AG Foreclosure Settlement: Parts to like, but at what cost?

Yesterday I posted on the AG Foreclosure Settlement, today I was finally able to read the 27 page draft that was allegedly sent to the biggest banks in America.  There are certain aspects of the proposal that have merit.  It contains tools such as closing the option of Dual Track Foreclosure which we discussed last week.  There are also requirements of providing documentation in Nonjudicial foreclosure states like Washington which are not otherwise required.  The proposal also includes the forced use of NPV analysis on determining the value of modifications and short sales as opposed to foreclosure, principal loan modifications, single point of contact with the servicers, and increased use of short sales.

These tools are really not all that different than many of the tools that we already have at our finger tips as attorneys.  Certainly, the tools are more spread out.  We have to weave together items of Consumer Protection, Real Estate, Tort law, agency, bankruptcy, and contract law to come up with some of our answers, but that doesn't mean the answers are not already available.  The AGs are packaging it into a nice little kit if you will. 

The problem that I have with the kit is going to be the expense.  If you look on page 26 of 27, you will find item VI Monetary Relief and there is a little phrase there that reads, "settle claims owed the government and/or to fund programs..."  This is where I find this proposal suspect as reported yesterday.  What is it going to cost to get the protections listed in the other twenty five pages, plus the money?  I believe that the banks are going to be asking for immunity from suit on the bad acts from private parties.  I believe that the tools already in place will be made ineffective by the AG's settlement and the only way to be allowed to use them is to fight with the AG who is supposed to be helping consumers beat harmful business practices.  Who is going to protect us from a duped AG?

It is too early to tell what the actual ramifications of this proposal will be, but considering that most AGs are political in nature, ie Rob McKenna from Washington using the AG office as a stepping stone to run for Governor, it is not surprising to find short sighted fixes.  Especially when we are dealing with all 50 states AGs and the banking industry and a handful of federal bureaucracies.  Stay informed, put in your two cents, because if we stand idly by, our government may give away our rights in the name of protecting the society.

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.