SHOCKER!!   Buyer of a short sale doesn’t own the property he just purchased (or does he?).  Seller of the short sale paid off the wrong party (or did he?).

The below email was sent to Neil Garfield at Living Lies.  Sadly this is not shocking at we know of two other lawsuits where the seller and the buyer acted in good faith and sold the property and the money was sent to BofA (and MERS was involved as well) and later the “real” owner of the deed of trust came forward and demanded that the transaction be undone due to a mistaken release of the deed of trust by the wrong party.

What does this mean to a real estate agent involved in the transaction?

Get an attorney involved – preferably BEFORE the short sale closes.  Why?  Quite simply you need to make sure that the transaction is buttoned up tight.   Many of the short sales that involve an attorney and litigation against the pretender lender will require a settlement agreement to be signed at closing (or at least have enough documentation that the seller & buyer have some ground to stand on).

But what does a settlement agreement do and how does it help you as the real estate agent?

First, the pretender lender whose is receiving the proceeds of the short sale “swears” they are the real lender or working for the real lender (like Fannie Mae).  Second, a well crafted settlement agreement will indemnify the seller (or whichever parties are named) – meaning that the lender getting the money has to defend the seller if they are sued over the specifics related to the settlement, i.e. the short sale.

Does the buyer lose the house and does the real estate agent have to give back their commission?

Very likely the answer is no.  But you will have to hire an attorney to fight this battle for you.   The title company should be on the hook for the value of the home – meaning they will either have to pay off the “real” lender or the new homeowner.   The downside is that it could cost more than the commission just to fight this type of suit AND the title insurance is only good for the amount of the policy (if the house was bought for less than full value or thousands of dollars in updates/remodeling has been performed you could lose this amount).

Bottom Line

Short sales and even purchasing foreclosure can be great equity and value builders for the buyers and assist the seller with disposing of a property but a good title company and good lawyer can help you keep this value hopefully keep your sanity and commission.

Seek legal counsel from a real estate attorney and one who has experience in dealing with short sale and foreclosure.

- The Bank Slayer

On the surface this looks like a win for the investors who lost billions when they bought lousy and in many cases FAKE mortgage backed securities.   But the question for Henry Homeowner who is wrestling with his own mortgage woes is, what does this mean to me?  Will I benefit from this “win”?

I have posted below comments and editorial from Neil Garfield @ LivingLies, Christine Riccardi @ Housing Wire, and a related post from the Subprime Shakeout website.

As far as my take…Let’s see the specific 530 RMBS to which this cases was pointed.  If your mortgage is inside (or was supposed to be inside) one of these allegedly held in Trust by the Bank of New York Mellon then you should have a leg up on BofA, as to your rights as a borrower and BofA as the servicer.  We’ll see.

- The Bank Slayer

NEIL GARFIELD COMMENTS & NOTE: The investors put up the money for the funding of mortgage transactions with BOA and other investment banking operations brokering the deal. Now BOA is about to pay the largest settlement to investors so far. The real question is that if the investors were the real creditors, which they were, then the obligation from borrowers should be prorated downward. If BOA is buying these pools that were never filled it doesn’t mean that the pools gain any more credibility as having the assets claimed for the pool than they had before.

And if BOA wants to move into the shoes of the investors they are faced with the same conundrum that the investors had when they decided to abandon claims against homeowners and seek redress from BOA, to wit: do they really want to move directly into the line of fire of a hail of defenses, affirmative defenses and counterclaims for predatory and fraudulent lending? And is there anyway that they can say that their claim was secured when the loans were never transferred by proper documentation or delivery?

This is a classic PR move for Wall Street. This is a fake scenario in which the true liability is being masked by a friendly deal. They are taking hundreds of billions and probably trillions in liability and attempting to distill it down to what appears to be a large a number but in reality is less than 1% of the total liability. This isn’t the end of it even if they want it to be.

But in the meanwhile, brokers and investors will be hearing what they want to hear and BOA stock will inch up a bit.

The reality is that these bonds are worthless  and always were worthless. Any balance sheet item anywhere is a fake if it is based upon mortgages or mortgage bonds whose value is derived from mortgage loans.

The loans were not originated in a standard contractual manner — the borrower and the lender were shown, and each agreed, to two different sets of documents. They treated the loans as if they were transferred but never actually transferred them. So the mortgage was invalid at inception and even if it wasn’t, is not perfected as a lien. The amount due is clearly effected by these settlements, but more than that, we can see that the investors as creditors have clearly abandoned their claims against the so-called borrowers

Investors, creditors stand to benefit from BofA settlement (Housing Wire)

Posted By CHRISTINE RICCIARDI On June 29, 2011 @ 12:33 pm | No Comments

The $8.5 billion Bank of America (BAC^[1]: 11.14 0.00%) settlement with investors of residential mortgage-backed securities issued by Countrywide Financial Corp., which the banking giant acquired in 2008, will have positive ramifications for both creditors and investors, according to analysts throughout the industry.

Bank of America reached an agreement^[2] with Bank of New York Mellon (BK^[3]: 25.44 0.00%), which served as trustee for 530 RMBS trust with a total balance of $424 billion, to reimburse investors who lost money on failed securities.

Barclays Capital analysts said Countrywide deals and other nonagency RMBS will now be more attractive to investors because of the potential return. For the most part, Barclays said, nonagency investors only assume small benefits from rep-and-warranty-related repurchases.

“A less negative (or positive) development on any of the (housing) issues could help alleviate price pressures,” Barclays said. “We believe the headline housing data will improve in the coming months, roll rates will continue to improve and this news should help nonagency prices.”

Barclays analysts expect cash flow from the settlement will most likely filter into the trusts that represent 226 deals involved in the complaint, thereby benefiting Countrywide cash flows, “as these effectively come in as faster prepays and reduce total losses.” Cash flows on Alt-A securities might hit senior mezzanine and even junior mezzanine loans, Barclays said. Subprime bonds should also benefit.

“Deals as part of the settlement could see a direct benefit of 8 to 10 points of additional cash flow,” analysts said. “Even if we assume that the settlement covers all of Countrywide outstanding ($285 billion), the benefit would be at least three to five points of additional cash flow.”

