Foreclosure

Major Lenders Halt Foreclosures Over Concerns With Faulty Documents

by Rich Vetstein on October 2, 2010

in Foreclosure, Mortgage Crisis

Updated: Bank of America halts foreclosures in all 50 states

On the eve of arguments in the controversial U.S. Bank v. Ibanez foreclosure case before the Massachusetts Supreme Judicial Court on Oct. 7, Bank of America, the nation’s largest bank, became the latest lender to halt foreclosures in 23 states because of concerns that lenders submitted faulty foreclosure court documents. Massachusetts Attorney General Martha Coakley has asked Bank of America to halt foreclosures in Massachusetts, but has not filed a formal action to do so yet.

Robo-Signing

Bank of America, JP Morgan Chase and other mortgage companies have been under pressure to review their paperwork after employees and contractors said in sworn depositions that, because of the enormous volume of foreclosures, they had not had the time to read the documents or check them for accuracy. This practice has been termed “robo-signing” where midlevel bank executives would sign thousands of affidavits a month attesting that they had personal knowledge that the facts of the case were as presented. When defense lawyers started deposing these robo-signers, they acknowledged that they could not possibly have knowledge of all the cases. The banks say this is a technicality and they will refile the proper affidavits. The defense lawyers say the practice calls the cases, and indeed the entire process, into question.

“To be certain affidavits have followed the correct procedures, Bank of America will delay the process in order to amend all affidavits in foreclosure cases that have not yet gone to judgment,’’ B of A spokesman Dan Frahm said in a statement.

A Bank of America executive, Renee Hertzler, said in a February deposition that she signed as many as 8,000 foreclosure documents a month without reviewing them. The deposition is similar to others taken from document processors at J.P. Morgan Chase and Ally Financial, which have also frozen foreclosures in the past week. The statements were taken by lawyers for homeowners contesting the seizure of their homes.

Foreclosures have stopped in these states: Connecticut, Delaware, Florida, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Nebraska, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, South Carolina, South Dakota, Vermont and Wisconsin.

Huge Impact

The net effect of the banks’ halt on foreclosures will be that the current frenzied pace of foreclosures will slow considerably as well as the evictions of defaulting homeowners. Also, the inventory of foreclosed properties will continue to stagnate, and will not be absorbed into the market for many, many months to years to come. This is exacerbated by title insurance companies’ unwillingness to insure over potentially defective foreclosure titles due to the errors in the process. Also, state attorney generals will surely jump on this bandwagon, demanding or suing to slow down foreclosures — a no brainer political move. All of this will have a dramatic impact on the REO market and the market as a whole.

On the flip side, some economists said the breakdown could ultimately lay the groundwork for a real estate recovery. Stricken neighborhoods across the country, for example, could benefit. One big factor undermining home sales is fear of a large number of foreclosed homes coming to the market. If the foreclosures are delayed or never happen, housing prices might find a floor.

“Maybe this is like shock therapy,” said the economist Karl E. Case. “Maybe this will actually get the lenders to the table and encourage them to work out deals that are to the benefit of everybody.”

More Coverage:

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Taking Another Stab at Massachusetts Loan Modifications: Refinancing Underwater Mortgages

by Rich Vetstein on September 21, 2010

in Fannie Mae, FHA, Foreclosure, HUD, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

The recent historic drop of mortgage rates has created a refinancing boom for qualified homeowners. Unfortunately, the refinancing wave washing over the country has paradoxically left dry homeowners who would most benefit:  those who are “underwater.” Underwater mortgages, or “negative equity” (i.e., they owe more on the mortgage than the property is worth) cause foreclosures and serves to bottle up the housing market. Thus, assisting homeowners who are underwater on their mortgage is good public policy. According to a CoreLogic study, there are currently 11 million mortgages underwater and another 2 million nearly at negative equity in the US housing market – a figure that comprises 28% of all residential properties with a mortgage. In Massachusetts, there are 225,000 properties with negative equity and another 52,000 with near negative equity.

The government has made attempts to address this crisis. Last year the Obama Administration created a loan modification program, the Home Affordable Refinance Program, to help refinance borrowers whose loans were worth up to 125% of their homes value. The program did not take hold, and only a relatively minor number of modifications/refinances occurred.

Writing in yesterday’s New York Times, former chairman of the President’s Council of Economic Advisors and current Dean of Columbia Business School Glenn Hubbard penned an intriguing column proposing easier refinancing of underwater mortgages.

Under the proposal, quasi-governmental entities like Fannie Mae, Freddie Mac, the FHA, and the VA would require loan servicers:

  • To send a short application to all eligible borrowers promising to allow them to refinance with minimal paperwork.
  • Servicers would receive a fixed fee for each mortgage they refinanced, which would be rolled into the mortgage to eliminate costs to the taxpayers.
  • The agencies would issue new mortgage-backed securities to cover the refinanced mortgages, using the proceeds to pay off the loans held in the existing securities.

The proposal also mandates that existing second lien holders provide a subordination agreement (which benefits the holder because it lowers the default risk).

The program would have immediate benefits: a distressed homeowner could save approximately 15% in their monthly mortgage payment, which would greatly help homeowner’s through the current crisis.

Is there a guarantee that this modification will become law? No, there is not, but it certainly makes sense for policymakers to move on it right away.

In the words of Glen Hubbard, “[i]f we can lower mortgage payments for struggling homeowners, it will reduce future foreclosures on federally backed loans, providing savings to the taxpayers.” And that’s a good thing for everyone.

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Ibanez Foreclosure Case Update: Appellate Briefs Filed

by Rich Vetstein on August 19, 2010

in Foreclosure, Massachusetts Real Estate Law, Mortgages

The briefs in the US. Bank v. Ibanez foreclosure case in the Supreme Judicial Court have been filed.

Here is a link to the Ibanez side brief.

Here is the lenders’ brief.

