Merry Christmas... Mr. Grinch!

This marks the 12 month anniversary of Distressed and Taxed.  This blog has had over 12,000 page views this year including some of one of my first posts about Christmas and Freddie Mac, Well, its Christmas time again and the elves at Freddie and Fannie, who can't seem to foreclose that solo cup, have decided not foreclose on your home this Holiday Season.  What must be remembered though, is that just because the house isn't selling in foreclosure, does not mean that mechanical minds of our lending institutions are not working to seize your house.

One of my favorite Christmas movies is How the Grinch Stole Christmas with Jim Carrey.  My wife doesn't like it, but we have decided we don't have like the same things and its okay.  In the show, Grinch burns the Who's Christmas tree and then retires to his home in Mt. Crumpit while the Who's continue to celebrate.  He starts to concoct a devious plan to steal Christmas.  Well, the banks are Grinching away at your home and have started their way back down the mountain.

Though actual foreclosure sales were down in November as compared to last year, the number of filings for nonjudicial foreclosures was 56% over last year in Washington state. See this article in Yahoo!  Considering that last year was a record year for foreclosures and the postings for foreclosures starting in January are up more than half, means that 2012 will be a quite the ride for both the housing market and the homeowner's trapped in their underwater homes.

Unlike the Grinch, I would not expect the many bank institutions to have a change of heart and grow from two sizes too small.  The simple fact is that banks are heartless, anaerobic, constructs which neither feel nor care about your plight.  The only question that can be asked is the questions asked by the shareholders, which is, "did you make me any money today?"  Not foreclosing does not make money.  Grinch!

If you would like to see some heartwarming trends, the Foreclosure Fairness Act and the mediations it is producing are providing some surprising results.  Not as consistent as I would like, but surprising none the less.  So to avoid being grinched by the increased foreclosure activity hit us up at NicFisherLaw.com.

Analysis of Foreclosure Fairness Act: Homeowner's Guide

On Friday, 4/8/2011, the State legislature delivered a bill to the Governor for signature on 04/14/2011 which will significantly change the process of foreclosure in the State of Washington.  The major change is that the legislature has delivered to the homeowners, a statutory right to sit down and talk turkey about modifying the loan that has become the bane of homeowners everywhere.  In 2007, the median net worth of a family in Washington was around $150,000.  Since that time, we have seen the stock market crash and the housing bubble burst, unemployment rise, real wages drop, and interest rates on mortgages climb.  On average, the American Household lost $125,000 by 2009.  When you compare the statistics, we should be plus side, $25,000.  The problem is, that the mortgage that secured the average home, didn’t go anywhere, and the though the median and the averages were in the $150,000 realm of net worth, those buying homes and refinancing in 2007 and earlier, were doing it on 100% loan to value terms and it is unlikely they were near the median in net worth.  Thus the average losses that impacted the portfolio didn’t turn into a mere $25,000 remainder, but left them insolvent and starring at bankruptcy. It is likely, that of the 33% of homeowners that have a mortgage that is underwater in the Puget Sound, your financial situation is sinking but this bill may provide a much needed life saver.

The Foreclosure Fairness Act will provide the homeowner the opportunity to force its banker to the table to discuss the realities of modifying the loan.  Prior to this, homeowners have fussed with lost documentation, forbearance agreements and the actions of a banking industry that border on the criminally negligent. In addition, the bill requires the bank to provide specific information in making a determination of what the best outcome will be based on present values of modification, foreclosure, short sale, deed in lieu, and whatever workouts may otherwise be arranged.  The problem will be getting through the hoops to make that banker sit there and look you in the eye with a mediator looking on and provide you this information.

Previously, the process of nonjudicial foreclosure in Washington was that the owner of your mortgage, the bank, would stop receiving the monthly payment.  In turn, the bank would declare the loan to be in default, and contact a trustee to initiate the nonjudicial foreclosure.  The trustee would send a Notice of Default out no earlier than seventy (70) days after the first missed payment and the home would be auctioned off about 120 days later.  The homeowner would then be forced to move by the twentieth day after the sale.  Thus the whole process would take about seven months or 210 days.

