Can you rescind your Loan During a bankruptcy?
THE OVERLAP OF BANKRUPTCY AND TRUTH IN LENDING LAW
Bankruptcy is an option for some California or Arizona homeowners who are facing foreclosure. Basically there are two types of Bankruptcy that most homeowners wind up considering.
Chapter 7 Bankruptcy – which normally eliminates unsecured debts but which may not save the home from foreclosure and;
Chapter 13 Bankruptcy – which usually involves a homeowner getting into a 3-5 year repayment plan that seeks to pay back the creditors (including mortgage note-holders) over a period of time and in an agreed-upon manner. Some people use Chapter 13 bankruptcy to “lien strip” second mortgages, and sometimes Chapter 13 can save the house (especially where past due loan payments can be brought in to get the account current).
TRUTH IN LENDING AND BANKRUPTCY RESCISSION STRATEGY: During bankruptcy, some homeowners are seeking to exercise their Truth in Lending (TILA) rights by listing their property as “unsecured” debt following their exercise of rescission. See In re Jaaskelainen a 2008 case out of the Federal District Court in Eastern District of Massachusetts (Adversary proceeding No. 07-01242).
In this case, the debtor (homeowner) listed their property as unsecured following their exercise of rescission rights under Federal Truth in Lending Law (they argued they did not receive two copies of their notice of right to cancel for each borrower), a technical violation, but nevertheless a material violation triggering an extended three year right to rescind their loan.
NOTE: The house may be listed as an unsecured asset because under Truth in Lending law, once you exercise your TILA rescission rights, the security instrument is supposed to be automatically terminated by operation of law. If this is true, then the house would be transformed into an unsecured asset.
By listing the property as unsecured on the bankruptcy petition, the homeowner seeks to accomplish two things:
(1) FORCE THE LENDER TO PROVE THERE IS NO RESCISSION RIGHT, AND THUS THEY REMAIN A SECURED CREDITOR: The “lender” or creditor would be compelled to show up and fight your TILA rescission case and basically defend their position that there was no TILA violation and/or that they have the “good faith error” defense to TILA.
If the creditor loses the TILA battle, then the Creditor’s claim (at least according to one federal bankruptcy court) would be unsecured, AND, as the Court held in the Jaaskelainen case, THERE IS NO OBLIGATION TO TENDER AND THE CREDITOR IS MERELY TREATED EQUALLY WITH ALL OTHER “UNSECURED” CREDTIROS. This means, they get in line with all the other unsecured creditors and have no special claim as secured creditors normally have. This is profund in the sense that the Creditor may be left with nothing but a partial interest in their previously secured claim.
Also, if they cannot succeed on the TILA claim, they will likely be on the hook to pay the debtor’s Attorney fees (as provided for under TILA) incurred by the Bankruptcy petitioners counsel. Actual damages, and other statutory damages may also be available.
(2) EVEN IF THE CREDITOR CAN PREVAIL ON THE TRUTH IN LENDING CLAIM (I.E. PRESERVE THEIR “SECURED” STATUS) THE DEBTOR MAY ALSO FIND THIS TO BE AN OPPOTUNE TIME TO MAKE THE PARTY THAT IS BEFORE THE COURT PROVE THEY ARE ACTUALLY THE “CREDITOR” TO WHOM THE DEBT IS OWED (This involves the Produce the Note Strategy you may have heard of). After all, if they are not a true “creditor” then why are they in Court in the first place?
At any rate, this is one of the ways Truth in Lending law is intersecting with Bankruptcy law.
As you can see, this sets up a legal challenge that may be raised in an “adversary proceeding.”
Under Bankruptcy Rule 7001, An adversary proceeding is a proceeding:
(1) to recover money or property, except a proceeding to compel the debtor to deliver property to the trustee, or a proceeding under Sec. 554(b) or Sec. 725 of the Code, Rule 2017, or Rule 6002,
(2) to determine the validity, priority, or extent of a lien or other interest in property, other than a proceeding under Rule 4003(d),
(3) to obtain approval pursuant to Sec. 363(h) for the sale of both the interest of the estate and of a co-owner in property,
(4) to object to or revoke a discharge,
(5) to revoke an order of confirmation of a chapter 11, chapter 12, or chapter 13 plan,
(6) to determine the dischargeability of a debt, (7) to obtain an injunction or other equitable relief,
(8) to subordinate any allowed claim or interest, except when subordination is provided in a chapter 9, 11, 12, or 13 plan, (9) to obtain a declaratory judgment relating to any of the foregoing, or (10) to determine a claim or cause of action removed pursuant to 28 U.S.C. Sec. 1452.
A basic overview of Truth in Lending Law and Rescission Rights: Separating the Theory from the Practice.
TRUTH IN LENDING RESCISSION RIGHTS
Truth in Lending law is one of the most powerful rights consumers have to fight predatory lending and to potentially save ones home from foreclosure.
WHAT IS TRUTH IN LENDING LAW? Truth in lending law (essentially) is a law that demands that financial institutions make certain “material disclosures” in a loan transaction such as disclosing the annual percentage rate (APR), finance charge, amount financed, and total of payments and payment schedule to borrowers. The law was designed to force lenders to put the “TRUTH” in the “LENDING.” There is, of course, a whole lot to TIL law than this, but for our purposes here suffice it say these are the important items as far as foreclosure defense is concerned.
In a perfect world we would not need these kinds of lawS that simply request that lenders to be truthful. However, sprinkle in a little GREED and of a crazy real estate market and all sorts of things can get fouled up and these types of consumer protection laws are needed to try to protect homeowners from what must simply be called “UNTRUTHFUL LENDERS.”
WHAT IS THE THREE YEAR EXTENDED RIGHT TO CANCEL UNDER TRUTH IN LENDING LAW?
Under federal truth in lending law, in a transaction subject to rescission (ex. a refinance loan typically qualifies) EACH BOROWER or person with ownership interest in a property must be provided TWO COPIES EACH of the notice of right to cancel (NRTC) disclosure document.
Now, you might be asking, why does every person get two copies each of this NRTC? The idea was that any of the parties should have the right to cancel the loan, which cancellation would be effective as to all, and they could keep a copy for their records, and mail the other one in.
If you see this as important – getting two copies each of the NRTC – then you understand why this concept is protected in Federal Truth in Lending Law.
You should also realize that in addition to each party getting two copies of this essential legal document (it tells you when and where you must cancel your loan) THE DATES ON THE NOTICE OF RIGHT TO CANCEL MUST BE FILLED IN AND THE DATES MUST BE ACCURATE. After all, what good is a disclosure document if it doesn’t actually disclose anything useful?
What we see in a good number of cases is that the originating lender did not take care to see that each borrower received copies of the NRTC and that the dates were accurately filled in. Part of this is due to the use of mobile notaries who may not have ensured that Truth in Lending requirements were strictly adhered to. After all, it is not the job of the Notary to ensure TILA compliance.
WHAT HAPPENS WHEN A BORROWER DOES NOT GET THEIR TWO COPIES OF THE NOTICE OF RIGHT TO CANCEL UNDER TILA?
If there are any deficiencies in the above stated requirements (keep in mind there are other material TILA violations not mentioned in this article) it triggers a strange anomoly, an EXTENDED THREE YEAR RIGHT TO RESCIND YOUR LOAN. This is strange, because it essentially opens the door back up for rescission even three years after the borrower became obligated on the loan.
WHAT HAPPENS WHEN YOU EXERCISE YOUR EXTENDED THREE YEAR RESCISSION RIGHT UNDER TRUTH IN LENDING LAW?
(1) The security instrument is supposed to be automatically voided by operation of law. I say “supposed” to because there are ways the lenders try to work around this.
(2) The lender is supposed to “tender” all payments, costs, fees, etc. that they received in connection with the loan, ALONG WITH, all the money all other parties received in connection with the loan at issue. In theory, it means they would have to send you a check for all benefits received in connection with the loan. This would be great if it were actually the STEP 2 the lenders had to follow.
(3) Theoretically, after steps ONE and TWO are performed, the Borrower is THEN supposed to “tender” back to the bank the difference between the loan balance and what Plaintiff is owed from the Lender as part of their tender obligation (discussed as step 2).
Please note that IF this is how rescission acted in REAL LIFE then there would be a lot loss foreclosures, because if the security interest was voided by operation of law as written (as discussed at step 1 above) then the lender’s would have nothing to foreclose on, the security interest (ex. Deed of Trust) would be void.
But, I sense you figured it out, it doesn’t happen that way in real life what normally happens from my experience is the following:
(1) The lender denies its role in a Truth in Lending violation, basically by claiming there was no violation.
(2) The Client tries to work out a loan modification and the Client is denied (sometimes for a reason that seems valid and other times not)
(3) As the countdown to foreclosure sale begins, a Client will inevitably contact an attorney (sometimes for the first time) and assert that they need an injunction against foreclosure and/or argue they want to rescind their loan.
(4) If the file review (sometimes called a forensic loan audit) verifies the material truth in lending violation exists the Client will want to send in a rescission letter exercising, in most cases, the extended three year right to rescind your loan
(5) The lender will refuse to honor your TILA request for rescission and will basically tell you to “pound sand.”
(6) The homeowner, now infuriated by the lender and their callous response, wants to sue to rescind.
(7) The next discussion with the Client usually involves the “tender” obligation imposed by Tender. The: “After you get back what they owe you, you are going to owe them” talk.
(8) If litigation is the chosen path to pursue, (and assuming the issue of tender has been sufficiently addressed), the next step is to send in the rescission letter to the lender – and all their predecessors. The letter will set forth your grounds for rescission and demand that they honor our demand or face a lawsuit. We typically also put a QWR in there to get a life of loan accounting (so we know more about the final tender obligations)
(9) A lawsuit is filed by the homeowner because the lender or loan servicer would NOT HONOR your TILA notice of exercise of rescission rights letter, or, they would not recognize your stated TILA violation.
(10) At this point, the lender may remove the case to federal court since you are raising a Federal Claim. There are pros and cons to this.
(11) The lender will undoubtedly demand that the Judge require the borrower to “tender” on the spot (notice how the lender is asking the judge to modify the 1,2,3 step process mentioned above). The borrower may then be required to discuss the issue of tender.
(12) If it is determined that the borrower cannot tender, or the judge is otherwise unwilling to agree to the homeowners tender strategy, then this would likely thwart the defense and the Lender would be able to foreclose on the property (and may not have to pay attorney fees as is normally required for TILA violations that trigger the extended three year right of cancellation).
(13) However, if the judge agrees to the TILA tender plan, then the loan can be rescinded and the lender may be required to tender to you, and to pay your attorney fees.
(14) So, as you see, the lender will try to have the judge modify the statutorily proscribed steps, and get the borrower to prove their TILA violation and ability to tender before they will release the security instrument. Under TILA that judge has the power and authority to “modify the steps” of the rescission transaction.
WHAT DOES IT MEAN WHEN LOANS ARE SECURITIZED?
