After a lull in foreclosures in the wake of state-level litigation stemming from unscrupulous foreclosure practices, the dust has settled and the path has been cleared for foreclosures to ramp up again. Banks in the hot seat were known to hold off on processing foreclosures to maintain appearances during the proceedings, but now that a settlement has been reached the foreclosure machine is revving back up. Sadly, fly-by-night foreclosure rescue scams are becoming more prominent, and underwater homeowners are warned to avoid companies claiming to be able to negotiate away their foreclosure problems. A new option for mortgagees is to challenge the loan servicer to prove they own the home or the loan, which they often cannot do because of the mortgage bundling and selling practices that helped create the crisis in the first place. For more on this continue reading the following article from JDSupra.
Contrary to some recent rosy predictions of a recovering housing market, thousands of homeowners are still underwater on their mortgages and lawyers who represent homeowners say the next wave of foreclosures is looming.
Companies that track foreclosures have already seen a rise since the beginning of the year. Lawyers working in the trenches with distressed homeowners see no let up.
“We’re constantly deluged by calls,” said Patrick Dunlevy, a Los Angeles attorney with the country’s largest pro bono law firm who represents consumers who have been defrauded.
“The numbers are showing huge waves coming and foreclosures already filed,” said April Charney, a lawyer who provides legal services to low income clients in Jacksonville, Fla., one of the worst-hit states in the foreclosure crisis.
Ironically, one of the reasons more consumers may lose their homes is that some major banks recently reached a settlement over illegal foreclosure practices.
“The banks held off on foreclosures so they would look good during settlement negotiations. Now that the settlement is wrapping up, those banks – Bank of America, Citibank, Chase and Ally – are going to start processing more homes for foreclosure,” said Dunlevy.
He added that the banks involved in the settlement account for about 38 percent of mortgages, while Fannie Mae and Freddie Mac make up the majority of mortgages.
Another reason for the new rise in foreclosures is the still-stagnant economy leaving families one paycheck or one illness away from going underwater on their homes.
Rescue scams continue
A sad phenomenon in the wake of the foreclosure crisis is that homeowners desperate to keep their homes are turning to companies promising help in getting loan modifications that turn out to be scams.
“Foreclosure rescue scams are our number one complaint right now,” said Dunlevy.
Some states, including California, have passed laws regulating companies that advertise as foreclosure consultants, such as requiring that they actually secure a loan modification for a homeowner before taking money.
But, according to Dunlevy, in spite of these laws, scammers have become even bolder and more brazen. Whereas in the past, fly-by-night foreclosure rescuers charged $2,500 – $3,000 and would then disappear with the money, Dunlevy said he is now seeing scams where so-called foreclosure consultants charge $5,000-$7,000 up front, plus trick struggling homeowners into paying their monthly mortgage payments to them with the false claim that they will pass the money on to the bank while they renegotiate their loan. Homeowners victimized by such scams have unknowingly paid up to $25,000 before they realize they have been scammed, falling further behind on their mortgages, said Dunlevy.
A major problem preventing homeowners from getting back on their feet is that banks are not giving many loan modifications. Dunlevy has filed three class action lawsuits accusing Bank of America and Wells Fargo of not providing relief on mortgages that it promised.
“It turns out to be more financially positive for those servicing the loans to foreclose than to modify,” said Dunlevy, who added that when the banks were bailed out in 2008, they promised to provide loan modifications to homeowners and were projected to have provided about 4 million loan modifications by this time, but have actually provided less than 1 million.
Advice on fighting foreclosure
Homeowners facing foreclosure have legal arguments against the loan servicer.
There may be a new wave of foreclosures, but the same old problems with securitization of mortgages – where loans are bundled and sold over and over without the proper documentation – still exist, Charney said.
In virtually every case where she is defending a homeowner against foreclosure, she is able to challenge whether the loan servicer can prove it owns the loan by forcing it to come up with documentation they rarely have.
“The lawsuit is totally flipped. It’s no longer a foreclosure; it’s a prosecution of civil fraud on the court. … I tell the court that the absence of transferring documentation is evidence of fraud on the court and the loan servicer was fully aware of the missing documents when it filed the foreclosure,“ she said.
She also said most homeowners do not know that loan servicers are required to follow guidelines that give homeowners who fall behind on their mortgages special “intensive care” treatment before the foreclosure process kicks in.
If homeowners are looking for help in getting a loan modification, Dunlevy warns them to be careful of scammers and to look for a HUD-certified counselor.
Most homeowners do not contact a lawyer quickly enough.
Charney said a homeowner facing the threat of foreclosure should look for a consumer attorney who practices foreclosure defense full time and can prove past success in court filings or orders.
She recommends homeowners in the same neighborhood band together and pitch in to pay for a lawyer together, since their property values are tied to every house on their block or every unit it their homeowners’ association.
“I tell people: When you have a toothache, go to a dentist. When you have a home ache, go to a lawyer,” Charney said.
This article was republished with permission from JDSupra.