The $8.5 billion settlement represents about 10.8% of the $79 billion outstanding on the list of Countrywide deals repurchased by BofA. The original balance of all these securities was $179 billion. BofA is paying about 4.8% of that original balance, Barclays said.

Moody’s Investors Service said the settlement, alongside its $5.5 billion reps and warranties payout, reduces BofA’s potential exposure to higher losses under a stress scenario. And while BofA’s earnings will undoubtedly suffer in the second quarter, Moody’s expects the bank’s capital ratios to remain above the same period of 2010.

“The costs incurred are at the high end of the range that Moody’s had previously estimated Bank of America might be required to pay to resolve these matters,” said David Fanger, Moody’s senior vice president. “However, following today’s settlement and the announced addition to reserves, Moody’s believes that (BofA’s) remaining representation and warranty exposures are no longer a negative credit concern.”

On June 2, Moody’s placed the banking giant on review for possible downgrade^[4], saying analysts will evaluate the bank’s standalone financial strength to see if credit-risk improvements were made over the past few years. Moody’s expects the settlement will have positive credit implications.

BofA’s overall liability for Countrywide assets could reach $24 billion, according to Barclays based on the percentage of deals in the settlement. However, other securities could be concentrated in cleaner vintages, Barclays said.

Bank of America’s stock closed at $10.82 Tuesday after word of the settlement leaked. Shares of the component of the Dow Jones Industrial Average opened at $11.15 Wednesday, and activity in BofA is helping push the DJIA toward three days of gains^[5].

Breaking News: BofA Close to Reaching $8.5 bn Settlement with
BlackRock, PIMCO (100th Post)
Posted By igradman On June 29, 2011 (12:10 am)

As part of the Subprime Shakeout’s 100th Post (woo-hoo!), I bring you an analysis of some big, breaking news: today, the Wall Street Journal reported that Bank of America was closing in on an agreement with the
investor group led by Kathy Patrick to pay $8.5 billion to settle claims over mortgage backed securities.  If true, this would be the largest MBS settlement to date arising out of the mortgage crisis.

I first reported on this investor effort back in October 2010.  You can find my initial take here, a link to the demand letter sent by Patrick here, and a link to the response fired off by BofA here.
While we heard early in 2011 that the parties would extend all deadlines while they negotiated, we had heard very little about the progress of these efforts until today.

While the details of the purported settlement are sketchy, the WSJ report states that the current investor group includes 22 institutions, including BlackRock, PIMCO, the New York Fed, MetLife
and Freddie Mac, which collectively hold $56 billion worth of mid-2000s vintage MBS.  Though it did not report on any impending settlement, Bloomberg also published an article today on these
negotiations, and stated that the value of the securities at issue was $84 billion, while the original principal value of the securities was $182 billion.  While it is not entirely clear how these numbers line
up, my best guess is that the investor group holds approximately $56 billion of the $84 billion outstanding.

What’s also unclear is how much of the reduction in the value of the bonds at issue is as a result of pay-downs and prepayments, and how much is as a result of the trusts taking losses on foreclosed properties.  Thus, it is difficult to assess what percentage of potential damages from investor claims is being born by BofA under the settlement.  My initial reaction is that, while the absolute dollar amount sounds large, this settlement is ultimately fairly small compared to the potential damages.

This result would be consistent with the consensus among commentators regarding this investor group, including some of the comments contained in today’s Bloomberg article and my initial take on this effort: namely, the investors involved have significant other business dealings with BofA (a.k.a. conflicts), and thus would not seek an aggressive settlement.  At the same time, BofA has exhibited a growing interest in resolving its legacy RMBS liability, and thus would be interested in entering into a sweetheart settlement with a prominent group of investors that would set a precedential ceiling on future recoveries and discourage other investors from coming forward.

Without seeing the terms of the settlement and the details of the group’s holdings, it’s impossible to know what claims are being released in this settlement and how the proceeds are to be shared. For example, if the group is being paid outside of the trust waterfalls, and thus receiving the entire $8.5 billion, then the investors would actually be recovering much larger proportion of their potential damages (while potentially throwing the other investors who did not participate in the settlement under the bus, either by purporting to release their claims, or by making it impossible for those other investors to gain standing to sue).

However, sources have indicated that the settlement funds will actually be paid into the trust waterfalls.  This would be ostensibly more equitable, in that all bondholders would be entitled to receive a share of the settlement proceeds, depending on their seniority. However, query how equitable it really is for a portion of the bondholders (and most likely the senior portion, since these are primarily institutional investors) to set the settlement amount for the rest of the non-participating bondholders, and to receive the lion’s share of the benefits based on their more senior bond position. Whether the investor group could or would engineer such a settlement remains to be seen.

Regardless, the fact that these investors got any money at all out of the nation’s largest bank, let alone a material dollar amount, might actually encourage other investors to come forward.  A settlement of this size would reveal that BofA’s initial rhetoric, that it would fight these claims tooth and nail until they were forced to pay, was just that–empty rhetoric.  For example, BofA CEO Brian Moynihan stated
during the company’s third quarter 2010 earnings call that, “we will go in and fight this.  It’s worked to our benefit to—we have thousands of people willing to stand and look at every one of these loans.”  Further, this settlement undermines BofA’s recent estimate that the cost of its legacy RMBS putback issues would not exceed $10 billion.  BofA cannot seriously assume that this is the only large investor group with which it will have to tangle over defective Countrywide loans.

The simple truth is that investors have significant amounts of viable repurchase and Securities Act claims stemming from their purchase of Countrywide-issued or originated MBS, and BofA will be forced to confront many additional claims by investors in the coming years.  These additional investors might not have the same level of business dealings with BofA and thus might be willing to take more aggressive steps in pursuing reimbursement for its losses.  In that case, BofA’s strategy of creating a lowball settlement to discourage investors from coming forward might end up backfiring and further eroding the already strained capital on BofA’s balance sheet.