When people say that your “loan was sold on the secondary market” usually they mean that your loan was immediately sold off after it was originated. The financial institution that purchases the loan is purchasing a negotiable instrument and since they were “assigned” the loan and the right to receive payment, they are known as the loan “assignee.”
Now, sometimes the party that purchases the loan, (the loan assignee) seeks to securitize the loan which basically involves taking your promissory note and “pooling” your note with about a thousand other loans, for example. These loan pools are then usually managed by a Trustee and an agreement is entered into between the trustee and loan servicer as to rights and duties in regard to servicing the loan and dealing with the money collected.
These loan pools are then divided into tranches, or products that may wet the appetite of individual investors such as hedge funds, insurance companies, foreign investors and others who purchase “asset backed securities” that were supposedly secured by the loan pools.
So, in many cases, you get a loan and that loan is sold off to another party (financial institution) who purchases your loan and may securitize the loan to be sold to Wall Street investors, who are the party entitled to ultimate payment on the loan.
Note, the Secondary market may therefore consist of Fannie Mae and Freddie Mac (a quasi-governmental agency that securitizes loans) or a “Private label” loan securitizer that uses Investment bankers / loan aggregators to help them securitize the loans.
The one major draw-back of having a loan securitized is that the Trustee (who is appointed to manage the trust) and the Loan Assignee (which is the owner of the loan – ex. investor who funded the loan) will claim they are “holders in due course” and not liable for any predatory lending practices of the loan assignor. We discuss the holder in due course in more detail below. In the context of seeking a loan modification, this may make it a tougher case to muster legal leverage following a mortgage file review, or forensic loan audit that identifies predatory lending practices of a loan originator.
FORECLOSURE DEFENSE TOOLBOX: GUIDELINES FOR THE FHA LOAN MODIFICATION PROGRAM
DO YOU HAVE AN FHA LOAN THAT NEEDS MODIFICATION? NEW PROGRAM ALLOWS PRINCIPAL LOAN BALANCE REDUCTIONS AND FIXED INTEREST RATES.
The following is general information. Steve Vondran practices real estate, bankruptcy and foreclosure defense and can be reached at steve@vondranlaw.com or (877) 276-5084. He helps homeowners in California and Arizona where he is licensed to practice law.
Effective August 15, 2009 HUD announced a new loan modification program that would allow homeowners with an FHA loan, who could not qualify for any other loan modification, to apply for a FHA HAMP program (making home affordable), that may allow borrowers with FHA loans to keep their homes and avoid foreclosure. The general details of this FHA loan modification program are as follow (additional terms and conditions may apply, please contact an Attorney or a HUD Counselor at www.HUD.gov)
BASIC QUALIFICATION GUIDELINES:
(1) You must be at least 30 days late on your mortgage, but no more than 12 months delinquent. However, you cannot force a delinquency merely by failing to make loan or mortgage payments
(2) Seasoning requirement: the FHA loan must be at least 4 months old
(3) The property must be the primary residence of the borrower, owner-occupied and a single family dwelling 104 units
(4) The borrower must currently be paying more that 31% of their gross monthly income toward their mortgage payment (front-end DTI more than 31% of their gross monthly income)
(5) The maximum back-end ratio (ratio of all expenses against gross monthly income) cannot exceed 55%. So if you make $10,000 gross monthly income, you cannot have more than $5,500 in total debt following the loan modification
(6) Your loan servicer must be FHA approved and participating in the program (note: the fha loan servicer can be incentivized up to $1,250 to provide you with the modification
DETAILS OF THE FHA LOAN MODIFICATION:
(1) The servicer may write down your mortgage to 31% of your gross monthly income (so if you make $10,000 per month, and your current mortgage payment is $4,000, the fha loan servicer can write you down to $3,100 monthly payment – which payment will include TAX, INSURANCE, PRINCIPAL AND INTEREST). What they call “PITI.”
(2) The amount of principal that gets written down is placed in a HUD partial Claim account. The amount placed into the HUD account would only be payable by the borrower if the house is sold or refinanced or at the end of the HAMP modification term.
(3) If you have a second mortgage, the second mortgage holder will have to agree to subordinate their lien to the partial claim of HUD in order for the modification to work
(4) The interest rate on the loan will be a fixed interest rate.
(5) Impounding for tax and insurance is required.
(6) OTHER IMPORTANT FEATURES: THERE ARE NO MAXIMUM LOAN LIMITS AND NO MAXIMUM MORTGAGE AMOUNTS AS THE OBAMA MAKING HOME AFFORDABLE PROGRAM HAS, AND IN ADDITION, YOU DO NOT HAVE TO HAVE A FANNIE OR FREDDIE LOAN AS THE CURRENT HAMP PROGRAM REQUIRES.
(7) There are no credit application fees, no costs for the program, no mortgage insurance premiums, and no appraisal required.
(8) You will be required to submit true and accurate financials, and an affidavit of hardship (yes, a true hardship is required (loss of job, loss of income, divorce, medial issues, etc.)
(9) GROSS MONTHLY INCOME: In determining your gross monthly the lender or loan servicer may consider many different sources of income such as: wages/salaries, overtime, commissions, tips and bonuses, pension income, retirement income, unemployment income and rental income.
BOTTOM LINE: The FHA loan modification program is pretty darn cool if you qualify. Contact HUD for more details, or contact an attorney to discuss your foreclosure defense case. More information on the underwriting guidelines for the program can be found here: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-23mlatach.doc
FORECLOSURE DEFENSE TOOLBOX: SOME POSSIBLE GROUNDS FOR SEEKING AN INJUNCTION TO STOP FORECLOSURE IN ARIZONA
A few ways (ideas) to try to seek an injunction against foreclosure in Arizona
The following is general legal information only and is not to be construed as legal advice or a substitute for legal advice. These are a few things to look at when investigating whether or not you have a defense to foreclosure.
Steve Vondran, Esq. is an attorney practicing Real Estate, Bankruptcy and Foreclosure Defense in Phoenix, Arizona and California. He can be reached at (877) 276-5084 or emailed atSteve@VondranLaw.com
POTENTIAL STRATEGIES TO SEEK AN INJUNCTION AGAINST FORECLOSURE IN PHOENIX, SCOTTSDALE, AND SURROUNDING AREAS IN ARIZONA.
(1) Tort of Wrongful Foreclosure: For example, one way to try to seek an injunction to stop a foreclosure sale would be to argue that you received a loan modification or loan workout, and performed the agreement and thus, cured the breach. See the case of Herring v. Countrywide Home Loans, 2007 WL 2051394 (D. Ariz. 2007). This is a foreclosure defense grounds that definitely needs to be explored with the explosion of loan modifications in Phoenix, Arizona and elsewhere. Under the Obama Making Home Affordable program (HAMP), and under some FHA HAMP modification programs, the lenders and loan servicers are giving out “three month trial plan” offers.
These agreements typically state that the borrower does, or may, qualify for a loan modification. The borrower, induced into believing they qualify for a loan modification, typically makes the three payments, and may also submit financial documentation to be reviewed. In at least some of these trial plan modification agreements we have reviewed, the lender promises that if the three trial plan payments are made on time, and if the borrower’s financial condition (and some other “material representations” made by the borrower) do not change by the time the third payment is made, then the lender, in some of these agreements, agrees to provide the final and permanent loan modification which is supposed to be in line with the the trial plan payment was. What we are seeing is lenders and loan servicers not honoring what appears to be a valid agreement, and instead either denying the modification, and in some cases, selling the house from underneath the borrower. If you feel duped by a trial plan offer that was not honored, check out our website at www.TrialPlanFraud.com
The court may reach the conclusion that the lender / beneficiary is not exercising the power of sale in good faith in violation of its statutory duty.
(2) Failure to Comply with Arizona Foreclosure Statutes:
There can be no valid foreclosure in the State of Arizona without complying with the rules and regulations set forth in the Arizona foreclosure statutes.
For example, if there is a failure to follow the Notice of Sale Procedures this could provide proper grounds to enjoin the foreclosure sale in Phoenix, Scottsdale, and other surrounding Arizona cities. Here are the statutory requirements under Arizona Revised Statutes Section 33-808.
33-808. Notice of trustee’s sale
A. The trustee shall give written notice of the time and place of sale legally describing the trust property to be sold by each of the following methods:
1. Recording a notice in the office of the recorder of each county where the trust property is situated.
2. Giving notice as provided in section 33-809 to the extent applicable.
3. Posting a copy of the notice of sale, at least twenty days before the date of sale in some conspicuous place on the trust property to be sold, if posting can be accomplished without a breach of the peace. If access to the trust property is denied because a common entrance to the property is restricted by a limited access gate or similar impediment, the property shall be posted by posting notice at that gate or impediment. Notice shall also be posted at one of the places provided for posting public notices at any building that serves as a location of the superior court in the county where the trust property is to be sold. Posting is deemed completed on the date the trust property is posted. The posting of notice at the superior court location is deemed a ministerial act.
4. Publication of the notice of sale in a newspaper of general circulation in each county in which the trust property to be sold is situated. The notice of sale shall be published at least once a week for four consecutive weeks. The last date of publication shall not be less than ten days prior to the date of sale. Publication is deemed completed on the date of the first of the four publications of the notice of sale pursuant to this paragraph.
B. The sale shall be held at the time and place designated in the notice of sale on a day other than a Saturday or legal holiday between 9:00 a.m. and 5:00 p.m. mountain standard time at a specified place on the trust property, at a specified place at any building that serves as a location of the superior court or at a specified place at a place of business of the trustee, in any county in which part of the trust property to be sold is situated.
C. The notice of sale shall contain:
1. The date, time and place of the sale. The date, time and place shall be set pursuant to section 33-807, subsection D. The date shall be no sooner than the ninety-first day after the date that the notice of sale was recorded.
2. The street address, if any, or identifiable location as well as the legal description of the trust property.
3. The county assessor’s tax parcel number for the trust property or the tax parcel number of a larger parcel of which the trust property is a part.
4. The original principal balance as shown on the deed of trust. If the amount is not shown on the deed of trust, it shall be listed as “unspecified”.
5. The names and addresses, as of the date the notice of sale is recorded, of the beneficiary and the trustee, the name and address of the original trustor as stated in the deed of trust, the signature of the trustee and the basis for the trustee’s qualification pursuant to section 33-803, subsection A, including an express statement of the paragraph under subsection A on which the qualification is based. The address of the beneficiary shall not be in care of the trustee.
6. The telephone number of the trustee.
7. The name of the state or federal licensing or regulatory body or controlling agency of the trustee as prescribed by section 33-803, subsection A.
D. The notice of sale shall be sufficient if made in substantially the following form:
Notice of Trustee’s Sale
The following legally described trust property will be sold, pursuant to the power of sale under that certain trust deed recorded in docket or book _______________________ at page __________ records of ______________ county, Arizona, at public auction to the highest bidder at (specific place of sale as permitted by law) _______________, in _______________ county, in or near _______________, Arizona, on ________, ____, at ___________ o’clock ___m. of said day:
(street address, if any, or identifiable
location of trust property)
(legal description of trust property)
Tax parcel number _______________
Original principal balance $________________________
Name and address of beneficiary ______________________________
______________________________
______________________________
Name and address of original trustor _________________________
_________________________
_________________________
Name, address and telephone number of trustee ________________
__________________________________
__________________________________
Signature of trustee _____________________________
Manner of trustee qualification ___________________________
Name of trustee’s regulator _______________________________
Dated this _____________ day of ______________, ____.
