Anyone who has been involved in dealing with banks in the realm of loan modification have come to accept (at least at some level) that banks move with glacial speed. Well, for those with a high credit score who actually just want to close a loan - this may be the way to go.....
The Arizona Supreme Court just weighed in on the issue of attorney's fees in tax lien foreclosure cases. Under Arizona Revised Statutes section 42-18206 (2010), a tax lien purchaser is entitled to a judgment for costs and reasonable attorney fees if the delinquent taxpayer redeems the lien after the purchaser commences a foreclosure action. After years of litigation, the Arizona Supreme Court held that a tax lien purchaser is only entitled to reasonable attorney fees incurred before the tax lien is redeemed and a certificate of redemption issues.
Under Arizona Revised Statutes ("A.R.S.") section 42-18206 (2010), a tax lien purchaser is entitled to a judgment for costs and reasonable attorney fees if the delinquent taxpayer redeems the lien after the purchaser commences a foreclosure action. We hold that a tax lien purchaser is only entitled to reasonable attorney fees incurred before the lien is redeemed and a certificate of redemption issues.
Under Arizona Revised Statutes ("A.R.S.") section 42-18206 (2010), a tax lien purchaser is entitled to a judgment for costs and reasonable attorney fees if the delinquent taxpayer redeems the lien after the purchaser commences a foreclosure action. We hold that a tax lien purchaser is only entitled to reasonable attorney fees incurred before the lien is redeemed and a certificate of redemption issues.
The court of appeals noted that this statute neither places a "temporal limit" on recoverable fees nor limits eligibility for fees "to certain matters and not others." The Arizona Supreme Court noted though although the legislature did not expressly place temporal and subject matter restrictions in the text of A.R.S. § 42-18206, such restrictions are apparent from the context of the statutes governing tax lien redemption.
The Court went on to say that A.R.S. § 42-18206 protects against a loss to the purchaser from pre-redemption litigation, but it does not ensure a profit. Nor should it subsidize unlimited litigation to contest redemption in pursuit of that profit.
In its most foreceful reasoning, the Court stated: "Thus, interpreting § 42-18206 to allow post-redemption fees and costs skews the statute to subsidize unsuccessful litigation. Such a reading creates an incentive for protracted and potentially meritless litigation. It allows tax lien purchasers to coerce landowners otherwise able to redeem to forfeit their property by the threat of continued litigation conducted at the landowners' expense. We discern neither a legislative intent nor any sound policy reason to award fees for a losing argument, especially when doing so encourages protracted litigation, discourages redemption, and interferes with litigants' and the courts' interests in finality."
Though this decision does not undercut the basic protections afforded tax lien purchasers in the statutory scheme, unfortunately, this decision does leave tax lien purchasers slightly exposed to the costs associated with having to file for a judgment after a property owner redeems and refuses or is unable to pay the costs and fees incurred by the tax lien purchaser. A strict reading of this opinion seems to indicate that seeking a tax lien holder seeking a judgment after a redemption, for failure to pay the pre-redemption costs and fees incurred, will not be recoverable.
I took three different calls this past week from homeowners who have sought the assistance of Bank of America's servicing subsidiary, BAC Home Loans Solutions, for a loan modification. What most unsuspecting homeowners do not realize is that BAC simply has no vested interest in actually making good on the false promises it continues to peddle to these homeowners. Is it any wonder that the Arizona Attorney General has intervened. In summing up the over 400 complaints it has received about Bank of America and its servicer BAC's handling of loan modifications, the A.G. states the following in its Complaint against these entities:
"Defendants have continued to engage in widespread consumer fraud by misrepresenting to Arizona consumers whether they were eligible for modifications of their mortgage loans, when Bank of America would make a decision on their loan modification requests, whether Bank of America had approved their modification requests, why Bank of America declined their modification requests, and whether and when Bank of America would foreclose upon their homes."
BAC, like many other servicers, systematically lulls homeowners into believing that a loan modification is something other than a pipe dream. However, and as noted in the A.G.'s Complaint, BAC, again, like many other servicers, has been "dual tracking" delinquent loans. While BAC promises that it is working on a homeowner's loan modification, it is at the same time, in a different department, pushing forward with a foreclosure action. Indeed, servicers habitually allow howeowners to make lower "trial modification" payments and then send the homeowner a Notice of Intent to Accelerate. So the servicers accept the lower payment and then use the fact that the homeowner is paying less each month to create lump sum delinquencies that most homeowners cannot pay.
Indeed, in one case I reviewed this past week, the homeowner had never missed a payment, but sought a loan modification to try and ease their struggle. They sent in the requisite paperwork, then sent it in again, then sent it in again. They were promised a lower trial modification payment, which they dutifully made each month for several months, and then they received word a Notice to Accelerate. While BAC was happy to take the new trial modification payments each month and cash those checks, it was at the same time reporting to credit agencies that the homeowners were delinquent each month (due to the difference between the old payment and the lower trial modification payment). BAC was again dual tracking this loan towards foreclosure.
We would have been far better off if the banks had just said to homeowners, "Sorry, we are not offering any loan modifications. Make your payment or lose your house." Instead, in no small part due to the federal HAMP program, howeowners are instead lulled into the very mistaken belief that they are going to receive a loan modification. Well, guess what, BAC, like most other laon servicers, get paid whether they string you along or foreclose. Indeed, it is best to "dual track" by stringing people along and then foreclosing on them. That way, the servicer makes the most money - even if it is contrary to the best interest of the actual investor holding the mortgage. Perverse times we live in, eh?
