New York State law requires that anyone who charges an upfront fee to handle a loan modification be either a license attorney in the State of New York or a licensed mortgage broker in the State of New York.  There is a very good reason for this. New York State wants to make sure that you are receiving the best advice about your mortgage as possible. A loan modification is not always the best option for someone and an attorney can help you to determine what other options are available to you. A loan modification company only handles loan modifications and therefore, they are not in the business of telling you that they cannot get you a loan modification. 

There are no guarantees with a loan modification. The are many factors that are in play when a loan modification is submitted to a bank. The bank, your financials, the investor that holds your loan, the negotiator and many other factors will determine if your loan modification is approved. Further, if you do not qualify for the Making Homes Affordable Act, your lender has internal programs that you may qualify for and those internal programs change constantly.

There can be no guarantees. Anyone who offers you a guarantee is only setting you up for disappointment.

Related Posts

1. The Top Five Loan Modification Myths!

2. Should I Stop Paying My Mortgage?

3. Streamlined Refinance As An Alternative To A Loan Modification

Problem 1

The Making Homes Affordable Act  and the Guidelines set forth by President Obama make obtaining a loan modification difficult for those borrowers who are/were the victims of predatory lending practices and unsavory characters. The lending industry, for better or worse, put into effect lending programs that required little to no documentation of the borrowers ability to repay the loan. These loans were known as NINAs (No Income No Asset), SISAs (Stated Income Stated Asset) and combinations thereof. What this meant was that borrowers who had decent credit, could walk into a bank and say, ”I would like a loan to buy a house for $800,000.00 and I can afford it.” The bank would give the money as long as his credit was decent. The lenders here did not require proof of income, proof that the borrower could repay the loan, tax documents, etc. For those programs where documentation was required, lenders qualified borrower on an initial teaser mortgage payment that was affordable at the time, but became too burdensome once the teaser payment expired and real payments began.

However, if that borrower wants to modify his loan, he must prove that he can afford it and back up his proof with tax returns and additional information. The problem here is, many people who were put into these types loans are unable to prove their income, even though they actually make good money. The Hispanic community has been hit particularly hard by these issues. Many Hispanic clients are working off the books or partially off the books. The most egregious part of this is that it is not typically the workers fault that they are being paid in this fashion. Many employers, in order to avoid the required taxes and workers compensation simply choose to pay these particular people off the books and the workers are trapped as there is a line of people willing to take their place for the same or less pay in any fashion the employer sees fit. Although in the short term, this equals more money in your pocket, it turns out that under the modification guidelines the borrower must prove his income. Additionally, rental income and other contributions are discounted by the lender as income and any rent must also be reflected on tax returns to be counted as income. It is unfair for the lenders to put people into loans where they failed to do the initial due diligence and then require complete underwriting of a modification as full document loan.

Problem 2

Self employed borrowers really have a tough time. The issues here deal primarily with the volume of documentation required and the proof required to show the lender what the borrower’s income truly is. The main issue with self employed borrowers is the inability of the lender’s employees to grasp the finer details of the actual income verses reflected income. In many instances not only will the borrower need multiple, up to date profit and loss statements from an accountant at a cost of a few hundred dollars each, but also letters explaining the IRS tax code and that simply because the IRS allows certain deduction for each business, the actual cost incurred may not be as high as those reflected. Couple this with the uncertainty of the next month’s revenues and the ability to prove ongoing business and establish that the business will remain on going and it is an uphill battle.

Problem 3

Delay. Lenders’ are overwhelmed and do not have the ability to train their staff adequately. As an employee of a lender in the loss mitigation or customer service department, it is trial by fire and who cares how many files they destroy on the learning curve. It takes 90 days to get an initial answer on a loan modification and then an additional month or two for negotiations. Most borrowers do not feel that they have that kind of time. During the initial process and the negotiation process, the lender continues its foreclosure with papers and harassing phone calls continuing. Borrowers ger nervous and will agree to almost anything to make it stop and often do not get the best deal they can.

Problem 4

The process of loan modifications is extremely tedious and complicated. The lenders are not making it easy for borrowers to obtain loss mitigation services even if they are mandated to provide those services. There is no rule saying it must be easy. The lenders have created an extremely complicated maze that a borrower must work through in order to get to the review phase much less the negotiations.