(Acknowledgement)
E. Any error or omission in the information required by subsection C or D of this section, other than an error in the legal description of the trust property or an error in the date, time or place of sale, shall not invalidate a trustee’s sale. Any error in the legal description of the trust property shall not invalidate a trustee’s sale if considered as a whole the information provided is sufficient to identify the trust property being sold. If there is an error or omission in the legal description so that the trust property cannot be identified, or if there is an error in the date, time or place of sale, the trustee shall record a cancellation of notice of sale. The trustee or any person furnishing information to the trustee shall not be subject to liability for any error or omission in the information required by subsection C of this section except for the wilful and intentional failure to provide such information. This subsection does not apply to claims made by an insured under any policy of title insurance.
F. The notice of trustee sale may not be rerecorded for any reason. This subsection does not prohibit the recording of a new or subsequent notice of sale regarding the same property.
Also note, where the deed of trust or mortgage calls for a certain plan or procedure for foreclosure, that plan must be followed. Therefore, you need to check the procedures set forth in the deed of trust or mortgage instrument and see if they complied with the procedures that may be called for therein.
There are other sections relating to foreclosure that must also be reviewed. For example, substitution of Trustees is covered in this section:
33-804. Appointment of successor trustee by beneficiary
A. If a person appointed as trustee fails to qualify, is unwilling or unable to serve or resigns as trustee or if a trustee was not designated in the deed of trust, the beneficiary may appoint a successor trustee, and such appointment shall constitute a substitution of trustee.
B. The beneficiary may at any time remove a trustee for any reason or cause and appoint a successor trustee, and such appointment shall constitute a substitution of trustee.
C. A notice of substitution of trustee shall be recorded in the office of the county recorder of each county in which the trust property or some part of the trust property is situated at the time of the substitution. The beneficiary shall give written notice through registered or certified mail, with postage prepaid, to the trustor.
D. A notice of substitution of trustee shall contain a description of the basis for the successor trustee’s qualification pursuant to section 33-803, subsection A. A notice of substitution of trustee shall be sufficient if acknowledged by all beneficiaries under the trust deed or their agents as authorized in writing and if prepared in substantially the following form:
Notice of Substitution of Trustee
The undersigned beneficiary hereby appoints ___________ _______________________________________________________________ _______________________________________________________________ _______________________________________________________________ successor trustee under the trust deed executed by ____________________ as trustor, in which _____________ is named beneficiary and _____________ as trustee, and recorded ________________, _____, in _________________ county in book or docket _________________, page ______________, and legally describing the trust property as:
(legal description of trust property)
The successor trustee appointed herein qualifies as a trustee of the trust deed in the trustee’s capacity as a ______________________ as required by Arizona Revised Statutes section 33-803, subsection A.
Dated this _______________ day of ________________, ____.
____________________
Signature
(Acknowledgement)
E. A notice of substitution of trustee is effective immediately on execution as prescribed by subsection D of this section.
F. A person appointed as a trustee under a deed of trust may resign as trustee at any time. Any such resignation shall be without liability, provided the person has not agreed in writing or by the person’s conduct to act in such capacity. If the trustee has agreed in writing or by the person’s conduct to act in such capacity, the person may only resign in accordance with the terms of the trust deed and this chapter. If a trustee fails to qualify or is unwilling or unable to serve or resigns, it does not affect the validity of the deed of trust, except that no action required to be performed by the trustee under this chapter or under the deed of trust may be taken until a successor trustee is appointed by the beneficiary or the beneficiary’s agent as authorized in writing pursuant to this section. Resignation by a trustee is made by recordation of a notice of resignation in the office of the county recorder of each county in which the trust property or some part of the trust property is situated at the time of the resignation. Written notice shall be given through registered or certified mail, with postage prepaid, to the trustor and the beneficiary. A notice of resignation of trustee is sufficient if acknowledged by the trustee and prepared in substantially the following form:
Notice of Resignation of Trustee
The undersigned trustee hereby resigns as trustee under the deed of trust executed by ________________, as trustor, in which ________________ is named beneficiary, and recorded ________________, ____, in ________________ county, in book or docket __________, page __________, and legally describing the trust property as:
(legal description of trust property)
Dated this _______________ day of _______________, ____.
_________________
Signature
(Acknowledgement)
Other Sections to look at (that may allow an Arizona homeowner to enjoin and/or set aside a foreclosure sale in Arizona) might relate to irregularities in the foreclosure sale/bidding process.
33-810. Sale by public auction; postponement of sale
A. On the date and at the time and place designated in the notice of sale, the trustee shall offer to sell the trust property at public auction for cash to the highest bidder. The trustee may schedule more than one sale for the same date, time and place. The attorney or agent for the trustee may conduct the sale and act at such sale as the auctioneer for the trustee. Any person, including the trustee or beneficiary, may bid at the sale. Only the beneficiary may make a credit bid in lieu of cash at sale. The trustee shall require every bidder except the beneficiary to provide a ten thousand dollar deposit in any form that is satisfactory to the trustee as a condition of entering a bid. The trustee or auctioneer may control the means and manner of the auction. Every bid shall be deemed an irrevocable offer until the sale is completed, except that a subsequent bid by the same bidder for a higher amount shall cancel that bidder’s lower bid. To determine the highest price bid, the trustor or beneficiary present at the sale may recommend the manner in which the known lots, parcels or divisions of the trust property described in the notice of sale be sold. The trustee shall conditionally sell the trust property under each recommendation, and, in addition, shall conditionally sell the trust property as a whole. The trustee shall determine which conditional sale or sales result in the highest total price bid for all of the trust property. The trustee shall return deposits to all but the bidder or bidders whose bid or bids result in the highest bid price. The sale shall be completed on payment by the purchaser of the price bid in a form satisfactory to the trustee. The subsequent execution, delivery and recordation of the trustee’s deed as prescribed by section 33-811 are ministerial acts. If the trustee’s deed is recorded in the county in which the trust property is located within fifteen business days after the date of the sale, the trustee’s sale is deemed perfected at the appointed date and time of the trustee’s sale. If the highest price bid at a completed sale is less than the amount of that bidder’s deposit, the amount of the deposit in excess of the bid price shall be refunded by the trustee at the time of delivery of the trustee’s deed.
B. The person conducting the sale may postpone or continue the sale from time to time or change the place of the sale to any other location authorized pursuant to this chapter by giving notice of the new date, time and place by public declaration at the time and place last appointed for the sale. Any new sale date shall be a fixed date within ninety calendar days of the date of the declaration. After a sale has been postponed or continued, the trustee, on request, shall make available the date and time of the next scheduled sale and, if the location of the sale has been changed, the new location of the sale until the sale has been conducted or canceled and providing this information shall be without obligation or liability for the accuracy or completeness of the information. No other notice of the postponed, continued or relocated sale is required except as provided in subsection C of this section.
C. A sale shall not be complete if the sale as held is contrary to or in violation of any federal statute in effect because of an unknown or undisclosed bankruptcy. A sale so held shall be deemed to be continued to a date, time and place announced by the trustee at the sale and shall comply with subsection B of this section or, if not announced, shall be continued to the same place and at the same time twenty-eight days later, unless the twenty-eighth day falls on a Saturday or legal holiday, in which event it shall be continued to the first business day thereafter. In the event a sale is continued because of an unknown or undisclosed bankruptcy, the trustee shall notify by registered or certified mail, with postage prepaid, all bidders who provide their names, addresses and telephone numbers in writing to the party conducting the sale of the continuation of the sale.
D. A sale is postponed by operation of law to the next business day at the same scheduled time and place if an act of force majeure prevents access to the sale location for the conduct of the sale.
NOTE: See also In re Kahn, 203 Ariz. 205 (2002) where a Court held that gross inadequacy of sale price may be grounds to set aside a foreclosure sale. In regard to the question of what constitutes “gross inadequacy” the court held:
Determining gross inadequacy
“Gross inadequacy” cannot be precisely defined in terms of a specific percentage of fair market value. Generally, however, a court is warranted in invalidating a sale where the price is less than 20 percent of fair market value and, absent other foreclosure defects, is usually not warranted in invalidating a sale that yields in excess of that amount. The Court also cited to the RESTATEMENT § 8.3 (emphasis added) and stated: In Fenton, our court of appeals noted, “even assuming that the price was inadequate, that fact standing alone would not justify setting aside the trustee’s sale…………..there must be in addition proof of some element of fraud, unfairness, or oppression as accounts for and brings about the inadequacy of price.”
THESE ARE JUST A FEW OF THE FORECLOSURE LAW SECTIONS THAT NEED TO BE LOOKED AT IN DETERMINING WHETHER THE FORECLOSURE PROCESS IN ARIZONA IS VALID. CONTACT AN ARIZONA FORECLOSURE DEFENSE LAWYER TO REVIEW YOUR CASE.
(3) Oppressive and unconscionable conduct of beneficiary/mortgagee or their agents (ex. loan servicers) in regard to loan acceleration and/or foreclosure tactics:
For example, pursuing the power of sale on trivial breaches, accepting late payments yet still foreclosing, etc. Review the case of Vork v. Dunn, 161 Ariz. 24, 775 (1989) for more information on possible challenges in this regard.
(4) TILA (truth in lending) Violations that trigger an extended three year right to rescind. Some general principles illuminating portions of TILA can be found in the case of Smith v. Wells Fargo Credit Corp., 713 F. Supp. 354, D.Ariz. 1989. In this case the court outlined the following TILA principles:
“In the case of closed-end credit, the material disclosures required of the lender are as follows: annual percentage rate, the finance charge, the amount financed, total of payments, and the payment schedule. TILA Sec. 103(u), 15 U.S.C. Sec. 1602(u). “Payment schedule” is defined as the number, amounts, and timing of payments scheduled to repay the obligation. Reg. Z, 12 C.F.R. Sec. 226.18(g); TILA Sec. 128(a)(6). The payment amount (which was stated incorrectly) on the original disclosure form is considered a “material” disclosure.
The consumer may exercise the right to rescind until midnight of the third business day following the latest of the following events:
1) consummation of the transaction;
2) delivery of notice of the right to rescind, or
3) delivery of all material disclosures.
See TILA Sec. 125(a), 15 U.S.C. Sec. 1635(a)
The consumer has a continuing right to rescind until the creditor provides the rescission notice and also supplies a copy of the TIL disclosure statement with all material information correctly disclosed. National Consumer Law Center, Truth in Lending (1986), para. 6.3.2 at 137.