A great article by Don Lee - Tribune Washington Bureau - highlights how underwater mortgages are a serious contributor to the dismal performance of the national economy. It is estimated that there are 15 million homeowners who are undewater on their mortgages, many of whom can and continue to pay on their mortgage, but have no means to refinance and are stuck paying on homes in which the value may not return for 10-15 years. In other words, they are stuck. Lenders are not likely to offer any modifications so long as they are current on their loans. So for many, it is continue to pay and hope for a quick (though unlikely) recovery in home prices, walk away and suffer the attendant consequences, or hope that lenders become more proactive in offering modification or refinance options. If the economy continues to drag, which by all accounts it will (even with new quantitative easing by the Federal Reserve), the threat of more strategic walkaways in non-recourse states is likely to become a more serious problem.
A San Diego police officer and his wife recently pleaded not guilty to accusations that they trashed their foreclosed home in Riverside County, taking $44,000 in appliances and fixtures with them when they moved out. Both have been charged with one felony count of damaging or carrying away items from a foreclosed property. Damage was estimated at over $165,000.
If convicted, they could face up to four years in prison. As reported in the Press-Enterprise and the Signon Sand Diego, the damage included stones smashed off the facade, dye poured on carpets, wiring pulled out of walls, spray-painted the walls, cut and chopped-down shrubs tossed in the backyard swimming pool, and pulled out electrical wires and cut them.
Supervising Deputy District Attorney Arthur Chang said the damage was "indicative of a great deal of maliciousness and bitterness." Robert Acosta's attorney, Albert Arena, raised questions about the ownership of the property and the conduct of the Acostas' lender. He said it was "a stretch" to charge the couple with a crime Robert Acosta is a 12-year veteran of the San Diego Police Department and served eight years in the U.S. Marine Corps. San Diego police officials said Acosta is on administrative leave. Riverside County authorities said this is the only case they can recall in which a former homeowner has been charged with a crime for damage to a foreclosure. A witness saw the Acostas June 12 removing items from the home, court records state. Later, investigators recovered $7,920 in stolen property, including appliances, chandeliers, shutters, iron gates and exterior lights in the Acostas' storage units in San Diego County. While a likely majority of homeowners in Arizona will be protected by the anti-deficiency statutes in the event of a foreclosure, if a homeowner causes "waste," the lender can seek recourse against those borrowers. It will be interesting to see whether criminal charges become more prevalent as the foreclosure crisis continues.
On October 20, 2010, the White House issued the following Fact Sheet:
FACT SHEET: Federal Government Efforts to Support Accountability, Stability and Clarity in the Housing Market
Today the Department of Housing and Urban Development, the Department of the Treasury, the Department of Justice, the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, the Federal Trade Commission, the Securities and Exchange Commission, the Federal Housing Finance Agency and the Office of Thrift Supervision met to discuss ongoing interagency action to support accountability, stability, and clarity in the housing market and residential mortgage backed securities markets.
We are working together to review practices that do not comply with state foreclosure law or applicable federal laws, including taking the following actions:
• The Federal Housing Administration (FHA) has been reviewing servicers for compliance with loss
mitigation requirements. These reviews are being broadened to include a larger range of processes,
focusing in particular on servicer procedures during the final stages of the foreclosure process. These
reviews are expected to be complete within nine weeks.
• The Financial Fraud Enforcement Task Force, led by the Department of Justice, has brought together more than 20 federal agencies, 94 US Attorney’s Offices and dozens of state and local partners to share information about foreclosure and servicing practices. The Task Force’s collaborative efforts are ensuring that the full resources of the federal and state regulatory and enforcement authorities are being brought to bear in addressing this issue.
• The Financial Fraud Enforcement Task Force has also been coordinating with State Attorneys General in their joint review of “robo-signing” practices in foreclosure cases.
• The Department of Justice, including through the Executive Office for U.S. Trustees, is also working
with regulators to investigate and, where appropriate, litigate against servicers, their law firms, and
third-party providers regarding their foreclosure and bankruptcy processes.
• The Federal Housing Finance Agency (FHFA) directed Fannie Mae and Freddie Mac to remind
servicers of their contractual and legal responsibilities in foreclosure processing. On October 13, FHFA directed Fannie Mae and Freddie Mac to implement a policy framework for dealing with possible foreclosure process deficiencies that requires servicers to review their foreclosure processes and fix any processing problems they identify. The FHFA policy framework includes specific steps servicers should take to remedy mistakes in foreclosure affidavits so that the information contained in the affidavits is correct and that the affidavits are completed in compliance with applicable law.
• The Office of the Comptroller of the Currency (OCC) directed all large national bank servicers on
September 29 to review their foreclosure management processes, including file review, affidavit
processing and signatures, to ensure that the processes are fully compliant with all applicable state
laws.
• The Office of the Comptroller of the Currency and the Federal Reserve System are jointly examining
foreclosure and securitization practices at the nation's largest servicers. The examinations will include intensive review of the firms’ policies, procedures, and internal controls related to loan modifications, foreclosures and securitizations, seeking to determine whether systematic weaknesses are leading to improper foreclosures. The reviews will also evaluate controls over the selection and management of third-party service providers.
