Fannie and Freddie's big Foreclosure Backlog-By Clea Benson Clea Benson

Fannie and Freddie's Big Foreclosure Backlog

• By Clea Benson Clea Benson – Fri Jan 28, 8:08 am ET

Fannie Mae (fnma.ob.OB) and Freddie Mac (fmcc.ob.OB) are trying to sell their huge backlog of foreclosed homes in an orderly way to avoid flooding the market and depressing prices. As foreclosures mount, though, analysts say the companies may be forced to reconsider that approach.
The government-controlled mortgage companies' inventory of foreclosed residential property has quadrupled in three years and now stands at a record $24 billion. The number of properties they own has increased fivefold to nearly 242,000, representing roughly a third of all repossessed homes in the U.S. And the total keeps growing as they take possession of homes faster than they can sell them. In the first nine months of 2010 Fannie and Freddie took in 319,243 foreclosed properties and disposed of 210,105. At the same time, U.S. housing prices have been falling. In the most recent reading, the S&P/Case-Shiller index of home values in 20 cities fell 1.6 percent in November from the previous year, the biggest 12-month decrease since December 2009.
Officials at Fannie and Freddie say they are committed to an approach consistent with their mission as backstops for the housing market. They have been trying to stabilize neighborhoods by selling homes at prices close to market levels and giving preference to buyers who plan to live in the homes rather than investors who might rent them out or try immediately to resell them. Fannie and Freddie are also investing in some properties, spending millions on maintenance to make them competitive with other homes on the market in their neighborhoods. "We don't want a reduced value to initiate a quick sale," says David Wendling, senior director of REO (real estate owned) sales at Freddie Mac. "The focus has always been on supporting neighborhood values."
Of the 74,621 properties Freddie Mac sold in the first nine months of 2010, 67 percent went to buyers who intended to occupy them, according to company data. At Fannie Mae, about 80 percent of sales are to owner-occupants, says company spokeswoman Amy Bonitatibus. "We don't hold anything back that is available to be sold," says Jane Severn, director of REO disposition at Fannie Mae. "We're doing the opposite, pushing our homes out to the market as soon as we can."
Some real estate analysts say the companies will have to find a way to dispose of properties more quickly. The number of homes subject to a foreclosure filing may rise by 20 percent this year, up from a record 2.87 million properties in 2010, RealtyTrac, an Irvine (Calif.) data company, predicts. The market currently can absorb about a million foreclosures a year, the Mortgage Bankers Assn. estimates. Fannie and Freddie themselves estimate in regulatory filings that it will take "a number of years" to bring their foreclosure inventory down to pre-2008 levels.
As their holdings of unsold homes increase, Fannie and Freddie eventually will need to drop prices and turn to investors, analysts predict. "I think they're just (postponing) the inevitable," says Michael Slaughter, a partner at New Providence Capital, a Dallas-based private lender. "If they don't start with a systematic distribution of these properties to investors who have cash today and will buy them at the right price, they're going to end up selling the entire portfolio to Goldman Sachs (NYSE:GS - News) or BlackRock (NYSE:BLK - News) at a tenth of what they can get for them today."
The bottom line: Fannie's and Freddie's strategy of not flooding the market with foreclosed homes may come under pressure as their inventory builds.

Building a case under Fair Debt Collection Practices Act (FDCPA)

Debtors who are being harassed by debt collectors must keep a record of the calls made by the debt collector in order to pursue a claim under Fair Debt Collection Practices Act.

What the courts will look at to support a claim that a debt collector has violated the FDCPA is that there are factual allegations that identify:
 (1) the ‘called number,’
 (2) the number of calls made to demonstrate repeated, constant and/or continuous calls,
 (3) when the calls were made (dates and times) and over what period of time,
 (4) the content of the conversations, if any,
 (5) the alleged debt, and
 (6) the link between the caller and the Defendant debt collector. Johnson v. National Recovery Group, LLC, 2010 WL 1992636, *2 (E.D. Cal. May 14, 2010)

see: Bell Atl. Corp. v. Twombly, 550 U.S. 544 (2007)
      Ashcroft v. Iqbal, 129 S. Ct. 1937 (2009)

Creditor calling-How Many Calls Are Too Many?

by   John H. Bedard, Jr

      Bedard Law Group, P.C.

         Collectors need it.  Consumers are demanding it. Regulators want it. Courts are learning about it.  And with hawk-like vision, consumer attorneys are looking for it.  What is it?  Plain and simple; it is dialer control.  How many calls do you make in a day, week, month?  How many messages do you leave?  Complaints focusing on “overdialing” are on the rise.  Consumers are challenging courts to draw more definite lines in the law about how many calls are too many.  Federal judges concede that the case law on this issue is anything but consistent.  Don’t be the next poster child for “Dialers Gone Wild!”

