"The Next Housing Shock"

On Sunday, April 3, 2011, “60 Minutes” featured an investigative story on foreclosure fraud, “Mortgage paperwork mess: the next housing shock?” Click on the image at right  to watch the story.

I urge you to watch this segment very carefully. Even if you’re not at risk of foreclosure, legal title to your home may be blighted beyond repair.

60 Minutes reporter Scott Pelley “explains a bizarre aftershock of the U.S. financial collapse: An epidemic of forged and missing mortgage documents.”

Unfortunately, these “forged and missing” documents come as no shock to those of us who have known for a long time now that these documents DO NOT EXIST, AND HAVE NEVER EXISTED in the first place, hence the widespread fabrication and forgeries widely documented around the country.

It’s absolutely wrong to portray banks as being “unable to find” crucial mortgage documents. After watching the segment, contact your mortgage servicing company and find out whether your mortgage has been bundled and sold. Did you get a clear answer? Did you get a copy of your mortgage paperwork to back it up?

In a previous post, I listed the documents you will need to find out whether or not your bank is the actual holder of your mortgage:

1. A copy of your original Note
2. A copy of your Deed of Trust
3. A copy of any Substitution of Trustee relating to your property, if any.
4. A copy of any Assignments of Deed of Trust, if any.
5. A copy of any Notice of Default, if any, with any attachments.
6. A copy of any Notice of Trustee’s Sale, if any.
7. A copy of any Trustee’s Deed Upon Sale, if any.
8. Any letter or correspondence you have received from your bank or mortgage servicer relating to previous attempts at loan modification.

For me, this quip from Charles Ferguson, director of “Inside Job,” which won for Best Documentary Film, was the best acceptance speech from the recent Academy Awards.

Bankers, predatory lenders, mortgage services, robo-signers have yet to be held accountable for the criminal practices they have wreaked on homeowners who were the victims of fraud during the mortgage meltdown.

Study after study and expert after expert has shown that the banking industry abandoned its own lending standards to ensure there were enough mortgages to fuel the insatiable securitization machine. They then turned the mortgage securities into CDO’s and CDO-squareds and credit default swaps, which multiplied the damage exponentially.

Banks knew most of these loans would default, but they sold them to pension funds (you and me) anyway, as AAA-rated investments. Homeowners were mere instrumentalities in the mortgage fraud, which have been perpetrated literally millions of times.

Think about these numbers: In normal times, banks foreclose on approximately 100,000 homes annually, but from January through September 2010, almost 2.7 million homeowners received foreclosure notices. September alone saw more than 100,000 bank repossessions. According to the Special Inspector General for the Troubled Asset Relief Program, foreclosure notices will have been sent to more than 3.5 million homes by year end 2010.

So, is there a solution to this mess? Well, while we’re still waiting for our illustrious state legislators to wake up to the national tragedy of the foreclosure crisis, and still waiting for our Attorneys General to prosecute these financial executives, Georgetown University law Professor Adam Levitin has proposed a solution called Chapter M for mortgage bankruptcy.

Many industry experts are calling Professor Levitin’s Chapter M as “the easiest and most efficient way to solve the crisis in the housing market.

The key point to Chapter M is that it would remove foreclosure actions from state courts to federal bankruptcy courts under standardized, streamline procedures.

Here’s how it would work:

• Homeowner must document the ability to pay, and the lender must document the title to the note and mortgage, but with validity of securitization transfers conclusively presumed.
• If the homeowner is willing and able to pay, then the homeowner keeps the house. A fresh appraisal is done by a court-appointed appraiser. If the homeowner re-defaults, the foreclosure process can speed up. It wouldn’t affect non-mortgage lenders. It is fast-tracked relative to traditional Chapter 13.
• The Lender may choose between an FHA short-refi with principal reduced to [90]% of LTV or a standardized loan modification with principal reduced to 100% LTV and loan restructured to 30-year fixed-rate, full amortization, market interest rate adjusted to ensure maximum [31]% DTI ratio), with 50% risk-weighting for modified loans.
• If the homeowner does not qualify, the lender gets same fast-tracked federal foreclosure and quiet title coming out of the foreclosure sale. If the lender cannot show title, then the homeowner gets quiet title to property. In all situations, the homeowner’s non-mortgage debts “ride-thru” the Chapter M bankruptcy, unaffected, but the homeowner could also file for a traditional Chapter 7 or 13 bankruptcy to address those debts.
• Is Chapter M a viable solution to the mortgage crisis? Yes! It has no cost to the federal government. It builds off existing infrastructure, and can be started immediately using existing bankruptcy courts and Chapter 7 panel trustees for sales.

