents are the Promissory Note and the Mortgage. The Promissory Note contains a promise to pay at a certain rate and under specified terms. The mortgage instrument is a document which allows the lender to seek foreclosure if certain defaults occur. In Florida, this process is done through the Courts.

Different mortgage companies handle delinquencies differently but once you default on your mortgage the lender will retain a law firm and file a foreclosure action. A Complaint is filed with the Court which spells out all the preliminary information and the nature of your default. That Complaint will be served on you by a process server. Once you receive the Complaint and Summons you will have twenty days in which to file your legal response. If you do not file any response, a default will be entered by the Clerk. This Default is a certification from the Clerk to the Judge that you have not filed a response and in essence, you admit the default which is contained in the Complaint.

Despite the Foreclosure Complaint, you have many opportunities to save your home. Among the choices are restructuring or ‘Loan Modification’, a negotiated reinstatement or a Chapter 13 Bankruptcy. Loan Modifications are possible under a wide variety of circumstances. Some of these include the lender reducing the amount of the principal balance owed and thus a reduction in the payments. A Negotiated reinstatement is a process where you make an arrangement to pay the delinquency and attendant court costs and continue on with your mortgage payments as if no default had occurred. Chapter 13 is a bankruptcy process where you can do one of several things to save the home from foreclosure. A loan Modification can be negotiated as part of your Chapter 13, this may include a reduction of the principal balance and a corresponding reduction in payments.

All of your options are complex and critical and given the complexity and importance of saving your home, you would be well advised to seek and obtain legal counsel for any of these foreclosure alternatives. Just because you are delinquent and you have received ‘legal papers’ seeking to foreclose on your home, it is not too late to save your home. The most important part of this process is not to sit on your rights and remedies. If your mortgage is in arrears, you would be well advised to seek experienced legal counsel and explore what solution is best for your situation.

Mortgage Foreclosure Deficiencies

When you buy a home with mortgage funds, you sign two primary documents, the Promissory Note and the Mortgage Instrument. The Note is the promise to pay the financed amount under certain terms. The Mortgage is a document that allows the lender, under certain events of default (non-payment, waste, non-payment of property taxes, etc) to seek foreclosure to recover both possession and legal title to the property. When the lender actually does complete a foreclosure, the property is sold on the courthouse steps by the Clerk of the Court to the highest bidder. More often than not, the buyer is the mortgage lender. Often times the sales price is far less than the balance owed. The Lender is permitted by Contract (The Mortgage) and by Statute to ask the Court for a Deficiency Judgment against the borrowers for the amount between the fair market value at the time of the sale and the balance owed. The fair market value is the value which a willing buyer would pay a willing seller in an arm’s length transaction.

The lender currently has a five year statute of limitations to ask the Court for a Deficiency. This five year period may be reduced in the future as part of a Bill pending in Florida but it is currently five years. The deficiency is dischargeable in a bankruptcy and can often be negotiated away as part of a negotiated foreclosure result.

Some consumers chose to fight the application for the deficiency on the basis of disputing the lender’s valuation of the property at the time of the sale. That type of litigation is expensive and largely unnecessary with the variety of ways to resolve a mortgage default and foreclosure. Disputes over determining the value of property are complicated because real estate valuation is hardly a science but falls in the realm of experts and expert opinions.

If you have a mortgage delinquency or a pending foreclosure you need to consult with experienced counsel who can explore and help you navigate through the many remedies available to avoid an adverse result in a foreclosure where the lender seeks a deficiency. As complicated as it sounds, all of these types of problems are manageable with good advice and legal counsel so you understand your rights and remedies as they develop and make the best, most prudent decisions possible.

Florida Appeals Court confirms that borrower’s note can’t be reduced by amounts paid to banks under Loss Shared Agreement with FDIC

Recently, on April 17, 2013, the Second District Court of Appeal addressed a crucial issue that is becoming increasingly relevant in today’s foreclosure cases concerning whether the outstanding amount due from the borrower under a Note can be reduced by amounts paid to the mortgage holder from the FDIC under the Loss Shared Agreement. In the case of Branch Banking & Trust Company v. Kraz LLC, et al, BB&T had acquired loans from Colonial Bank, which had been closed by the FDIC. Under the Loss Shared Agreement between the FDIC and BB&T, BB&T was required to reimburse to the FDIC for loans for any funds it recovers on loans that were previously charged off and for which FDIC paid portions of that loss to BB&T. People can check kyc for banking  and other updates. Immediately after acquiring the Colonial Bank loans, BB&T instituted a foreclosure action against Borrower, Kraz. At the trial in the underlying foreclosure case, the trial court held that the borrower was not in default at the time that BB&T declared default. More importantly, the trial court ordered that the loan be reinstated and that the Borrower receive a credit for all monies paid to BB&T from the FDIC on that particular loan, and reasoned that such mechanism would ensure that the lender is not allowed to “double-dip” in recovering from both the borrower and the FDIC.

In affirming in part, and reversing in part the trial court’s decision, the Court of Appeal ruled that trial court’s rationale for providing the borrower a credit to prevent the lender from potentially “double-dipping” was erroneous. The Second DCA reasoned that the Loss Shared Agreement already provides its own terms to prevent double-dipping by its requirement that the lender reimburses to the FDIC any funds that it recovers on a previously-charged off loan for which the FDIC had already paid portions of that loss to the lender. Accordingly, the case was ultimately remanded back to the trial court for the limited instructions of correcting the principal balance due from the borrower and removing any credit given to the borrower for funds received by the lender from the FDIC.

This BB&T v. Kraz decision is expected to greatly affect the defensive strategies in defending foreclosure cases involving loans acquired from the FDIC. It is will also be of great interest to monitor how this decision will affect mediations and workouts in foreclosure cases involving Loss Shared Agreements.