            Although the case law isn’t entirely consistent, court rulings are beginning to give some definition to the outer boundaries of the call volume issue.  Over the last 12 months several courts have had an opportunity to discuss their ideas on call volume.  For example, the following cases resulted in summary judgment in favor of the debt collector (i.e. the debt collector won the case):

• Tucker v. CBE Group, Inc., 2010 U.S. Dist. LEXIS 54892 (M.D. Fla. May 5, 2010) (57 calls to non-debtor (over unspecified period of time), including 7 on one day, only 6 messages left in total)

• Katz v. Capital One, 2010 U.S. Dist. LEXIS 25579 (E.D. Va. Mar. 18, 2010)(15-17 calls after creditor notified of attorney representation, not more than 2 calls/day, no “back-to-back” calls, no inconvenient times, no requests to stop, no calls after consumer hangs up)

• Saltzman v. I.C. Sys., 2009 U.S. Dist. LEXIS 90681 ( E.D. Mich. Sept. 30, 2009)(20-50 unsuccessful calls, 2-10 successful calls in one month)

• Arteaga v. Asset Acceptance, LLC, 2010 U.S. Dist. LEXIS 86541 (E.D. Cal. Aug. 23, 2010)(Court explains that the consumer fails to cite a single case in which "daily" or "nearly daily" phone calls alone raise an issue of fact as to these claims.)

• Lourdes Jiminez v. Accounts Receivable Mgmt., Inc., No. CV 09-9070-GW(AJWx) (C.D. Cal. Nov. 15, 2010)(69 calls over 115 days, no live contact, one voice mail left, no more than 2 calls/day, except for a single day in which there were 3 calls)

Compare the above cases; however, to this next set of cases in which the debt collector did not fare as well:

·         Bassett v. I.C. Sys., 2010 U.S. Dist. LEXIS 53697 (N.D. Ill. June 1, 2010)(Collector’s summary judgment denied – 31 calls over 12 days raises fact issue on harassment.)

·         Krapf v. Nationwide Credit, Inc., 2010 U.S. Dist. LEXIS 57849 (C.D. Cal. May 21, 2010)(Collector’s summary judgment denied - 180 calls/month.  6 calls/day.)

·         Langdon v. Credit Mgmt., LP, 2010 U.S. Dist. LEXIS 16138 (N.D. Cal. Feb. 24, 2010)(Collector’s motion to dismiss denied. Court says: 2+ calls/day “certainly may constitute harassment or annoyance.”  “If . . . Defendant calls plaintiff and hangs up the phone, common sense dictates that defendant has not provided meaningful disclosure under FDCPA section 1692d(6).”

·         Brown v. Hosto & Buchan, PLLC, 2010 U.S. Dist. LEXIS 116759 (W.D. Tenn. Nov. 2, 2010)(17 calls in 1 month sufficient to state a claim for causing a telephone to ring repeatedly or continuously with intent to annoy, abuse, or harass etc.)

·         Valentine v. Brock & Scott, PLLC, 2010 U.S. Dist. LEXIS 40532 (D. S.C. Apr. 26, 2010)(11 calls in 19 days with 2 calls in 1 day is sufficient to state a claim).

           

The theme beginning to emerge from the case law is that debt collectors may not engage in an “unacceptable pattern of calls.”  The problem; however, is that the consumer’s behavior will often be a factor in considering whether the pattern of calls is unacceptable.  For example, the court in Katz specifically noted that the consumer never requested that the calls cease.  In Jiminez, the court noted the collector never had live contact with the consumer.  In Saltzman, the collector only made live contact with the consumer a handful of times and the court noted that the high volume of calls reflected the difficultly in reaching the consumer and not that the collector intended to harass the consumer.  Had the consumer repeatedly disputed the debt, the court in Saltzman may have reached a different conclusion.

It is difficult to apply this emerging legal standard (i.e. the “unacceptable pattern of calls” standard) uniformly across a portfolio or a collector’s entire inventory, but instead likely requires case by case analysis.  For example, three calls to a consumer in a single day may be lawful if the phone is never answered, at least three hours separate each attempt, and there has never been any live contact with the consumer.  However, the  same three calls may very well cross the line when the consumer answers each call, explains that they are the wrong Jane Smith, requests verification of the debt, and demands that all calls cease (including calls to family, the POE, nearbys etc.).