We have to start cleaning up this mess. Now.

SUMMARY of Transcript:

Chapter 13 bankruptcy is more appropriate for someone who got a little behind on their mortage payment, and they want to pay back debts over time. A Chapter 13 bankruptcy gives them a chance to reorganize their finances, and gives them up to 5 years to pay back their debts.

Chapter 7 is more appropriate for someone who has a lot of debts that they want to wipe out completely. Most of the time these are credit cards debt, personal loans, or business lines of credit. These are the kinds of debt we can help wipe out for our clients.

Chapter 7 vs. Chapter 13 Bankruptcy

Chapter 7 is commonly used when:		Chapter 13 is commonly used when:
You have little property except for the basic necessities like furniture and clothing.		You have significant equity in a home or other property and you want to keep it.
You have little or no money left after paying basic expenses each month—or you’re not even meeting basic expenses.		You have regular income and can pay your living expenses, but you can’t keep up the scheduled payments on your debts.
Advantages of Chapter 7:		Advantages of Chapter 13:
Most unsecured debts can be completely eliminated.		You can keep most of your property (house, car, business) while making payments over time to pay past due accounts.
You may receive your discharge in just 4 months.		You can create a payment schedule with your bankruptcy trustee to pay off your delinquent accounts over a 3-5 year period.
You cannot be contacted by creditors while the automatic stay is in effect.		After making one monthly payment to the trustee for distribution of payment to your creditors, you will no other direct contact with creditors during the protection period of 3-5 years.
		Co-signers may be protected.
Who can file under Chapter 7?		Who can file under Chapter 13?
Debtors who have qualified under the ‘means test’ and completed a required pre-filing session with a credit counselor.		Any individual debtor whose unsecured debts are below $336,900 and whose secured debts are less than $1,010,650.
Record of bankruptcy remains on credit record for up to ten years from the date of filing.
Contact REYES LAW GROUP, APLC, to see which bankruptcy option is best for you.

Click on image to watch

In last month’s segment of “Legal Forum” on KSCI-TV, I discussed two types of legal proceedings that are used to help homeowners in foreclosure. Temporary Restraining Orders and Preliminary Injunction. Here is the transcript of the interview:

TEMPORARY RESTRAINING ORDER (TRO) –
This is a legal proceeding that requires filing a lawsuit, then (usually) simultaneously filing an ex parte (emergency) application for a TRO to stop a foreclosure sale.

• In order to be successful, we must convince a judge that “irreparable harm” will result to our client if the foreclosure sale is not stopped.
• “Irreparable harm” is a legal concept that means damage sustained by a person that cannot be easily calculated.  An example would be the loss of a home, or any other real estate, which under the law is considered unique and not replaceable.
• So, if the court is convinced that we have strong enough evidence to grant a TRO, then a TRO would be granted for a period of up to 22 days.  All foreclosure and collection activity has to stop for this time period.
• Before that time period expires, there will be a second hearing to hear the arguments of both sides about whether the TRO will be extended beyond the initial period of up to 22 days, all the way up to trial, which could be about one year away.  A court order to extend the TRO pending trial is called a Preliminary Injunction.

PRELIMINARY INJUNCTION
To successfully obtain a preliminary injunction, we have to prove that our client is likely to win at trial.  In addition, the court balances the harm resulting to the homeowner if the injunction is not granted, versus the harm to the bank if the injunction is granted.

• A Preliminary Injunction means that the bank cannot foreclose on a homeowner until after all of the legal issues are fully decided after a full-blown court or jury trial, usually about one year after filing the case.
• This can be a very powerful weapon for the homeowner, and is a good incentive for banks to come to the table to make a meaningful settlement offer.  Tying the property up in court means that banks are unable to sell the property to recover their money.  It increases the severity of the bank’s losses on that particular property and makes a settlement more likely.

California homeowners facing foreclosure, or who may already have been foreclosed upon have been given a big dose of hope this week, thanks to the Massachusetts Supreme Judicial Court (“Foreclosure Case Deals Big Blow To Banks, Lenders”)

In a hearing of two consolidated cases, i.e., the U.S. Bank vs. Ibanez and Wells Fargo vs. LaRace, that state’s highest court invalidated the seizure of two homes after Wells Fargo & Co and US Bancorp failed to show they held the mortgages on these homes at the time they foreclosed.