Technical or minor violations of TILA, or Regulation Z, as well as major violations impose liability on the creditor and entitle the borrower to rescind. Semar v. Platte Valley Fed. S & L Assoc., 791 F.2d 699, 704 (9th Cir.1986) (notice to rescind was in error because it did not list the actual day *356 of expiration, but said “three business days after July 16”).
Congress made it clear that rescission suits are allowed after disclosure suits, and explicitly provided a statutory damages penalty for rescission violations. Aquino v. Public Finance Consumer Discount Co. 606 F.Supp 504, 511 (E.D.Pa.1985), based on S.Rep. No. 96-368, reprinted in 1980 U.S.Code Cong. & Admin.News at 236, 267.
If a mathematical error occurs with regard to a material disclosure, the three day rescission period will not commence, and thus the right to rescind will not expire three days later. Indeed, it will not expire until three business days after the correct disclosure is finally provided or until the earlier of three years after consummation. Rohrer, The Law of Truth in Lending (1984) at 8-33.
The rescission form that Wells Fargo had the Smiths sign at closing was not sufficient because the correct date of rescission must be stated. Reg. Z Sec. 226.23(b); TILA Sec. 125(a, f). To comply with this regulation, Wells Fargo was required to provide new rescission forms with the correct expiration date when the corrected material disclosure was made. Rohrer at 8-43.
There is a continuing right to rescind the transaction when the creditor makes an error regarding a material disclosure on the disclosure statement. In re Underwood, 66 B.R. 656 (Bkrtcy.W.D.Va.1986). In the Underwood case, the plaintiffs never received rescission forms-not when they initially closed, nor when the new finance charge data arrived. The court said “they would have had a continuing right to rescind the transaction even if they had initially been given copies of the Notice of the Right to Cancel because the defendant failed to make what now appears an admittedly erroneous and material disclosure on the disclosure statement.” Id. at 662. The court further stated that the Underwoods were entitled to rescind the transaction at any time within three years of the consummation of the transaction unless provided a statement containing the correct finance charge along with rescission forms. Id.
It is apparent that the courts have interpreted the right to rescind as being a continuing one in situations such as this. Here, Wells Fargo stated an incorrect payment amount (a material disclosure), and when the corrected amount was disclosed, they should have provided new rescission forms in compliance with the Truth in Lending Act. Because the Smiths were not given the new forms, they have a continuing right to rescind, within the statute of limitations of three years. 15 U.S.C. Sec. 1635(f).
Several defenses against TILA actions are available to creditors. There are three types of defenses: the TILA itself, common law, and standard procedural and jurisdictional defenses. NCLC at 146. The interpretation of the TILA defenses lies exclusively with the courts; Regulation Z and the Commentary of the Federal Reserve Board do not interpret them. Id.
[2] As to the right to rescind, Wells Fargo raises the defense of good faith conformity with the FRB rules, regulations, or interpretations. TILA Sec. 130(f), 15 U.S.C. Sec. 1640(f). Under the New Act, the creditor’s good-faith conformity is limited to the Regulations and the Commentary which supersede all previous formal and informal FRB staff interpretations, and the defense provides no protection for reliance on court decisions. Hamilton v. Southern Discount Co., 656 F.2d 150 (5th Cir.1981).
A creditor may not merely allege good faith conformity; it must point to the specific regulation, ruling, or interpretation with which it claims conformity. Valencia v. Anderson Bros. Ford, 617 F.2d 1278, 1287 (7th Cir.1980), rev’d on other grounds, 452 U.S. 205, 101 S.Ct. 2266, 68 L.Ed.2d 783 (1981). Wells Fargo relies on the lack of a requirement for a new rescission form in the regulations as its defense, but fails to cite any specific authority to support its position. In this situation, courts have concluded that if a creditor misreads or misconstrues the provision, it is not entitled to the defense, even if the mistake is a reasonable one. Id. at 1278 *357 (creditor’s mistaken interpretation of Regulation Z, even if honest and reasonable, is not a defense under Sec. 1640(f); see also Kessler v. Associates Fin. Services Co., 573 F.2d 577, 579 (9th Cir.1977).
However, where the provision is ambiguous and the creditor reasonably construes the provision as applying to its act or omission, it may be entitled to the conformity defense. Charles v. Krauss Co., 572 F.2d 544 (5th Cir.1978) (creditor’s good faith belief that its contract form complied with the literal language of Sec. 226.801 forms exception provided a good faith defense). A case by case interpretation is required. NCLC at 147.
TILA is not ambiguous with regard to the right to rescind in this instance, and courts have made clear the continuing right to rescind in situations such as these. A new rescission form should have been provided, and Wells Fargo’s mistaken interpretation of Regulation Z is not a defense.
This may give you a general idea of TILA law and how the Courts may look at these issues. We have posted other Truth in Lending blogs that you can search for online. There is a radio show we did which also discussed Truth in Lending, in general terms on one show. You can visit that site atwww.LoanModRadio.com
TILA extended rescission rights may prove a nice foreclosure defense strategy where the borrower can put together a “tender” plan.
(5) Certain second mortgages containing a “balloon” payment may not be foreclosed upon (generally junior mortgages less than $10,000). Here is an Arizona statutory section that deals with that topic.
6-114. Balloon payments prohibited; applicability; exemptions
A. A person engaged in the business of lending money or negotiating a loan between parties shall not make or arrange a loan in violation of this section.
B. On a loan in an amount of ten thousand dollars or less for a term up to three years which is secured by a lien on real property comprising an owner-occupied dwelling, an installment payment, whether providing for payment of principal, interest or principal and interest, shall not be greater than twice the amount of the smallest installment.
C. This section applies only to mortgages, trust deeds or other evidences of indebtedness secured by a lien other than a primary or first lien on real property.
D. This section does not apply to transactions involving the purchase or sale or the proposed purchase or sale of real property or to a financial institution licensed or chartered by this state or the federal government.
E. Pursuant to the provisions of 12 United States Code section 3804, this section shall not be superseded by the provisions of 12 United States Code section 3803.
(6) Failure of Consideration (question of fact for the jury)
See the case of Sepo v. First National Bank of Arizona, 21 Ariz. App. 606, (1974) where the Court held:
“Failure of consideration consists in failure to perform, or carry out, or make good a promise given as consideration for an instrument……whether or not a failure of consideration has occurred may be a question of fact for a jury to determine…..where several promises are made by one party the question whether breach of one such promise results in a complete or a partial failure of consideration, or no failure at all, is determined under the doctrine of substantial performance…..the parties raising the defense of failure of consideration with reference to a note have the burden of proving it.”
It is not entirely clear how far this holding can stretch. For example, in the case of securitized loans, where MERS or a Trustee of a Trust claims it is the owner of the loan / loan beneficiary, but yet they gave no consideration to the transaction, can this be a grounds to raise to prevent foreclosure? For more general information about issues raised by securitized loans, and the so-called “produce the note” foreclosure defense strategy that has been successful in some states see our website atwww.ProduceTheNoteAttorney.com where we discuss some of these issues and potential legal challenges. Note, many of these produce-the-note strategies are in the “test-phase.”
(7) Filing Bankruptcy (may temporarily stay a foreclosure, and in some cases may prevent a foreclosure). See our website at www.BKAttorneyS.net (BK Attorney Steve)
The preceding are some of the grounds that can be reviewed by a foreclosure defense attorney in Phoenix, Scottsdale, and surrounding cities in Arizona to see of you may have a right to seek an injunction against foreclosure. There maybe other grounds to review given the facts and circumstances of your case. For example where qualified written requests are not responded to and legitimate questions as to whether payments were properly paid and applied may raise a defense warranting at least a temporary restraining order stopping the foreclosure sale. Reverse Redlining – Financial Discrimination may also be another ground worth pursuing.
In addition, if you have an option arm loan it may be possible to argue that the loan is unconscionable and therefore unenforceable (see more discussion on our website www.OptionArmLawyer.com. Again, certain facts have to be ferreted out to see if you truly have a valid good faith defense to assert that might stop your foreclosure. The Courts will not likely treat you favorably where frivolous claims are filed (especially where loan payments are seriously delinquent), which tenuous claims are also prohibited from being filed by attorney ethics. Again, have your case reviewed by a real estate lawyer / foreclosure defense attorney.
ABOUT US:
The Law Offices of Steve Vondran in licensed to practice law in California and Arizona. Steve Vondran, Esq. is a licensed attorney and real estate broker in California and Arizona.
He can be reached by email at steve@vondranlaw.com or toll free (877) 276-5084
Offices:
Arizona Office (Esplanade): 2415 E. Camelback Road, Suite 700, Phoenix, AZ, 85020.
California Office (Fashion Island): 620 Newport Center Drive, Suite 1100, Newport Beach, CA 92660
Our Real Estate Law Services:
Loan Modifications / Loan Workouts (World Savings / Wachovia Loans)
Commercial Lease Modifications
Broker Advance Fee Agreements (Residential and Commercial)
DRE audits, hearings and investigations
Real Estate Broker admissions cases
Foreclosure Defense
Predatory Lending
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Phoenix Eminent Domain Attorney / Inverse Condemnation / Prop 207
Real Estate Arbitration, Litigation and Mediation
Foreclosure Consultant Contracts
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Forensic Loan Audits (Truth in Lending (TILA), RESPA, HOEPA, Fraud, etc.)
**ASK ABOUT ABOUT CHAPTER 7 BANKRUPTCY.
KEYWORDS: ARIZONA FORECLOSURE DEFENSE ATTORNEY / CALIFORNIA FORECLOSURE DEFENSE ATTORNEY / PHOENIX FORECLOSURE DEFENSE ATTORNEY / PHOENIX FORECLOSURE DEFENSE LAWYER / SCOTTSDALE FORECLOSURE DEFENSE ATTORNEY / SCOTTSDALE FORECLOSURE DEFENSE LAWYER / ORANGE COUNTY PREDATORY LENDING LAWYER / ORANGE COUNTY FORECLOSURE DEFENSE ATTORNEY / ORANGE COUNTY FORECLOSURE DEFENSE LAYWER / TRUTH IN LENDING LAWYER / TRUTH IN LENDING ATTORNEY / SOUTHER CALIFORNIA MORTGAGE LAW ATTORNEY / MORTGAGE LAWYER / RIVERSIDE FORECLOSURE ATTORNEY / RIVERSIDE FORECLOSURE LAWYER / RESPA LAWYER / RESPA ATTORNEY / FORECLOSURE DEFENSE LAW / PHOENIX LOAN MODIFICATION ATTORNEY / PHOENIX LOAN MODIFICATION LAWYER / ORANGE COUNTY LOAN MODIFICATION LAWYER / ORANGE COUNTY LOAN MODIFICATION ATTORNEY / NEWPORT BEACH LOAN MODIFICATION LAWYER / NEWPORT BEACH LOAN MODIFICATION ATTORNEY / CALIFORNIA FORECLOSURE DEFENSE LAWYER / PREDATORY LENDING LAW.
When foreclosure cannot be averted, be aware of Tenant’s Rights Issues……
FORECLOSURE TIPS: OVERVIEW OF TENANTS RIGHTS FOLLOWING EVICTION (NEW HOPE FOR MODIFYING INVESTMENT PROPERTIES?)
