Pre-Foreclosure Options Letter - Foreclosure Fairness Act

So this morning, I got this wonderful call on my new HTC Evo.  I love my new phone.  Anyway, the meeting was with Rick Torrance and Valerie Grigg Devis from the Public Safety Unit of the Department of Commerce.  I know, your saying, "who?!? why?!?, what the..."  Well, the new law signed by Governor Gregoire that implements HB 1362 on July 22, 2011 is being administered, at least in part by the Department of Commerce.  The Department of Commerce, or COM as they like to call it has the unenviable duty of manufacturing a number of notices which will be used by attorneys and housing counselors to access the new provisions which will be codified in RCW 61.24.

The first notice, and this is the one the banks have been asking for specifically, is the newly minted Pre-Foreclosure Options Letter.  We have to thank Mr. Bruce Neas for the snazzy title and really, he should be thanked for much of the product that is the Foreclosure Fairness Act.  This is the first notice included under section 16 of the new act and it specifically requires that notice be given in English and Spanish from the lender notifying the homeowner of its options, including mediation.

This letter is being developed with model language and should be approved by the AG's office next week when it will be sent out for translation into Spanish.  You must note, that the banks were unwilling to foot the cost in translating this item.  They would rather that the tax payers eat the cost of translation.  I guess they will still need make sure they have a Spanish speaking attorney available to verify that COM got it right.  So, here is to job creation!

This notice will be sent to homeowners and will contain most of what we find in section 5(c) of the law which will amend RCW 61.24.031.  The Notice will say you have 30 days to contact the beneficiary (bank) and request mediation, I mean options.  You will note, in Section 8, the bill allows you to request mediation on or after July 22 as long as you have received a notice of default.  So you won't be left out.


Though this Pre-Foreclosure Notice is the top priority for COM, it is not the one of the most interest to me.  COM has until June 22nd to post and provide the Notice for Referral which will detail what must happen prior to an attorney making a referral to mediation.  This notice is also detailed in section 16 and refers to new section 7 which states in part, "[An] attorney referring a borrower to mediation shal send a notice to the borrower and the department, statement that mediation is appropriate."  The only thing that I did not get out my conversation this morning is what the heck does "appropriate" mean?

This form is also in production and I was told it will be posted early next month but as of this time, the forms are still unavailable for public perusal.  There are four additional notices which are produced either by COM or the mediator which the homeowner has little or no control over.  Those will also be available but of much less interest.

There does seem to be a rush by the banks to get NODs out before July 22nd.  However, that rush really is to avoid the recording costs, not to avoid the law, well maybe it is to avoid the law, but section 8 puts them squarely in it.  The issue is going to be this, if you have a sale date set for July 22nd (which ironically is a Friday and the day the law goes into effect) and my office faxes a referral to mediation to COM before the sale, does the Trustee have to push off the sale and the bank set up the mediation?  I believe the answer to this question is YES, YES, and YES!!! if you didn't hear me.

So, I am going to be holding a Midnight party at my offices on July 21st to send off mediation referrals for anyone that would like one.  Once 12:01am hits, the fax will be a humming.  I am kidding...or am I.  I guess maybe you should give me a call on my new EVO before Thursday, July21st. 425-314-6737.

Foreclosure Mediation is Here...but its not a Knockout!

Last night at 10pm the Seattle Times posted that Governor Gregoire had indeed signed the bill that the legislature laid at her feet some 7 days prior.  The Bill, now called the Foreclosure Fairness Act as proposed in HB 1362 has some great new features for homeowners but the way Times describes it, its a knockout for homeowners, and it is not.

The Seattle Times took the effort to document some of those features but its glaze leaves more than a little to be desired.  The article talks in definitive terms of what it does for homeowners when in reality they are just jabs.  The bill for one, does not automatically extend an additional 60 days for homeowners that respond to the request for mediation.  Neither does it automatically stop the foreclosure if the lender is in bad faith unless the homeowner has properly engaged counsel and been referred to mediation.