With the changes, the statute imposes on the bank a requirement that it send out a notice a full thirty 30 days before recording the Notice of Default that details your rights in sitting down with the bank.  If you don’t answer that letter, don’t worry, the bank will call you three times by telephone, and then send a certified letter.  Failure to meet that requirement means the bank cannot foreclose. 

If you do respond to the letter.... TO ACCESS THE REMAINDER OF THIS ARTICLE, and trust me you want to get the detailed analysis of this statute, PLEASE REGISTER FOR A FREE SEMINAR HERE. Just click on the green "register now" button for either a live event or the webinar, and the article will be emailed to you shortly.


My good friends at the Financial Revival Group liked my analysis last week that they bought the rights and are incorporating it into their workshops.  Must be good if someone is willing to buy it.

Trustee Where Art Thou?

If you own property in Washington, you more than likely signed a deed of trust.  It was one of the thicker documents in that stack of paperwork that you didn't read but it can be summed up like this.  You gave some third party the right to sell your house if you don't pay.  The trustee is chosen by the beneficiary (read that as bank) and is oft time paid for by the beneficiary, usually only when the home is going into foreclosure because it us underwater.  However, that doesn't mean that he works for the beneficiary as we would traditionally look at an employee.  Its more like a professional, that is why attorneys often work as trustees.

Just because a Trustee is appointed by the banks, it still has a duty to the Borrower or homeowner.  By statute, the Trustee owes the borrower a duty of good faith.  According to case law decided prior to the language in the statute being added, the duty was that of a fiduciary.  Other than in an esoteric, legal debate do those two standards have much space between them.  Both are high standards and the Trustee must meet that standard in its dealing with the borrower.

So you can imagine my surprise this afternoon when I am making a phone call on behalf of a borrower.  The Trustee screwed up the paperwork on the Notice of Default.  Some people think I am being nit picky when I complain about the trustee not being able to do math, and that was the case here also.  However, in addition to not being able to do simple addition, the trustee's printer had cut off the last few digits of some of the numbers so that they were unreadable.  You may wonder how I could do math with missing numbers, but I can do multiplication as well, and the inputs for the missing numbers were available. 

So over a month ago, a letter was sent informing the trustee that it had screwed up, a phone call was returned saying, hey, we're reissuing the notice of default.  Today, in checking on the sale, it was still on, so new letters were sent, and phone calls were made.

In my phone conversation with the woman working for the Trustee, presumably the trustee, as the Trustee is a corporation, she said that I had to talk to the beneficiary about reissuing the Notice of Default.  Well, I said the trustee is the one responsible for issuing the NOD and so I need to talk to the trustee.  Trustee says to me on the phone, "We don't make decisions, we do what the lender tells us to do." My response, stunned silence.

Due to the duty of good faith, there must be more responsibility with the trustee.  It cannot simply say we do as the bank tells us.  That would be like the trustee of a child's trust saying, I do whatever the kid wants me to do.   So if the kid wants a million dollars of chewing gum, he gets it?  I don't think so.

The opposite of Good Faith, is Bad Faith.  Bad Faith is something that can be pursued in a civil action much like any other tort.  The other nice thing about bad faith, is it lends itself to consumer protection actions.  Trustees need to be wary, because responses like that make me wonder where the real trustee is, and if he agrees with the asinine things his employees say.

Dual Track Foreclosures and Forbearance Agreements

Tools are good, tools help us save time, save money, and sometimes even save lives.  The term, forbearance is defined as refraining from something.  In the context of underwater homes and homeowners attempting to salvage their upside down property, forbearance sounds like a god send, the relief from the storm, a life-saver, a good tool.  When forbearance is coupled with "dual track foreclosure," forbearance shouldn't sound anything like a life-saver but more like a mill stone hanged about the neck of the homeowner.