Hi again, we have posted information on previous blogs about tenants rights following eviction. Here is an overview of what we are looking at. The following is general legal information only and is not legal advice, or to be construed as legal advice. For specific questions please contact a real estate or foreclosure defense Attorney. Steve Vondran, Esq. practices law in the areas of Real Estate, Bankruptcy, and Foreclosure Defense. He assists homeowners in California and Arizona where he is licensed to practice law. He also holds a real estate broker’s license in both states. He can be emailed at Steve@VondranLaw.com or called at (877) 276-5084.
(1) IF YOU HAVE A FANNIE MAE LOAN THAT IS BEING THREATENED WITH FORECLOSED, FANNIE MAE, THROUGH THE LOAN SERVICER, MAY ACCEPT A DEED IN LIEU OF FORECLOSURE AND ALLOW A “DEED FOR LEASE” PROGRAM THAT ALLOWS UP TO A ONE YEAR LEASE AND POSSIBLE EXTENSIONS TO THE HOMEOWNER.
Here were some of the General Guidelines we discussed:
GENERAL GUIDELINES FOR FANNIE MAE DEED FOR LEASE RENT-BACK PROGRAM:
•(1) The loan must be owned by Fannie Mae (use their website here to see if your Loan is owned by Fannie): http://loanlookup.fanniemae.com/loanlookup/
•(2) Contact your loan servicer and see if you are eligible for the program and eligible to execute a “deed-in-lieu” of foreclosure (this means you sign over the deed to the loan holder in lieu of being foreclosed on). The owner of the loan, through the loan servicer, must agree to accept the deed-in-lieu of foreclosure. This is a requirement of the program. In some cases, you may only qualify for Deed in Lieu if you only have a first mortgage. In other instances, you may qualify if the second mortgagee releases your lien.
•(3) The property must be primary residence / owner occupied (landlord-owner may qualify if tenant uses property as primary residence).
•(4) Borrower must be able to pay market rent for the lease (which is a one year lease and option to extend by term or month-to -month). A property management company will determine market rate.
•(5) Rent payment cannot exceed 31% of Gross Monthly Income (yes, you will be required to submit financials).
•(6) Borrower cannot have had more than 12 late payment s on loan and cannot be in Bankruptcy.
•(7) FHA and VA loans do NOT qualify.
•(8) Borrower must have made at least three payments on loan.
•(9) House remains for sale and any new owner of the home would take “subject to” the lease.
A link to that blog post can be found here: http://activerain.com/blogsview/1340634/do-tenants-in-california-have-any-rights-if-the-house-they-live-in-is-foreclosed-
(2) FREDDIE MAC HAS A SIMILAR LEASE-BACK PROGRAM (CALLED THE REO RENTAL INITIATIVE) BUT IT DOES NOT INVLOVE THE DEED IN LIEU OF FORECLOSURE. ONCE THE FREDDIE LOAN IS FORECLOSED ON, THE LOAN SERVER MAY GRANT THE HOMEOWNER, OR REMAINING TENANT OF A RESIDENTIAL INVESTMENT PROPERTY TO STAY OVER ON A MONTH TO MONTH BASIS.
The Property must be in habitable condition, and the tenant must be able to afford the rent. Here is a link to the Freddie Mac press release discussing the REO Rental Initiative Program: http://www.freddiemac.com/news/archives/servicing/2009/20090305_reo-rental-initiative.html
(3) UNDER THE HELPING FAMILIES SAVE THEIR HOMES ACT OF 2009, PURSUANT TO THE PROTECTING TENANTS AT FORECLOSURE ACT OF 2009, ANY BONA FIDE LEASE HOLDER MUST BE GIVEN AT LEAST 90 DAYS NOTICE BEFORE THEY C AN BE EVICTED.
Here is a look at the text of the law (the bold, italics, caps and underlines are my own-doing). Note the law expires (“sunsets”) on December 31, 2012.:
TITLE VII–PROTECTING TENANTS AT FORECLOSURE ACT
SEC. 701. SHORT TITLE. This title may be cited as the `Protecting Tenants at Foreclosure Act of 2009′.
SEC. 702. EFFECT OF FORECLOSURE ON PRE-EXISTING TENANCY.
(a) In General- In the case of any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property after the date of enactment of this title, any immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to—
(1) the provision, by such successor in interest of a notice to vacate to any bona fide tenant at least 90 days before the effective date of such notice; and
(2) the rights of any bona fide tenant, as of the date of such notice of foreclosure—
(A) under any bona fide lease entered into before the notice of foreclosure to occupy the premises until the end of the remaining term of the lease, except that a successor in interest may terminate a lease effective on the date of sale of the unit to a purchaser who will occupy the unit as a primary residence, subject to the receipt by the tenant of the 90 day notice under paragraph (1); or
(B) without a lease or with a lease terminable at will under State law, subject to the receipt by the tenant of the 90 day notice under subsection (1),
except that nothing under this section shall affect the requirements for termination of any Federal or State subsidized tenancy or of any State or local law that provides longer time periods or other additional protections for tenants.
NON-LEGAL EASE TRANSLATION: (but this is not legal advice please check with your attorney): Where a residential property sold in foreclosure, the remaining tenant (who must be a BONA FIDE TENANT – See Below for definition) is entitled to receive notice of their rights: mainly, that they have the right to live out the term of their lease – ASSUMING THE LEASE WAS ENTERED INTO PRIOR TO THE FORECLOSURE SALE, HOWEVER, the Successor in interest to the property (i.e. the bank that could not dump the property at a foreclosure sale, or, a successful bidder at the foreclosure auction) MAY TRY TO SELL THE PROPERTY, AND MAY EVICT THE TENANT WITH 90 DAYS NOTICE, BUT ONLY IF THE PERSON BUYING THE HOUSE PLANS ON LIVING THERE (AS OPPPOSED TO USING IT AS AN INVESTMENT PROPERTY OR SIMPLY “FLIPPING” THE PROPERTY).
If there is no lease in effect at the time of foreclosure (let’s say a tenant was living in the property under an oral lease, or month to month lease terminable at will) the tenant must be given the 90 day notice to vacate before they can be evicted. That is a mouthful, I know. The end result is adding the three months along with the time needed to evict a tenant (assuming they do not voluntarily vacate) adds more frustration to lenders and third-party purchasers of the property and creates rules they must comply with.
WHAT IS A BONA FIDE TENANT UNDER THE HELPING FAMILIES SAVE THEIR HOMES ACT OF 2009 / PROTECTING TENANTS AT FORECLOSURE ACT OF 2009?
Only a bona fide tenant is entitled to the 90 day notice and the possibility to exercise the full term of any existing lease. Here is how the law defines bona fide tenants:
(b) Bona Fide Lease or Tenancy - For purposes of this section, a lease or tenancy shall be considered bona fide only if:
(1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant;
(2) the lease or tenancy was the result of an arms-length transaction; and
(3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit’s rent is reduced or subsidized due to a Federal, State, or local subsidy.
(c) Definition- For purposes of this section, the term `federally-related mortgage loan’ has the same meaning as in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602).
TRANSLATION: DO NOT TRY TO ENTER INTO A SHAM LEASE PRIOR TO BEING FORECLOSED UPON IN ORDER TO TRY TO GET AN EXTRA 90 DAYS IN THE HOUSE. BUT THEN AGAIN, I SUPPOSE THE LENDER WOULD BE FORCED TO LITIGATE THIS ISSUE IN AN EVICTION PROCEEDING AND PROVE IT IS A SHAM.
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NOTE: There is also a section of the law that discuss tenants rights regarding Section 8 Housing. This Section states:
SEC. 703. EFFECT OF FORECLOSURE ON SECTION 8 TENANCIES. Section 8(o)(7) of the United States Housing Act of 1937 (42 U.S.C. 1437f(o)(7)) is amended–
(1) by inserting before the semicolon in subparagraph (C) the following: `and in the case of an owner who is an immediate successor in interest pursuant to foreclosure during the term of the lease vacating the property prior to sale shall not constitute other good cause, except that the owner may terminate the tenancy effective on the date of transfer of the unit to the owner if the owner-
(i) will occupy the unit as a primary residence; and
(ii) has provided the tenant a notice to vacate at least 90 days before the effective date of such notice, and
(2) by inserting at the end of subparagraph (F) the following: `In the case of any foreclosure on any federally-related mortgage loan (as that term is defined in section 3 of the Real Estate Settlement Procedures Act of 1974 (12 U.S.C. 2602)) or on any residential real property in which a recipient of assistance under this subsection resides, the immediate successor in interest in such property pursuant to the foreclosure shall assume such interest subject to the lease between the prior owner and the tenant and to the housing assistance payments contract between the prior owner and the public housing agency for the occupied unit, except that this provision and the provisions related to foreclosure in subparagraph (C) shall not shall not affect any State or local law that provides longer time periods or other additional protections for tenants.
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BOTTOM LINE ON FEDERAL TENANTS RIGHTS FOLLOWING FORECLOSURE
What might this mean in practice? In one case, recently we tried to perform a loan workout a major lender on an investment property. They were not willing to work-out or modify the loan. I think they were confident the property will sell at a public auction, and the house (and compliance with the Tenants Rights Law set forth herein) would be somebody else’s problem to deal with. After there were no bidders at the foreclosure sale, and the property reverted back to the lender, NOW THEY ARE MOTIVATED TO MODIFY THE LOAN AND WILL TAKE A BETTER LOOK AT A MODIFICATION. So the end result may be increased change of loan modification for investment properties. I do not believe lenders want to get into the “landlord business.” Being a landlord carries its own inherent risks. Note: Although this is a federal law (“law of the land”) individual states are free to provide even greater protections to tenants. Please consult with an attorney before making any decisions.
SOME GENERAL TIPS TO AVOID A LOAN MODIFICATION SCAM – DO YOUR HOMEWORK!
TOP FIVE TIPS TO LOOK OUT FOR IN AVOIDING LOAN MODIFICATION SCAMS:
- Beware of any company that promises principal loan balance reduction. Although most borrowers are seeking principal reduction, any company that guarantees this should be seriously scrutinized. Don’t be fooled by their claims “if we are not successful we will give you your money back.” By the time you go to get your money back they may no longer be around.
- Don’t be fooled by offers of “100% money-back guarantees.” This is the best way for a company to get your money. By offering you a full refund if the loan modification company is not successful, many California and Arizona homeowners part with their money with the belief that these scam loan mod companies will return their money upon request. We are finding that 100% guarantees are often not honored, and in fact, the company may claim they would return the money except for the fact that the Client breached the contract (usually they concoct some bogus claim, like “you never sent us all your loan documents for the loan audit). Other times, you find out the company simply refuses to return your calls and emails.