• In coordination with the work of the other agencies, the Office of Thrift Supervision (OTS) is reviewing the mortgage related policies, foreclosure processes and staffing levels of the largest servicers it supervises. The OTS has gathered preliminary information through its regional offices about the servicer practices across the country. It also issued correspondence on October 8 to all savings associations involved in servicing residential mortgages requiring the immediate review of their actual practices associated with the execution of documents related to the foreclosure process.
• The Federal Deposit Insurance Corporation is participating in the reviews by the OCC, the Federal
Reserve System, and the OTS of the foreclosure and securitization practices of the largest mortgage
servicers in its role as back-up supervisor. The FDIC also is verifying that the servicers it supervises do not exhibit the problems that others have identified as well as reviewing the processes used by
servicers of loans subject to loss share agreements and other loans from receiverships of failed banks. The regulators are also evaluating foreclosure and securitization practices in electronic registration systems.
• The Federal Trade Commission (FTC) is monitoring servicers under existing public orders to confirm
proper servicing and foreclosure processes, is conducting reviews in line with past servicing abuses
and monitoring the market closely for any fraud or foreclosure scams.
• The US Treasury has implemented a strong compliance framework for the Home Affordable
Modification Program (HAMP) servicers. On October 6, Treasury issued a notice to HAMP servicers
reminding them of their requirement to comply with all applicable state and federal laws, as well as a
reminder that prior to foreclosure sale, servicers must certify to the foreclosure attorney or trustee that
all loss mitigation options have been considered and exhausted. Treasury also recently instructed its
HAMP compliance agent to review internal policies, procedures, and processes for completing the pre- foreclosure certifications at the ten largest servicers.
• In addition to its role enforcing the federal securities laws, the Securities and Exchange Commission
(SEC) has issued proposed rules that would provide greater transparency and disclosures in the
securitization market and provide investors with additional tools to evaluate actions in the securitization market.
I do not wish to come across as too jaded and skeptical, but this trumped up effort by the full panoply of the Federal government seems to be a well-timed effort to say that the administration is doing something about the foreclosure disaster. With the mid-term elections right around the corner, it is only appropriate that it appear that the government watchdogs are doing something, albeit reactionary to scrutinize lenders' foreclosure efforts.
While it seems a nice gesture, I am much more concerned with why we have thrown so much money at the flailing HAMP program (See Jon Prior's article on why TARP has failed) and why we ever allowed Fannie Mae and Freddie Mac to get into the mortgage-backed securities market in the first place. We the taxpayers are the ones mopping this up now.
The Federal Housing Finance Agency, which has served as the conservator of Fannie Mae and Freddie Mac since 2008, is looking to recoup on serious losses that the government sponsored entities have suffered as a result of their heavy purchases of mortgage-backed securities during the hey days of the real estate bubble. The FHFA has hired Quinn Emanuel Urquhart & Sullivan LLP, a large law firm out of L.A. and has issued sixty-five subpoenas to various banks. The probe is focused on private-label securities that were originated by mortgage companies, packaged by Wall Street firms, and then sold to investors. This has the potential to throw open the floodgates of litigation against originators of loans who securitized these loans and sold them to investors like Fannie Mae and Freddie Mac.
With the financial backing of the US government and a large LA law firm set to push forward, the stage is set for a serious inquiry into the originating and securitization practices of many institutions. Quoting Joshua Rosner of Graham Fischer & Co, the Wall Street Journal recently reported if the FHFA is successful in proving that loan files didn't meet underwriting standards or that their ownership chain wasn't properly transferred during the securitization process, that could pave the way for other investors to make similar challenges.
Fannie and Freddie were two of the largest investors in mortgage backed securities during the height of the real estate bubble. "Those securities were often backed by subprime loans and mortgages that required little or no documentation of borrower incomes, which deteriorated sharply once home prices fell." Indeed, Fannie and Freddie purchased $227 billion of bonds backed by subprime and other risky loans in 2006 and 2007.
In the end, they paid the price for trying to keep pace with the returns that investment banks and retail banks were making, all of which led to the financial crisis in 2008. Once again, the US taxpayer is on the hook for those losses, which the FHFA is now trying to recoup. However, some analysts are saying that FHFA is going to have a hard time proving that Fannie and Freddie, which "touted their unparalleled mortgage-market expertise," didn't know what they were buying. Either way, the new associates at Quinn Emanuel are going to have plenty to do in meeting their 2000+ hour billable requirement and the US taxpayer paying dearly for those new associates.
MERS or the Mortgage Electronic Registration Systems, little known before the foreclosure tsunami struck, was developed in the early 1990's by a number of financial entities, including Bank of America, Countrywide, Fannie Mae, and Freddie Mac, allegedly to allow consumers to pay less for mortgage loans, streamline the mortgage process through electronic commerce, and eliminate the need to prepare and record assignments when trading residential and commercial mortgage loans. MERS describes itself as "innovative process that simplifies the way mortgage ownership and servicing rights are originated, sold and tracked." Sounds nice, right?
Well, as detailed by Floyd Norris of the New York Times in his article "Some Sand in the Gears of Securitizing," and elsewhere, MERS has been under attack for its part in the massive securitization of the American housing market.