Article taken from The Subprime Shakeout – http://www.subprimeshakeout.com
URL to article:  breaking-news-bofa-close-to-reaching-8-5-bn-settlement-with-blackrock-pimco-100th-post.html

The friendly folks at BankofAmericaSuck.com posted information about the screens and the access to info that your bank has about your home loan.

LPS, short for Fidelity’s Lender Process Services is the nations largest insurance & foreclosure tracking servicing and is used by many banks to handle the nitty gritty details involved in managing your home loan – specifically how to maximize profits for the bank at the homeowner’s expense AND to clean up any troublesome title issues related to cleanly foreclosing on your home by a lender who is TOTALLY DIFFERENT from the one whom you started AND different from the lender named in the recorded documents living in the property records.

My favorite rip-off is the banks’ plan to insure your home month by month when they intend to foreclose (and add it to your bill) but not naming you in the policy so you reap no reward.

Think of it this way.   The bank takes out insurance to pay off your loan if they have to foreclose.  They foreclose, collect the insurance money, SELL YOUR HOUSE keeping that money, and then SUE YOU FOR THE DEFICIENCY between what you “owed” and what they got at the foreclosure auction!  Nothing like trying to collect three times!!

Sweet deal for the bank.  Sour for the homeowner.

Fight for your rights!

– The Bank Slayer

Fidelity LPS Navigation for Foreclosure Info

While some lenders do utilize web-based proprietary systems (MortgageServ, Res.net, etc) for insurance and foreclosure tracking, the majority of the lenders in the US (including Bank of America, Aurora Loan Services, and OneWest) utilize the Fidelity LPS system, which is maintained by Fidelity National Financial. It seems almost impossible to believe all of our banks would allow a single point of failure in our nation’s financial systems, however a certain level of cockiness is certainly warranted after successfully pulling off the largest series of cons in our nation’s history.

The LPS system can be accessed several ways. Using Internet Explorer, Balboa and Assurant agents are able to query every field within the system via the web based Lending Portal Login for all of their clients. The information is then used to build all of the AxsPoint/Cool reports utilized to track Force Placed and REO information on the CCS & PAC systems. The tracker then places the information on Clientsource for the servicer to view.

These systems are all web-based, because while the banksters do practice “honor amongst thieves,” each individual banks still likes to hide a certain level of information from each other to allow the possibility of stealing from each other while stealing from you. Web-based systems allow them to control the information visible to each other.

The LPS System

Depending on the terms of the contract between the tracker and servicer, the SOR (System of Record) can either be the information on LPS (accessed via the Lending Portal Login) or CCS (accessed via Clientsource). Either way, if your attorney were to subpoena documentation in court for a foreclosure case, you will be presented with the Fidelity LPS information, if anything.

At first glance, LPS appears to be quite a confusing system. To make things even more difficult, the field values are stored in CD libraries that can only be accessed if you have CPI Navigator installed on your system, and are able to access either the physical disk or the virtual disk installed on an internal network drive. Many field values are chosen by the servicer, so they can vary. The general system architecture, however remains consistent throughout each company.

Once logged in to the LPS system, on the top left of each screen will be a 4-character field (which can be accessed by either pressing Home or clicking on the field with your mouse). The 4 characters represent a screen subset, as well as a particular screen. Each associate with LPS access (whether customer service, management,  or back-end) has at least read/print access to each of the major screens listed below.

It is important to know that many of them can not update the fields on these screens based on their particular access, however they are ALL able to access the information and provide it to you with 6 simple key strokes (Home-4 character screen name, Enter) within 10 seconds or less. The most important screen subsets for your usage are:

FOR_ (Foreclosure Screens)

These screens house all information relating to the foreclosure of your home. There are 4 screens utilized: FOR1, FOR2, FOR3, and FORN.

The FOR1-3 screens are utilized by the foreclosure agents to process your foreclosure, and are occasionally utilized by the insurance tracker to determine REO premium values, as these screens display loan specific information for your flood zone, loan investor, state, replacement cost, principal value, step code (a code assigned based on the current step of foreclosure you are in), etc.

The FORN screen is where all information is notated by the agents regarding your foreclosure, including a 3 digit code that is automatically attached to each transaction to identify the individual representative, field agent, or automated system update responsible for the update.

REO_ (Real Estate Owned Insurance Screens)

These screens house all information relating to the insurance placed on your home after the foreclosure. They are set up exactly like the FOR screen subset, with REO1-3 housing the foreclosure and REO information, while REON has notations of each transaction performed within the screen subset, including the 3 character ID of who made the change.

REO insurance is important, because depending on foreclosure laws for your particular state and investor (FNMA and FHLMC-owned loans tend to be more strictly regulated), REO insurance can be placed on your loan before the foreclosure proceedings are complete. REO insurance is always paid out of your escrow account.

If you do not have an escrow account, or if it is set up only for taxes, the LPS system is designed to automatically create one for you, rolling the balance into your account. This means that if you do not have an escrow account, and your attorney was successful in litigating your foreclosure case, you will still have paid for an REO policy (issued through Balboa, Meritplan, or Newport Insurance) of 1 month or more of insurance on your home that lists the loan servicer has the loss payee.

You, as a borrower, are unable to file a claim against this policy, as you are in no way listed on the policy, if a loss were to have occurred in this time frame. In addition, more often than not, REO policies are renewed monthly, and a new policy number is issued for each 1 month term. If you call in to have this money refunded to you, the system only allows a cancellation of the most recent policy, and you may have multiple policies listed on your account, which you can not see.

HAZ_ (Hazard Insurance Screens)

This screen subset houses all information regarding hazard insurance (whether voluntary, force-placed, or real estate-owned). It is divided once again into HAZ1-3 for maintenance and HAZN for notations.

There is also a HAZM screen which shows any historic policy placement on your loan within the last 3 years. Many lenders will not list the specific REO policy number, but will instead only list REO as the policy number, but you can still find out whether or not you’ve ever had REO insurance placed.

In addition to current insurance information, the HAZ1 screen will show the investor for your loan (along with contact information for them), the insurance company and agent with contact info (including force placed and REO), foreclosure status, property address, escrow status, escrow balance, etc.