The banks that made the loans to homeowners subsequently sold them, as part of a pool or bundle comprised of thousands of other mortgages, to other entities as part of the securitization process. However, in order to perfect ownership for the buyers of these pools, the notes and mortgages had to comply with strict and timely procedures. This court held that because those procedures weren’t followed, the buyers (investors) in those mortgages had no right to foreclose.  It is widely believed that those defective procedures in the securitization process are more pervasive than the banking industry would care to admit.

The ruling sent shock waves throughout the banking industry, as it may affect foreclosures nationwide, including those in California, where our attorney general along with AGs from all other states, is examining whether lenders are forcing people out of their homes without proper documentation.  There is a growing trend for courts to more closely examine claims of ownership and proper documentation by the banks, refusing to take the claims of mortgage lenders and servicers at face value.

I have no doubt that this case ruling will reverberate in all the other states, including California. Although this ruling is binding only in MA, the legal basis and reasoning is fundamentally sound and correct. In fact, my firm, REYES LAW GROUP, APLC, is handling more than a hundred cases using similar litigation strategies, and raising the same legal issues with respect to securitization, as those used in Massachusetts. I am looking forward to the day when the judiciary in California catches up to Massachusetts and the rest of the country.

In the meantime, here are the documents you will need to bring to your legal representative to see whether or not your bank is the actual holder of your mortgage:

1. A copy of your original Note
2. A copy of your Deed of Trust
3. A copy of any Substitution of Trustee relating to your property, if any.
4. A copy of any Assignments of Deed of Trust, if any.
5. A copy of any Notice of Default, if any, with any attachments.
6. A copy of any Notice of Trustee’s Sale, if any.
7. A copy of any Trustee’s Deed Upon Sale, if any.
8. Any letter or correspondence you have received from your bank or mortgage servicer relating to previous attempts at loan modification.

Jannelle So, host of Kababayan LA on KSCI-TV with "Legal Forum" commentator, Norberto F. Reyes

Starting today, November, 10, 2010 I will be returning as a regular commentator for “Legal Forum,” the highly popular segment airing weekly on KSCI-TV Channel 18’s “Kababayan LA” starting at 4:30 pm Pacific. The show answers your most pressing legal concerns, including bankruptcy and foreclosure.

“Kababayan LA” is the first locally produced English/Tagalog daily show of its kind.  Host Jannelle So brings a lively mix of news, information and entertainment, as wesll as interviews with leading Filipino celebrities, community leaders and newsmakers.

Tune in!

During today’s taping, I also had the pleasure to meet another of Jannelle’s guests: Ramon Bautista, self-dubbed as the Philippines’ “Internet Action Hero” was visiting the U.S. and stopped by for an animated chat. Ramon is also a very popular comedian, TV actor and radio host.

Ramon Bautista, Internet Action Star

Banking executives have admitted under oath to large-scale fabrication and falsification of documents necessary to foreclose on homeowners

In recent weeks, several banking executives have admitted under oath to large-scale fabrication and falsification of documents necessary to foreclose on homeowners.  This gave birth to the term “robo-signers,” because many bank executives admitted to signing up to 20,000 sworn affidavits a month (up to 1,000/day!) without determining whether the bank really has the right to foreclose.

The number of foreclosure cases that could be affected nationally are in the hundreds of thousands, perhaps in the millions.  In response to these revelations, Bank of America, Chase, GMAC and some of the largest mortgage servicers have enacted voluntary foreclosure moratoriums to investigate their own practices.

In response to these revelations, federal and state regulators have taken historic and unprecedented actions.  At this moment, Attorneys General of all 50 states are conducting a joint investigation of the practices of the mortgage servicing industry to determine whether state consumer protection laws have been broken.  The federal government has created a high-level investigatory agency called the Financial Fraud Enforcement Task Force to look into possible violations of law by the banking industry, the most common of which would be fraud and perjury, which are felonies in every US jurisdiction.

What should consumers do to protect themselves from their banks committing fraud in the foreclosure process?

First, they should obtain all the publicly recorded documents filed against their property at the local county recorder’s office.  This will allow us to look for signs of fraudulent documents that homeowners could use in court to challenge the bank’s alleged right to foreclose on their property.

In my office, we have electronic access to most county records that make these documents available online.  This allows us to easily check for the existence of these fraudulent documents.

Homeowners should be aware that not every lawyer has the required training, skill and experience in identifying these false documents and using them in the proper venue and in the proper manner.   Because of my litigation background, I know how to raise these issues in the proper venue.