Indeed, as alleged in a Nevada class action called Lopez vs. Executive Trustee Services, et al., MERS was a very serious contributor to the financial crisis: "Before MERS, it would not have been possible for mortgages with no market value . . . to be sold at a profit or collateralized and sold as mortgage-backed securities. Before MERS, it would not have been possible for the Defendant banks and AIG to conceal from government regulators the extent of risk of financial losses those entities faced from the predatory origination of residential loans and the fraudulent re-sale and securitization of those otherwise non-marketable loans."
In other words, without MERS, transparency would have ruled the day, counties would have been paid their recording fees, consumers, attorneys, and title companies could easily track chain of title, and foreclosures would have been processed much more effeciently. Instead, we have servicers with their own vested interests pitted against investors who cannot readily make decisions about their pooled notes; thus, the entire foreclosure process grinds away glacially, subject to legal attack at every turn.
In an effort to curb the predatory practices of certain "loan modification" companies, claiming to offer loan modification services for an upfront fee, the Arizona Legislature recently passed several laws with some good sized teeth - codified at A.R.S. Sections 44-1378-1378.08.
A.R.S. Section 44-1378.02, for example, prevents a "foreclosure consultant," as defined in A.R.S. Section 44-1378, from doing the following:
1. Claim, demand, charge, collect or receive any compensation until after the foreclosure consultant has fully performed each covered service that the foreclosure consultant contracted to perform or represented that the foreclosure consultant would perform.
2. Claim, demand, charge, collect or receive any fee, interest or other compensation for any reason that is not fully disclosed to the homeowner.
3. Take any wage assignment, lien on real or personal property, assignment of a homeowner's equity or other interest in a residence in foreclosure or other security for the payment of compensation.
4. Receive any consideration from any third party in connection with a covered service provided to a homeowner unless the consideration is first fully disclosed to the homeowner.
5. Acquire, directly or indirectly, any interest in the residence in foreclosure of a homeowner with whom the foreclosure consultant has contracted to perform a covered service.
6. Accept a power of attorney from a homeowner for any purpose, other than to inspect documents as provided by law.
A.R.S. Section 44-1378.05 is where the teeth are, because it contains some serious financial downside to continuing the practices prohibited above:
A homeowner who is injured as a result of a foreclosure consultant's violation of this article may bring an action against the foreclosure consultant to recover damages caused by the violation, together with reasonable attorney fees and costs.
B. If the homeowner prevails in the action, the court may award punitive damages as determined by a jury or by a court sitting without a jury, but the punitive damages shall be at least one and one-half times the amount awarded to the homeowner as actual damages.
The Arizona Attorney General is also given powers to proceed under these new laws. Even before these laws took effect in July 2010, the Attorney General filed suit against Scottsdale-based Guardian Group, LLC, a "loan reduction" service company.
According to a press release from the Attorney General, the company, which markets nationally, made claims it would negotiate with lenders to purchase a consumer’s note for less than face value and sell the note in an investment package to a third-party investor. Guardian Group then told the consumer that it would modify the rates and terms of the consumer’s mortgage loans and reduce the principal owed to 90 percent of current market value.
The lawsuit, filed in Maricopa County Superior Court, alleges the Guardian Group fraudulently represented itself as providing loan reduction services to homeowners struggling to make their mortgage payments. The company charged consumers an average advance fee of $1,595 for mortgage loan refinancing services, which it rarely provided. It collected fees from more than 2,500 consumers for enrollment in its Principal Reduction Program since August 2009.
The Guardian Group is without question not the only company out there doing the same thing. As the Attorney General commented on The Guardian Group, "this company has exploited the financial struggles of hundreds of homeowners by promising them mortgage relief it couldn’t deliver."
First it was the greed of the loan originators and general American public, then it was the greed of the Wall Street firms that securitized all these loans, then it was the greed of the Wall Street bond firms that repackaged these loans into collateralized debt obligations, then it was the greed of the ratings agencies who had no clue of what they were rating, then it was the greed of the investors who didn't know what they were buying, be it collateralized debt obligations or credit default swaps - all of which led to the meltdown in 2008.
Now it is the greed of the mortgage loan servicers intent on stringing home owners along so they can make more fees and the "loan modification" scammers that are intent on getting money upfront and then do little to nothing to earn it. Glad to see a good law in place with some real teeth. Problem is, any recourse against these likely "fly-by-night" companies is going to be tough and expensive at the front end. Always more difficult to chase the money after the fact.
In an effort to curb the predatory practices of certain "loan modification" companies, claiming to offer loan modification services for an upfront fee, the Arizona Legislature recently passed several laws with some good sized teeth - codified at A.R.S. Sections 44-1378-1378.08.
A.R.S. Section 44-1378.02, for example, prevents a "foreclosure consultant," as defined in A.R.S. Section 44-1378, from doing the following:
1. Claim, demand, charge, collect or receive any compensation until after the foreclosure consultant has fully performed each covered service that the foreclosure consultant contracted to perform or represented that the foreclosure consultant would perform.
2. Claim, demand, charge, collect or receive any fee, interest or other compensation for any reason that is not fully disclosed to the homeowner.
3. Take any wage assignment, lien on real or personal property, assignment of a homeowner's equity or other interest in a residence in foreclosure or other security for the payment of compensation.