- Beware of the “attorney-backed” or “attorney-based” firms. What exactly does this mean? Have you ever heard this type of advertising before out of any type of company (ex. “we are an attorney-backed mortgage loan company?). What we are seeing is that brokers and non-brokers will make these types of claims in order to lure you in with the hopes that an attorney will be handling your case (i.e they are trading off the power of an attorney). At the end of the day we find often times there is no attorney whatsoever doing any work, and/or you are told that an attorney does a forensic loan audit (but the customer mysteriously never receives a copy of the audit or receives a shoddy audit). If you want the attorney clout, you should just find a reasonably priced attorney shouldn’t you? Also, these types of companies will often specifically disclaim in their agreements that “we are not a law firm and do not provide legal services.” If this is the case, then what exactly does the “attorney-backed” mean to you, the homeowner? Ask to read their contract before you sign up, and ask them what you are getting. We see these types of companies in Phoenix and California.
- Beware of Companies that advertise on TV and Radio. This may seem like a strange tip. However, this is what we are seeing, companies that advertise on TV and Radio are generally seeking to draw a large number of Clients to their firms (whether it be broker or non-broker, attorney or non-attorney). Their intentions may or may not be benevolent. What we have learned about the loan modification business is this IT TAKES ALOT OF TIME TO ANSWER ALL OF THE QUESTIONS OF EACH HOMEOWNER, AND TO CONTACT LENDERS ON THEIR BEHALF AND TO PROVIDE STATUS UDATES. Companies that take in a large number of loan modification files may not be staffed to handle the volume. We have personally dealt with companies that have simply failed to contact lenders on behalf of their clients, failed to return client calls, and failed to keep clients informed as to status. Moreover, we have seen some companies simply implode and seek the protection of Bankruptcy. Meanwhile, your file sits on their desk, and your requests for a refund go completely ignored. Prosecutors and District Attorneys are also very busy, and may not have the time to seek any recourse on your behalf. End result: no modification for you, no refund, no recourse. We deal with many of these types of Clients who have been burned by these types of scams or lack of realistic business planning.
- California Homeowners who are seeking to hire Brokers or Attorneys to help them negotiate loan modifications with the lenders are advised NOT to pay ANY money before the loan modification is complete. SB 94 was passed and signed into law on October 11, 2009. As of that date, no one may charge advance fees for loan modification services. If someone is seeking to charge you in advance to submit your documentation to the lenders, they are not complying with the law, and you should stop speaking with the company that is trying to get your business.
If you feel you have been a victim of loan modification scam, please fill out our form on www.LoanModificationRipoff.net we will contact you to discuss your case. We are seeking refunds and damages for California and Arizona homeowners who have fallen victim to loan modification con-artists. You can also call us at (877) 276-5084
Produce the Note Strategy – A Summary of what I learned at the neil Garfield PRODUCE THE NOTE seminar in La Jolla, California
The following is general legal information only and should not be relied upon as legal advice. From the years 2001-2008 most loans originated by so called ìlendersî (who lent none of their own money as can usually be verified by looking at the ìlenderísî financials) were securitized and sold on WALL STREET to investors such as mutual funds, municipal funds, hedge funds, insurance companies and foreign investors.
When Wall Street stepped into the picture during these years, the underwriting standards for most, if not all originating ìlendersî dropped significantly as the originating ìlenderî was more incentivized to produced as many assignable loans (or better yet, Security instruments) as it could in order to feed the Wall Street money-making machine that financially craved as many as these loans as could be produced.
The original ìlendersî rarely lent their own money which can be proved by looking at the originating ìlenderísî balance sheet. In fact, the originating ìlenderî had already contracted to sell the loan to a loan aggregator, investment banker or other entity and was to be paid back for the full loan amount plus typically a 2.5% return on the loan originated (i.e. these ìmiddlemenî in the securities transaction were all paid in full and had no interest in the loan and could not be deemed a ìlenderî but rather a conduit in a single securities transaction). Thus, it is clear the ìoriginating lenderî was doing nothing more than using borrower to issue unregulated negotiable securities (certificates of asset backed securities) on behalf of the Wall Street investors who were the true ìlendersî who funded the loan and who are entitled to any payment that may be due on the loan.
To state it another way, the activities of the originating ìlenderî in creating the negotiable security, along with the coordinated and contracted participation of the middlemen loan aggregators, investment bankers and others, was a SINGLE TRANSACTION that was literally designed to encourage predatory loans to be originated by the ìstraw manî or ìstand-inî originating ìlenderî that resulted in providing and issuing negotiable securities for literally anyone that could fog a mirror. Moreover, the more predatory the loan/security (ex. deceptive teaser rates, obscured negative amortization products, balloon payments, YSP, onerous pre-payment penalties, failure to properly underwrite, bait and switch tactics at the signing table, false assertions of a right to refinance, appraisal fraud, unverified stated income loans, etc.) often the more that was paid – higher yields – to both the originating ìlender,î the securities middlemen, and the ultimate investor-beneficiary.
What this created was a system wherein literally anyone with a pulse and FICO score over 500, was able to obtain a mortgage loan in the form and issue the negotiable security that would be sold on Wall Street. For the originating ìlender,î knowing that Wall Street would fund the loan through its investors, incentivized the originating ìlenderî to cut corners on proper underwriting and instead produce as many assignable notes as possible without regard to the ramifications.
The Securitization system was further set up in such a way as to eliminate the risks caused by predatory lending, defaulting loans, and other risks by insuring and cross-collateralizing thousands of loans in a loan pool. In fact, if foreclosure is pursued, we will show that the above referenced loan has in fact been paid-off in full by insurance proceeds, money from various guarantors, by the investors, and/or by the federal government. If the loan has been paid, there is no right to foreclose or threaten foreclosure.
The promissory notes and deeds of trust were separated making the notes unenforceable. MERS was used to track ownership of loan servicing rights and ownership rights and even pretends, at times, to be the beneficiary of many loans even though they do not collect any loan payments, have no right to collect such, and have no other financial interest other than being paid its ordinary fees for the tracking and registration service. MERS typically fails to record any assignments of the loans in the property County Recorderís office. This was done to avoid the paying of fees, among other reasons.
At the end of the day, in many cases a predatory loan was originated by the ìoriginating lenderî who was financed by the Wall Street investor in an elaborate unregistered security scheme. The loans were sliced and diced into loan pools, and many different investors are known to be the so-called ìowners of the noteî although no one, (including MERS, the originating ìlenderî, the Mortgage Loan Aggregators, Investment Bankers and the final Wall Street Investors) can produce a copy of the original promissory note that proves ownership of the ìloanî obligation and right to collect payments and ultimately foreclose.
If there is no note, and/or no properly recorded assignments of such, there can be no enforceable debt obligations. This is not a new principle, but rather embodies age-old principles and requirements of commercial law such as the Uniform Commercial Coded (U.C.C.).
Failure to provide validation of the debt or proof of ownership of the note/recorded assignments SHOULD MAKE A LENDER, LOAN SERVICER, INVESTOR, AND/OR TRUSTEE THINK TWICE BEFORE attempting, or undertaking any of the following acts ñ WHICH MAY BE WORTH CHALLENGING IN THE PROPER CASE (Note: we believe a proper case normally requires other more firmly established legal rights, such as a federal truth in lending violation raising extended rescission rights, fraud, or some other historically recognized ground for filing a lawsuit, rather than merely asserting a bare ìproduce the noteî defense):
No foreclosure should be permitted where the California Foreclosure statutes are not followed. Under California Law (California Civil Code Section 2923-2924 et seq. ñ California Foreclosure Law) the ìbeneficiary or their authorized agentî is required to contact the borrower to assess their financial information and discuss modification options. This statutory section requires, it would seem, the TRUE AND ACTUAL BENEFICIARY (I.E. THE TRUE HOLDER OF THE NOTE) to make contact and certify such contacts with the homeowner/borrower prior to making the required declaration in the Notice of Default. Failure to have the TRUE AND ACTUAL BENEFICIARY, AND/OR THEIR AUTHORIZED AGENT (who shall be required to prove first that they are complying with California Foreclosure law on behalf of the TRUE AND ACTUAL BENEFICIARY) precludes and nullifies any attempted foreclosure, and makes any assertion of such, and filing of the Notice of Default with the California County Recorder, fraudulent.
No one other than the TRUE AND ACTUAL BENEFICIARY, OR THEIR DULY AUTHORIZED AGENT SHOULD BE ABLE TO ASSERT PROPER STANDING AND PROVE THAT IT IS A REAL PARTY IN INTEREST IN ANY LEGAL PROCEEDING, INCLUDING RESPONDING TO A TEMPORARY RESTRAINING ORDER (TRO); PRELIMINARY INJUNCTION; BANKRUPTCY; OR EVICTION ACTION. As discussed above, without proof of ownership of the note and all required recorded assignments, any attempt to show up and defend any of the above actions (by the ìpretender lendersî and/or their ìagentsî who cannot prove their right to engage in any of the herein referenced activities) will result in attempting to perpetrate a ìfraud on the courtî and might wind up the subject of a motion for sanctions and other proper judicial relief. Moreover, any attorney/trustee attempting to pursue any of the herein referenced actions on behalf of a beneficiary or their agent, who cannot satisfy and prove ownership, would be well advised to consider all of the legal ramifications.
No one other than the TRUE AND ACTUAL BENEFICIARY, OR THEIR DULY AUTHORIZED AGENT SHOULD BE ABLE TO ASSERT a right to collect Loan payments (including principal and interest), late fees, attorney fees, etc., and may not legally demand or collect such. All funds illegally collected from California Homeowners might be subject to the appointment of a receiver or the imposition of a constructive trust in a lawsuit demanding a full refund along with damages and attorney fees.
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NOTES: These are just a few basic ideas to consider in regard to debt validation and produce the note theories. Again, it would seem the case might be better if you have a traditional and historically recognized legal theory (aside from commercial code) to bring and to basically try to bend the judges ear on the PRODUCE THE NOTE STRATEGY, as a side issue, rather than the focal point of the lawsuit. Judges may be reluctant to having their courts used as a grounds for testing somewhat novel legal theories where some might see it as an attempt to ìget your home for free when you are in default of the loan documents.î If granted, this may also lead to ìfloodgate litigation.î
As referenced, above, many loan servicers try to keep it secret who the real ìlenderî or ìbeneficiaryî of a loan is. I suppose the securitization process demands secrecy in debt collection to make it work. Of course, this seems counter-intuitive that a person is not entitled to know who their debt is actually owed to. Steve Vondran can be reached at steve@vondranlaw.com or (877) 276-5084.
What is a Qualified Written Request under RESPA?
QUALIFIED WRITTEN REQUEST
A qualified written request is a WRITTEN request that every homeowner can send to their loan servicers to protest billing and accounting issues and to request other relevant information. The rights arises under Section 6 of the Real Estate Settlement and Procedures Act (“RESPA” as they call it).
RESPA: What we do in just about every case is to send in a Qualified Written Request (“QWR”) to the loan servicer and we have them address our legitimate billing and servicing disputes.