I want to be clear, there are tremendous advantages created by this bill, but there is a lot of work to be done.  If you want those provisions to benefit you, it is highly recommended that you sit down with someone, preferrably an attorney because of the attorney's ability to land a knockout blow.  The bill does extend a new fee of $250 for housing counselors, which there is no requirement that a housing counselor have any specific license.  They are not attorneys.  And while we're on the subject, I feel inclined to point out that from the article, "Without Prompting, the Washington Bankers Association offer to pay a $250 fee for every default notice filed [not true, only the first notice], with the stipulation that 80 percent of the money pay for housing counselors."  (emphasis added.) 

The Banks are paying for the housing counselors, and I am sure it is out of the kindness and goodness of their ever expansive corporate heart.  Wait...corporations don't have hearts?  Are you sure?  Yep, they don't breath or have blood...sounds like a vampire.  The corporations have alternative motivations for pushing homeowners off on housing counselors.  One, if you know who butters your bread, you take care of them right?  Two, housing counselors cannot sue you if the note was assigned by Linda Green.  (If you don't get that reference, please check this blog posting out, 60 Minutes Story - The next housing shock (crash).

It is no surprise that banks want homeowners to go to someone they pay.  Prior to the housing counselors provided by HUD, the banks were asking you to call them.  TARP assets were being set aside to pay for HAMP and HAFA, yet the banks did very little, a national average of 3.5% success rate in actually modifying mortgages despite billions of dollars being thrown at the problem.  The counselors were then invented, paid for by banking money, as a substitute for bank employees who would counsel with homeowners on budgets designed to free up cash to pay for the mortgage. 

There are alternatives to freeing up your liquid cash to pay on a property that acts like a shredding machine instead of like an ATM.  The problem for housing counselors is that they cannot talk about those alternatives in a comprehensive way, they simply don't have the tools.  So, if you are looking for some relief under the Foreclosure Fairness Act, and would like a sit down mediation with your bank, remember its not as easy as one call that's all! There are hoops to jump through and arguments to be won.  Do you want a bank sponsored housing counselor in your corner or a real fighter, I mean attorney?  I'll let you decide.

Foreclosure Mediation: Poking the Bear

Have you ever heard the phrase, "don't poke the bear?"  Of course you have, unless you are 7 years old and never read anything in your life.  Even by context, it seems like a bad idea.  Well, after some 30,000 foreclosures last year, the bear has had enough, and I mean the voters.  If you have been following me while I tracked SB 5275 and HB 1362, you know that I was of the belief that the banks had won.  In the first substitute of the bill I went to Olympia to fight for, the legislators had gutted the bill.  See Paper Tiger. 

Much to my wonderment and excitement, the second substitute put almost every tooth back in, and those dentures are sharp.  You can read the text of the new bill here, but only if you are a glutton for monotonous punishment.  The bill is about 28 pages and it has twists and turns, new definitions, rules, traps, and in the end, I believe a tool that will allow homeowners to hold banks responsible. 

The bill has not yet been signed.  I didn't want to get scooped here, so I am posting this before Gregoire puts pen to paper.  She got the bill on Friday and it has not been scheduled when she will sign the bill.  Some of the highlights are mediation, of course, bad faith, and attorney opinion letters to HUD.  I always like new business.  there are some traps as well, the provisions are not automatic, they are not free, and in many ways, they will be ineffective, but that doesn't mean you ignore them.

I will write more on this later this week.   So stay positioned, the great bear of the northwest has been poked out of its cave for long enough, and some bankers better be wary.

Update on Foreclosure Mediation-Its Now a Paper Tiger

Legislators like to beat their chests and show they are doing good for the public, but when they compromise, their boasts about the tiger they are unleashing on behalf of their constituents end up being a tiger made out of paper mache.  This is just a quick note on some updates for foreclosure mediation bills, HB 1362 and SB 5275.  Both bills were referred to their respective Ways & Means committees.  The real issue is that what was submitted to the Ways & Means committees were substitute bills (SB 5272 Substitute Bill) and not the bills that I went to Olympia to fight for last month.  Certain provisions have been gutted and substituted, one important item that got the axe was the in person negotiator.  HB 1362 under new subsection (f) says "a person who is authorized to modify the loan obligation or reach an alternative resolution to foreclosure on behalf of the beneficiary may participate by telephone or video conference, so long as a representative of the beneficiary is at the meeting in person." (SB 5275 subsection (e)). During the hearings last month, the banking industry, represented by one of the big downtown law firms, made the argument several times that the person most suited for making the modification doesn't exist within the state boundaries and it would be too much trouble to put that person in front of an underwater homeowner.  I hate that argument, I hate the compromise.