Legislators in California are trying to implement a law that would make the activities of some home loan servicing firms illegal, the act of offering a forbearance agreement while simultaneously moving down the foreclosure path.  That would be the definition of a dual track foreclosure.  Senator Mark Leno (D-San Francisco) (no relation to Jay Leno) said "Banks should not foreclose on a  family's home until they inform the owner whether the loan can be modified to an affordable level...homeowners who qualify for modifications should get them - not a foreclosure notice."

The turn of phrase used in the news article, "modified to an affordable level," caught my eye and reminded me of a class action lawsuit I had read about.  The sign up for the case is found here, and is being brought against Aurora Loan Services LLC of Littleton, CO by Hagens Berman, a national law firm with offices here in Seattle.  The interesting thing about this case is that it is taking a judicial tack at what the legislatures are trying to make illegal.

THe complaint is being handled in U.S. District Court in California and can be read here, but the gist is as follows:  The homeowner goes into default by missing payments and seeks modification help to save the home from foreclosure.  Aurora Loan Services LLC continues the foreclosure process but finally comes to the homeowner and offers them a "forbearance agreement."  The agreement requires the homeowner to make a sizable up front payment followed by 4 to 6 monthly installments.  The amounts paid will not bring the mortgage current, so the homeowner continues to be in default.  The servicer is "checking to see if the homeowner qualifies for modification," and then when the homeowner magically doesn't qualify at the end of month six, the home is foreclosed, no additional notices are provided.

This is plausible scenario even here in Washington under the Deed of Trust Act.  The act requires direct notices to the homeowner in the form of the Notice of Default and the Notice of Trustee's sale which come a minimum of 120 and 90 days before the sale, but the sale can be unilaterally pushed back by the Trustee for up to 120 days.  Thus a forbearance agreement could be signed after an original date of sale is issued, the agreement would not interfere with the propriety of a sale as long as it occurred within 7 months of issuing the original Notice of Trustee's sale.  Do you see where this going?

The trustee issues the Notice of Trustee's Sale and almost simultaneously the Servicer issues a forbearance agreement which uses the possibility of a loan modification as inducement for signing.  The agreement asks for roughly two months worth of payments up front and then four additional installments to paid on a recurring day each month, like the 20th.  The agreement states that if the homeowner will provide required documentation, the Servicer will determine if the homeowner qualifies for a modification.  This is music to the desperate homeowner's ears, but its a sham.

The success rate of modifications under HAMP or otherwise is between 3.5% and 12%, depending on which governmental metric you want to follow.  The modification program is routinely used by the banks to keep loans that would otherwise seek refinance at another institution.  Thus the number of modifications for those that are desperate is probably even lower. Consequently, most of the forbearance agreements are not really promising to do anything for the homeowner.

The real problem with these forbearance agreements is the payment.  Under the Deed of Trust act, the homeowner can walk away from the underwater home and make no payments during the time of the foreclosure process.  So, each payment received under the forbearance agreement is essentially free money to the servicer who would not normally see any money during the process.

To add insult to injury, the Servicer receives higher fees when the loan is in default than it does when the payments are current.  The investors in the Mortgage Back Securities are thus not seeing a very high percentage of the money flowing from the homeowner, rather it is being siphoned off at the servicer and Trustee level.  I am sure you wouldn't be surprised to learn that the servicers and trustees are generally subsidiaries of large mortgage banks.

Bottom line, the forbearance agreement is most likely a tool to take money out of your pocket and not a tool to save your home.  Don't be a tool, tell the bank to shove the forbearance agreement and short circuit the dual track foreclosure before it gets started.

Home for the Holidays...Protect your Tenants in Foreclosure

Yesterday, Fannie Mae suspended its foreclosure and eviction of homeowners and tenants from foreclosed homes from December 20 to January 6th.  In this spirit of Christmas charity, I thought my readers might like to know how they could protect their tenants from getting evicted from a distressed property.

Under the Deed of Trust Act in Washington, once a Trustee's sale has taken place, the person occupying the property has 20 days to leave.  If the person does not leave, he can be sued for rent and be evicted in a process called unlawful detainer.  This is a process that isn't fun for anyone involved but it can be the only way to get a defaulting homeowner or renter out of a property.