The case is still set for oral argument in October, with a decision expected in late Fall, early Winter.

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Massachusetts Senate Passes Foreclosure Protection, Homestead Update, and Consumer Protection Bills

by Rich Vetstein on May 5, 2010

in Foreclosure, Homestead, Landlord Tenant Law, Massachusetts Real Estate Law, Mortgage Crisis

Update (June 28, 2010): The bill is heading up to Gov. Patrick’s office for approval.

The Massachusetts Senate recently passed wide-ranging legislation that updates the homestead law, protects tenants in foreclosed properties from arbitrary evictions, criminalizes mortgage fraud and certain unsolicited loans. The legislation, part of a series of consumer protection bills that passed the Senate, was approved unanimously.

Metrowest Senator Karen Spilka, who spearheaded the changes, writes about them on her blog (and she has a Facebook Page!).

Foreclosure Bill

  • Tenants in foreclosed buildings can only be evicted for just cause, or if the building is purchased by a third party. Also, a lender cannot evict a tenant for failure to pay rent unless it has posted and delivered a written notice including critical information, including a contact number for the new owner. This does not prohibit a lender from evicting tenants for other valid reasons, such as interfering with the quiet enjoyment of other tenants, using a unit for illegal purposes, or refusing to allow the lender to enter the unit to make repairs.
  • For homeowners, the legislation temporarily extends the 90-day right to cure period, enacted by the legislature in 2007, to 150 days. The 2007 law gave homeowners 90 days to come up with past due payments on their mortgage, before the lender could require full payment of unpaid balance. This was intended as a cooling off period for the lender and homeowner to work out a new payment plan to avoid foreclosure.
  • Bill requires at least one meeting or telephone conversation between the homeowner and the lender to discuss a commercially reasonable alternative to foreclosure. The lender’s representative must have the authority to agree to the revised terms. The right to cure period can be reduced from 150 days to 90 days if the lender makes a good faith effort to negotiate a commercially reasonable alternative to foreclosure.
  • Allows the 150-day right to cure to be granted once every 3 years; currently, the 90-day right to cure is only available once every 5 years.
  • Creates a 2-year pilot program within the Division of Banks that requires all property owners, including lenders, trustees, and service companies, to register and maintain vacant and/or foreclosing properties in the Commonwealth.

Coverage on this bill from the Boston Globe can be found here.

Homestead Law Update

  • Updates the homestead law to protect up to $500,000 of a home’s value. It also includes unsecured debts, such as credit card debt, that were incurred before the homestead was filed.
  • Extending homestead protection to manufactured homes, and multifamily properties of up to 4 units.
  • Requiring homeowners with more than one property to file a declaration, signed under the penalty of perjury, of which dwelling is their primary residence and therefore eligible for homestead protection to avoid fraud.
  • Clarifying that the proceeds of fire/casualty insurance or sales/takings are protected from creditors. Fire/casualty proceeds are protected until re-occupancy; a homestead is declared on new home; or for 2 years after the date of the fire/casualty.
  • Protecting the proceeds from sales or taking until a new homestead is declared or for 1 year, whichever occurs first.
  • Allowing trustees of trusts to file homestead declarations on behalf of trust beneficiaries who reside in the property as their principal place of residence.
  • Creates an automatic homestead of $125,000 for all homeowners.

Other Consumer Protection Provisions

  • As advocated by the Attorney General, the bill would criminalize residential mortgage fraud.
  • Prohibits financial institutions and lenders from sending consumers unsolicited loans which are a negotiable check, money order, draft or other instrument that may be used to unknowingly activate a loan that was not solicited by the consumer.  10 day right of rescission on these loan products.

The three bills now move to the House of Representatives for further action.

The homestead law update is long-awaited and much needed. I wrote about it in the Fall here.

The foreclosure bill is quite a victory for tenant and distressed property owner advocates.

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Will Short Sales Get A Boost From Obama’s HAFA Program?

by Rich Vetstein on April 20, 2010

in Foreclosure, Massachusetts Real Estate Law, Short Sales

The Obama Administration’s Home Affordable Foreclosure Alternative program, known as HAFA just kicked off on April 5th. The HAFA program promises to streamline short sale transactions. However, read the fine print, and there are a lot of unanswered questions about the program and how it will affect short sale transactions in the “trenches.”

Is the new program really going to streamline the process or create more headaches for the industry?

To begin, it’s important to clarify that the HAFA program is part of the federal Home Affordable Modification Program (HAMP). HAFA guidelines will only apply to short sale or deed in lieu of foreclosure requests made by borrowers who have applied for a HAMP loan modification. That means borrowers will have had to go through all the time, hassle and endless forms under the HAMP modification program before even being eligible for a HAFA streamlined short sale approval. This requirement will likely substantially reduce the number of HAFA-required short sales. HAFA also requires participating lenders to forgive a borrower’s loan deficiency if the lender accepts a short sale. This is a significant deviation from many lenders’ policies. There is even some debate about which lenders actually fall within the mandate of HAFA. For all of these reasons, it is far too early to speculate regarding the impact of HAFA on the current backlog of short-sale requests. It is very unlikely, however, that HAFA is going to quickly streamline the short sale process.

What are the benefits of the HAFA program?

HAFA does create the opportunity for standardization of short sale and deed in lieu of foreclosure forms. Given the wide range of agreements currently in use, standardization will help borrowers to better understand the terms of any negotiation. HAFA also requires lenders to standardize their criteria for the approval of a short sale or deed in lieu. Again, that kind of practice will enable borrowers to better anticipate the likelihood that a particular offer will be accepted and what the acceptance means.

Short sales seem to be picking up right now. But, in the end, will the already in place REO system be a better way to alleviate these troubled loans?