So what lessons can we learn from this smattering of judicial opinions on the issue?  In the absence of consumer consent or instructions from a consumer about how they would like to be contacted, debt collectors interested in reducing litigation risk on the issue of call volume might consider the following:

• No immediate call-backs after the consumer hangs up on the collector.
• No back to back calls i.e. home phone call results in live call, which is then immediately following by cell phone call, POE call, nearby call etc.
• Dramatically reduce call frequency even after verbal cease and desist.
• Don’t ignore verbal disputes; adjust call frequency pending investigation of even verbal disputes.
• Heightened sensitivity to call volume to POE’s and non-consumers.
• Establish grace period after leaving message before next outbound call.
• Establish cap on total number of calls per day/week/month which overrides all else (with smaller cap on POE and non-consumer calls).
• Establish grace period between outbound calls in same day.

Dialer Control, make it a new phrase in your IT department.  Dialer Control, make sure employees at all levels know what it means.  Dialer Control, resist the temptation to simply “crank it up.”  Dialer Control, get more sophisticated with how you utilize your dialer.  Everything in moderation . . . including outbound calls.

 

Advise to Bankruptcy Self-filers

If you are planning to file Bankruptcy on your own or use a bankruptcy petition preparer to assist you in filling out and filing your bankruptcy papers, it's always wise to consult with an attorney prior to filing. About 20% of those filing for bankruptcy may run into some difficult issues and probably should not file alone. And among the 80% who are unlikely to run into any trouble with their case, a small percentage shouldn't file bankruptcy at all or should not be filing prior to some careful pre-filing planning. Some people are judgment proof and should not be filing at all and others need to plan to protect valuable assets. An individual filing without the assistance of an attorney will generally not be able to make these assessments.

For bankruptcy filers, these numbers indicate that it's best to get some expert advice prior to filing, even if your case appears to be simple. Using a non-attorney Bankruptcy preparer may raise issues with the Bankruptcy Trustee. Section 110(e) of the bankruptcy code prohibits a bankruptcy petition preparer from giving you even the most basic type of advice or information, only a lawyer can provide it. A trustee may want to determine if the preparer gave the filer any advice he is prohibited from giving which is basically everything. All the preparer is allowed to do is type the petition. One way to avoid this additional inquiry is to have an attorney review the petition before filing.  If an Attorney charges a fee for helping an individual file their petition or charges for a consultation, even a nominal sum, the attorney's name will appear in Item 9 of the Statement of Financial Affairs and the trustee won't even inquire about the origin of the customer's legal information. In other words, having an individual engage an attorney will let the trustee know someone has reviewed with the filer the legal issues. A legal consultation may help in allaying the trustee’s concerns about a bankruptcy preparer giving legal advice especially on issues such as the exemptions, but it may not provide the filer with adequate instruction and guidance. Most attorneys will not take on the limited role of guiding and assisting an individual to self-file as they prefer representing the client through the entire process.  The ideal situation for self-filers is a where they can engage the assistance of an attorney to review and prepare the petition for them.  Having an attorney assist a self-filer will also ensure the filer knows what documents must be provide to the trustee prior to the 341 meeting; therefore, making the 341 meeting a perfunctory and painless exercise.

Can Mortgage Modifications be achieved outside of HAMP?

By Mildred Bauza, Esq.  Bankruptcyassistu.com

 Getting a mortgage modification is difficult but not impossible. Mortgage modifications come in varying forms and for different reasons. Typically, a homeowner will apply for a modification because they have fallen behind on their mortgage payments and need to capitalize that arrearage or formulate a repayment schedule of that arrearage, and/or reduce the monthly payment given their current financial situation. A homeowner does not have to be behind on their payments to request a modification. If there is a change in the homeowner’s financial circumstances or there is an impending change, such as notice that your hours or your income will be reduced in the near future, that may be sufficient to request a modification before there is a problem. Many banks will offer help under a myriad of programs sometimes developed by the lender or mortgage processing firm handling the mortgage or under a government sponsored program.