The state legislature noted the housing decline was leading to lots of foreclosures, especially on property that had been purchased on speculation, highly leveraged, and primarily used as investment property with tenants.   These tenants believed that they were safe because they were paying their rent, but with the Trustee's sale, they had to leave.  Washington amended the Deed of Trust Act under SB 5810 to extend new rights to tenants requiring notice of 90 days and replaced the 20 days in the rental property with a new 60 day window after the trustees sale.

Not to be outdone by the individual states, Federal law passed in 2009 called Protecting Tenants at Foreclosure Act.  This Act required the purchaser at the trustee's or sherriff's sale to honor unexpired leases.  So, instead of being able to keep your tenants in the home for just 60 days, they could stay until the end of the lease term.


Now, this is not automatic.  If you have a Trustee's sale scheduled at the end of this week, you cannot go in and sign a lease with your tenant and expect it to be honored.  That said, I would still sign the new lease, because I believe the burden of proof that the lease isn't to be honored rests on the new owner, not the person renting the property.  However, if you can, you should sign a new lease, with market rate rent and terms, prior to getting the Notice of Trustee's sale.  The trigger point in doing this should be the Notice of Default.  Once you receive that document, re-write your lease.

Even if you fail to re-write, the tenant gets an added benefit of being able to stay for 90 days after the sale and really its 90 days after he receives notice from the new buyer which may be even longer than 90 days.  But, if you re-write the lease, and we have been doing these for the bottom rate on the market for 2 year terms.  If the buyer at the trustee's sale is not going to live in the property, he has to honor the lease.  You just gave a very good Christmas gift to your tenant by reducing his monthly rent, and stabalizing his family through the season.

The added bonus is that you got to drop a lump of coal in the bank's stocking.  So Merry Christmas to you too!

Beating Banks with the Statute, like it was a stick!

Do you remember, when we were kids, and there were still wooden bats?  I remember "The Natural" with Robert Redford, and he made his bat out of the tree that was struck by lightning.  If I had a bat like that, I would burn the name "RCW 61.24 et. seq." into it and step into the batter's box.

A couple of months ago, a case came out of Division 2 Court of Appeals referred to as Albice.  In that case, as in many others, the court iterated that banks (beneficiaries) and the trustees had a duty to follow to the letter, the Deed of Trust Act.  In that case, the court used the statute like a stick and beat the trustee like a curve ball with no curve for not providing factual details in the conveyance instruments. The court took the unprecedented position of overturning a completed trustee's sale.  This seems to be one of those ground swell cases where the courts are holding the banks and their trustees to a higher standard than before.

In that same vein, last month I started sending letters to banks, servicing companies, and trustees or trustee's agents taking them to task on discrepencies between the statute's requirements and what it was stating in the Notice of Default.  Today, I received my first, rather contrite letter back, admitting to defects in the notice of default and that the Trustee would issue a new notice of default and start the nonjudicial foreclosure process over from the start.

This is no small victory.  My clients were able, due to a back and forth of only two letters and at most a couple of hours of research and writing, get nearly 45 days more in their home.  On an average mortgage, on an average house, in Snohomish County, of roughly $300,000, that is a a savings of over $3,000.  For two hours of work at $200 per hour, the rate of return is incredible.

So, as I promised, practical solutions to some of your problems.  If you are in receipt of a Notice of Default (a letter posted on your home and likely sent to you by regular and certified mail with the title "Notice of Default" at the top) you need to read three sections.  Section (d) which tells you how much you are behind on your payments; Section (e) which tells you how much the bank has spent trying to get you to pay since you quit paying (trustee's fees, attorney's fees, filing fees, etc.); and section (f) which should be a total of (d) and (e).  If those two sections, when added together, do not equal what is shown in (f), you can make the trustee start over.  Talk to your attorney and have them draft a letter, if you need to, have your attorney contact me to draft the letter.  Whatever you need to do, but you need to hold the bank responsible for the letter of the law.  If we don't all play by the same rules, then somebody is going to get beat with a stick, make sure you do the beating.  Grip it an rip it.