Short sales and REO sales are complementary processes. Both alternatives are necessary to systematically deal with property subject to defaulted loans. All available statistics indicate that when a mortgage loan is in default, the mortgaged property begins to fall in value. It’s easy to understand why. Even the most honorable borrower faced with a loan in default is unlikely to continue necessary maintenance much less improvement. Short sales allow these properties to be sold much more quickly than would occur if a full foreclosure and sale after redemption was required. As such, less reduction in property value results from the short sale alternative.

Not every parcel, however, is going to qualify for short sale treatment. In these cases, lenders will be forced to institute a foreclosure. Accordingly, an effective REO disposition process must be maintained by mortgage lenders. Whether short sales or foreclosure and REO resale becomes the norm for troubled properties remains to be seen. In any event, everyone benefits from a timely process which retains as much value as possible in our homes.

Here in Massachusetts, short sale transactions appear to be on the rise. However, there are plenty of stories of buyers waiting many many months to close. If you are considering buying a short sale property, read our post on short sale transactions, and be prepared to wait it out, which may well be worth it given the reduced price you’ve likely negotiated.

Source:  Housing Wire

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More Legal Commentary On Ibanez Foreclosure Decision From Real Estate Attorneys

by Rich Vetstein on April 17, 2010

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

Reporter Steven Altieri of the real estate trade journal Banker & Tradesman recently published an article on the Ibanez foreclosure case, Impending SJC Ibanez, Title Ruling May Invalidate Thousands Of Foreclosures, Why Real Estate Attorneys Expect The Worst, And What It Means To The Industry.

Since we’ve written about the case extensively here, Steve asked for my views about the impact of the case and recent matters I’ve handled with Ibanez title defects:

Framingham real estate attorney Richard Vetstein recently represented a family who had bought a house out of foreclosure about a year ago, then invested in excess of $100,000 in improvements to the property with the intention of selling it to their daughter. But before they could complete the sale, a title issue came up and put the transaction on hold.

In Vetstein’s client’s case, when the original owner was foreclosed upon, the mortgage company did not have a properly recorded assignment. To clear the title, Vetstein had to track down the original owner in Alabama, and persuade him to sign over the deed to the property.

“They can close now that the title issue is solved, but in a lot of cases that [is] not going to be able to be solved,” said Vetstein. “We were lucky, that’s what it came down to.”

Steve asked me how I would handicap the appeal of the case:

Vetstein, who has blogged on the Ibanez case at length, thinks the court might uphold the Ibanez decision.

“Given the current constitution of the court and their tendencies of recent years to be kind of moving towards some pro-consumer decisions, I wouldn’t be surprised if they upheld the land court probably by a slim margin,” Vetstein said. “And so for people who are stuck with an Ibanez issue, that is in essence the worst-case scenario.”

Indeed, it’s unlikely that a “pro-consumer” verdict upholding the Ibanez decision would actually help consumers on the whole. Home buyers or investors who thought they had gotten a good deal and a clean title on a foreclosed property will instead be saddled with hefty legal bills and an inability to sell their property.

Lastly, Steve asked if the Ibanez ruling has created an business development opportunties for real estate attorneys:

“I don’t know of any real estate attorney using Ibanez as a business development opportunity, mainly because solving these title defects, if at all, is incredibly difficult and in some cases impossible,” Vetstein said. “It’s a ‘lose-lose’ in many situations.”

One aspect of the case could potentially provide plenty of work for attorneys. Should the SJC uphold the Ibanez decision, Vetstein reasons that there will be many claims against the foreclosing lenders and the foreclosure attorney, for failing to convey good title.

“There will also be claims for rescission of these transactions,” he added. “There is a class action against lenders and foreclosing attorneys which could encompass many millions in potential damages.”

Banker & Tradesman is a great publication. If you don’t want a paid subscription, you can follow them on Twitter and Facebook.

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Controversial Ibanez Foreclosure Case Heading Up To Massachusetts Supreme Judicial Court

by Rich Vetstein on March 23, 2010

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Title Defects

Update (July 27, 2010): Oral argument is scheduled for October 7, 2010.

Good news for those eagerly following the controversial U.S. Bank v. Ibanez case, which invalidated thousands of foreclosures across the state. On March 22, the Massachusetts Supreme Judicial Court (the highest appellate court in the state) agreed to take the case on direct appellate review (as I originally predicted). This sets the stage for one of the most important real estate decisions in recent years.

The SJC’s acceptance of the case now expedites what will be the final word in this case, good news for everyone affected by this ruling. A final decision, however, is still many months away. Both sides still have to file briefs, and the case will be scheduled for oral argument probably within 4-5 months, with a decision coming several months later. (Appeals take time).

Click here and here for my prior posts on this case. Here is Globe reporter Jenifer McKim’s story on the development.

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Ibanez Foreclosure Case Heading To Massachusetts High Court?

by Rich Vetstein on February 22, 2010

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Title Insurance

Update (3/24/10): SJC Accepts Ibanez Case
For those of you following the controversial U.S. Bank v. Ibanez case, which invalidated potentially thousands of foreclosures across the state, both sides last week asked the Massachusetts Supreme Judicial Court to take the case — as I originally predicted. The SJC’s acceptance of the case would cut months to years off the normal appellate process. This would be great news for everyone eagerly awaiting a final decision.

Click here for Ibanez’s petition to the SJC. Click here for my post on the first ruling and here for my post on the second ruling in the Ibanez case.

The SJC should decide whether to take the case within 30 days or so, and I predict they will take it on. However, I still think the SJC will ultimately affirm Judge Long’s ruling against foreclosing lenders, a bad decision from a title and conveyancing standpoint in my view.

Meanwhile, in the aftermath of Ibanez, some lenders are re-doing foreclosures and some are just waiting it out. Most title insurance companies are unwilling to touch an Ibanez afflicted property with a ten foot pole.

I recently assisted a buyer of a foreclosed property who was initially rejected by two title insurers. We fortunately convinced one title company to insure over an Ibanez issue, so the client could close. But I have another client who is stuck, and we’re trying to track down the original owner of the property to obtain a deed. It’s a tough situation all around.