In one of my posts last year, Hi Ebb, I'm Flow, I discussed the dehumanization of the banking experience being one of the factors that has lead to this crisis in our collective history.  The banks wanted nothing more than analytics in determining the risk of a loan, when one of the most important factors of determining risk is the ability of the local banker to work with people that he knew in his community.  The banks moved from that model almost completely and substituted computer programs that were easily fooled by inflated numbers and defeated by crummy underwriting standards.  The foreclosure mediation bills explicitly put decision makers in the room with the homeowner, correcting a dishonorable banking practice of the last decade.  The banks have done their best to keep that decision maker out of that room and now you have a Skype call to get answers with some lackey sitting in the corner listening to the conversation.  If my court can drag your butt into the court room because you have sufficient contacts with my state, why can't my legislators do the same thing to save a home.  The person is coming here on the bank's dime, not the taxpayer's.

The other gutless act of our state legislators was the removal of a provision which would make it an act of bad faith on the part of the bank to not offer a modification if the net present value of the modification was greater than what the bank could anticipate receiving in foreclosure.  Simply put, was the price tag on the modification bigger than the foreclosure?  If it is, do the mod, if not, then do the foreclosure.  That was an aspect of subsection 11(f) of the original bill, but new section 11 completely removed that obligation.  The Washington State Real Property Bar had issued a letter (and no, I didn't get a copy either) stating that the provision, in the committee's opinion violated the constitution by interfering with private contract.  I think that is an overblown argument because a majority of DOTs explicitly make themselves subject to the changes in the Deed of Trust Act in the state and from an economic position, the only way that not making that deal makes sense is if there are other payments coming to the bank which are not being made public knowledge.  Sorry for the conspiracy theory, but the banks are getting its back scratched somewhere which is altering the economics of these transactions.  I wish I had more information but the FOIA requests are turning up squat.

There is a scheduled Senate Hearing on the 24th at 1:30 pm in the Senate Committee on Ways&Means which I am trying to see if I can attend.  Hopefully, I can get some more answers for you.  The new bill is pretty much a paper tiger at this time but there are likely a couple of footfalls there for the banks which can be beneficial to my clients.

Money may derail Foreclosure Mediation in Washington

I don't know about you, but I used ride trains everywhere.  Of course, not in the US because our mass transit sucks, but in Japan.  Trains are cool, they are powerful, can transport enormous amounts of people and goods, and if you have a Japanese conductor, they are efficient.  The only problem is that they ride on a rail, permanently attached to the ground and if the train ever leaves that rail, well, buckle-up buttercup, cause you will be needing a personal injury attorney.

Yesterday, I attended the House and Senate hearings on the new legislation which is termed Foreclosure Mediation.  The previous posts went into detail on the legal ramifications of the bills (HB 1362 and SB 5275) and I continue to support them.  However, yesterday's Senate Hearing which was Chaired by Senator Steve Hobbs chimed an unfortunate reality, money.

Senator Hobbs pointed out that the fiscal note (link here) that this bill would cost WA taxpayers $3.3 million to implement.  Well, that said, there are some enormous issues with that number, and there is alternative financing that should make the impact to the general budget a net of zero. First of all, the fiscal note assumes that WA will see 40,000 foreclosures next year.  The number is likely accurate, or accurate enough for an estimate as the baseline that the industry experts were throwing out yesterday was somewhere in the vicinity of 30,000 and a recent Realty Track estimate had it at 50,000.  Both numbers are skewed by faulty data because they look at different measures such as the number of notices of default that are filed.  Well, in my practice I have forced one bank to file three notices of default on my one client because the bank is an abject screw up.

