Posted on April 29, 2011 by Michael Fleishman

The Death of Dual-Tracking?

Housing Wire recently reported that the Federal Housing Finance Agency (FHFA) has directed the two government sponsored agencies, Fannie Mae and Freddie Mac to align their guidelines for servicing delinquent mortgages.

Previously, they maintained different requirements for how their mortgage servicers would treat loan backed by Freddie and Fannie.  This new push for alignment may be the death knell for the practice of "dual tracking."  Dual tracking has been a common practice by servicers of working on a loan modification at the same time as it is purshing a loan towards foreclosure.  The new FHFA forced allignment will push servicers into engaging the borrower as soon as they become delinquent and will prevent the initiation of the foreclosure process if the borrower and servicer are working toward solving the delinquency in a good-faith effort.

Housing Wire furtehr reports that "under the new requirements, servicers must engage in a single track for considering foreclosure alternatives up to the 120th day of delinquency" and "must also perform a formal review of the case to confirm the borrower was considered before starting foreclosure. Even then, servicers are required to continue work with the homeowner on other alternatives." 

Servicers for both Fannie and Freddie will also apprewarded and penalized the same under the new guidelines.

"FHFA's directive to align Enterprise policies for servicing delinquent mortgages should result in earlier servicer engagement to identify the best solution available for homeowners, given their individual circumstances," said FHFA Acting Director Edward DeMarco.

Freddie Mac CEO Ed Haldeman said: "Alignment of key servicing practices between our two companies will help servicers . . . to streamline their operations and more effectively target resources to distressed borrowers . . . For example, it will simplify the process for seeking help by giving borrowers one application to fill out and servicers one application to review for all Freddie Mac loan modifications and foreclosure alternatives."

This allignment, if actually followed by Fannie and Freddie-backed servicers will have a huge impact for borrowers seeking to modify the terms of their loans.  Indeed, the dual-track process is precisely what has led to many unsuspecting homeowners losing their homes, as they never understood that dual tracking was the policy.  Perhaps the common lament of "how could they sell my home, I was in the middle of a loan modification" may be a thing of the past.  I won't be holding my breath on that one.

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Posted on August 26, 2010 by Michael Fleishman

Thwarting the Bottom Feeders

It never ceases to amaze me how astute and opportunistic people can be when it comes to making money.  In the Arizona tax lien foreclosure realm, there exists a group of opportunistic investors that derisively have been called "bottom feeders" or "title raiders."  What these people do is comb public records to find pending tax lien foreclosure cases.  The easiest way to find a pending tax lien foreclosure case is to search for a recorded Lis Pendens, which is a recorded public document that gives notice that a particular real property is subject to pending litigation.  A Lis Pendens is used in real property cases where title is at issue. 

Once these "bottom feeders" find the recorded Lis Pendens and the associated tax lien foreclosure lawsuit, they quickly write to or physically approach the owner of record and attempt to purchase the property on the cheap, because both the owner of record and the "bottom feeder" recognize that the owner of record is likely to lose the property anyway, as the owner is unable to pay off the delinquent property taxes.  If the owner of record is willing to sell the property on the cheap, then the "bottom feeder" purchases the property and the owner conveys the property.  Under the prior A.R.S. Section 42-18206, which was recently amended, if the owner of record redeems the tax lien after having been served personally or by publication in the action, judgment shall be entered in favor of the plaintiff against the person for the costs incurred by the plaintiff, including reasonable attorney's fees to be determined by the court.  The reason these individuals have been derisively referred to as "bottom feeders" is that by obtaining the subject property prior to the owner of record being served, the prior owner and the current owner (the "bottom feeder") avoid having to pay the tax lien investor's attorney's fees and costs, which are not insignificant. 

Well, this all changed on July 29, 2010, when changes to A.R.S. Section 42-18206 became effective.  A.R.S. Section 42-18206 now states (with changes highlighted): Any person who is entitled to redeem under article 4 of this chapter may redeem at any time before judgment is entered, notwithstanding that an action to foreclose has been commenced, but if the person who redeems has been served personally or by publication in the action, or if the person became an owner after the action began and redeems after a notice is recorded pursuant to section 12-1191, judgment shall be entered in favor of the plaintiff against the person for the costs incurred by the plaintiff, including reasonable attorney fees to be determined by the court.

This new law will severely hamper the ability for the "bottom feeders" to obtain properties from owners prior to those owners being served with notice of the lawsuit.  What this new law does not do away with is the continuing risk to tax lien investors who must still get owners served before they pay off the tax lien.  If the owner of record pays off the tax lien prior to being served, the tax lien investor must eat the costs and attorney's fees he or she has incurred.  Nonetheless, this change in the law will unquestionably limit some of the downside risk of tax lien investing, as the "bottom feeders" will face the very real risk that they will be responsible for the tax lien investor's fees and costs incurred. 


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