4. Receive any consideration from any third party in connection with a covered service provided to a homeowner unless the consideration is first fully disclosed to the homeowner.
5. Acquire, directly or indirectly, any interest in the residence in foreclosure of a homeowner with whom the foreclosure consultant has contracted to perform a covered service.
6. Accept a power of attorney from a homeowner for any purpose, other than to inspect documents as provided by law.
A.R.S. Section 44-1378.05 is where the teeth are, because it contains some serious financial downside to continuing the practices prohibited above:
A homeowner who is injured as a result of a foreclosure consultant's violation of this article may bring an action against the foreclosure consultant to recover damages caused by the violation, together with reasonable attorney fees and costs.
B. If the homeowner prevails in the action, the court may award punitive damages as determined by a jury or by a court sitting without a jury, but the punitive damages shall be at least one and one-half times the amount awarded to the homeowner as actual damages.
The Arizona Attorney General is also given powers to proceed under these new laws. Even before these laws took effect in July 2010, the Attorney General filed suit against Scottsdale-based Guardian Group, LLC, a "loan reduction" service company.
According to a press release from the Attorney General, the company, which markets nationally, made claims it would negotiate with lenders to purchase a consumer’s note for less than face value and sell the note in an investment package to a third-party investor. Guardian Group then told the consumer that it would modify the rates and terms of the consumer’s mortgage loans and reduce the principal owed to 90 percent of current market value.
The lawsuit, filed in Maricopa County Superior Court, alleges the Guardian Group fraudulently represented itself as providing loan reduction services to homeowners struggling to make their mortgage payments. The company charged consumers an average advance fee of $1,595 for mortgage loan refinancing services, which it rarely provided. It collected fees from more than 2,500 consumers for enrollment in its Principal Reduction Program since August 2009.
The Guardian Group is without question not the only company out there doing the same thing. As the Attorney General commented on The Guardian Group, "this company has exploited the financial struggles of hundreds of homeowners by promising them mortgage relief it couldn’t deliver."
First it was the greed of the loan originators and general American public, then it was the greed of the Wall Street firms that securitized all these loans, then it was the greed of the Wall Street bond firms that repackaged these loans into collateralized debt obligations, then it was the greed of the ratings agencies who had no clue of what they were rating, then it was the greed of the investors who didn't know what they were buying, be it collateralized debt obligations or credit default swaps - all of which led to the meltdown in 2008.
Now it is the greed of the mortgage loan servicers intent on stringing home owners along so they can make more fees and the "loan modification" scammers that are intent on getting money upfront and then do little to nothing to earn it. Glad to see a good law in place with some real teeth. Problem is, any recourse against these likely "fly-by-night" companies is going to be tough and expensive at the front end. Always more difficult to chase the money after the fact.
Let's start out with this - I'm incensed today. The newest cottage industry to crop up in the wake of the foreclosure tsunami are the loan modifiers. Many of the most notorious loan modification companies were headed by the same individuals that were all to happy to originate loans that never should have been considered in the go-go days of the real estate bubble bath. Now, there may be some legit people out there really trying to help out with loan modifications, including some attorneys perhaps, but most do not require money upfront and promise things they can't deliver on.
I met with someone today who just came from the courthouse steps after learning that his home had been sold at a trustee's sale. He showed up at the sale with all the money necessary (so he thought at least) to reinstate his loan. No can do. The problem for him is that under Arizona's lender-friendly statutory scheme for trustee's sales, he was required to come forward with payment by 5pm the day before the trustee's sale. He didn't know that because the average person on the street would have no reason to know that - that is what we attorneys are apparently for.
The reason I am incensed is that many in the loan modification industry (and many lawyers for that matter), don't understand the law or the dynamics of how servicers are processing loan modifications. It is well established that the servicers of loans have their own financial interest at heart when it comes to loan modifications and they are not too terribly interested in saving people from foreclosure. Indeed, the loan servicers, who often have competing interests to the very investors that own the loans, don't much care whether they foreclose or not, as they get paid. In the end, loan modifications are expensive, time consuming and do not pad the servicers' bottom line, and the servicers run a parallel track of claiming to consider a loan modification and moving along the foreclosure at the same time. See Diane Thompson's very well researched and explained article on why servicers foreclose rather than modify loans. It is a relative expose on the lending industry.
Had the loan modification company that was supposedly trying to help this individual understood the law and the dynamics of how servicers lull borrowers into the trap of believing that a modification is forthcoming, while processing the foreclosure at the same time, this company would have known that this guy needed to come due with the money the day before the sale or attempt to stop the sale if he had a defense. This company falsely believed that the modfication was coming too - a big mistake. This guy paid $1,500 and lost his house. A quick trip to an attorney could have saved this fiasco. We need more education out there - that is for certain. Sad day - yet another preventable foreclosure.
Tax lien investors need to understand the importance of sub-taxing their tax liens in Arizona. When a tax lien investor purchases a tax lien at the February Pima County tax lien sale, for example, that investor then has the right to purchase the next year's delinquent taxes if the owner does not pay the subsequent year's taxes prior to June 1st of each year.