Under the Home Affordability Modification Program (HAMP), President Obama’s relief plan for homeowners, the homeowner must show that they cannot afford to make the current payment. There are very strict guidelines regarding income verification and documentation of expenses. A homeowner can’t make too much money nor make too little money as they must demonstrate, not only that they will have an ability to make the mortgage payment under the modification, but that they can meet their usual and allowable living expenses. Although, well intentioned, the program’s strict guidelines have made it difficult for families to benefit from the program. In fact, an executive summary of a 192 page report issued by a Congressional oversight panel indicates that HAMP will prevent approximately 700,000.00 to 800,000.00 foreclosures a figure far short of 3 to 4 million foreclosures they intended to stop. The report cited the Treasury’s failure to acknowledge HAMPS shortcomings in time as the primary reason for the program’s failure in preventing the number of foreclosures they had hoped. The program has very strict income verification requirements. Whether it is a government sponsored program or a lender sponsored program, the modification process requires detailed documentation of every conversation and interaction with the lender, meticulous attention to detail in amassing and submitting documentation, an inordinate amount of patience, and relentless persistence. You must be extremely responsive to requests for additional information. You have to exhibit the highest level of interest and concern for your loan constantly following up, at a minimum once a week, for as long as the process takes to conclude.  Success can be achieved but you must be dedicated, organized and above all persistent. If your lender or loan processor tells you, you do not qualify for a modification under HAMP or a refinance under Home Affordable Refinance Program (HARP); ask if they offer any in-house modification programs.
 I’ll share with you the stories of two homeowners who have attempted loan modifications in the last year. I have changed their names to protect the innocent as they say. I will call the first homeowner, Marissa. Marissa lost her business primarily due to the economic climate a few years ago. She utilized some savings for a time and did everything she could do to address her financial situation including taking on a housemate and putting the house on the market. When she realized that it would be a matter of time before she could no longer manage her finances, she applied for a modification in the hopes of lowering her monthly mortgage payment. A word of warning when the lender asks if you mind if the conversation is recorded for quality assurance, say no you do not mind. Those recordings forced the loan processor to honor their representations to Marissa on several occasions. There were times where a second representative denied the representations made by the previous representative and because she kept such copious notes of each conversation, Marissa was confidently able to direct them to listen to the tape anytime a discrepancy arose.
After several months of negotiations, the modification was denied for insufficient income to support a modification.  Having been denied a modification, she was also precluded from requesting another modification for six months.  Her housemate moved out shortly after the modification was denied forcing Marissa to rent the home outright and move back to her family’s home. Still struggling, she once again applied for a modification at the end of the six month period.  Her move back to her family home disqualified her for a modification under HAMP.  Although, in her mind, this home is her primary residence, the home she intends to return to when her finances allow, the home she has struggled to maintain, HAMP does not allow for the property to be rented. This system designed to avoid foreclosure penalized Marisa. When she relayed this experience to me she indicated she was embarrassed by her move back with her family. I found her actions honorable, epitomizing integrity. Renting the house and moving into her family’s home was something to respect and admire. Something to be applauded and rewarded not held against her. Fortunately, for Marissa, her mortgage processor also offered what they called in-house modifications. Under the in-house modification program, with approval from her bank and the understanding of a compassionate representative, sufficient assurances and documentation were provided to overcome this hurdle and a modification was approved. Additionally, unlike most HAMP modifications, no trial modification period was required. It took a total of nine months of stressful, time consuming, heartbreaking; tear provoking, nerve racking, sleep depriving, relationship straining negotiations and efforts to achieve the financial relief she so desperately needed but it was achieved.
 Our second homeowner is Sarah. She is employed and has maintained her employment throughout this process. Sarah has a flexible interest rate mortgage that soared during the height of the real estate market and has never returned to a manageable rate. Sarah’s life partner was injured and lost his income several years ago. Sarah’s job is also not offering overtime which through the years allowed her to maintain her mortgage payments. Sarah used a mortgage counselor to modify her mortgage. The mortgage counselors, however, have only been able to secure temporary modifications; the bank has refused to make any permanent modification of the mortgage. Every six months she has been forced to apply for a new modification with the mortgage reverting back to the original payment schedule while another temporary modification is secured. Sarah finally reached her saturation point and unable to maintain her expenses was forced into bankruptcy. She now faces foreclosure once her bankruptcy is discharged or the bank receives relief from the automatic stay. There is one last hope for Sarah as Connecticut has a foreclosure mediation program. Under this program, the lender must notify the borrower of the program at the time of filing of the foreclosure proceeding. It is mandatory that the parties participate in the mediation program in cases where a qualified borrower files a written appearance in the case.  No one can be forced into entering an agreement but they must participate in the process. That having been said, however, there has been success in achieving modifications and/or short sale agreements under the court sponsored mediation program. To qualify for the foreclosure mediation program the borrower must own a 1-4 family house, the home must be owner occupied and the foreclosure action must have been started after July 2008. You can find more information on the program at http://www.jud.ct.gov/foreclosure/.  According to the data released by the State of Connecticut Judicial Department about 41%   of the families who took advantage of the program were able to avoid foreclosure and modify their mortgages. The data also indicates that only about 35% of families eligible appeared and took advantage of the program. For Sarah, success has not  yet been achieved but hope is also not yet lost.