California is a so-called non-judicial foreclosure state.  This means that a bank does not have to file a lawsuit in court to conduct a foreclosure sale.  This presents a problem for homeowners, because they don’t have the protection of the judicial system to bring these issues in front of a judge to determine whether the bank has acted legally.  That’s why my office takes an aggressive role in filing lawsuits to bring these documents and issues to the attention of a court, to obtain the maximum legal protection for our clients.

I particularly like the idea of thousands of bankers in orange jumpsuits doing the perp-walk in front of TV cameras, like what happened after the S&L crisis.

James K. Galbraith, the author of The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too wrote an article last week called, “Obama’s Problem Simply Defined: It Was The Banks” which has since been picked up by numerous blogs and news sites, including Naked Capitalism and Huffington Post to name a few.

In the article, Galbraith wrote:

“The original sin of Obama’s presidency was to assign economic policy to a closed circle of bank-friendly economists and Bush carryovers. These men had no personal commitment to the goal of an early recovery, no stake in the Democratic Party, no interest in the larger success of Barack Obama. Their primary goal, instead, was and remains to protect their own past decisions and their own professional futures.”

So, instead of consumer minded people in Obama’s inner circle, we get Geithner, Summers and Bernanke.

Democrats, Republicans, Independents, Tea Partiers: One thing about which we can all agree is that the Too Big to Fail Banks are Too Big to Exist. If not for the hocus pocus magical accounting and suspension of “mark to market” accounting rules, they would all have liabilities which far exceed their assets.

Under Dodd-Frank, we now have resolution authority to shut down these banks, sell off their remaining assets, and remove their corrosive effects on the rest of the economy. This would also provide a way for RMBS investors to get the most ROI, reduce homeowners’ principal balances to provide meaningful incentives for all parties to prevent foreclosures, and get the rest of the economy flowing again.

Until that happens, confidence will never return to the market.

1. Filing of fraudulent, perjured or fabricated documents
   Loan servicer employees have testified to signing tens of thousands of foreclosure documents without proper verification or notarization. As a result, all 50 states have launched a joint investigation of documents handled by these “robo-signers,” forcing Bank of America to suspend foreclosure proceedings in all 50 states, and GMAC Mortgage and JPMorgan Chase to suspend foreclosure proceedings in 23 states
2. Absence of legal title to the note and mortgage
   Courts are starting to rule against mortgage holders who are foreclosing because it could not produce the documents proving that it had been assigned the rights in the mortgages when they were securitized. When banks and mortgage servicers securitized, packaged, sold, and resold mortgages, they created a system where it is often impossible to figure out who actually owns mortgage notes and therefore has the authority to foreclose on properties.
3. Wrongfully assessing improper fees & Force-placed insurance on a homeowner’s account:
   Mortgage servicers’ routinely engage in practices that speed homeowners into foreclosure, including wrongfully padding fees, such as late fees, broker-price opinions, inspection fees, attorney’s fees, and other fees. They also have been found to misapply payments, leading to the homeowner’s payments for principal and interest being improperly applied to the servicer’s fees, which in turn can improperly cause the loan to be considered to be in default. Forced-place insurance premiums are two to four times the cost of standard homeowners’ insurance, which in turn cause servicers to collect these premiums before applying the payments to principal and interest, leading to foreclosure on otherwise up-to-date loans
4. Failure to contact homeowner in good faith to explore loan modification prior to filing Notice of Default
   A notice of default must be provided to the borrower at least 30 days before the Notice of Sale is recorded in the county auditor’s office. In increasing cases, court records are showing that despite false or missing notices from lenders of the foreclosure sale, borrowers are being foreclosed upon.

“Paperwork problems?”

The media needs to educate itself about the legal issues, and stop churning industry propaganda. This is not a “paperwork problem.” This is an endemic and systemic fraud perpetrated by the servicing industry and their outsource providers.

Think logically: Why do you think it was necessary to fabricate assignments of mortgage? Because without these false documents, banks are unable to prove that they own the loan, because they don’t. Is your mortgage allegedly owned by a securitized trust?

The loans were never conveyed into the trusts that claim to own them, and the investors whose money was used to “buy” those mortgage pools are also victims.

The coming flood of loan buyback requests and lawsuits coming from those investors have already begun: First group of MBS investors take first step to suing Countrywide/BofA for $47 billion in bad loans.

The finance industry already knows this. Bank stocks are taking a beating, and soon many of the biggest banks will be insolvent from buybacks and write-downs.

Consult a competent attorney asap, as your mortgage may not be legally owned. By anyone!