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

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.

Myth 1: You need to be late on your mortgage.
Truth: You DO NOT need to be late to modify your existing loan.

In fact the Home Modification Program Guidelines of March 4, 2009 (HMP) reward lenders for doing modifications on loans that are not delinquent with higher incentives paid to the investors and servicing companies. There is also a section named “Reasonably Foreseeable Imminent Default” which mandates that participating lenders or servicers run the NPV test on those loans not yet in default but will be in default should they not be modified.

Myth 2: You need to hire a Loan Modification Company or Attorney.
Truth: You do not NEED to hire an attorney or company to help you do a loan modification.

As the borrower, you are capable of completing the loan modification on your own without paying for assistance. There are free services available to you, should you seek assistance they can be found at HUD.gov and a slew of other websites including most state Attorney General’s websites. If you decide to use a service outside the free services be sure that the service has the ability and experience to help you. Loan Modification scams are prevalent throughout the country. Many states have instituted laws mandating that only certain people and companies can charge a fee to assist in a loan modification. Typically, licensed mortgage brokers, bankers, real estate brokers and attorneys are allowed to collect fees to assist in loan modifications. In New York State, you must be licensed to practice before the New York State courts or be a licensed mortgage broker to be allowed to charge an upfront fee for your services. Be careful dealing with any company that is not located close to you. We suggest that you chose a company located relatively close to you with a brick and mortar office who can provide a reference or is a referral.

Myth 3: A loan modification is a quick process.
Truth: A typical loan modification can take anywhere from one to four months.

We see that most modifications are resolved in about 90 days; however, we have had a few that took less than a month and some have taken as long as six months. There is no real formula as to timing but you must stay in touch with the lender regularly, at least once every fourteen days.

Myth 4: Everyone will qualify for a loan modification.
Truth: Not everyone qualifies for a loan modification.

The criteria is relatively specific and under the HMP and Making Homes Affordable Act, you need to qualify. The HMP Guidelines state that the lender can use a variety of techniques to lower your monthly payment to where you would qualify under the terms of the program.

• Interest Rate: A lender may choose to lower your interest rate to as low as 2% and the lender may choose to fix that rate or create a stepped rate fixed loan where the rate would increase by one percent after 5 years and then again after one year to a maximum of 4% (the Freddie Mac limit at the time of the modification) for the remainder of the loan.
• Principle Forbearance: Lenders may forbear principle to qualify a borrower for a modification. A lender may remove a part of the principle balance and not collect interest or penalties on that portion of the principle. That portion of the principle would have to be repaid upon selling, refinancing or otherwise transferring ownership of the premises.
• Principle Reduction: Lenders may at their option reduce the amount of principle owed by a borrower. Lenders typically do not use this option regardless of the value of the premises and the amount owed to the lender.
• Term of the Loan: A lender may extend the term of the loan to a maximum of 40 years to spread payment out and make payments affordable.
• Combinations: Lenders typically use a combination of these options to maximize returns and make the mortgage affordable. A lender may reduce the interest, create a stepped fixed loan, and extend the time period for repayment to 40 years so that the payment will be affordable and the lender will still make some profit on the loan.

Myth 5: I have no options because I don’t qualify under the MHA or HMP programs.
Truth: You may qualify under programs specific to your bank.

Although a borrower may not qualify for a modification under the HMP or Making Homes Affordable Act, the lender may still modify your loan or loans. Many lenders have modification programs other than those put forth by the current Administration. Modifications are costly to the lenders and investors; however, they cost far less than foreclosures and lenders are therefore willing to modify your loan in the hopes that you will make payments and remain current. Each bank has different programs and guidelines, so you need to contact your bank or a qualified representative to help you determine what program is right for you.

More Loan Modification Truths