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Massachusetts Real Estate Law Year In Review: Top Posts Of 2009 And Predictions For 2010

by Rich Vetstein on December 28, 2009

in Closings, Condominium Law, Electronic Closings, Fannie Mae, FHA, Foreclosure, HUD, Massachusetts Property Values, Massachusetts Real Estate Law, Mortgage Crisis, Purchase and Sale Agreements, Realtors, RESPA, Short Sales, Technology

In the spirit of the New Year, let’s look back at the top legal issues of the past year and peer into the crystal ball for a glimpse at 2010.

Top 5 Posts For 2009

#1.  The Catch-22 Impact of New Fannie Mae Condominium Regulations. In January, Fannie Mae was the first government agency to drop a big bucket of cold water on condominium lending underwriting practices which some say contributed to the condominium market meltdown. FHA and others would follow later in the year. The new guidelines had condominium developers and associations, buyers and sellers in a tizzy, as Fannie Mae imposed much tougher pre-sale requirements, condominium financial guidelines and the imposition of unit owner HO-6 insurance policies, among other requirements.

#2.  New FHA Condominium Lending Guidelines Sure To Slow Financing and Chill Sales. The Federal Housing Administration (FHA) followed Fannie’s lead in tightening condominium lending requirements. Originally proposed over the summer, FHA delayed implementation of the new guidelines until earlier in the month and watered down some of the most stringent requirements, after major lenders and community association groups complained.

#3.  There’s Nothing Standard About The Massachusetts Standard Purchase and Sale Agreement. Great to see a post about buying a new home ranking so highly. An indicator of the recovery of the Massachusetts real estate market perhaps? Check out this post for the ins and outs of the very seller friendly standard form P&S and how to level the playing field if you are a buyer.

#4.  Massachusetts Land Court Reaffirms Controversial Ibanez Decision Invalidating Thousands of Foreclosures. If you were following the foreclosure mess, you couldn’t have missed this judicial bomb dropped by Massachusetts Land Court Judge Keith Long. The so-called Ibanez ruling invalidated thousands of foreclosures across the state because the lenders did not record their paperwork up to date at the registries of deeds. Lenders have appealed the ruling, but hundreds of foreclosure titles remain unmarketable in the wake of this controversial decision. More to come in 2010.

#5.  Short Sales Get Boost From New Obama Treasury Guidelines. On December 1, the Obama administration set long-awaited guidance on a plan for mortgage companies to speed up short sales of homes and other loan modification alternatives to stem the rising tide of foreclosures. The Home Affordable Foreclosure Alternatives Program provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed.

Honorable Mention. I would be remiss if I didn’t mention the new RESPA guidelines and the new Good Faith Estimate and HUD-1 Settlement Statement which go into effect Jan. 1, 2010.

2010 — The Year We Rebound

The Massachusetts Real Estate and Mortgage Market

All signs are pointing to a real estate rebound for the Bay State in 2010, with home and condominium sales surging over 50% from last year in November. I have definitely seen an uptick in new purchases on my end and we are preparing for a busy 2010. Along with good news from the real estate market, however, comes higher interest rates as the bond market reacts to positive news. My friend mortgage consultant Brian Cavanaugh at SmarterBorrowing.com does a good weekly mortgage market update and is presently advising borrowers to lock into current rates as he predicts rates will rise in 2010 to close to 6% for a 30 year fixed. Of course, when rates go up, buying power goes down, thereby cooling the market a bit.

Regulatory

Hopefully we’ve seen the end of increased regulation of the condominium market from the government giants. Let’s toast that they can let the market take its course with the new guidelines in effect.

Stimulus/Home Buyer Credit

As the economy continues to recover, you can probably bet that the Obama administration is going to let up on the stimulus/credit throttle for 2010. So take advantage of all the credits available now, because this is probably the last you will see of them for awhile.

Housing

On the housing front, Massachusetts builders are reportedly foregoing McMansions in favor of  the more affordable middle market of homes in the $400,000 to $600,000 price range. Finally!

Technology

Lastly, technology, the internet and social media will play an even bigger role in how realtors, lenders and real estate attorneys do business. The National Association of Realtors says that 87% of home buyers use the Internet to search for homes. I tell all my Realtor friends they must have a strong Internet presence and to take advantage of blogging, social media and Active Rain to boost their online presence.

For attorneys, in 2009 we saw the tip of the iceberg for electronic recordings and closings as well as online transaction management. Our office just set up an online transaction management system where buyers, sellers, loan officers and realtors can view the status of the loan whenever they want through a secure online portal. It’s a fantastic tool. While electronic closings are a way’s away from gaining the necessary critical mass of lender acceptance, many Massachusetts registries of deeds are now e-recording, and that will continue to rise. The next decade will certainly bring electronic closings and paperless transactions into the norm.

Well, let’s clink our glasses to a very happy, healthy and fruitful New Year!

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Ibanez Ruling Foreclosure Update: Nothing Much To Report

by Rich Vetstein on December 23, 2009

in Foreclosure, Mortgage Crisis, Mortgages, Title Defects, Title Insurance

Update (2/25/10)—Mass. High Court May Take Ibanez Case

I’ve been asked several times recently for an update on the status of Land Court judge Keith Long’s controversial ruling in U.S. Bank v. Ibanez, which invalidated thousands of foreclosures across Massachusetts. Click here for my prior post on the case.

Unfortunately for those affected by the decision, not much is going on. Lenders have reportedly appealed the decision. Word has it that the lenders have hired mega-firm K&L Gates to handle the appeal. (Interestingly, K&L Gates is the same firm which secured a major ruling against the Massachusetts Real Estate Bar Association over non-attorneys handling real estate closings in Massachusetts).

The record in the Land Court is currently being assembled. The Massachusetts Appellate Court database doesn’t even list the case as yet up on appeal. Accordingly, this appeal is many, many months away from being decided.