Banks' Loss- Homeowners' Gain

By Mildred Bauza, Esq. - Bankruptcyassistu.com

Late last year it was reported that many of the major banks and mortgage holders- Citibank, Wells Fargo, JP Morgan Chase and Bank of America to name a few- had to halt their foreclosures because of  shoddy paperwork, robo-signings, and the inability of those  bringing the foreclosure action to prove they owned the mortgages they were attempting to foreclose.  

   Massachusetts Supreme Court Decision Strikes a Blow to the Banks

 Late last week the Massachusetts Supreme Court unanimously decided that the foreclosures in the cases before it were improper because the notice of foreclosure was not recorded and published before the banks bringing the foreclosures actually owned the mortgages by way of legal assignments from the original issuers of the mortgage.

In the Massachusetts cases, foreclosures had already occurred and the homeowners had moved out after the bank bought the property at the foreclosure auction. When the banks initiated the foreclosures, they had no proof of their assignment of lien in the chain of title showing that they now were the mortgage owners.  In one of the cases the original mortgage passed to six different institutions including the initial issuer and the foreclosing bank.

After the foreclosures the banks recorded what they alleged was proof of ownership in the local land records. They then filed actions to "quiet title"- an action which requests as its remedy that the court issue an order stating that the banks have clear title to the properties. The court refused to award them clear title, given that the foreclosure was legally deficient. The fact that the banks tried to correct the record after the foreclosures could not retroactively legitimize the foreclosures themselves or the titles to the property taken by the bank as a result. The banks appealed this decision and the Supreme Court affirmed the lower court and also ruled that the title held by the banks in the improperly foreclosed property was not clear title-that is, the banks did not own the property free of any claims by the previous homeowners.

                    This Decision Can Have Long Lasting Implications to Title.

 What this may mean is that an unknown number of homes that have been improperly foreclosed on by the nation's mortgage lenders have title problems that may be difficult or impossible to clear which will impact title transfers to potential buyers. How the courts will respond to the potential claims against title by foreclosed homeowners is an unknown. Court's may find that the subsequent purchaser is a "bone fide" purchaser entitled to protection against any claims to title or conversely could find that the buyer having knowledge of the foreclosure is on notice of potential claims creating a "buyers beware" market. The uncertainty may simply create a generation of transfers by "quit-claim deed" rather than the customary "warranty deed" combined with the creation of a market of title insurers willing to assume the risk of possible title claims by foreclosed homeowners as a stopgap solution. The legislature may also step in by enacting a statute of limitations limiting the time foreclosed homeowners or their heirs have to raise any claims to title; therefore, creating a mechanism to achieving clear title.                    

                              Modification Opportunities For Homeowners

Having a case of first impression decided by the highest court of one state makes it , not only possible, but much easier for lawyers in another state to argue for similar results in their cases. It is important to remember that what the Massachusetts case basically has said is a bank can't legally foreclose on a mortgage if it can't prove it owns it, and a bank can't go back in time and undo an illegal foreclosure by obtaining a judicial declaration of clear title. Banks have to get their documents in order or obtain an order establishing ownership prior to commencing a foreclosure. Future foreclosures may be impossible given the state of mortgage-related records caused by the sloppy bank practices. The banks caught in this legal quagmire have one clear shot of minimizing their losses-whether before or after foreclosure – negotiate with the current owners. For Connecticut homeowners involved in foreclosure who wish to modify their loans and remain in their properties, it is imperative that they participate in the Court sponsored Mortgage Mediation Program (go to http://www.jud.ct.gov/foreclosure/  for more information). Remember, if the bank foreclosing is not the bank the homeowner originally signed a promissory note and mortgage with, the homeowner should demand proof that the bank foreclosing on the property actually owns the debt they are attempting to foreclose. A homeowner can also be proactive and search their title in the land records in the town where they live- at the Town Clerk's Office, type in the homeowner's name and the computer program will  list all the liens and assignments recorded against the property (see links provided @ Bankruptcyassistu.com/Resources Page for online Land Record Searches) . It is also important to note that even after filing Chapter 7 Bankruptcy and obtaining a discharge- assuming there is no equity in the property and the trustee has abandoned the property-a homeowner can negotiate a modification of the mortgage and keep the property. If the homeowner is still involved in Bankruptcy and not yet secured a discharge, the homeowner may need permission from the court in instances where the modification will result in a re-affirmation of the note as part of the modification.