Tuesday, April 21, 2009

What the bank's lawyer does not want you to know.

What the bank's lawyer does not want you to know:

As insurance and foreclosure litigators who are in Court just about every day to keep the roof over our clients heads and prevent our clients homes from being sold out from under them, I wanted to share the view from the front lines from our battles with the banks in courtrooms in Miami, Ft. Lauderdale, Naples, Orlando, and across the great state of Florida. The banks and lawyers they hire would like the homeowners to believe that bank’s case is easy. Many of our clients have asked:

Q: If I borrowed money and I have not made all of the payments … what is there for you to do?

A: We make the bank prove its case. We search for legal violations by the mortgage broker, original lender, appraiser, loan servicer, and law firm representing the bank. We make the party bringing the lawsuit (which is often a trustee for various institutions who purchased securities representing claims on a pool of securitized mortgages) prove that they actually own the mortgage and note, have legal standing to file lawsuit, and have the evidence to prove the loan was properly transferred between each of the entities that owned the mortgage at various times. We assert all affirmative defenses and counterclaims that we know of and conduct discovery to support any claims our client may have against the bank or any other entity involved in the lending process.

In short there is plenty of things for a lawyer to do when defending a homeowner in foreclosure. Some homeowners decide to file a simple answer denying the allegations in the lenders complaint. Filing a simple answer will avoid a default but foreclosure defense litigation is much, much more then filing an answer. Sadly some “foreclosure defense” lawyers do little more filing a simple answer with lawyers bar number on it.

Twenty years ago it was very easy for the banks lawyers. Twenty years ago all the banks lawyer had to do was fill out forms. In days of old a homeowner had to put 20% down to purchase a home. If a home owner put 20% on a $200,000 house they would have to put $40,000.00 of their own money down at the time of the sale. Over the next few years the house might appreciate to $215,000 and the homeowner might pay off $5,000 to $10,000 of the debt. As such three to four years after buying the home the homeowner would have $60,000 to $65,000.00 in equity. Let us consider what would happen if this homeowner lost their job or was hospitalized and missed four mortgage payments. If the bank brought a foreclosure action, the homeowner with substantial equity would do one of the following:

(1) Borrow money from a family member, credit cards, or a loan shark to pay the four missed payments, interest, late fees, attorney’s fees & costs, and obtain a dismissal by bringing the account current.

(2) Sell the house at a significant profit (around $215,000) and use the sales proceeds to payoff the full loan balance.

(3) Refinance the house, and payoff the original mortgage with the loan proceeds.

Whether the homeowner brought the account current, sold the house, or refinanced the bank got paid in full. After the bank and the bank’s lawyer received their principal, interest, late fees, attorney’s fees and costs, the case was dismissed. The bank’s lawyer only needed to fill out the forms and every homeowner with equity would capitulate and pay whatever the bank says was due.

Since the law firms representing the banks mostly just filled out forms at many of these firms paralegals were hired to fill out most of the forms. The lawyers at many of these firms did not have to litigate very often and thus while they were very good at filling out forms many of them rarely got a chance to develop litigation skills in evidence and civil procedure.

Today most homeowners facing foreclosure never hire a lawyer. CNN did a story about what happens to Ft. Myers homeowners who go to court without a lawyer. Here is a link to a video segment about this on CNN.


In Ft Myers (Lee County) there is a judge who will hear 300 unrepresented foreclosure cases in an afternoon. The hearings last as little as 45 seconds. In these cases, since the homeowner has not filed the proper written legal defenses, the judge would merely ask:

Q: Are you current on the mortgage?
A: NO …and
Q: Are you living in the house
A: Yes

The judge would then grant summary judgment for the bank and ordering a sale in sixty days. For a homeowner going to Court without a lawyer is like bringing a knife to a gunfight. Most unrepresented homeowners get slaughtered.

When the bank’s lawyers have to battle real litigators the battle is very, very different. Many times the bank has lost the original note that is usually a prerequisite to foreclose. In other cases the mortgage has been transferred from a mortgage broker to a large bank who sold the mortgage to Fannie Mae or Freddie Mac, which in turn bundled and sold the loans on Wall Street (often to Bear Sterns) where they loans were securitized. The trustee for the pool of securitized mortgages often lacks documentation that each of the prior holders of the note and mortgage complied with all necessary formalities when transferring the note. If the bank bringing the foreclosure action needs evidence or documents from the prior owners of the note many of these companies have closed, been taken over by the government, or have merged with other banks. It is often very difficult or in some cases impossible for the banks to prove their case.

The bank’s lawyers are often overwhelmed. In Collier, Lee and Dade counties there have been times when over three thousand cases were filed in a single month. When bank lawyers have more work than they can handle they are often inclined to work on the easier cases first. For the banks’ lawyers the easiest cases are against homeowners who just give up. Unrepresented homeowners almost always loose, usually lose quickly, and may lose more then once. For many homeowners the first time they lost was when the failed to shop for the best loan. Many homeowners with good credit who could have qualified for a prime mortgage were put in higher rate interest loans with variable rates that just kept adjusting upwards after the teaser rate was over. The second time these homeowners lose is when they lose their home in foreclosure. If the bank gets a judgment for the full amount of the loan and later sells the home for less the homeowner may end up losing a third time. The bank may seek a deficiency judgment for the difference between the amount of the note and the amount the bank received for the home. Years later the bank may sell this judgment to a bill collector, who will attempt to collect from the former homeowner by garnishing their bank accounts or garnishing their wages. This third and final loss will add insult to injury and cause further damage to the homeowner’s credit.