Also, watch for the lenders to ask the Massachusetts Supreme Judicial Court to take the case on direct appeal. While this will delay the appeal some in the short term, the SJC is the final stop on the appellate railway, and its decision is the final word on the matter. Given the pro-consumer decisions recently issued by the high court and its current makeup of somewhat liberal justices, my money is still on an unfavorable decision for lenders in this case.

In the meantime, I’m hearing that lenders are simply re-doing their foreclosures with the correct loan paperwork (i.e., the mortgage assignments) brought up to date. For buyers who had an agreement to purchase a foreclosed home, this most likely means you will have to wait in line again and re-bid on the second foreclosure.

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With Real Estate, Tough Options For Massachusetts Divorcing Spouses In This Economy

by Rich Vetstein on December 2, 2009

in Divorce, Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Short Sales

Divorce, unfortunately, often plays a major role in real estate transactions and decisions. The tough economy has added insult to injury for those unfortunate souls facing divorce in Massachusetts.

Quincy, Massachusetts Divorce and Family Law Attorney Gabriel Cheong offers great advice on his blog, the Massachusetts Divorce Lawyer Blog, about what to do if you are getting a divorce and the marital home is “underwater.” That is, when the balance on the mortgage is more than the fair market value of the house:

You’re divorcing and you need to sell your house that you own jointly with your spouse but with the recession, your house is now worth less than the mortgage that you have on it. You’re under water. You’re upside down on your mortgage.  Whatever you call it, you’re stuck and don’t know what to do.

Well, here are your choices:

  1. You stay in the house with your divorced spouse until either one of you can afford to move out or refinance. You might be thinking to yourself that that is ridiculous. Who would ever live with their divorced spouse AFTER the divorce?! More and more people are doing so in this new economy because there is simply not enough money to go around. It’s a sucky situation but it’s a reality.
  2. You and your spouse continue to co-own the house together until someone can refinance the property. Either you live in the house or your spouse lives in the house. You could have a situation where only the person who’s living in the house pays for everything or everything is split 50/50. Either way, you two will still own a house together.
  3. You refinance. If you try to refinance, know that you will have to put up the money to make up the difference between what you owe and what your house is worth. That would be tens of thousands of dollars if not more. Some people have that kind of money but most do not.
  4. You do a short sale. A short sale is when you get the permission of your mortgage lender to sell the house for less than what you owe on the mortgage and hopefully, you negotiate that you won’t have to make up the difference. Know that most lenders will not extend the option for a short sale unless if you’re behind on your mortgage payments by several months. At that point, your credit would’ve taken a hit already.
  5. You let the home go into foreclosure. This is not an ideal situation and it’s not generally recommended.
  6. You try to negotiate a modification or an assumption of the current mortgage. This is very difficult and very lender specific. Some will let you  modify the loan or do an assumption whereby you don’t have to refinance the house and yet be allowed to remove a spouse’s name off the mortgage. It’s worth a try.

Those are all your options.  The important thing to remember is this: do not ever sign over a deed to the house over to your spouse’s sole name without also being off [released from] the mortgage.  If you do so, you will have no equity interest in the property yet be liable for the mortgage (debt interest).

As Attorney Cheong outlines, it’s a tough pill to swallow for those in the unfortunate predicament of divorcing in this recessionary economy. I’ve heard stories of divorcing spouses creating separate living quarters in a house, akin to an in-law suite with separate entrances, etc.

From a real estate perspective, preserving the value of the property is paramount and in the best financial interests of both spouses (and the children). With the enactment of the new Obama short sale regulations, a short sale may be a good option for divorcing couples who are “under water.” The new regulations require that the lender agree to waive the outstanding loan balance on an approved short sale, so both spouses can wipe their credits clean of the mortgage obligations and move on with their lives.

If you are in the middle of a divorce, feel free to contact me, Richard D. Vetstein, and I can work with your divorce attorney to ensure that you’ll be protected in any refinance, short sale, loan modification, or foreclosure situation.

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Short Sales Get Boost From New Obama Treasury Guidelines

by Rich Vetstein on December 1, 2009

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Short Sales

The Obama administration on Monday set long-awaited guidance on a plan for mortgage companies to speed up short sales of homes and other loan modification alternatives to stem the rising tide of foreclosures. The Home Affordable Foreclosure Alternatives Program (HAFA) provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed. The announcement can be found here.obama_hope A complete set of the guidelines can be found here.

The new federal guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders. New financial incentives for completing short sales or similar “deed-in-lieu” transactions — in which the deed is simply transferred to the lender — include a $1,000 payment to servicers, and a maximum of $1,000 to go to investors who sign off on payments to subordinate lien holders, the Treasury said. Borrowers would also receive $1,500 in relocation expenses.

While a short sale may be preferable to a foreclosure, they have been frustrating for borrowers, buyers and realtors, because they are often hung up by lengthy negotiations with multiple lien holders and mortgage insurance companies. Realtors have complained that sales fall through as lenders bicker over the sales price, what they should receive from the proceeds, and whether the borrower will be held accountable for the debt in the future.

Under the new rules, mortgage servicers have 10 days to approve or disapprove a request for short sale, and when done the transaction must fully release the borrower from the debt. The rules also prohibits mortgage servicing companies from reducing real estate commissions on the sale, a practice that has dissuaded many agents from taking short sale listings.

This may help, but by how much remains to be seen.

Click here for our most recent post, Will Short Sales Get A Boost From Obama’s HAFA Program?