For example, if a tax lien investor purchased a 2008 tax lien at the 2010 Pima County tax lien sale and failed to sub-tax in subsequent years, that tax lien investor subjects herself to another tax lien investor redeeming out her position, thus losing her priority position. Additionally, and perhaps more troubling, is the ability of an owner of record to redeem the tax lien investor's tax lien. Suppose the tax lien investor, who owns the 2008 tax lien, wishes to begin the tax lien foreclosure process after three years (2013). In this example, all the owner of record would have to do is redeem the 2008 tax lien and the investor's lawsuit has been thwarted. However, had the 2008 tax lien holder sub-taxed the 2009, 2010, 2011, and 2012 taxes, not only would there have been no competing tax lien holders, in order for the owner of record to redeem, that owner would have to pay the delinquent taxes for 2008 through 2012, as opposed to just 2008.
While there is certainly the possibility of successfully obtaining a property by only buying a single year's tax lien and not sub-taxing, the chances of redemption by another tax lien holder or the owner of record are substantially higher. If you can afford to sub-tax your liens, do it.
Bank of America, which bought Countrywide Financial for $4 billion in stock in early 2008, has come under pressure from the Massachusetts Attorney General, as a result of Countrywide's notorious lending practices. Bank of America's move is part of an agreement to settle claims over certain high-risk loans made by Countrywide. See link to Wall Street Journal article.
Bank of America's program is limited to Countrywide borrowers whose loan balance is at least 120% of the estimated home value, who are at least 60 days overdue, and who can show that financial hardship makes them unable to meet current payments. The bank estimated that 45,000 customers will qualify for principal reductions averaging more than $60,000. In the end, only the riskiest loans will be eligible. They include sub-prime loans; "option adjustable-rate" mortgages entailing minimal payments now but big increases later; and certain loans that have a fixed rate for two years and then adjust annually.
Any thought that principal reduction is the path the lenders are heading in should consider the limited scope of the agreement between Bank of America and the Massachusetts Attorney General. Nonetheless, the action by Bank of America is notable because it is the largest mortgage servicer, collecting loan payments on one of every five home loans in the U.S. At the end of last year, 14.76% of them were at least 30 days past due or in foreclosure, versus an industry average of 12.31%, according to Inside Mortgage Finance.
Principal reduction is clearly the direction that the large majority of underwater borrowers clearly are hoping the major banks are leaning towards. Given that lenders must incur substantial costs in foreclosing, only to take a wash when they sell the foreclose property as a Real Estate Owned property, it only seems practical to try and keep people in their homes by reducing the principal. I have seen many properties where the bank ended up selling a foreclosed property for substantially less than they would have made had they just worked with the homeowner. No one claims that reason is driving this ship.
In the tax lien foreclosure world, appropriate service of process is absolutely crucial. Consider what is at stake in a tax lien foreclosure case - the potential forfeiture of the right of the owner of a property to pay off their delinquent property taxes, which practically speaking means the likely loss of their property. If you are going to foreclose on someone's property, for their failure to pay property taxes for five consecutive years, you better give them adequate notice of the pending case against them.
A recent memorandum decision from Division 2 of the Arizona Court of Appeals, Leveraged Land, Montgomery, v. Hodges, 2 CA-CV 2009-0057, deals with the issue of what happens in a tax lien foreclosure case where the owner of record has only been served by publication in a newspaper. Memorandum decisions, while instructive for lawyers to consider how the courts may rule in a future case, unfortunately cannot be cited by as legal authority.
In Hodges, the tax lien investor filed a complaint to foreclose the owner's (Hodges) right to redeem the tax lien. The tax lien investor apparently was unable to serve Hodges personally and served Hodges by publication. A default judgment was eventually entered against Hodges and the tax lien investor obtained a Treasurer's Deed and then sold the property. Hodges later filed a motion to set aside the default judgment, arguing in part that the judgment was void because he had "good cause" entitling him to a new trial. The trial court denied his motion and Hodges appealed.
Hodges argued in his appeal that he was "ready, willing, and able to redeem the property" and that entilted him to a new trial. Under Rule 59(j)(1) of the Arizona Rules of Civil Procedure, when a judgment has been entered on service by publication, and the defendant has not appeared, a new trial may be granted upon application of the defendant for good cause shown by affidavit, made within one year after the judgment has been entered. Relying on a 1942 case that was very similar in facts, the appeals court held that because Hodges was "ready, willing and able to redeem the property," the trial court erred in not granting the new trial. The court remanded the case back to the trial court stating that the trial court should give Hodges a new trial.
After sending the case back to the trial court, Hodges paid off the property taxes after working with some third-party investor who took a partial legal interest in the property. The tax lien investor appealed the new judgment of the trial court arguing that Hodges did not have the ability at the time of the original case to pay off the tax lien, which Hodges admitted he did not. The appeals court went on to rule that "the end result of a successful Rule 59(j) challenge is the restoration of a defendant's right to redeem." The appeals court, applying equitable principles, stated that "purchasing tax liens entails risk and the onus is on the purchaser to protect its own interests." The Court also stated that the tax lien investor must understand that any default judgment obtained through service by publication is open to attack for a year, and the fact that the tax lien investor decided to sell the property before that time had run was their own fault.
Warning tax lien investors: if you are going to get into the tax lien investment world; beware, as there are pitfalls that come up that late night infomercials do not tell you that.
Warning attorneys: do your due diligence upfront and get people served personally.
Additional warning attorneys: it seems pretty clear that the court does not look too favorably on tax lien investing.
