Mortgage Modification – Bankruptcy – Creative Financing

7-12-10

Wrap-around deed of trust and lease-option transactions are back. Buyers are having trouble getting financing. This reduces the number of sales. With fewer buyers prices drop. The solution in many cases is for buyers and sellers to do assumptions of existing financing, to do wrap-around deeds of trust transactions, or to enter into lease-option transactions.

I am available to help buyers, sellers, and agents put these deals together and get them closed – with full disclosure.

Assumptions and wrap-around deals should be allowed as a quick way to add liquidity to the market.

I am available to make presentations at real estate offices regarding wrap-around and lease-option transactions. Call me at 425-771-1110.

You can modify your residential loan if you have a financial hardship and if you can prove you have the financial ability to keep up your payments on your modified loan. Another factor is whether the lender will lose more money by foreclosing than by modifying. Modification of second mortgages and modification of credit cards are handled differently; principal reductions are available.

Bankruptcy is not something one should undertake lightly. However, it is your right under the Constitution, and if you or your family is losing your home or having your wages or bank accounts garnished, you may consider protecting yourself by filing for bankruptcy. Bankruptcy can also help get a better modification.

I will be attending the Fluoride Action Network convention on water fluoridation July 23-26 and will be speaking there. If you have or know someone with dental fluorosis, mottled teeth, only caused by water fluoridation, I would like to talk with them about being a plaintiff in a class action suit.

Hear Dr. Joseph Mercola and Dr. Paul Connett discuss the absurdity of drinking water fluoridation.

Nuclear Power is Not Green or Carbon-Free.

Sincerely,

James Robert Deal, Attorney

Are you Judgment Proof?

Surprisingly, the best approach for some people who are deeply in debt is to take no action at all.

If you’re living simply (that is, with little income and property) and look forward to a similar life in the future, you may be judgment proof. This means that anyone who sues you and obtains a court judgment won’t be able to collect-simply because you don’t have anything they can legally take. (As a famous song of the 1970s said, “Freedom’s just another word for nothing left to lose.”)

Except in highly unusual situations (for example, if you are a tax protester or willfully refuse to pay child support), you can’t be thrown in jail for failing to pay your debts.

Normally, creditors cannot take your property or income without first suing you and obtaining a court judgment (except for taxing authorities and student loan collectors).

Even if the creditor is armed with a court judgment, the law prevents creditors (except the IRS, of course) from taking property that is exempt under your state’s general exemption laws, including food, clothing, personal effects, and furnishings. And creditors won’t go after your nonexempt property unless it is worth enough to cover the creditor’s costs of seizure and sale.

Before taking property, creditors usually try to go after your wages and other income. But a creditor can take only 25% of your net wages to satisfy a court judgment, unless it is for child support or alimony. Often, you can keep more than 75% of your wages if you can demonstrate that you need the extra amount to support yourself and your family.

Income from a pension or another retirement benefit is usually treated like wages. Creditors cannot touch public benefits such as welfare, unemployment insurance, disability insurance, SSI, or Social Security.

Thanks to Stephen Elias, Attorney at Law

Lenders are starting to require income verification before putting borrowers into trial payments.

Lenders are tightening modification requirements and turning down more applicants.

Lenders are refusing to grant principal write-downs.

Generally speaking, it is getting harder for borrowers to push their modifications through.

Read with Martin Andelman has to say about the situation.

The Federal Trade Commission is up to no good. The FTC proposes to enact a regulation which will prohibit third-party modification providers, including attorneys, from charging advance fees.

See: http://www.ftc.gov/opa/2010/02/mars.shtm for a summary of the proposed regulation.

See http://edocket.access.gpo.gov/2010/2010-4651.htm for the full text of the proposed regulation.

California passed a law forbidding all up-front fees on mortgage modifications, including fees paid to attorneys. For the full text of the California law, see http://www.leginfo.ca.gov/pub/09-10/bill/sen/sb_0051-0100/sb_94_bill_20091011_chaptered.html.

There is no other area of law practice where clients are prohibited from paying their lawyers in advance.

What has happened in California is that attorneys have stopped providing modification services in most cases. The way attorneys have sidestepped the law is to file suit against each lender they are negotiating with. The California law does not prohibit advance fees when litigation is involved. This raises the cost substantially.

Most of the clients who hire me to work on modifying their loans have tried doing it themselves. They realize that this is complex legal work and that they need help.

The reason why the mortgage modification scandal arose, with people paying advance fees and not getting good service, was that the fees where in most cases paid to non-attorneys. In 2008 and 2009 loan officers and real estate agents were closing no deals. So they got involved in mortgage modification. Some non-attorney modification companies claimed to have attorneys on staff or available to review the work or to negotiate with lenders. In many cases this was not true.