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Lenders To Appeal Controversial Ibanez Foreclosure Ruling Of Massachusetts Land Court

by Rich Vetstein on November 3, 2009

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Title Insurance

Banker and Tradesman is reporting that Wells Fargo and U.S. Bank will appeal the controversial U.S. Bank v. Ibanez Massachusetts Land Court decision that stung the lenders earlier this year by invalidating two foreclosures in Springfield because of improperly recorded mortgage assignments.Massachusetts Foreclosure Ibanez decision

Lenders filed the appeal on Oct. 29, according to Lawrence Scofield, a senior real estate attorney at Ablitt Law Offices of Woburn, who represented the lenders in the Land Court case. Scofield said Ablitt Law Office would not handle the appeal, but would work with an unnamed “downtown law office” that will be retained to argue in Appeals Court. Scofield said the lenders, lawyers, and parties that filed amicus briefs in the Land Court will meet this week to discuss the more substantive details of the appeal. The disputed decision has raised questions in the mortgage industry regarding potentially thousands of clouded titles, as the practice of back-dating mortgage assignments had been widely used in recent years. “This is a big deal,” Scofield said. “I hope in the worst case situation, the court will recognize the public policy impact this would have, and make this prospective decision and not a retroactive decision, which could really mitigate some of the collateral damage.”

My prior posts on this very important and far-reaching decision can be found here.

If the appeal takes the typical course in the Appeals Court, a decision may not come for up to one year. Given the importance of the decision, I had originally predicted that the lenders would file a direct appeal to the Massachusetts Supreme Judicial Court, the highest appellate court in the state. There’s no indication that the case is going up to the Supreme Judicial Court.

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Massachusetts Land Court Reaffirms Controversial Ibanez Ruling Invalidating Thousands Of Foreclosures

by Rich Vetstein on October 14, 2009

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Title Defects, Title Insurance

Breaking News (1.7.11): Mass. Supreme Court Upholds Ibanez Ruling, Thousands of Foreclosures Affected

Click Here For Our Entire Series Of Post On the Ibanez Case

Update (2/25/10)—Mass. High Court May Take Ibanez Case

Today, Massachusetts Land Court Judge Keith Long reaffirmed his controversial ruling made back in March 2009 that invalidated foreclosure proceedings involving two Springfield homes because the lenders did not hold clear titles to the properties at the time of sale. A copy of the decision can be found here.

As I outlined in my prior post on this case, the problem the Land Court dealt with in this case is what happens when modern securitized mortgage lending practices meets outdated foreclosure laws. When mortgages are packaged to Wall Street investors, the ownership of a mortgage loan may be divided and freely transferred numerous times on the lenders’ books. But the mortgage loan documentation actually on file at the Registry of Deeds often lags far behind.

Here is a diagram of the securitized mortgage process (click to enlarge):

The Ruling

Judge Long ruled that foreclosures were invalid when the lender failed to bring  the ownership documentation (known as an assignment) up-to-date until after the foreclosure sale had already taken place. An assignment is a legal document confirming that a mortgage loan has been transferred from one lender to another. Assignments must be recorded with a registry of deeds so anyone researching a property’s title can track the loan’s origin and ownership. Oftentimes, as in the Ibanez case, lenders will sell bundles of loan and record backdated assignments with an effective date before the first foreclosure notice. Judge Long effectively prohibited this practice.

Despite the lender’s attempt to convince him otherwise, Judge Long came out (again) in favor of consumers:

The issues in this case are not merely problems with paperwork or a matter of dotting i’s and crossing t’s. Instead, they lie at the heart of the protections given to homeowners and borrowers by the Massachusetts legislature. To accept the plaintiffs’ arguments is to allow them to take someone’s home without any demonstrable right to do so, based upon the assumption that they ultimately will be able to show that they have that right and the further assumption that potential bidders will be undeterred by the lack of a demonstrable legal foundation for the sale and will nonetheless bid full value in the expectation that that foundation will ultimately be produced, even if it takes a year or more. The law recognizes the troubling nature of these assumptions, the harm caused if those assumptions prove erroneous, and commands otherwise.

Judge Long also had some choice words for lenders:

[T]he problem the [lenders] face (the present title defect) is entirely of their own making as a result of their failure to comply with the statute and the directives in their own securitization documents… What the plaintiffs truly seek is a change in the foreclosure sale statute (G.L. c. 244, § 14), which can only come from the legislature.

What Now?

That’s a good question and one not readily answerable. To be sure, the current state of flux and confusion surrounding foreclosure titles affected by an Ibanez issue will remain intact until an appellate court considers the case or some action by the Legislature (which may be unlikely). Given the importance of the decision, I predict that the Massachusetts Supreme Judicial Court will take the unusual step of taking the case directly from the Land Court.

As for what happens in the year or so the case may be in appellate limbo, I asked an in house counsel for a leading title insurance company, and his response was essentially that it’s going to take a fair amount of time and research to figure this one out. If there’s an existing title insurance policy on the property, some but not all of the title companies may be willing to insure over the problem. If there’s no title policy in place, affected parties are going to have to ride this one out for awhile.

Once title insurance companies offer some further guidance, I will post it here.

My Two Cents

While I see both sides of the argument, the decision is troubling to me because Judge Long gave short shrift to the fundamental legal principle that the mortgage follows the note. A valid mortgage is security for some type of underlying obligation, whether it’s a loan or the promise to do something in the future. There’s no question that the millions (or billions) of dollars in loans secured by all these mortgages were validly transferred from one bank/lender to securitized lenders. The money was lent and it didn’t just evaporate into the ether. If the lenders can ultimately demonstrate ownership of the underlying loan which follows the mortgage and produce a valid assignment (albeit late), why isn’t this enough? The borrowers owe the money, and now after this ruling they are immunized from foreclosure by what many folks in the real estate industry view as elevating form over substance.

“For many years, real estate attorneys in Massachusetts have understood that the assignment of a mortgage can be recorded at any time and be effective,” Christopher S. Pitt, chairman of the Title Standards Committee of the Real Estate Bar Association tells Massachusetts Lawyers Weekly.

