Posted on September 17, 2010 by Michael Fleishman

Loan Modification Scam

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.

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Posted on August 14, 2008 by Michael Fleishman

Affecting Title to Real Property - The "Lis Pendens"

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.

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