INV_ (Investor Information Screens)

The INV screen subset will show all information regarding the current and historical investor information for your loan. This screen subset is read-only for most representatives, however, it can still be accessed by all associates and emailed/faxed to you if you call and ask.

If you were told by your servicer that any of the above listed information is not available or could not readily be accessed, you have been lied to. If it was told to you in court, your lender has officially committed perjury per United States law, as every loan tracker and loan servicer is provided a copy of the CPI Navigator disk, which is updated monthly.0

In addition, this information is documented in several departmental electronic policies and procedures maintained throughout each company involved with the maintenance of your loan , as well as in physical paper job aides, training manuals, and shortcut cards located on the cubicle walls of most associates’ desks.

If you have even a decent foreclosure attorney, you may be entitled to a free house, courtesy of your lender’s cockiness. Be sure to thank them afterward.

Part 2 – Equator Tips for Success

If you want to be successful in short sales that require Equator make sure to employ these Tips and Traps. Part 1 can be read here

The following Equator tips and traps come from Dan Welch.  Dan Welch is the lead short sale negotiator for Home Solution Counselors and a bring ‘em on and “your next” closer.

Bank # next

Dan saw the light and fled from the darkside (he used to work inside the bank – working against homeowners).   He now spends the better part of 40 hours a week with a wireless headset, three phone lines and a Batphone Hotline into The Gore Law Firm as he routinely hammers banks into accepting and approving short sales.

We asked Dan to provide us with a game plan for success with Equator.  Most agents know that Bank of America‘s short sale tool can cause a real estate agent to lose control of the short sale process.

1. Know your time frames:  The servicer and the agent both have time frames on ALL tasks assigned in Equator. Call every week, ask the servicer what the next task due for the negotiator is and ask when that task expires. If it’s beyond that deadline, bust some balls.  Don’t let up.  They promised they would meet a deadline!
2. Read the manual: When you initiate a short sale with BAC, they send you a user’s manual for Equator. Read it! Knowledge is power and power is good.
3. Stay on top of your tasks: When a task is due on 11/14, you better make sure to add a note to your calendar. When that task dies, so does your deal.  How long have you been working on this file? 6 weeks, 3 months, a year? And it was declined and closed by those haters at the bank and now you have to start over!!?? YOU (agents, or 3rd party negotiators) are responsible for completing the assigned tasks by their deadline. Helpful hint: Get your borrower’s paperwork and required docs together BEFORE they’re requested and keep updated bank statements and paystubs. Being prepared; I know it’s a novel concept.
4. It ain’t over till it’s funded! : Just because you get a counter acceptance, doesn’t necessarily mean you’re getting it approved.  Did you forget about mortgage insurance?  Don’t understand how MI works.  Read this article HERE.   This stuff can cause an extra delay of 2 weeks or MORE – after the initial SP acceptance.  So, wait to tell your seller that the deal will work until AFTER you find out what the MI company wants.  To be safe, wait until you have a demand payoff letter, in hand, from the servicer – and the numbers actually work.
   
5. Keep impeccable notes, take screenshots & record ALL calls: When your negotiator who’s working too many files drops the ball on yours; you need proof and evidence to show their supervisor or one of the upstanding gents at “TGLF”.   Nothing better than replaying their own words from a recorded call or displaying a screenshot.  If necessary bring a lawsuit with this evidence.  They’ll turn tail and run and you’ll get what you want.

Final thought: Equator and the industry in general are changing at a break-neck pace. These tips may be pertinent today and mean little tomorrow. It’s an ever-evolving business and it’s important to stay on top of the facts and evolve with the industry.  Most of us, who are still in this crazy industry and plan on eating tonight, have had to adapt greatly over the past several years.  Equator is new, but it’s not scary – just frustrating.  Good luck and try to keep a cool head.

Part 1 – Equator Traps to Avoid.

If you want to be successful in short sales that require Equator make sure to employ these Tips and Traps.

The following Equator tips and traps come from Dan Welch.  Dan Welch is the lead short sale negotiator for Home Solution Counselors.  Dan saw the light and fled from the darkside (he used to work inside the bank – working against homeowners).   He now spends the better part of 40 hours a week with a wireless headset, three phone lines and a Batphone Hotline into The Gore Law Firm as he routinely hammers banks into accepting and approving short sales.

Since the Houston area’s Houston Association of Realtors’ MLS reports that over 73% of all listed short sales never close, with most being lost to Texas’s rapid foreclosure process, we wanted to know why Dan is getting 93% of all short sales approved and closed.

We asked Dan to provide us with a game plan for success with Equator.  Most agents know that Bank of America‘s short sale tool can cause a real estate agent to lose control of the short sale process.

Here are Dan’s Traps to Avoid.  Monday I’ll post Dan’s Tips.

1. NEVER trust their counter(s): If you receive a counter in Equator, take a screenshot before you do anything else. When you accept or counter back the “counter worksheet” usually disappears for good.   BAC is known for countering the offer with “A” and then reneging on it and countering again with “B”.    SECRET TIP : A = typically a value close to the current offer which represents ACTUAL property value.    B = the price your buyer won’t pay, even in a good economy.    My view is if they don’t honor counter “A”, even if they knock a couple grand off their minimum net to make good on it, you’re closer to getting them what they need to get the deal approved by management or investor.
2. NEVER agree to a prom note or cash contribution: I stopped agreeing to prom notes and cash contributions when I was asked by BAC to “please have your seller sign a promissory note to cover some of (GENERIC INVESTOR)’s losses.” – NO!     The borrower isn’t responsible for an investor’s risky investment decision gone sour. They can either agree to a short sale or lose money on the deal in foreclosure.   This should be your attitude.
   