The second issue with the foreclosure number is that it includes all foreclosures.  Foreclosure impacts every type of property, whether it is bare land, commercial, industrial, investment, or residential owner-occupied.  The bill only targets the properties that are owner occupied.  So there will only be a percentage of the foreclosures that even qualify for the the program. Since only a percentage qualifies, the expenditures should be quite a bit lower because the government will not be looking at the entire cost for 40,000 foreclosures.

The last issue is that there is a funding mechanism of a $30 surcharge being attached to each notice of default filed with the state.  This fee alone should pay for the project, but that is not all.  Each mediation will cost $400, to be split by the parties.  To enhance the overall effectiveness, a lobby from coalition of 20 mediation clinics in the state said that they were already equipped to handle the mediation and have alternate funding sources already accounted for in the State budgets.  Thus no additional cost.

There was some testimony that County Auditors believe that this $30 fee is not a recording fee, but in actuality a tax which is not properly apportioned, can anyone say Health Care Reform?  This is a valid point which will likely be litigated at some point, but I believe the fee is limited in scope and in actuality is a fee.  I am sure that some Big Law lackey will take up the put-upon bank's sob story and dog and pony show it in front of the court but I believe it is a losing argument.

So the action item from this post, is let Senator Hobbs know that the budget office got it wrong, that the bill is right and good, and don't let tactical delay from the big banks derail good legislation.

Update on the HB 1362 Hearing this morning...

I wanted to capture some of the information and my observations from today’s House Judiciary Committee Meeting on HB 1362. A committee staff person took the first few minutes to flesh out the bill and I would like to recap a lot of what was stated, of course with my own added commentary.

First, the bill is designed to strengthen the “meet and confer” provisions that already exist in the bill.  As it stands now, RCW 61.24.031, which expires December 31, 2012 and only applies to Deeds of Trust that were signed between 2003 and 2007, requires the lender to contact the homeowner by phone and mail and have an initial conversation with the homeowner owning the right to a subsequent meeting with the lender to discuss the homeowner’s financial ability to repay the debt.  The problem with this section is that there is a compliance section that allows the lender to send a letter and document three phone calls, whether the homeowner answers or not is of no consequence, and then the lender has “acted in good faith in complying with the law.

From what I have seen, there is a log recorded on the Notice of Default which lists the day the letter was sent and the days and times the lender tried to make the required phone call.  The problem is that it is impossible to distinguish the calls simply seeking payment and the calls that are actually trying to comply with the statute.  The lender will say its one in the same.   Just to be sure, it is not one in the same.

This bill would extend the provision to all owner occupied properties, regardless of the date of the DOT, remove the sunset date at the end of 2012, and would also disallow the meeting to occur by phone, but would require an in person meeting  The bill proposes to change the language from may to must in many instances giving more teeth to the legislation.

The second and maybe the most significant and certainly the most controversial aspect of the bill is the issue of Mediation.  The bill would require that a homeowner that requests a mediation after the NOD has posted and before the NOT is posted, be given a chance to have a third party mediator sit down with the homeowner and a decision maker from the bank.

The mediation requirements have some teeth to them and that is why it is so controversial.  The bill would require the bank to act in good faith and negotiate as such.  The legislation goes to illustrate good faith by including the beneficiary to provide accurate statements of loan balances, copies of original loan documents, proof that the entity claiming to be the beneficiary is the owner of the promissory note, and itemized lists of arrears and fees, an affordable loan modification calculation, and net present values of the modification versus proceeds from an anticipated foreclosure.

The Washington Bankers Association and United Trustees Association and some lawyers from Davis Wright and Tremain presented over 25 minutes of counters to these requirements.  The representative from WBA presented a three part defense.  First, the WBA has already agreed to strengthen “Meet and Confer” without further legislation; second, WBA has pledged to fund additional Housing Counselors; and Third, provide an alternative legislation based off the Colorado model.

The lawyer from Davis Wright Tremain, a respected law firm in Seattle, and let’s be honest and call the firm (and not its attorneys) what they are, corporate whores, called the mediation not mediation, but mandatory arbitration.  This is because of the Consumer Protection Act which I will detail later, would add teeth to failures to negotiate in good faith.  The incentive in other wards is more of a stick than a carrot which the banks object to being prodded with during foreclosure.

