Great article from Steve Beede, Attorney.  The lender from the seller or short sale negotiator will sometimes tell you go handle it this way described below, but don’t fall for it…

Steve Beede

FNMA & FREDDIE MAC KILL SHORT SALES.
BIG BANKS PUSH SELLERS TO COMMIT MORTGAGE FRAUD

A great many of the homes for sale today have more than one loan but there will not be enough sale proceeds to pay them both. That’s a short sale. To bridge this gap, a negotiation takes place whereby the first lender may agree to give some of the sale proceeds to a junior lender, such as a home equity loan, to get them to agree to release their lien. The typical amount given by first lenders to junior lenders is $3,000. But often that is not enough and the junior lenders demand that the Seller contribute more money to them. If they can do this, the seller avoids foreclosure. While this has been a common practice, the rules are now changing with very negative consequences for sellers, lenders, and the real estate community.

Understandably, a first lender wants to get paid in full before any money goes to a junior lender. If the seller has money that they could contribute to share in the loss, the first lender wants that money too. But often, sellers are giving money directly to junior lenders with or without the first lender’s consent or knowledge.  And that’s where the problem comes in. Today, nearly 90% of home loans are owned by FNMA, Freddie Mac, and other government sponsored enterprises (GSE’s). These are now demanding that there can be no seller contribution to a junior lender. The only money a junior lender can get in a short sale is what the first lender offers them. Recently, Freddie Mac rejected 3,000 Bank of America short sales where BofA had allowed the sellers to make payments to junior lenders or even to the sale closing costs!

This has now spread throughout the real estate market. Short sales with multiple loans are being killed by first lenders refusing to allow any seller contribution to anyone other than the first lender. And this has led some junior lenders to push sellers to commit mortgage fraud.

A real estate transaction is supposed to be “transparent”.  All parts of the deal are to show up on the escrow company’s Closing Statement, the HUD1. However, some junior lenders and some agents have urged sellers to make contributions to junior lenders “outside” of the escrow so they would not show up on the HUD1. While this may get the deal done and avoid foreclosure, participants are committing mortgage fraud by knowingly closing the sale with misrepresentations or omissions on the HUD1.  If caught, this is both a Federal and a State crime. While the impacted first lender could invalidate the short sale, the particpants, ie: sellers, buyers, agents, and junior lenders, could all face criminal prosecution.

If you are being pushed to commit mortgage fraud, don’t give in. Contact your lawyer for advice and consider reporting the second lenders to the FBI or your State’s Attorney General.  There are alternatives that might still get the deal done. But mortgage fraud is not the solution.

Check out this link on zillow for an article they posted recently…

http://realestateinsidernews.com/breaking-real-estate-news/2011-housing-predictions-homes-losing-1-in-value-per-month/

Upside-down borrowers, frustrated with a lack of lender willingness to modify their loans and desperate to keep their homes, often turn to lawyers who promise to stop foreclosures and force lenders to modify loans. But all too often what appears to be a meritorious Complaint gets quickly thrown out by the Courts and the borrower ends up still losing their home… plus thousands of dollars in legal fees.

Significantly, in these cases the borrower typically requests and is granted a Temporary Restraining Order (TRO) to stop the pending foreclosure sale.  It appears as a quick victory. But a TRO is just a short-term stoppage for approx. two weeks at which point the borrower must convince the court to grant a Preliminary Injunction stopping foreclosure for the entire time it takes to get the case to trial which could be two years or more.  Here is where the lenders are winning the war.

The following analyzes several of the legal arguments raised against the lenders and what has happened in the Courts. The cases cited all originated in California state courts but were decided in the Federal courts. The decisions appear consistent with what is happening in other states.

