Tucson Land Use Law Blog : Tucson Land Use Lawyer & Attorney : Fleishman Law Firm : Tax Liens, Foreclosures, Zoning

Arizona will receive $1.6 billion of the purported $25 billion joint federal-state settlement with the nation's five largest mortgage servicers for their role in wide-spread servicer and foreclosure abuses.  Arizona Attorney General Tom Horne's decision to join the broad settlement also means that his office has reached an agreement with Bank of America over allegations that it has violated an earlier consent agreement that was reached with Countrywide and allegations that Bank of America has systematically violated Arizona's Consumer Fraud Act. 

The agreement requires Bank of America to pay $10 million to the Arizona Attorney General to be used to: (1) avoid preventable foreclosure; (2) mitigate the effects of the mortgage and foreclosure crisis in Arizona; and (3) enhance law enforcement efforts to prevent and prosecute financial fraud or unfair or deceptive acts or practices, and/or provide compensation for harm resulting from conduct alleged in the lawsuit. The agreement also requires Bank of America to pay the Attorney General’s costs and attorneys’ fees incurred in the lawsuit.

Bank of America has also agreed to the following Arizona-specific provisions, which are not included in the broad federal-state settlement: (1) retain an unaffiliated third party to maximize the response rate for loss mitigation programs; (2) confirms that even borrowers who were previously denied for or defaulted on loss mitigation will not be prevented from applying again solely because of the previous denial or default; and (3) requires Bank of Ame to report Arizona-specific information about modifications and other assistance provided to Arizona borrowers.

Arizona’s estimated $1.6 billion share of the global settlement is broken down as follows: 

• $1.3 billion principally for principal reduction, but also including a menu of other relief to homeowners (how this will actually be implemented obviously remains to be seen).
• Arizona’s borrowers who lost their home to foreclosure from January 1, 2008 through December 31, 2011 and suffered servicing abuse will be eligible for an estimated $110.4 million in cash payments to borrowers, estimated at approximately$2,000 per borrower.
• The value of refinancing loans to Arizona’s current, underwater borrowers will be an estimated $85.8 million.
• The state will receive a direct payment of approximately $102.5 million (yet no mention of what this $102.5 million will be used for).

While the global settlement does not grant any immunity from criminal offenses and will not affect criminal prosecutions, as far as allegations of servicer abuse, including robo-sigining and dual-tracking go, the five largest banks have the green light to push through many of the foreclosures that have been stalled while this agreement was hammered out.  The agreement also does not prevent homeowners or investors from pursuing individual, institutional, or class action civil cases against the five servicers. The pact also enables state attorneys general and federal agencies to investigate and pursue other aspects of the mortgage crisis, including securities cases, which may be the next big fish to land.

The final agreement will be filed in the form of a consent judgment in U.S. District Court in Washington, D.C. and will have the authority of a court order. The consent judgment will require that Arizona’s share of the state’s direct payment be used by the Attorney General to carry out the purposes of the settlement, including to avoid preventable foreclosures, to remedy the effects of the mortgage and foreclosure crisis, and to enhance law enforcement efforts to prevent and prosecute financial fraud and unfair or deceptive acts or practices.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Fourteen U.S. mortgage servicers and their affiliates are making available a free, "impartial" Independent Foreclosure Review process (website - Independent Foreclosure Review) to certain of their borrowers, as part of certain consent orders entered into with federal bank regulators, the Office of the Comptroller of the Currency (OCC), the Office of Thrift Supervision (OTS), and the Board of Governors of the Federal Reserve System.

The review process was put into place by the regulators to determine how many borrowers were harmed by faulty procedures including: robo-signing, dual-track foreclosures, and a shortage of qualified staff to work with delinquent borrowers.  The process has been set up to identify customers who were part of a foreclosure action on their primary residence during the period of January 1, 2009 to December 31, 2010. The reviews will span nearly 4.5 million loan files and could take up to a year to complete, according to Acting Comptroller of the Currency John Walsh.

If eligible borrowers believe that they were financially injured as a result of servicer errors, misrepresentations or other deficiencies in the foreclosure process on their primary residence, they can request a review of their foreclosure file to verify that their foreclosure process was handled properly.

An estimated 4.5 million borrowers will be notified by a letter explaining the review process and a Request for Review Form. The mailings will be staggered to better manage volumes in stages beginning Nov. 1, 2011, with an ad campaign to follow. A 1-800 number has been established as well.  A review administrator will allegedly send a confirmation one week after the borrower sends in a five-page request form.

Joe Evers, deputy comptroller for large banks at the OCC, said a remediation plan is still under development to determine how borrowers will be paid. He added that it could take months to figure out how to do that and it was difficult to estimate when a borrower would receive a check.  "It will be a lengthy process," Evers said.