If the bank is faced with an aggressive defense from an experienced litigator they often face a real risk of losing the case entirely or spending years in an expensive fight where they could win some of the issues and lose others. Banks are corporations that exist to make profits for their shareholders. Banks operate out of self-interest. Banks modify mortgages when making interest rate concessions with increase the likelihood that a borrow continues to pay, or in order to convince the borrower to restart making payments. When a mortgage file gets transferred from the loss mitigation department to the legal department the concessions banks will make when they are at risk of losing are much, much greater. We have had clients that begged for loan modifications and have had clients that sent the bank full mortgage payments that were post due only to see the bank return the payments and pursue foreclosure. After the bank loses a summary judgment the calls from the banks lawyers often sound something like this: “What will it take to make this go away?” These homeowners in exchange for a written agreement to “Re-establish the note” may see the amount of their loan cut by 40% and their rates lowered below 5%.

In the trenches we have found that banks are overwhelmed, unprepared, and often unable to prove their case. In their rush to close loans many banks cut corners and did not comply with all applicable rules. Many homeowners have legitimate claims against the banks that they will never discover on their own. In the trenches we are finding that with proper representation homeowners stay in their homes longer (in some cases indefinitely) and can work out settlements that are rarely if ever offered to unrepresented homeowners.

This information is a public service of Shuster & Saben, LLC. For more information about hiring Shuster & Saben to defend your foreclosure case our website www.attorneyforeclosuredefense.com

Thursday, April 2, 2009

Upfront Loan Modification Fees in Florida are Illegal

Last week over lunch I was having a spirited debate with undefeated foreclosure defense lawyer Thomas Willis, about whether Florida’s Foreclosure Rescue statute the prohibits up front fees to “foreclosure rescue consultants” would apply to the booming loan modification industry.  It seems these days every out of work mortgage broker wants to be a loan modification consultant.  This is ironic in that if some of these mortgage brokers would not have sold crappy loans with huge transaction costs, hidden yield spread premiums, and adjusting rates the homeowner might not have a need for modification in the first place.  Leave it to a mortgage broker to make money screwing a homeowner and then ask for more money to unscrew the homeowner.  Of course in South Florida, what is sold as an unscrewing is often a repeat screwing where the loan modification company takes an upfront fee but never delivers on the promised loan modification.


During my lunch with Thomas Willis I pondered, if the homeowner is current on their loan then they are not in danger of foreclosure so why should the foreclosure rescue statue apply to a loan modification if there is no foreclosure issue.  Mr. Willis thought that the statute would apply to loan modification.  His thought was that loan modification is essentially a loss mitigation program to prevent bank losses.  If an wealthy investor with continuing high current income made a bad decision by over paying for a home or not obtaining a competitive mortgage the lender will not modify a profitable loan out of sympathy.  Loans are modified when banks believe that modification will prevent a default by the homeowner or when the government creates programs that financially reward lenders to modify loans for certain types of homeowners. Willis saw all loan modification as foreclosure related and argued that all loan modification companies would be prohibited from charging upfront for loan modification services.


The Florida Attorney General sees things the same was as Thomas Willis and by weeks end had filed suit against one loan modification company and had obtained an injunction against the other.  Before the week was up the Attorney General posted the following press release about Lincoln Lending, a loan modification company that  extensively marketed in South Florida on Spanish language television:


Temporary Injunction Obtained in Foreclosure Rescue Fraud Lawsuit

TALLAHASSEE, FL – Attorney General Bill McCollum today obtained a temporary injunction against LINCOLN LENDING Services, LLC and owner Rita Gomez, prohibiting the company from engaging in any type of consumer-debt related service or mortgage modification service and from taking payment from consumers for such services until further order of the court. The company will also be required to preserve and allow inspection of its records and refrain from liquidating its assets.

In addition to freezing the company’s assets, the order requires that the company refund any up-front payments made by consumers for foreclosure-related rescue services subsequent to October 1, 2008, the effective date of the law prohibiting up-front charges. These refunds should be completed within 90 days and will be made without the necessity of consumers filing a claim.

The Attorney General's Economic Crimes Division sued Lincoln Lending and Gomez earlier this week for allegedly charging up-front fees for loan modification services in violation of the Foreclosure Rescue Fraud Prevention Act. The Attorney General’s office has received hundreds of complaints regarding this case since the lawsuit was filed. Both parties agreed to this order.


Our firm has a client that went to Lincoln Lending for loan modification prior to retaining our firm to defend a foreclosure action filed against her by the lender.  According to the client, when she went to Lincoln Lending she was current on her mortgage but Lincoln told her to stop making payments on her mortgage in order for Lincoln to obtain a loan modification.  Lincoln never obtained a loan modification and as a result of our client’s failure to make her mortgage payments she ended up in foreclosure.  To Lincoln’s credit and the client made multiple complaints to Lincoln she was issued a refund.


My advice to homeowners is to choose carefully when it comes to loan modification.  Review the qualifications of the loan modification company and find out if your loan modification will be handled by an attorney or experienced professional of passed off to staffer with no experience or qualification.  Ask for references.  If you home is already in foreclosure speak to an attorney who is a member of the Florida Bar who is willing to go to Court to protect your home.