3. Email everything through Equator: You’ll almost NEVER get a call from the servicer after making a request through Equator. Most of these agents are overworked. Sometimes carrying a workload of up to 375 files. It’s all they can do to keep up.  Equator’s email messaging system is great for tracking a deal and the conversation.  Also, no more hearing “I never got the message”, because you, your client, the bank’s negotiator and their supervisor can see the proof in black and white in the Equator message archive.
4. Dispute their value: The bank won’t disclose this…. but, sometimes they skew the BPO or appraisal results to meet their own needs!!   So, call them out on it. If you’re a competent agent, you should have completed a CMA or at least run comps to make a good assumption as to property value. If the bank gives you a ridiculous number, tell them how ridiculous it is and submit comps, CMA, repair estimate or WHATEVER you have to devalue the property. I think since so much of the new process differs from the traditional short sale process, that agents or negotiators tend to forget they have the right to dispute the bank’s alleged property value. It doesn’t always work, but it’s better than rolling over and taking it! Remember, if enough of you “roll over and take it”, the bank and their investors make new policies or guidelines to make it harder for you and the rest of us to stand up and fight. So, for the sake of us all, FIGHT!
5. Don’t give in.  Sue them if needed:  Many times the negotiator on the other side is powerless or plain incompetent.  If things go south or your file is facing foreclosure you CANNOT trust that simply because the file is in review in Equator or you have accepted an offer in Equator that they won’t foreclose. Get an attorney that you can trust.  Get an attorney that has successfully filed lawsuits and WON against Bank of America.  You can look this up yourself in the Federal or District Court level in your area.  See if they have open AND closed lawsuits against Bank of America or whatever bank you are fighting.   Lawsuits will allow you to remove Equator’s power and will cause the bank to assign special staff to handle the lawsuit. If necessary get a TRO or restraining order against the bank for negligence. (This is where that screenshot you took might come in handy).

A frequent question we get is, “What about my mortgage insurance?”

There exists a general perception that MIP (mortgage insurance premiums) paid either all up front (or monthly) somehow covers your loan like GAP insurance protects you on a car loan.  This is wrong.

Mortgage insurance was created to:

a) Make money for the mortgage insurance company (like all insurance products)

b) Protect the lender of your loan in case you don’t pay.

That seems reasonable.  Like is auto & home insurance, right?

Mortgage Insurance is different.

There are many varieties of this kind of insurance but in a nutshell if you go into default and are trying to pull off a short sale or simply go to foreclosure, your mortgage company is going to seek money from the mortgage insurance company, to which you were making monthly (or one time upfront) payments.

So far that makes some sense.  If the mortgage insurance company pays part or all of the loss that would seem to help reduce your exposure to a deficiency lawsuit for the bank’s loss.

Guess what, the dirty little secret is it will not help you.  The mortgage insurance company can come after you for their loss!!   And the mortgage company can too!

Double dipping on the homeowner.

It seems unfair but it is true.  Your mortgage company AND the mortgage insurance company can hit you up for money.   One of the agreements you signed at most closings is a deed of trust (commonly called a mortgage).  This is not the DEED to your home but the document used to secure the loan against your home.  In other words, it outlines what happens if you don’t pay off the promissory note.

In most cases in contains language that allow the lender to collect on items such as mortgage insurance and simply pocket the money.  Bet ya didn’t know that huh?  Nothing like paying for insurance which doesn’t benefit you.  Whether you think it is fair or not you agreed to it.

New wrinkle for the banks

But that aside there seems to be a problem.  What many homeowners have discovered is that the loan sold to you was junk.  Full of ridiculous fees and your final application and Good Faith Estimate (“GFE”) did not match your initial documents.  The loan officer rounded up income and rounded down debt where necessary to maximize their commissions at the onset and origination of the loan.

The mortgage insurance association is not too happy about insuring predatory or fraudulent loans.  It seems they prefer to be in the premium collecting business not the paying out claims business.  They know that the odds of collecting thousands of dollars from a recently foreclosed or short sale homeowner is scarce.  So now they are pursuing the banks that ginned up the lousy loans and asking them to make good on their promise to buy them back (if they where fraudulent).

Jeff Barnes a foreclosure defense attorney posted a good article which is below…

- The Bank Slayer

In a letter dated September 2, 2010 from Teresa M. Casey, Executive Director of the Association of Financial Guaranty Insurers (hereafter AFGI) to Brian T. Moynihan, Chief Executive Officer and President of Bank of America Corporation (hereafter BOA), Ms. Casey notifies Mr. Moynihan of the obligations of BOA (including Countrywide Home Loans) which are owed to the financial guaranty insurance industry “arising from representations and warranties provided by BOA on securitizations, insured by our industry members, of home equity lines of credit (”HELOCs”), and first and second lien residential mortgage loans.”

The letter states that while BOA has publicly announced its intention to challenge its representation and warranty obligations on a “loan by loan” basis, the AFGI “submits that this defensive posture will soon prove ineffective in shielding BOA from the financial, accounting, legal and other implications of its massive obligations to our industry members.”

How massive? The letter states that each of the industry members which has insured BOA securitizations has concluded, based on reports of third-party experts, that “well more than half” of the non-performing loans originated in 2005, 2006, and 2007 “qualify for repurchase by BOA”, and that the current estimate for repurchase liability is in the range of $10 to $20 billion for industry members alone.

The letter states that “all of the HELOC securitizations and tens of billions of dollars of other residential mortgage (including first lien) securitizations sponsored by BOA were insured by our industry members”. The letter goes on to advise that the industry members “are committed to pursuing their rights against BOA for representation and warranty repurchases in connection with our insured securitizations.”

What does this mean for residential foreclosures initiated by BOA? it means that there is and will continue to be unresolved issues as to at least the following:

(a)  whether a loan was misrepresented in any respect to the insurers, including the ability of the borrower to continue payments throughout the life of the loan. If so, this could provide evidence that the loan was predatory and result in a counterclaim or defense to a foreclosure by the borrower.

(b)  the extent of available insurance on the loan (arising out of the apparent coverage and repurchase issues implicated by the letter), which itself gives rise to issues as to available setoffs against amounts claimed due and owing.

(c)  the extent of payments made on defaulted loans in securitizations by whatever insurance may have been available prior to coverage being contested.

(d)  if BOA persists in its “loan by loan” defensive challenge to coverage, a possible stay of any BOA-related foreclosure until it is determined whether securitization insurance on the particular loan the subject of the foreclosure is being challenged by BOA and pending the final disposition of any such challenge.