The OCC said it would release the names of the independent consultants soon. The consent orders did leave room for a fine, but Evers said the fine will be determined after the reviews are completed.

So, another government led program aimed at addressing the fallout from the financial crisis brought on by the ramp up of securitization of home mortgages.  It appears that the Independent Foreclosure Review will be a time-consuming procedural morass that has no pre-defined mechansim for determining what remedies will be made available to eligilble homeowners.  Let's hope the various attorneys general are able to reach a substantive settlement with lenders and servicers that has some meat to it.

The list of participating servicers includes:

• America’s Servicing Co.
• Aurora Loan Services
• Bank of America
• Beneficial
• Chase
• Citibank
• CitiFinancial
• CitiMortgage
• Countrywide
• EMC
• EverBank/EverHome Mortgage Company
• GMAC Mortgage
• HFC
• HSBC
• IndyMac Mortgage Services
• MetLife Bank
• National City Mortgage
• PNC Mortgage
• Sovereign Bank
• SunTrust Mortgage
• U.S. Bank
• Wachovia Mortgage
• Washington Mutual (WaMu)
• Wells Fargo Bank, N.A.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

When it rains, it pours.  The fallout from the artificially generated housing bubble and the attendant financial crisis is really starting to take hold against the various major players in the banking industry.  It seems everyone with any stake in the mortgage meltdown, from individual home owners to purchasers of mortgage-backed securities, are seeking their pound of flesh from the likes of Bank of America, JP Morgan Chase, CitiBank, Ally Financial, Wells Fargo, UBS, Goldman Sachs, Deutsche Bank, and others.

The New York Times broke the story yesterday that the Federal Housing Finance Agency (FHFA), which oversees Fannie Mae and Freddie Mac, the failed government agencies relegated to taxpayer-backed conservatorship three years ago, is set to file lawsuits against twelve of the major banks.  The suits will argue the banks, which assembled the mortgages and marketed them as securities to investors, failed to perform the due diligence required under the nation's securities laws and missed evidence that borrowers' incomes were inflated or falsified.

The FHFA issued sixty-four subpoenas last year to issuers and servicers of mortgage-backed securities - one of the largest investigations to date of alleged securities fraud stemming from the housing bust.  The FHFA, with subpoena power, has a huge advantage over private investors, which have had a harder time gaining access to the loan files, critical to filing lawsuits against the banksters.  The suits are likely to be filed now because regulators are concerned that it will be much harder to make claims after a three-year statute of limitations soon expires.

In the heyday of loan originations and sales into the secondary market, Fannie and Freddie couldn't purchase those loans directly, but they were allowed to invest in slices of "private-label securities" that were backed by subprime and other risky loans, but were rated as safe AAA investments by the ratings agencies.  Indeed, Fannie and Freddie were among the largest investors in those securities.  Freddie and Fannie began increasing their purchases of private-label securities early last decade in order to boost profits while satisfying government mandates to support affordable housing.  By law, Fannie and Freddie were required to back loans to low-to-moderate income borrowers, and the private-label securities were counted toward those goals. In 2005 alone, Freddie Mac purchased $180 billion in private-label securities, up from $24 billion four years earlier.

In the the lead up to the financial crisis, “the market was so frothy then it was hard to find good quality loans to securitize and hold in your portfolio,” said David Felt, a lawyer who served as deputy general counsel for FHFA until January 2010. Moreover, the private-label securities carried higher yields at a time when the two mortgage giants could buy them using money borrowed at rock-bottom rates, thanks to the implicit federal guarantee they enjoyed.  According to Felt, “Fannie and Freddie thought they were taking AAA tranches, and like so many investors, they were surprised when they didn’t turn out to be such quality investments."  This despite the fact that Freddie was warned by regulators in 2006 that its purchases of subprime securities had outpaced its risk management abilities, but the company continued to load up on debt that ultimately soured.

Fannie and Freddie still hold billions of dollars in mortgage securities backed by more shaky home loans like subprime mortgages, Option ARM and Alt-A loans.  Sadly for the American taxpayer, these securities have been among the poorest performing mortgages.  The U.S. government has spent $141 billion to keep Fannie and Freddie afloat. Freddie Mac allegedly estimates its total gross losses stand at roughly $19 billion, while Fannie Mae allegedly estimates its losses at nearly $14 billion.

While the FHFA has been making noise about pursuing the banks for some time, as Naked Capitalism has reported, "the overarching story remains the same: the more rocks you turn over in mortgage land, the more creepy-crawlies emerge."  In Arizona, when you turn over rocks in the desert, you often find scorpions.  They creep and crawl and they pack a mean sting.  It remains to be seen just how many stingers the Too Big To Fail camp have.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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.

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.  

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link