1.  I MADE ALL THE TRIAL MODIFICATION PAYMENTS AND GAVE THEM ALL THE DOCUMENTS THEY ASKED FOR. THE COURT SHOULD COMPEL THEM TO MODIFY MY LOAN   -  This argument is often raised as part of a lawsuit to stop a foreclosure from occurring.  The underlying arguments are: 1) the lender did not handle my HAMP modification application properly (Negligence claim); or 2) I met the lender’s or HAMP’s loan mod requirements but the lender denied the modification anyway (Beach of Contract claim) ; or 3) the lender never intended to give me the modification, they just wanted to get my Trial Mod payments (Fraud claim).  Most loan modifications on homes are being done under the government’s Home Affordable Modification Program (HAMP).  Where a borrower doesn’t fit HAMP’s guidelines, many lenders have their own “proprietary” modification programs.  The legal question is whether a borrower can force the lender to modify if they fit within the guidelines.  The courts routinely are saying: “No”.  In January, 2011, in the case of Phipps v Wells Fargo Bank, the Federal Court ruled that a Borrower has no right to sue a lender to force a HAMP modification. Even before this, in the 2009 case of Pantoja v Countrywide Home Loans, the Federal Court ruled that California laws do not impose a duty to modify a mortgagor’s loan.

2.   THE LENDER PROMISED ME THEY WOULD EXTEND THE FORECLOSURE SO I COULD COMPLETE MY MODIFICATION BUT THEY THEN FORECLOSED ANYWAY. THE COURT SHOULD UNWIND THE SALE AND GET MY HOME BACK  – Again the courts are routinely saying: “No”. In the 2010 case of Mehta v Wells Fargo Bank (Fed Ct decison 3/29/2011), the Court ruled: a gratuitous oral promise to postpone a sale is ordinarily unenforceable. Typically the loan agreements require that any modification be in writing and signed by all. Alternatively, the borrower must have proviuded the lender with some “consideration” to which the lender is not otherwise entitled. Merely submitting modification application documents is not consideration nor is it enough to have continued making Trial Mod payments.  Without a written agreement with the lender extending the sale, the foreclosure will not be rescinded.

3.   IF THE LENDER CANNOT PRODUCE THE ORIGINAL PROMISSORY NOTE, THE COURT SHOULD BAR THEM FROM FORECLOSING  -  This “standing” argument has received extensive publicity natonwide, especially concerning the rights of MERS to foreclose.  Although early rulings tended to vary, Courts are more generally ruling in favor of the foreclosing lenders. As stated in Pantoja v Countrywide Home Loans, under California law there is no requirement to produce the original note prior to completing a non-judicial foreclosure (Trustee’s Sale).  A different result could possibly arise in a Judicial Foreclosure although that process is extremely rare in a home foreclosure.  Similarly, the courts agree that MERS has a right to foreclose when MERS is named in the Deed of Trust (which is most often the case).

4.   I WOULD HAVE PAID BUT THE FORECLOSURE NOTICE WAS DEFECTIVE  – California has a “Tender Rule” which requires the borrower to allege and to prove not that they “concievably” could have paid, but it was “plausible” that they would have paid.  Simply put, actual proof of real capacity to pay is needed.  Court rulings are consistent: If you couldn’t pay anyway, a defective notice was not the cause of the foreclosure.

The bottom-line in all of this is to be wary in believing that just because the lender may have mishandled your loan modification, a court will help you out.  At a basic level, a loan is a contract between the lender and borrower in which the lender gives the borrower money in exchange for the borrower promising to repay the loan on the terms in the written agreement.  Courts will generally not interfere in the contractual agreements of parties unless one of the parties breaches the agreements or does some other illegal action.

Obviously the above analysis just touches the surface of where the law is today.  Hundreds and perhaps thousands of cases are moving through the courts as borrowers seek to keep their homes.  In some cases, different courts will reach different rulings from those stated in this Article.  However, it does appear that these decisions are likely to be widely followed.  In fact, just yesterday a Sacramento Superior Court judge denied a Preliminary Injunction after having granted a TRO and allowed the foreclosure to continue. The judge’s legal reasoning cited all of the cases identified above and more.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, or if you are considering suing your lender, get competent legal advice in your State immediately so that you can determine your best options. 

If you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

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