We have been hammering on these issues as to available insurances and setoffs in securitized loans for years. We have repeatedly sought this information in discovery only to receive objections. We have also had several opposing attorneys claim that no such insurance on securitized mortgage loans even existed. This letter proves that such insurance exists and has existed as to loans originated as far back as 2005, so opposing counsel either (a) lied, or (b) was not informed as to their own client’s operations.

Fortunately, we have had many courts in our cases deem this discovery relevant, and we have had many foreclosures dismissed for the foreclosing party’s failure to provide this very discovery with any refiling conditioned on the subject court-ordered discovery being provided in total. What we see happening in light of this letter are the assertion of additional defenses, additional discovery, and possibly additional claims being made by borrowers in securitization cases. Further, if the insurance industry is making such a claim against BOA, it is probably not long before similar claims will be made against Wells Fargo, US Bank, Deutsche Bank, and the others pursuing foreclosures.

The Wall Street Journal is reporting that BofA is ready to crank up the foreclosure machine once again.

Amazing what can be done when Bank of America might take a financial hit.

BofA can’t seem to locate the submitted paperwork for a loan modification (or short sale) at least 30% of the the time.  Their vaunted Equator system can take weeks to deliver a written approval for a short sale once “approved”; but yet they now can process and replace over 100,000 affidavits and assignments of mortgages in just two weeks!!

Wow, they must have hired some new robo-signers we haven’t met yet.

Why?  Because it takes time to read through your own affidavit, much less an entire Application for Foreclosure.

The average “application for foreclosure” in Texas is 40+ pages.  They must have somehow found a ton of people with live, actual, personal knowledge of the proof of ownership and the exact amount owed on each of these 102,000 loans they are “fixing”.

Now here is the scary thing…follow me here:

At only 15 seconds a page, it would take at least 10 minutes to read each application.  Remember the person is swearing they know everything is accurate and PERFECT.

10 minutes x 102,000 loans = 1,020,000 minutes.  Assuming they have 100 people working on this, that now equates to 10,200 minutes per person or 170 hours.  At 40 hours a week that would take over a month if they worked non-stop.

So how can they be ready in two weeks?  Maybe they found 1,000 people with “knowledge” and thus it can be done more quickly.

When they finish this task maybe they can put these industrious workers on loan modification and short sale reviews.

- The Bank Slayer

J.P. Morgan Chase, who only weeks ago was busted AGAIN for fraudulent and fabricated documents halts foreclosures just like GMAC (Ally).

Fitch Ratings, which is a credit-rating firm has said that “defects”, i.e. fraud, have been found in foreclosure documents at Chase and that these type of “defects” are industry-wide.  DUH??

It has been widely circulated that Beth Ann Cottrell in her deposition admitted to orchestrating the signing of over 18,000 documents without reviewing them.

The sad but funny part is that J.P. Morgan spokesman Tom Kelly said that he “does not expect to find any factual problems or that customers have been harmed, but if we do find any cases we will take appropriate action.”  REALLY?  Like what, put up a bond to cover the homeowner when Fannie Mae, Freddie Mac or the Treasury department comes looking for the house that Chase stole.   There have been multiple cases of more than one “owner” of the debt looking to collect.

Want an example…I’m looking at a foreclosure notice in my office for one of our clients that “claims” that Bank of America, through BAC Home Loans Servicing, L.P., owns the mortgage debt and has the right to foreclosure, in other words has the Note and the Deed of Trust for this borrower.

Hi, I'm Bank of America. I own you!

Problem is that they DON’T.  Want proof, look here.

Hi, I'm Freddie Mac and I own you

Hi, I'm Freddie Mac and I own you 2

Freddie Mac bought the debt and most likely sold it into the securities market.  But at a minimum BofA doesn’t have it.

This kind of junk is wide-spread and the norm for most of these mortgage servicers.

If you or someone you know is facing a foreclosure or trying to get a short sale pushed through then get an attorney who specializes in SUING banks not just some yahoo with a J.D. that claims he knows how to do loan mods or short sales and/or deed-in-lieu’s.

These deals can be won with litigation.  Proof is in the pudding (or in this case in the courts.)

Below is the article from today in the Washington Post.

- The Bank Slayer

J.P. Morgan will halt foreclosures

By Ariana Eunjung Cha
Washington Post Staff Writer
Thursday, September 30, 2010; A1

J.P. Morgan Chase, one of the nation’s leading banks, announced Wednesday that it will freeze foreclosures in about half the country because of flawed paperwork, a move that Wall Street analysts said will pressure the rest of the industry to follow suit.

The bank’s decision will affect 56,000 borrowers in 23 states where allegations of forged documents and signatures and other similar problems are being used to try to overturn court-ordered evictions. Yet the impact may be much broader, given J.P. Morgan’s stature in the industry. If other banks adopt the same approach, the foreclosure process in many parts of the country will grind to a halt.

Officials at Fitch Ratings, a credit-rating firm that measures the health of companies, said the “defects” found in foreclosure documents at J.P. Morgan are industry-wide. Underscoring that concern, Fitch said it is considering whether to lower the grades it gives to the mortgage servicing divisions of the nation’s largest lenders.

“Over the next few weeks, we expect to see more and more companies come out with similar announcements,” said Diane Pendley, a managing director at Fitch.

The paperwork problems at J.P. Morgan mirror those uncovered last week at another large mortgage lender, Ally Financial. But J.P. Morgan’s decision is expected to have a much greater effect on the industry because it is held in high regard by its peers. By contrast, Ally, formerly known as GMAC, is still under the cloud of a $17 billion federal bailout package that it has been unable to pay back.

Both firms are investigating whether foreclosure files were improperly assembled, and whether their employees failed to review the documents even as they signed off on them. A growing number of homeowners – even those who missed their mortgage payments – are now scrambling to challenge the proceedings, weighing down an already overburdened court system.