Despite unending attempts to step the flow of illegal immigration to the United States through an increasingly militarized border, the mortgage lending industry was not about to pass up the chance to capitalize on the estimated 12 million illegal immigrants in the United States looking for their own slice of the American dream.
Enter the "ITIN Mortgage." During the expansion of the housing bubble, many lenders offered home-mortgage loans to undocumented immigrants without requiring Social Security numbers. While lenders used to require a Social Security number and verified income, those requirements obvioiusly changed during the loose lending days. Indeed, if lenders were willing to lend money to legal residents without a job or income (think "NINJA" loans), why not lend to people who are not even legal residents of the United States?
As the lending industry loosened, lenders began allowing illegal foreign nationals to use a taxpayer identification number ("ITIN") to qualify for a mortgage. The IRS issues ITINs to both resident and nonresident aliens so they can pay taxes. Obviously, the U.S. Government is not going to pass up a chance to collect taxes from undocumented residents. According to the Government Accounting Office, a significant number of the nearly 9 million holders of ITINs are illegal immigrants.
Tim Sandos, President and Chief Executive of the National Association of Hispanic Real Estate Professionals estimates that since 2000, illegal immigrants have taken out more than $1 Billion in ITIN mortgages. Interestingly, as National Public Radio recently reported, ITIN mortgages have on average out performed conventional mortgages. In part this is due to borrowers putting 20-30% down on a mortgage. More than can be said of most borrowers today. Amazingly, it has been reported that ITIN mortgages have had a delinquency rate of one half of one percent, compared to 6.4% for all home loans.
While ITIN mortgages have been big business, the tightening credit market has necessarily impacted this area of lending. Moreover, as the immigration debate has intensified, these mortages have come under increasing pressure. Indeed, Tim Sandos, when he worked for Citigroup received death threats because he was working with illegal immigrants. In 2007, Representative John T. Doolittle of California introduced a bill in Congress that would prohibit financial institutions from providing home mortgages to anyone who lacks a Social Security number. The bill, H.R. 480, would have amended the Truth in Lending Act to make ITIN mortgage lending illegal.
Given the surprising stability of ITIN mortgages, lenders certainly are not inclined to shed these solid performers, but the political and credit climate is changing that. Indeed, as recently reported in an Active Rain blog, Banco Popular, the largest niche provider of ITIN mortgages, will no longer provide such loans. Perhaps the ITIN mortgage will disappear like the American Ninja.
You have to wonder why an initiative (Proposition 201) entitled the "Homeowner's Bill of Rights" is sponsored by Local 359 of the Sheet Metal Workers International Association.
According to the Home Builders Association of Central Arizona, the union used the threat of an initiative as a pressure tactic in a campaign to get Chas Roberts, an Arizona heating and cooling company, to unionize. Interesting tactic. Given the breadth and scope of this initiative, someone else is steering the ship. Well, union officials respond that they're just trying to give extra legal protection to their members, who are also home buyers.
Whatever the rationale for putting the initiative to Arizona voters, the initiative has run into formidable opposition in the form of Arizonans Against Lawsuit Abuse, which is funded by The Coalition for Affordable Housing and The Home Builders Association of Central Arizona and supported by the home builders, several chambers of commerce, and Realtor groups. Perhaps forcing the home builders to raise money to defeat Proposition 201 was sufficient grounds to put the proposition to the voters.
Not surprisingly, the opposition's strategy is to buck-shot shot the lawyers. Indeed, one of the recent ads in opposition shows a lawyer sleeping on a couch in his office while the lawyer dreamily states: "I should fly to Arizona and change their laws. What if they tried to sell a house and were forced to go to court? Big money for me. Wait, wait, what if when they tried to buy a house, they were forced to go to court then too? Big money for me again. And what if, even if they were just shopping for a house they could go to court? Big money comes my way one more time. With all these lawsuits, lawyers will be dancing in the aisles."
The opposition's entire focus is how this Proposition will line the pockets of lawyers. There is no question that Proposition 201 may provide additional work for Arizona attorneys. However, Proposition 201's foes are likely much more concerned about the fact that if Proposition 201 passes, home builders will have to provide a 10 year warranty on materials and workmanship, provide the owner of the home the choice of at least three qualified licensed contractors for each contract or subcontract for repair or replacement of any defect, disclosure of a seller's financial relationship with any financial institution, refund 95% of a purchase contract deposit within 100 days of execution, and extension of a dwelling action to ten years from the current eight year period.
The opposition is rightfully concerned that Proposition 201 prevents any purchase contract from having a provision requiring the purchaser to pay the attorney's fees or expert fees of the seller under any circumstances. While this certainly sounds heavily skewed in the buyer or owner's favor, the fact is, Arizona law (A.R.S. Section 341.01) still provides that the prevailing party in any dispute arising out of contract is entitled to recovery of their reasonable attorney's fees.
In the end, while the opposition to Proposition 201 fears that lawyers will be the winners in the end, their attacks fail to recognize that purchasers of homes would still be responsible for footing the bill for their own legal expenses, which is a built-in mechanism for limiting frivolous lawsuits, not to mention that sanctions (Rule 11, Arizona Rules of Civil Procedure) remain available to ward off such suits. Forget the attorney's fees and "lawyer" abuse, the home builders should be much more concerned about having to offer 10 year warranties, fully disclose their relationships with lenders and title companies, and actually fix or pay for defects.