Now that doesn’t mean lenders don’t need to get their act together. They do. The net effect of this decision will be that lenders must get loan documentation up to date and recorded promptly. Indeed, the Ibanez loan changed ownership at least four times prior to foreclosure — without any of this appearing on the public record.  Two of those entities (Lehman Brothers and its subsidiary) are currently in bankruptcy and a third (Option One) has ceased operations. This is a huge wake up call to the securitized lending industry.

But the question remains, what about all the foreclosures that have already been conducted? And the new homeowners who own these properties and are now saddled with unresolvable title defects? What about these “innocent victims” and the neighborhoods blighted by foreclosed properties which cannot be sold? I guess we can all blame Wall Street once again…

The Consumer Advocate’s Point of View

Attorney Meyer Potashman of Greater Boston Legal Services which filed a brief in the Ibanez case offers this analysis:

This case has the potential to do a lot of damage (or rather reveal the damage that foreclosing lenders did over the past few years), but I think Judge Long was completely right about the law.  Both the statute and all of the securitization documents were clear, and these foreclosures violated both of them. These banks had sophisticated lawyers who knew real estate law when they planned to securitize these loans, but they never bothered to consult their own agreements when the time came to actually securitize, or foreclose, on the loans.  As a result, mortgages were never properly transferred, and the foreclosing lenders never had the right to foreclose.

As with any controversial legal decision, there’s always compelling arguments for both points of view.

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Massachusetts Land Court Ruling in Ibanez Foreclosure Case Reportedly “Imminent”

by Rich Vetstein on October 9, 2009

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Title Defects

Breaking News (1.7.11). Mass. High Court Affirms Ibanez Ruling

Boston Globe reporter Jenifer McKim today is reporting that Massachusetts Land Court Judge Keith Long’s much anticipated ruling in the Ibanez v. U.S. Bank case, which invalidated thousands of foreclosures across the state, could come as early as today.HomeForeclosure-main_Full

Previously, in late March of this year Judge Long issued one of the most controversial rulings in recent years which has called into question hundreds if not thousands of foreclosure titles because lenders failed to show proof they held titles to the properties through valid assignments. Click here for my prior post on the case. A copy of the case can be found here.

The Globe reports that the decision is “imminent” and could come as early as today. The Globe also has interesting commentary from a number of affected sources:

Among those watching the case are Boston city officials, who say they hope Long will clarify title issues for homes that have already gone into foreclosure. In the meantime, the judge’s actions have stymied the city’s effort to buy as many as 20 bank-owned properties, hurting much-needed redevelopment efforts in neighborhoods plagued by foreclosure, officials said.

“There are thousands and thousands of titles that have gone through foreclosures with these late filed’’ ownership records, said Lawrence Scofield, an attorney with Ablitt Law Offices in Woburn, who represented plaintiffs in three consolidated Springfield cases ruled on by Long. “Judge Long is saying you don’t really own it. That is the real, overwhelming, economic effect.’’

Locally, the Massachusetts decision has pitted advocates trying to revive neighborhoods against others trying to help homeowners stave off foreclosures. Gary Klein, a consumer law attorney who filed a friend of the court brief in the case, said the real estate system placed “expedience and convenience’’ before the law. Providing home buyers with a “full set of procedural protections,’’ he said, is more important than comforting lenders who ignored the law.

Indeed, since March, the number of foreclosure deeds has slowed, according to Warren Group, a Boston company that provides real estate data. “There are probably at least a thousand families who are getting at least some period of temporary delay while lenders go back and get a proper paper trail,’’ said Klein, an attorney with the Boston-based law firm Roddy, Klein and Ryan. “Slowing foreclosures down allows people to get loan modifications and other relief.’’

Once the decision is released I will post it here with my analysis and commentary.

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Ibanez Update: Massachusetts Land Court Decision Invalidates Foreclosures Based On Post-Sale Assignments

by Rich Vetstein on August 27, 2009

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Title Defects, Title Insurance

Breaking News (1.7.11): Mass. Supreme Court Upholds Ibanez Ruling, Thousands of Foreclosures Affected

Update (2/25/10)—Mass. High Court May Take Ibanez Case

Breaking News (10/14/09)–Land Court Reaffirms Ruling Invalidating Thousands of Foreclosures. Click here for the updated post.

In late March of this year in the case of U.S. Bank v. Ibanez, Massachusetts Land Court Judge Keith C. Long issued one of the most controversial rulings in recent years which has called into question hundreds if not thousands of foreclosure titles across Massachusetts. The Ibanez decision is what happens when you mix equal parts of a deteriorating real estate market with Wall Street’s insatiable demand for mortgage back securities with sloppy lending practices and outdated state foreclosure statutes.

The Facts

In the Ibanez case, the Land Court invalidated two foreclosure sales because the lenders failed to show proof they held titles to the properties through valid assignments. In modern securitized mortgage lending practices, the ownership of a mortgage loan may be divided and freely transferred numerous times on the lenders’ books, but the documentation (i.e., the assignments) actually on file at the Registry of Deeds often lags far behind. The Land Court ruled that foreclosures were invalid when the lender failed to bring  the ownership documentation (the assignments) up-to-date until after the foreclosure sale had already taken place. This was true even if the lender possessed an assignment with an effective date (i.e., backdated) before the first foreclosure notice.

The net effect of the Ibanez decision is to call into serious question the validity of any foreclosure where the lender did not physically hold the proper paperwork at the time it conducted its auction. This has already caused significant uncertainty in the ownership of many properties that have already been foreclosed and are awaiting foreclosure.

In deciding the case, Judge Long took a very pro-consumer approach to the foreclosure law, persuaded that the apparent title defect would chill a foreclosure sale and harm debtors:

None of this is the fault of the [debtor], yet the [debtor] suffers due to fewer (or no) bids in competition with the foreclosing institution. Only the foreclosing party is advantaged by the clouded title at the time of auction. It can bid a lower price, hold the property in inventory, and put together the proper documents any time it chooses. And who can say that problems won’t be encountered during this process?