J.P. Morgan had declined to address the matter until Wednesday. But in a sworn deposition, one of the bank’s employees, Beth Ann Cottrell, admitted that she and her team signed off on about 18,000 foreclosures a month without checking whether they were justified.

J.P. Morgan spokesman Tom Kelly said Wednesday that the firm “does not expect to find any factual problems or that customers have been harmed, but if we do find any cases we will take appropriate action.”

In addition to the measures that private lenders have taken, four states – California, Colorado, Connecticut and Illinois – have called for a moratorium on all foreclosures initiated by Ally, while attorneys general in seven other states have opened civil or criminal investigations related to flawed foreclosures.

Even as the extent of the problems has become more apparent, the Treasury Department has declined to answer specific questions about the matter since it surfaced last week.

On Wednesday, Treasury spokesman Mark Paustenbach said that officials have been in touch with Ally and that they expect it to take “prompt action to correct any errors.” He added that the agency is “monitoring their progress.”

Treasury officials raised the issue personally with Ally chief executive Michael Carpenter during a recent meeting, according to an administration official.

Yet the agency’s response has frustrated some consumer advocates. A few lawmakers have also called for investigations of whether homeowners are being improperly removed from their homes.

Sen. Al Franken (D-Minn.) said Wednesday that the Treasury Department and relevant federal agencies should begin their own inquiry.

“With millions of families losing their homes, it’s inexcusable for companies like Ally to be this patently negligent,” he said. “I want the federal government to hold Ally accountable and ensure that homeowners who wrongly received foreclosure get the compensation they deserve.”

Ira Rheingold, director of the National Association of Consumer Advocates, criticized the Treasury Department, saying it has not been forthcoming about what actions it is taking to the remedy the situation.

The agency has been “protecting servicers and investors and doing what is minimally possible to help homeowners,” he said.

Other consumer advocates say administration officials face a no-win situation. If they determine there is no reason to take action, they may be criticized for not helping homeowners. But taking extreme measures such as calling for a national moratorium on foreclosures could hurt the economy and damage the housing market.

Mark Zandi, chief economist for Moodys.com, said that, in the worst-case scenario, the document-processing problems could lengthen the foreclosure process from three years to as long as a decade, especially if homeowners use the flawed paperwork to appeal their evictions.

The long holdup could have “macroeconomic consequences” as a destabilizing force on housing prices. Banks could become more unwilling to extend credit to households or to small-business owners who use homes as collateral. And investors who had been keeping home prices propped up by buying foreclosures may stop and never come back.

He added, however, that it is still an open question how the courts will handle the paperwork problems.

Ally officials on Wednesday declined to comment on any ongoing or potential investigations, but they have said that they are confident that “the processing errors did not result in any inappropriate foreclosures.”

Company officials have declined to disclose how many loans may be affected and how much remedying the issue might cost, but spokeswoman Gina Proia said the firm “does not anticipate significant adverse effect on Ally related to this matter.”

The answer is very likely YES; as in both.

If you are listing and selling short sales then your seller very likely needs not only you as a licensed agent to sell the real estate (and we recommend only the use of REALTORS in good standing with their local boards and MLS) but also the use of an attorney.

Why?  Very simply you as the listing agent are inherently making recommendations to the seller about the outcome of his debt associated with his or her’s mortgage.  During a short sale, you are drawing, delivering and recommending to the seller a legal conclusion and the impacts it may have on his obligations to the debt.

Most large mortgage banks such as Bank of America, Chase, Citi, GMAC & Wells Fargo are pursing the seller for the deficiency between the net to them during the sale and the amount owed by the homeowner.  As the REALTOR you don’t want any part of suggesting to a homeowner that a short sale will resolve the situation.

What to do about it?

1. Don’t create your own “special forms” or copy others to use in your seller’s short sales.  This is strictly forbidden.
2. Have the seller hire the attorney to do the “legal” work.  While you focus on seller the home.
3. Don’t try to sneak extra fees by the bank that you are not licensed to collect.

As most licensed agent know, lawyers are prohibited from receiving commission as part of a real estate transaction (unless the have a real estate license).  Furthermore, most reputable lawyers don’t want to practice real estate.  They simply want the best deal for the client (seller).

Below is information from the mandated Legal Update that most agents are required to take for MCE.

- The Bank Slayer

Brokers and the Unauthorized Practice of Law

Chapter 81 of the Government Code defines the practice of law and prohibits persons who are not licensed attorneys from practicing law.

TREC rules are clear on limitations that licensees must follow with respect to such matters.

TREC rules (22 TAC §537.11) state that when negotiating contracts binding the sale, exchange, option, lease or rental of any interest in real property, a real estate licensee shall use only those contract forms promulgated by TREC.

The only exceptions to the foregoing rule are:

• transactions in which the licensee is functioning solely as a principal, not as an agent;
• transactions in which a governmental agency requires a different form;
• transactions for which a contract form has been prepared by the property owner or prepared by an attorney and required by the property owner;
• transactions for which no form has been promulgated by TREC, and the licensee uses a form prepared by a Texas-licensed attorney and which is approved by the attorney for the particular kind of transaction involved.

The rule continues and provides that the licensee may NOT:

• practice law, offer, give nor attempt to give legal advice, directly or indirectly;
• act as a public conveyance;
• give advice or opinions as to the legal effect of any contracts or other such instruments;
• give opinions concerning the status or validity of title to real estate;
• attempt to prevent nor discourage any principal from employing a lawyer; and
• draw or prepare documents fixing and defining the legal rights of the principals to a transaction.

The foregoing does not limit the licensee’s fiduciary obligation to disclose all pertinent facts that are within the knowledge of the licensee, including such facts that might affect the status of or title to real estate. When completing real estate forms, the licensee may fill in only the blanks provided. The licensee may not add to or strike matter from the form except that the licensee may add factual statements and business details desired by the principals and may strike only matter that is desired by the principals and as is necessary to conform the instrument to the intent of the parties.

If there is a promulgated addendum, lease or other form that addresses a factual statement or business detail, the licensee must use that form to address the factual statement or business detail.

The rules do not prevent the licensee from explaining to the parties the meaning of the factual statements and business details contained as long as the licensee does not offer or give legal advice.