In cases involving real property, a plaintiff often will file what is called a "lis pendens," which is Latin for suit pending. The purpose of filing a lis pendens is to secure a plaintiff's claim on a property so that a sale, mortgage, or encumbrance of the property will not diminish the plaintiff's rights to the property, should the plaintiff prevail in its case.
The practical effect of filing a lis pendens is to alert a potential purchaser of the property in dispute that the property's title is in question, which obviously makes the property a whole lot less attractive to any potential buyer. In other words, once the lis pendens is recorded, it serves to place a cloud on the title to the property in question until the lawsuit is resolved and the notice is released or expunged. More importantly, the lis pendens has the effect of preventing most lenders and title companies from lending money on the security of land that is subject to a lis pendens.
Arizona's lis pendens statute is found in Arizona Revised Statutes Section 12-1191(A), which states in part that in "an action affecting title to real property, the plaintiff at the time of filing the complaint, or thereafter, . . . may file in the office of the recorder of the county in which the property is situated a notice of the pendency of the action or defense." A recent decision from the Arizona Court of Appeals in Sante Fe Ridge Homeowners' Association v. Carla Bartschi discussed under what circumstances does an action affect title to real property.
In Sante Fe, the Sante Fe Homeowners' Association filed a complaint against Carla Bartschi alleging breache of contract and sought injunctive relief for Bartschi's alleged violations of the Association's CC&R's. Sante Fe alleged that Bartschi had failed to maintain the landscaping on her property. In conjunction with its lawsuit, Sante Fe filed a lis pendens against Bartschi's property. Bartschi answered Sante Fe's complaint and filed a counter claim for wrongful recordation of the lis pendens, and sought statutory damages , attorney's fees, and costs under Arizona Revised Statutes Section 33-420(A). The trial court eventually granted Bartschi's request for statutory damages, ruling that Sante Fe's action did not affect title to real property and the lis pendens was prematurely recorded.
On appeal, the Arizona Court of Appeals ruled that Sante Fe's action did not affect rights incident to title to real property. The court reasoned that a "lawsuit affects a right incident to title if any judgment would expand, restrict, or burden a property onwer's rights as bestowed by virtue of that title." The Court ruled that Sante Fe's recordation of the lis pendens was premature because at the time it recorded the lis pendens no basis existed to conclude that a lien would be imposed on real property. If Sante Fe had obtained a lien against Bartschi, a basis may have existed to conclude that Sante Fe's action affected title to real property.
As a practitioner, it is nice to have additional guidance from the courts on issues like these, but it is troubling to think how much Sante Fe was willing to pay to appeal the decision. I have to wonder if the Association members were aware of Sante Fe's decision to appeal the trial court's ruling, and whether they would have allowed the Board to authorize the appeal if they knew how much money the Association stood to lose if Sante Fe lost on appeal, which in large part they did.
Looks like Freddie and Fannie needs Daddy's credit card. With $5.3 TRILLION in combined mortgage debt (about 1/2 of the total mortgage debt in the United States), when Wall Street and the Feds begin to worry about Freddie and Fannie's financial health, there is good reason to be concerned.
Freddie and Fannie are the MAJOR players in buying and guaranteeing loans in the secondary mortgage market. Well, last night the federal government moved on two fronts to shore up Freddie and Fannie and try an allay the markets before they open on Monday. First, the Treasury said it would provide additional liquidity as needed (Remember Bear Stearns?). Unlike the Bear Stearns melt-down however, Freddie and Fannie generally have not faced liquidity problems. But as their problems proliferate, there is always a danger that they might face funding difficulties, thus, the need for daddy's credit card, just in case.
The feds also moved on another front - recapitalization. Freddie and Fannie are seriously undercapitalized. Freddie and Fannie are known as government sponsored enterprises ("GSE's"). As GSE's, Freddie and Fannie do not have to follow the same rules as others. Freddie Mac, for example, had about $16 billion in shareholder capital at the end of the last quarter, supporting $2.1 trillion in assets. Any real private financial sector institution operating with than kind of capitalization would be required to raise more money. But it seems that Freddie and Fannie don't have to play by real rules because the government has their back. That is why Freddie and Fannie can exist in a world where all their assets are invested in the mortgage market - not the place to be right now, right?
Nonetheless, it is interesting to not that last week Fed Chairman Ben Bernanke and Henry Paulson, appearing before the House Financial Services Committee stated that the Office of Federal Housing Enterprise Oversight (Freddie and Fannie's regulator), found both companies adequately capitalized. Indeed, Democrat Chris Dodd, the Senate Banking Committee Chairman also said that "Fannie and Freddie are in sound situation. They have more than adequate capital -- in fact, more than the law requires. They have access to capital markets. They're in good shape. The chairman of the Federal Reserve has said as much. The secretary of the Treasury as said as much."
The only thing stopping Daddy (Treasury/Henry Paulson) from extending credit is Congress. While this situation reeks of a potential bailout, the silver lining in all this is that Fannie and Freddie not only have a rich daddy, they happen to be backed by pretty decent mortgages, not the subprimes that tanked many mortgage lenders. Still, their shares have been battered, down nearly 45% last week. The real purpose in all this is to assuage market fear. The feds don't want market turmoil, otherwise, the house of cards comes tumbling down.
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