INFORMATION WE MAY DEMAND IN OUR QUALIFIED WRITTEN REQUEST: We may ask for information such as: (1) life of loan accounting for all payments, including loan payments and escrow payments (a lot of disputes arise here as borrowers often have no idea when or how interest rates on their loan will adjust and they want proof of when the loan actually adjusted, what loan index figure was used in calculating the rate change, and they want to ensure the adjusting of the loan otherwise corresponds with the promissory note they signed).
This should not be too much to ask out of these sophisticated financial organizations.
(2) We may also ask for a copy of your loan documents, such as a copy of the promissory note, deed of trust, adjustable rate riders, truth in lending statements, good faith estimates, loan program disclosures, and other loan documents
(3) We might also seek other information depending upon the nature of your case.
WHAT IS THE GOAL OF THE QUALIFIED WRITTEN REQUEST: The main objective in sending out a QWR is: (a) clarify your billing and accounting issues involving your loan payments, (b) put the loan servicer on notice of your legal rights and let them know they have some work they are legally required to perform (sometimes defense can be a good offense), and (3) make them potential defendants if they fail to comply with our lawful demands and we are forced to file for an injunction to stop the foreclosure (of course, there must be valid good faith grounds for filing the lawsuit and you may not want to file on RESPA grounds alone – discuss this with your foreclosure defense lawyer).
WHAT MUST THE LOAN SERVICER OR LENDER TO DO COMPLY WITH A QUALIFIED WRITTEN REQUEST?:
(1) The lender or loan servicer must “acknowledge” your qualified written request (QWR) within 20 days.
(2) They must respond to your inquiry in 60 days (for example, clarify the issues you put in dispute and provide your requested accounting).
(3) They must NOT report NEGATIVE CREDIT during the period of the investigation.
HOW OFTEN WITH THE LENDERS OR LOAN SERVICERS RESPOND TO A QUALIFIED WRITTEN REQUEST AND WHAT TPYES OF RESPONSES CAN YOU EXPECT TO A QWR?
What I have seen is what I would call “general” compliance in the area of responding to QWR’s. In a good number of cases you will get a 20 day acknowledgment letter. In most cases, you will get a lackluster response to your QWR, and in my case, they complain that I ask for too much documentation. I usually point out that I have not seen a case that documents limits to what you can demand out of your loan servicer. Finally, from time to time we do have loan servicers that report negative credit information to the major credit bureaus (Trans Union, Equifax, and Experian) during the QWR process which we also reserve the right to sue for in the event litigation is required to vindicate the predatory loan.
OUR MISSION IS HELPING HOMEOWNERS AND PUTTING THE “TRUTH” BACK IN “LENDING”
Some people have asked me, why are you passionate about foreclosure defense and helping Arizona homeowners? One of the answers I like to give is the following:
OUR MISSION: “WE ARE FIGHTING FOR “TRUTH IN LENDING” (a strange concept, i know!):
(1) WE ARE FIGHTING FOR TRUE AND ACCURATE DISCLOSURE OF A LOAN PRODUCT, ITS NATURE, AND TERMS (TELL PEOPLE THE TRUTH ABOUT THE LOANS THEY ARE LOCKING INTO). GIVE THEM THE CHARMS BOOKLET AND CALIFORNIA ARM DISCLOSURES
(2) WE ARE FIGHTING FOR TRUE AND FAIR DISCLOSURE OF THE PRICE-TAG FOR THE LOAN (APR AND FINANCE CHARGES THAT ARE TRUE AND ACCURATE). ACCURATE TRUTH IN LENDING STATEMENTS
(3) WE ARE FIGHTING FOR FAIR AND ACCURATE DISCLOSURE OF THE RIGHT TO CANCEL THE LOAN WHEN APPLICABLE (GIVE PEOPLE THEIR REQUIRED COPIES AND GIVE TRUE DATES UPON WHICH LOANS CAN BE RESCINDED)
(4) WE ARE FIGHITNG FOR FAIR AND HONEST UNDERWRITING THAT IS BASED UPON A CLIENTS TRUE ABILITY TO REPAY A LOAN (WHICH MAY MEAN VERIFYING INCOME AND TELLING SOME PEOPLE THEY DON’T QUALIFY) AND TRUE AND ACURATE APPRAISAL OF PROPERTY THAT SUPPORTS THE UNDERWRITING.
(5) WE ARE FIGHTING FOR FULL DISLCOSURE OF THE HOLDER OF THE LOAN (INVESTOR) AND PROOF AS TO WHO OWNS THE RIGHT TO BE PAID, AND THE RIGHT TO FORECLOSE, AND WHO MUST BY LAW CONTACT CALIFORNIA HOMEOWNERS TO DISCUSS LOAN MODIFICATIONS AND ASSESS BORROWER FINANCES.
(6) WE ARE FIGHTING FOR FULLFULL AND FAIR ACCOUNTING FOR PAYMENTS, LATE FEES, ESCROW CHARGES, AND OTHER CHARGES IN THE LOAN SERVICER’S BACK-ROOM. ANSWER THOSE QWR’S ON TIME, AND IN UNDERSTANDABLE DETAIL. STOP REPORTING NEGATIVE CREDIT DURING THIS PERIOD.
(7) WE ARE FIGHTING FOR HONESTY AND “TRUTH IN TRIAL PLANS” – IF HOMEOWNERS DON’T QUALIFY FOR A MORTGAGE RESTRUCTING / LOAN MODIFICATION, DON’T SEND THEM A TRIAL PLAN THAT LEADS THEM TO BELEIVE THEY DO. IN ADDITION, BE TRUTHFUL ABOUT THE PRECISE TERMS OF THE LOAN MODFIICATIONS (DISCLOSE THE TERMS CLEARLY) AND HONOR YOUR TRIAL PLAN AGREEMENTS.
ITS TIME THE LENDERS OPEN THE BOOKS AND SHOW US WHERE THE BAIL-OUT MONEY HAS GONE. WE NEED SOME TRANSPARENCY. WE NEED SOME ACCOUNTABILITY TO SHOW WHAT HAS BEEN DONE WITH TAX-PAYER MONEY. WAS YOUR LOAN ALREADY PAID OFF VIA THE BAILOUT, AND NOW THEY WANT TO COLLECT MORE MONEY FROM YOU FROM A LOAN THAT MAY HAVE BEEN ALREADY PAID? IF YOUR LOAN WAS SECURITIZED INTO A “LOAN POOL” IS THERE ANY CHANCE YOUR ENTIRE POOL OF LOAN WAS BAILED OUT AND PAID OFF? IF SO, DOES THAT MEAN THEY STILL GET TO COLLECT FROM YOU AS WELL? WHAT IS THAT? ISN’T THAT A WINDFALL……..UNJUST ENRICHMENT?
PEOPLE DESERVE TO BE REPRESENTED BY A FORECLOSURE DEFENSE LAWYER WHEN TRYING TO RESOLVE ONE OF BIGGEST PROBLEMS MOST HOMEOWNERS WILL EVER FACE. IN MANY CASES, A FORECLOSURE DEFENSE LAWYER CAN EVALUATE YOUR LOAN, REVIEW YOUR MORTGAGE DOCUMENTS (FORENSIC AUDIT), DEMAND THAT DEBTS BE VALIDATED, SEND MODIFICATION PROPOSALS, REVIEW TRIAL PLAN AND OTHER LOAN MODFICATION AGREEMENTS, ADVISE ON DEFICIENCY JUDGMENTS, DISCUSS POTENTIAL BANKRUPTCY AND SHORT-SALE OPTIONS, AND ENSURE THAT YOUR RIGHTS UNDER THE FORECLOSURE LAWS ARE ADHERED TO AND PROTECTED. THE BANKS HAVE EXPENSIVE LAWYERS ON THEIR TIME, YOU DESERVE TO BE REPRESENTED DURING THIS CONFUSING AND STRESSFUL ORDEAL. THIS IS THEIR GAME AND THEIR BATTLEFIELD.
IF YOU ARE AN ARIZONA HOMEOWNER PLEASE CONTACT US (877) 276-5084 TO DISCUSS YOUR FORECLOSURE CASE.
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KEYWORDS: ARIZONA FORECLOSURE DEFENSE LAWYER / ARIZONA FORECLOSURE DEFENSE ATTORNEY / PHOENIX FORECLOSURE DEFENSE LAWYER / PHOENIX FORECLOSURE DEFENSE ATTORNEY / TRUTH IN LENDING LAWYER / TRUTH IN LENDING ATTORNEY / PREDATORY LENDING LAWYER / PREDATORY LENDING ATTORNEY / QUALIFIED WRITTEN REQUEST / RESPA LAWYER / RESPA ATTORNEY / PHOENIX TRUTH IN LENDING LAWYER / PHOENIX TRUTH IN LENDING ATTORNEY / FORENSIC LOAN AUDITS / ATTORNEY LOAN AUDITS / SCOTTSDALE FORECLOSURE DEFENSE LAWYER / SCOTTSDALE FORECLOSURE DEFENSE ATTORNEY / SCOTTSDALE TRUTH IN LENDING LAWYER / SCOTTSDALE TRUTH IN LENDING ATTORNEY / SCOTTSDALE LOAN MODIFICATION LAWYER / PHOENIX LOAN MODIFICATION ATTORNEY / OPTION ARM LOAN LITIGATION.
Option Arm Loan Glossary
OPTION ARM LOAN GLOSSARY
Option ARM: An adjustable-rate mortgage which typically provides 4 different types of payment options each month (teaser rate payment, interest-only payment, 15 year amortized payment and 30 year amortized payment).
Teaser Rate: This is the initial interest rate which is typically very low (lower than the actual note rate), and which is designed to induce people to enter into the transaction. Borrowers are often not told that if all they do is make the teaser rate payment, their loan balance will rise, and the loan will eventually “recast” resulting in “payment shock.”
Adjustable rate: Typically an option arm loan will be fixed for ONE MONTH and then adjust every month thereafter. This can lead to payment shock in a relatively short amount of time.
Index: When a loan adjusts, the new interest rate is based on an “Index” and a “Margin” (you add the two together and that becomes the new rate for that period). An index is a widely used index that is used to help calculate the index portion of the loan. A common index is the LIBOR index.
Margin: This is the fixed rate portion of an adjustable rate loan (ARM loan) and is set forth in the promissory note and adjustable rate rider. When the loan adjusts, you add the index + margin to figure out what your new interest rate will be.
Payment shock: When the new interest rate exceeds a borrowers reasonable expectation and reasonable ability to repay a loan, this is referred to as “payment shock” and can often times have the effect of forcing the borrower into default and ultimately foreclosure.
Negative amortization: This is what happens when a borrower under an Option Arm Loan pays only the teaser rate. Because the borrower is not paying all of the interest called for under the Note, there is “deferred interest” which gets added to the loan balance. At some point the loan balance will reach 105%, 110%, 115% or 120% of the original loan balance, and when that happens the the loan will “recast” pursuant to the terms of the note, into a mandatory priniciple and interest payment often resulting in payment shock, default, and foreclosure.