The rules also expressly state that when it appears that there are unusual matters involved in the transaction (which should be resolved by legal counsel before the instrument is executed) or that the instrument is to be acknowledged and filed for record, the licensee shall advise the principals that each should consult an attorney.

Finally, a licensee may not employ, directly or indirectly, an attorney nor pay for the services of an attorney to represent any principal to a real estate transaction in which the licensee is acting as an agent. The licensee may employ and pay for the services of an attorney to represent only the licensee in a real estate transaction, including preparation of the contract, agreement, or other legal instruments to be executed by the principals to the transactions.

It is interesting to note that the subject of the vast majority of litigation involving TREC forms has been the language inserted into special provisions or other blanks in the contract forms. A poorly drafted clause can lead to placing the licensee in a precarious position if the language inserted in special provisions or other blanks is the cause or source of the dispute.

For the most part BAC Home Loans Servicing, LP is the pits.   Faxing documents several times in a  row because BAC “lost them” or got a new fax number has been the norm for a long time.   Before Equator kicked in (which is a whole other story) Bank of America was consistently the slowest servicer in helping homeowners with short sales or loan modifications.

While the speed at which they have been approving short sales has improved, I believe in a large part this is due to their new standard policy of pumping out an approval that simply releases the lien on the home without forgiving the borrower the deficiency balance.   This can be deadly for the homeowner and the real estate agent who likely advised them to accept the short sale offer.

- The Bank Slayer

Thanks to Robert Doggett @ Texas RioGrande Legal Aid for the following post.

Bank of America N.A. and its wholly owned subsidiary, BAC Home Loans Servicing LP, have been sued by 15 homeowners and the Texas Housing Justice League for abusive servicing practices.  The Texas suit alleges:

This lawsuit complains … of a systematic home loan servicing scheme that includes hours of telephone runaround, misleading and inconsistent information, lost correspondence, verbal abuse, and extensive delay, all of which have documented costs not only in terms of money, but in health. The facts in this case reveal the harsh reality that underlies the loan servicer’s press statements about loan modifications and forbearance agreements following collapse of the U.S. housing market.

Harryman, et al., v. Bank of America N.A., and BAC Home Loans Servicing LP, US District Court, Southern District of Texas, Victoria Division, 6:10-cv-51, Original Complaint at 1 here.

It would be hard to imagine that Bank of America and BAC will fight the facts of the case; the question will likely be whether they can get away with it.  The servicer will likely claim that poor “customer service” is something that must be accepted like a slow waiter or a bad movie.  The difference is of course that homeowners are not merely customers that should expect to be mistreated and lied to — homeowners have a contract with the holder of their home loan and these servicers are the agents for the holder — and moreover, servicing a home loan is not in the realm of someone forgetting your fries or being tricked into seeing Gigli.

Many of the Plaintiffs were told that they were eligible for loan modifications or other workout assistance, only to spend months being shuffled through Defendant BAC’s “Home Retention,” “HOPE”, “Foreclosure,” “Bankruptcy” and “Collections” departments with no resolution. Others simply wanted to know that they had been reviewed accurately for eligibility in any available programs, that a denial of assistance was final, and that their arrearage had been correctly calculated. Instead of providing Plaintiffs with basic information about the servicing of their loans and providing timely screenings for workout assistance, however, Defendant BAC misrepresented material information to the Plaintiffs about their loans, and forced them into a scheme of operation so dysfunctional that the constant barrage of misinformation, misdirection, and deliberate inactivity amounted to abuse and harassment.

Plaintiffs describe feeling “harassed,” “like a yo-yo,” and “blocked at every turn.”  When Plaintiffs called Defendant BAC the information they received over the telephone often conflicted with written statements or prior telephone conversations. In many of the telephone calls Defendant BAC spun Plaintiffs in a labyrinth of transfers from one department to another and back again. Plaintiffs spent hundreds of hours on the telephone, explaining their stories to a different person each time they called; often they were transferred between departments, knowing they would never speak to the same person again, and wondering if the information being provided would be contradicted by the next person they spoke with. Often, it was.

Harryman, et al., v. Bank of America N.A., and BAC Home Loans Servicing LP, US District Court, Southern District of Texas, Victoria Division, 6:10-cv-51, Original Complaint at 5-6 here.

While servicers will likely complain about the heavy caseloads and large number of loans in default that require attention — one thing is certain, the foreclosure arm of these servicers and their contractors have managed to deal with the heavy caseloads quite well.  If servicers can foreclose on behalf of these lenders at a record pace, they can provide accurate, helpful, timely information to the other party to the contract — the homeowners.

The Texas suit does not merely seek monetary relief, it also seeks injunctive relief as well in an effort to actually encourage or force servicers to make real changes and eliminate these complaints:

Requests to speak with supervisors or managers were met with resistance. During the course of telephone calls to Defendant BAC, Plaintiffs often found themselves disconnected after waiting on hold to speak to a supervisor, or were told that no supervisors were available. Some Plaintiffs sought out face-to-face interviews by contacting Bank of America branch offices, but simply found themselves on speakerphones with the same unaccountable departments that had previously been providing them with misinformation by telephone. Written communications did not fare better. Plaintiffs’ written submissions were often lost or misplaced.  Plaintiffs were asked to sign the same documents three, four or even five times, and were asked to provide the same information repeatedly. Many of the Plaintiffs were assigned multiple “negotiators” who would not return telephone calls, or provide timely information to Plaintiffs.

Plaintiffs’ experiences are not isolated incidents, but instead reveal a pattern and practice by Defendant BAC of deliberately misinforming borrowers in default or at risk of default, and refusing to respond to Plaintiffs’ legitimate, written and oral requests for information.

Harryman, et al., v. Bank of America N.A., and BAC Home Loans Servicing LP, US District Court, Southern District of Texas, Victoria Division, 6:10-cv-51, Original Complaint at 5-6 here.

If servicers treated lenders the same way that they treat homeowners, their businesses would disappear.  Let’s hope this reform effort catches on, and servicers make changes without the necessity of litigation or a magician.