Also of significance was that Judge Long rejected a customary Massachusetts conveyancing standard which provides that recording out of order assignment documents does not create a title defect. I think Judge Long got it wrong as he elevated form over substance and didn’t give enough credence to the legal principle that the note follows the mortgage, but hey, I’m just a lowly attorney.

What now?

The Ibanez ruling is not final as the lenders have filed a motion to reconsider with the Land Court. And now the heavy hitters have gotten involved. The Real Estate Bar Association of Massachusetts has taken the unusual step of filing a friend of the court brief, urging the Land Court to reconsider its decision.

On the consumer side, the National Consumer Law Center and well known consumer class action attorney Gary Klein have joined the fray and filed a brief. Attorney Klein has also filed a class action in federal court to challenge completed foreclosures and future foreclosures on the same facts as the two foreclosures voided in Ibanez.

As of now, Judge Long of the Land Court has not made a final decision which should come in a matter of weeks. I will update you when the ruling comes down. Either way, in my opinion, given the widespread impact of this case, it is destined for the Massachusetts Supreme Judicial Court. It’s hard to say how the SJC will come down on this.

What can you if you are affected by the Ibanez ruling?

Well, if you are a homeowner facing foreclosure, consider Ibanez an early Christmas present. You now have a powerful tool to argue for the invalidation of the foreclosure sale. (I won’t comment on the fact that you still owe the lender money).

If you are contemplating purchasing a property out of foreclosure or are selling a previously foreclosed property, pray that there’s an existing title insurance policy on the property, and ask the title company to insure over the issue. Some are willing to do this. Others are not. The other option (albeit expensive) is to hire an attorney to file a Land Court “quiet title” action to validate the proper assignment of the mortgage loan, assuming you can track the documents down and they were not backdated. In Ibanez, the lender couldn’t produce the assignment until 14 months after the auction. The last option, and unfortunately probably the safest bet, is to sit, wait and see how the Land Court and appellate courts will rule ultimately. Not the answer you probably want to hear, but it’s reality.

Please contact Richard D. Vetstein, Esq. for more information.

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Massachusetts Foreclosures Down Almost 60%, A Good Sign or Statistical Aberration?

by Rich Vetstein on June 30, 2009

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages

The Boston Globe is reporting that foreclosures in Massachusetts took a steep dive in May, the second consecutive month they have fallen, according to data released yesterday by Boston real estate tracking firm Warren Group.

According to the Globe, there were 582 foreclosure deeds recorded in May, a 58.6 percent decrease from 1,405 during the same month in 2008, and a 24.3 percent drop from April.

Others attribute the drop to the so-called Ibanez decision by the Massachusetts Land Court in late March that invalidated two foreclosures because the lenders failed to show proof they held titles to the properties. The Ibanez decision is a product of the Massachusetts conveyancing practice struggling to keep up with modern mortgage lending practices. The ownership of a loan may be divided and freely transferred numerous times on the lenders’ books, but the documentation (i.e., the assignments) actually on file at the Registry of Deeds often lags far behind. The Land Court ruled that foreclosures were invalid when the lender brought the ownership documentation (the assignments) up-to-date after the foreclosure sale had already taken place — even if the effective date of the assignment was before the first foreclosure notice. The ruling, which is ultimately expected to head to the Massachusetts Supreme Judicial Court, has prompted concern throughout the conveyancing and mortgage industry, and is stalling sales of foreclosed properties, real estate specialists say.

Based on discussions I have had with other real estate attorneys, up to 20% of all foreclosure titles in Massachusetts may be affected by the Ibanez decision.

This is causing so much angst in the industry that title insurers are refusing to insure foreclosure titles affected by the problem. That means in cases where this issue is present, the lender cannot foreclosure, and the real estate sits barren for the indefinite future. This is bad for the lender who is trying to get rid of a non-performing asset, for the potential buyers interested in purchasing foreclosed properties, and certainly for the neighborhoods affected by blighted foreclosed properties.

Here is a copy of a portion of a memo sent by Stewart Title Company to its local title agents suspending authorizations to issue title insurance over titles derived from foreclosures which are affected by this problem:

Date: April 22, 2009
To: All Massachusetts Issuing Offices
RE: Recent Land Court Decisions Requiring Suspension of Authorization to Insure Massachusetts Titles Based on Foreclosures with Post-Foreclosure Assignments

Dear Associates:

As you may be aware, the Land Court issued two recent decisions that call into question the validity of several titles coming out of foreclosure.

The result of these two decisions is that titles based on foreclosures by an Assignee lender are potentially fatal unless the Assignment in question was executed and held by the foreclosing lender prior to the commencement of foreclosure under M.G.L. c. 244, §14. Foreclosures based on Assignments that were dated after the foreclosure sale were deemed invalid even if the Assignments were “backdated” (i.e., contained an “effective date”) prior to the first c. 244, §14 notices.

Accordingly, subject to certain exceptions discussed later in this Bulletin, until further developments in these cases and the law upon which these cases were decided, Stewart Title Guaranty Company is suspending authorization to insure titles derived from foreclosures where the recorded Assignment into the foreclosing Lender is not dated prior to the date of the first publication under c. 244, §14.

I will be monitoring the Land Court decision through what will surely be an appeal to the Supreme Judicial Court, the highest appellate court in Massachusetts.

Update (Aug. 27, 2009):  I have been informed by attorneys involved in the Ibanez case that the lenders have filed a motion to reconsider the Land Court’s ruling. Also, the Real Estate Bar Association of Massachusetts has taken the unusual step of filing a “friend of the court” brief, urging the Land Court to reconsider its decision. The National Consumer Law Center and well known consumer class action attorney Gary Klein has also joined the fray. As of now, Judge Long of the Land Court has not made a final decision. I will update you when the ruling comes down. Either way, this case is going up to the Supreme Judicial Court, and probably on direct appellate review.

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