Loan Interest Rate Caps: Adjustable rate loans typically havea “interest rate caps” that prevent them from adjusting to unafforadable levels. For example, in an ARM loan, you will typically see 5/2/5/ caps and 6/2/6 caps. The first number is the most the interest rate can adjust up or down at the first “interest rate change date.” The second number is the maximum the interest rate can change during subsequent adjustment periods, and the third number is the “lifetime cap” or the highest the interest rate can adjust over the life of the loan. For example, if the initial interest rate in the note is 5%, with a 5/2/5 cap the highest the interest rate could ever be is 10%.
Prepayment penalty: This is a “penalty” a lender puts in a loan document often times to ensure that a certain amount of interest payments will be received by the lender. It also has the effect of preventing a person with a prepayment penalty from refinancing the loan. A typical prepayment penalty will be two or three years in duration, and the penalty will often be 6 months of interest on the loan. For borrowers with a predatory and toxic option arm loan, this means they are often times forced to “deal with the loan.”
Loan disclosures: Lenders are required under Federal Truth in Lending law to clearly and conspicuosly explaint the material terms of a loan and the cost of credit. Oftern ARM loan disclosures (including the note, adjustable rate riders, loan program disclosures, and ARM disclosures) are often difficult for the average consumer to understand, which is another problem with these types of adjustable loans.
ARGUING FOR THE PRELIMINARY INJUNCTION – WHERE THE RUBBER HITS THE ROAD. A FEW IDEAS IF YOU ARE ARGUING YOUR OWN CASE
THE LAW OFFICES OF STEVEN C. VONDRAN, P.C
WHEN YOU ARE TRYING TO SAVE YOUR HOME FROM FORECLOSURE, GENERALLY WHAT HAPPENS IS THERE IS A SALE DATE COMING UP QUICK. FOR EXAMPLE, THE HOUSE WILL BE SOLD NEXT WEEK.
IN A PANIC, MOST PEOPLE TURN TO A FORECLOSURE DEFENSE ATTORNEY AND HAVE THE FORECLOSURE LAWYER LOOK AT THE CASE AND SEEK TO IDENTIFY WHAT TYPES OF CLAIMS YOU MAY HAVE THAT WARRANT THE FORECLOSURE SALE BEING STOPPED BY THE JUDGE:
SOME POTENTIAL GROUNDS FOR SEEKING AN INJUNCTION FROM FORECLOSURE ARE:
- WRONGFUL FORECLOSURE - THE LENDER / TRUSTEE NO FOLLOWING STATE FORECLOSURE LAW REQUIREMENTS (EX. NOT MAKING THE PROPER NOTICE OF DEFAULT DECLARATIONS IN CALIFORNIA OR IMPROPER SUBSTITUTION OF TRUSTEE);
- TRUTH IN LENDING LAW (TILA) RESCISSION RIGHTS: INCLUDING EXERCISING THE EXTENDED THREE YEAR RIGHT TO RESCIND WHERE MATERIAL VIOLATIONS ARE UNCOVERED FOLLOWING A FORENSIC LOAN AUDIT);
- CALIFORNIA FOREIGN LANGUAGE CONTRACTS ISSUES: THIS ARISES WHERE A LENDER TARGETS AND NEGOTIATES LOANS IN LANGUAGES OTHER THAN ENGLISH, BUT THEN PUTS THE LOAN DOCUMENTS IN ENGLISH. THIS MAY CREATE A RIGHT OF RESCISSION UNDER CALIFORNIA CIVIL CODE SECTION 1632;
- OTHER EQUITABLE GROUNDS: (EX. NOT KICKING ELDERLY CLIENTS WHO WERE STEERED INTO OPTION ARM LOANS ONTO THE STREET / UNCONSCIONABLE LOANS, ETC.)
THESE ARE JUST A FEW IDEAS, CONSULT A FORECLOSURE LAWYER TO ASSIST YOU IN IDENTIFYING OTHER POSSIBLE CLAIMS AND CAUSES OF ACTION THAT MAY APPLY GIVEN YOUR UNIQUE FACTS.
Anyway, we have discussed the Temporary Restraining Order (TRO) process in another blog post. But generally speaking (at least in California) you seek the TRO first, and then 1-3 weeks later you seek PRELIMINARY INJUNCTION. The TRO is just what it says it is “temporary.” The Preliminary Injunction is the critical step in preventing foreclosure, for without an injunction (Court Order) to stop the sale there is usually nothing preventing the Trustee from conducting the auction and seeking to sell the property.
At any rate, THE PRELIMINARY INJUNCTION HEARING IS FOR ALL THE MARBLES. You get it, you halt the foreclosure, you don’t get, your case may wind up being a case for money damages, but not saving your home from foreclosure. Keep in mind, with judges these days hearing ALOT of foreclosure cases, if you are arguing your own case you may want to focus on creating a compelling presentation that will pique the interest of the judge.
I have a TRO / Preliminary Injunction hearing coming up. Here are some Arguments I have been working on to try to persuade the judge that STOPPING THE FORECLOSURE SALE IS BOTH IN THE INTEREST OF JUSTICE AND REQUIRED BY THE LAW (if you have any good quotes please feel free to email me at steve@vondranlaw.com ):
- Your honor, this is a WRONGFUL FORECLOSURE CASE………..I know you are probably hearing alot of these types of cases lately, but I think you will find this case at least a tad bit unique……..
- In this case, my Client is an elderly gentlemen who was simply looking to refinance his property and get into a more affordable loan to take into account the fact that he was getting older and nearing retirement……(UNLIKE ALOT OF OTHER CASES YOU HAVE PROBABLY BEEN HEARING LATELY, MY CLENT WAS NOT TAKING CASH-OUT OR BUYING A HOUSE HE COULD NOT AFFORD – HE HAS LIVED IN THE HOUSE, AS HIS PRIMARY RESIDENCE SINCE ______) and until just a few months ago, given a financial hardship, he has always made his loan payments in full and on time.
- Please keep in mind my Client was 68 years old at the time he was asked to sign the loan documents. I do not state this fact to seek sympathy for my Client, but rather to point out that this fact makes my Client a “protected” senior under the Laws of the State of California……..
- As a protected member of our society, the State of California imposes a special duty on parties who enter into financial transactions with elders and senior citizens, and even absent any legal requirements public policy in California demands that these seniors, (our elders), be treated fairly, honestly, and with respect. Any decent society treats their aging with dignity and respect………….
- My Client, however, did not get this level of treatment when dealing with _________ Bank at the time of the origination of this loan. Instead of qualifying my Client to see what loan was financially best for him, he was literally “steered” and encouraged to sign the Adjustable Rate Mortgage at issue in this case. An “ARM LOAN” as they call it. That means his loan would be fixed for 5 years, and then become adjustable subject to the often unpredictable fluctuation in interest rates. The loan was also an “interest-only” loan which means my Client would only be paying down the interest on the loan, and not the principle. At some point in the future the interest-only feature would cease, and my Client would be obligated to pay both principal and interest on the loan, which for most folks results in “payment shock,” makes the home unaffordable, and leads to foreclosure. This type of underwriting is false, deceptive, unfair, and when perpetrated against the elderly becomes malicious.
- In addition, this was a “stated income loan,” – what they call the “liars loans.” Now my Client is no liar, but the loan officer for ______ Bank, in taking the loan application, told my Client NOT TO WORRY about income figures…..that he would insert ____ thousand dollars per month as gross monthly income on the loan application, stopping only to ask: “does that sound about right?”
- My Client had Credit Scores close to 700 which means he qualified for what’s referred to as the “prime interest rates.” Instead of getting a great loan ____________ (insert) that took into account his financial condition and excellent credit history, instead he was “steered” by the representative of _______ bank into the toxic and highly predatory loan product known as the option arm loan.
- THE REASON WE ARE HERE TODAY YOUR HONOR IS BECAUSE we are seeking this injunction to stop the scheduled foreclosure which is currently scheduled for ________, 2009, when my Clients property is scheduled to be sold right here in __________ County.
- Your honor, as pointed out in our complaint (and application for preliminary injunction materials) the grounds for our injunction are as follows:
A. WRONGFUL FORECLOSURE (NOT FOLLOWING FORECLOSURE LAWS / NO RESPONSE TO QUALIFIED WRITTEN REQUEST, IMPROPER SUBSTITUTION OF TRUSTEE, ETC.)
B. (TILA EXTENDED THREE YEAR RIGHT TO RESCIND / TENDER STRATEGY
See our website at www.RescindMyLoan.net for more information about the Truth in Lending Foreclosure Defense Strategy.
MAKE YOUR EQUITY ARGUMENTS (EX. OPTION ARM LOANS ARE UNCONSCIONABLE AND SHOULD NOT BE ENFORCED / SENIOR CITIZENS WHO WERE STEERED INTO OPTION ARM LOANS SHOULD NOT BE FORCED INTO THE STREETS, ETC.)
See our website at www.OptionArmLawyer.com for more information about the the Option Arm Loan Foreclosure Defense Strategy.
Keep in mind, the negative amortization option arm loan is illegal in California per AB 260.
AB 260 bans negative-amortization loans where the principal loan balance keeps rising even though monthly payments are made. An option-arm loan is basically one where the borrower is permitted to pay LESS than the INTEREST-ONLY amount on a loan. Some people have referred to the Option Arm is a “subprime loan that is marketed to the entire public.”
- ETC., ETC. LIST YOUR GROUNDS – THIS MAY BE YOUR LAST CHANCE TO ARGUE TO SAVE YOUR HOUSE.
WE TRULY BELIEVE WE WILL PREVAIL ON THE MERITS OF THESE CLAIMS. WE HAVE FACTS, WITNESSES, AND LEGAL EVIDENCE WHICH WILL HELP US PROVE OUR CLAIMS. IN ADDITION, THERE WILL BE NO HARM TO THE DEFENDANTS IF THE INJUNCTION ISSUES AND THEY CANNOT SELL THE PROPERTY UNTIL THE END OF THE LITIGATION. THE HOUSE WILL ALWAYS BE THERE, AND THEY CAN FORECLOSE AT ANY TIME THE COURT DEEMS IT PROPER. HOWEVER, THE DAMAGE TO MY CLIENT, IF THE FORECLOSURE SALE IS PERMITTED TO TAKE PLACE, IS DEVASTATING, IMMEASURABLE AND CANNOT BE REPAIRED BY MONEY DAMAGES. ALL REAL PROPERTY IS UNIQUE.
IN CLOSING, I WOULD URGE THIS COURT TO AGREE THAT THE BALANCE OF EQUITIES FAVORS THE GRANTING OF THIS INJUNCTION AND WE HEREBY REQUEST SUCH TODAY.
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ANYWAY, THESE ARE JUST SOME IDEAS I AM WORKING WITH. YOU WILL WANT TO USE YOUR OWN EXAMPLES THAT RELATE MORE SPECIFICALLY TO YOUR CASE.
MORE FORECLOSURE INFORMATION CAN BE FOUND AT WWW.FORECLOSUREDEFENSERESOURCECENTER.COM AND WWW.BKATTORNEYS.NET
Resources Provided By:
ForeclosureWarrior.com