A real estate agent can negotiate a purchase and sale agreement. A loan officer can put together a mortgage. But renegotiating a mortgage after it is in place is far different. Mortgage modification is the practice of law. It involves studing the laws pertaining to modification and interpreting them. It involves advising clients regarding whether they should file bankruptcy and under what chapter they should file. It involves counseling clients about deficiency judgments. It involves advising clients regarding how to handle second mortgages, credit card debts, and car loans.

Non-attorney modifiers spend a lot of their time saying, “Well I can’t answer that question. You need to talk with an attorney.” The entire field bristles with legal issues, so why are real estate agents and loan officers trying to do the work? Lawyers should be the ones doing the modifications.

Attorneys have been negotiating mortgage modifications for centuries. They have been referred to previously as “workouts.” To prohibit attorneys from charging advance fees is the same as prohibiting attorneys from doing workouts.

Another irony is that the California law and this new FTC regulation would only apply only to owner-occupied one to four unit owner-occupied residences. If you own a rental home or four-plex or an apartment building or a sky scraper, you can hire an attorney and pay him an advance fee to negotiate a workout. But if you live in your one to four unit property, you cannot pay an attorney advance fees to modify your loan.

The practical impact of such a law will be that people who need legal services will not be able to obtain them. And that is because they will not be able to convince the lawyer to do the work without paying him in advance.

Why are attorneys and why am I unwilling to work for clients who do not pay me in advance? Clients who do not pay in advance are not committed to me. I am committed to them, but they are not committed to me. I am required by my ethical standards and my bar association to be committed to the client, but the client is not governed by any regulatory body that obligates them to pay me. Many clients who need mortgage modification are on the verge of bankruptcy. Sometimes I advise them to file bankruptcy. When they file bankruptcy, they are discharged from their debts, including their debt to me. Even if they do not file bankruptcy they might still refuse to pay for work done well. I am not interested in chasing clients who fail to pay. It is usually a waste of time and money.

Further, lenders generally do their best to circumvent attorneys. They call and write directly to clients. They act as if the attorney does not exist. Many lenders actively discourage clients from working with “third-party providers.” Chase has such a discouragement on its recorded hold message. I have had situations where I was not paid in advance, where the lender granted modification to the client, and where the client accepted the modification and did not tell me what had happend. And the clients conveniently forgot to pay me.

If clients pay me in advance I feel a great responsibility to work hard for them. If they do not pay me in advance, I do not know whether they will be loyal to me at all. Not being paid in advance affects my willingness to work hard for my clients.

As an attorney I am subject to regulation by the Washington Bar Association. If I fail to do my job conscientiously, I can be disciplined. It is not necessary for the California legislature or the FTC to be passing laws that prohibit me from collecting fair fees from clients. 

I work my heart out for my clients. I am not interested in working my heart out for clients and not getting paid.

Mortgage companies are more likely to foreclose on homeowners than modify their loans because they make more money off foreclosures, argues a new report by a consumer advocacy group.

While homeowners, lenders and investors typically lose money on a foreclosure, mortgage servicers do not, says report author Diane E. Thompson, of counsel at the National Consumer Law Center. Servicers are the companies that manage the mortgages and collect payments.

“Servicers may even make money on a foreclosure,” she writes. “And, usually, a loan modification will cost the servicer something. A servicer deciding between a foreclosure and a loan modification faces the prospect of near certain loss if the loan is modified and no penalty, but potential profit, if the home is foreclosed.”

Thompson attributes this to a system of perverse incentives created by lawmakers and rulemakers in the market, like credit rating agencies and bond issuers. The private rulemakers typically dictate how a servicer can account for potential losses and profits. They hold enormous sway over securitized mortgages, which are owned by investors. More than two-thirds of mortgages issued since 2005 have been securitized, notes the report, using data from the industry publication Inside Mortgage Finance.

In those cases, the servicer is empowered to handle virtually all aspects of the mortgage, from collecting the monthly payments to initiating foreclosure proceedings. While they’re obligated to do what’s best for the ultimate owners of the mortgage — the investors — servicers have some latitude in deciding what course of action to pursue, be it a foreclosure or loan modification.

When a homeowner is delinquent on a mortgage that’s been securitized, the servicer must front the late payment to the investors. When a home is foreclosed, the servicer is typically first in line to recoup losses. But if a mortgage is modified, the servicer typically loses money that isn’t necessarily recoverable.

“Servicers lose no money from foreclosures because they recover all of their expenses when a loan is foreclosed, before any of the investors get paid. The rules for recovery of expenses in a modification are much less clear and somewhat less generous,” she said.

That’s part of the reason why the Obama administration created a $75 billion program to limit foreclosures. The money is to be distributed to servicers who successfully modify home loans, with the hope that the incentives to modify outweigh the incentives to foreclose.

Thompson’s report outlines eight specific steps to reverse this trend. They include mandating that servicers attempt to modify a loan before initiating foreclosure proceedings and reforming bankruptcy laws so judges can modify distressed mortgages.

Read more at: http://www.huffingtonpost.com/2009/10/21/perverse-incentives-lead_n_328378.html