Additionally, and DWT is not alone, the issue of governmental interference with a private contract, which is unconstitutional, was brought up as a potential problem.  The Executive Committee of the Real Property and Probate Section of the Washington State Bar addressed the same issue and supposedly sent out an email to that effect yesterday, I still haven’t seen it.  My reading of the bill shows that there is tremendous wiggle room here for the banks and that this is a bit of hyperbole because let’s face it, some people, no matter how much you cut the payments down, cannot afford the houses they are living in now.  Modification must be discussed, but not all will qualify.  However, if the Net Present Value (NPV) of the payments under modification will gross more than a foreclosure sale, to turn down that option when you are comparing on a dollar to dollar basis seems like bad faith.  That was the point of one gentleman who claimed that due to the governmental deals through the FDIC, foreclosure and a guarantee of losses makes foreclosure too profitable. I cannot speak directly to that theory, but there is evidence to suggest that such deals were made and exist.

Finally, the Consumer Protection Act (CPA) would be applied to the mediation component.  The CPA would allow the State Attorney General to step in and regulate some of the bad actors that we have come to loathe over the last few years, and yes Aurora Loan Services, I include you in that group.  What is of note here, is that Mr. Jim Sugarman of the AG’s office came out and stated that his office “was in favor of the CPA being applicable to the entire Deed of Trust Act.”  That is significant, because that would mean that it wouldn’t be so damn hard for me to attach it to violations by banks.  I support Rob McKenna in making that a reality.

 So what does this mean for us.  Nothing.  This is proposed legislation, it isn’t worth the paper it is written on until it is enacted.  So what can you do, call you state senator and legislative representatives.  Tell them you support this bill.  The banks have basically given a finger to “meet and confer” for the last three years and there isn’t any way in hell that I believe they will voluntarily act on the proclamation that they will strengthen this.

Additionally, we don’t need more housing counselors.  The ones we have don’t have the tools necessary to do anything.  This legislation would give housing counselors, private parties, and their attorneys real weapons to help homeowners out.  Call your legislators and tell them you support the bill.  Let’s get this one passed.

As I Testify... can I get a Hallelujah?

As some of you know, I did a little work as a preacher.  I had my fair share of chances to testify, but I never got a chance to get a hallelujah.  Well tomorrow, I am hoping for my chance because I will hopefully be testifying on behalf of consumers on a subject that is important to my clients.

It has been a crazy two weeks since my last post and part of the craziness is what I want to write about.  On January 19th, two bills were read on the congressional floors here in Washington (that is the state in the Northwest.)  The House read HB 1362, and the Senate read SB 5275.  These two companion bills are proposals for foreclosure mediation.  A good friend of mine, summed up the bills as such:

• Adds provisions for foreclosure mediation if the borrower elects mediation
• The beneficiary must conduct a good faith review of the borrower's financial situation and offer a loan modification or other option if the borrower is eligible.  A good faith review means that the beneficiary: (1) evaluates the borrower's eligibility for all loan modification programs; and (2) participate in foreclosure mediation, if the borrower elects mediation. Sharing information, negotiating willingly, cooperating with the mediator and keeping agreements are indications of good faith.   If the beneficiary fails to conduct a good faith review, it is a defense to foreclosure.
• Extends the ‘meet and confer’ requirements to all loans (not just those made between 2003-2007)
• Requires banks to pay a surcharge on every foreclosure filing that will fund the program and additional housing counselors
• Makes it a Consumer Protection Act violation for any person to violate the duty of good faith in the mediation requirement  

Tomorrow, I will be attending hearings in Olympia in both chambers and hopefully testifying on behalf of consumers.  I have been told that these meeting usually only have a handful of consumer advocates and the rest are taking money from the banks.  Well, I guess I technically take money from banks too, but that usually doesn't happen in a willing transaction between business partners.  Its more like me acting like the school bully and the banks are giving up milk money.  For a kid that used to have to give up his milk money, that feels good.  Can I get a Hallelujah?