Help

The government through the use of media such as television advertising, public service announcements, and required recordings played when a borrower calls a lender has managed to inform the public that assistance with a loan modification is free through certain government and non-profit organizations. While this is true, and the borrowers affected are typically suffering financial difficulties, the help available by these organizations is not very good. Many borrowers, after using one of the free modification services go to an attorney or other source for help. Even though the borrower is required to pay for the help they are receiving, the results are normally better and faster. Where a government or non-profit may be free, their staff are not attorneys, they are typically under trained and very overloaded with files. It is not possible for a person to handle 200 modification files and meet with borrowers in a way that produces results. If a borrower determines that they are willing to expend monies to get help with a loan modification, that borrower must be careful and do the proper research into the attorney or company thay are hiring for assistance. Scams are prevalent in the modification industry but honest, hard working people are out there and willing to help.

Conclusion

To go through all of the problems that plague this particular legislation would require a book and not a blog. As a borrower you must be informed about the options available to you, seek the advise and services of someone with experience and disregard all the myths surrounding loan modifications. Help is available and in most instances the benefits far outweigh the burden. Borrowers have the opportunity to save hundreds of thousands of dollars, keep their homes, and save their credit rating if they can wade through the quagmire that is loan modification.

The Court System is finally standing up for the little guy!

History

Years ago, lenders conspired to bypass the mortgage recording systems put in place by local municipalities, as well as avoid the fees associated with the recording of assignments of mortgages. In order to accomplish this task, lenders formed a company known as the Mortgage Electronic Recording System or MERS. Many mortgages state that the owner of the mortgage is MERS as nominee for the lender. The issue here, is that MERS is not the actual lender or the note holder and one can only foreclose if they are in fact the party that has been defaulted. In the case of MERS, the investor is the owner of the note but MERS is the owner of record of the mortgage.

What Does This Mean?

In short this means that the note and mortgage are owned by seperate entities and a foreclosing party must own both in order to foreclose. If a borrower fails to make payments, then the borrower has defaulted on the note and the owner of the note therefore has a cause of action for default on the note only and is not able to foreclose. The note holder may have the right to a judgment on the note and may be able to attempt collections on the note but cannot actually institute a foreclosure proceeding. The mortgage document, which allows for foreclosure, has not been violated since the borrower has only defaulted on the note and has not offended the owner of the mortgage. A mortgage holder may still be able to institute a foreclosure proceeding against the borrower for other violations of the mortgage such as transferring the property without consent, condemnation of the premises, etc.. but the mortgage holder may not institute foreclosure proceedings based on nonpayment of the note. This means that under the new rulings by a Kansas Court, MERS does not have the ability to foreclosure the mortgage and the investor may only recover under the terms of the note.

Proof Of Ownership

A foreclosing lender must prove that it is the owner of the defaulted mortgage and note, and not the owner of only one of those two documents. In keeping with the Kansas Court, the Bankruptcy Court for the Southern District of New York threw out a first mortgage of more than $400,000.00 in its ruling. The foreclosing servicer and underlying investor could not prove that they were the actual owners of the mortgage. The underlying investor, U.S. Bank , could not prove that it owned the mortgage that was being foreclosed upon by it servicer, PHH Mortgage. The lenders here used MERS which allowed them to assign the loan without filing actual assignments in the Municipality’s recording office. Since there was no assignment of record, U.S. Bank was unable to prove that they were the aggrieved party and therefore, had no standing to foreclose.

Summary

Although these rulings are being or will be appealed by the lenders, these rulings show a change in the way the Court System is looking at foreclosures. After years and years of deferment to creditors and a bending of the rules when it comes to proof of claims in foreclosure and collections matters, the Courts are now requiring lenders to prove that they are in fact the aggrieved party and to provide proof. If the lender is unable to prove that they are the aggrieved party, Courts seem much less likely to simply defer to the creditors. It seemed that the burden of proving the debt has finally been shifted back to where it belongs. Now the lender must prove that the debt is valid and owned by them, before the Court will allow them to proceed.

What This Means For You

About 60% of all mortgages that were given out during the lending and refinance boom are held by MERS as nominee. There is a good chance that your mortgage is held in this fashion. If you can find your copy of the mortgage papers you signed all those years ago, look on the first page of the mortgage documents and see who is named as the lender or mortagee. If it is MERS as nominee, you may have a viable defense to foreclosure or may be able to have the debt completely relieved in bankruptcy.

Disclaimer

The rulings cited in this blog post are cases of first impression and the full ramifications of the rulings are not yet known. The ruling of the Kansas Court is not binding upon any other State and until the appeals process has been completed there is no way of knowing what the actual outcome may be. This article written to show the trend of the Courts in moving away from a creditor bias and toward a more fairly viewed interpretation of the law and rules surrounding mortgages and foreclosure. This is not legal advice but rather a resitation of facts and an analysis of what appears to be happening around the Country with the hopes that some of our collegues may be inspired to pursue these types of defenses to foreclosure proceedings and establish the rule of law more thouroughly and to give hope to those who are facing similiar circumstances.