Category Archives: Mortgage Modifications

Ocwen Caught Backdating Mortgage Letters

trap,  catchAccording to a recent review of Ocwen Financial Corporation, a major mortgage servicer, by the New York Department of Financial Services (DFS), Ocwen may have backdated thousands of letters it sent to borrowers who were trying to save their homes from foreclosure.

What Types of Letters Did Ocwen Backdate?

The DFS review into Ocwen’s servicing practices revealed that the company sent letters to borrowers denying their loan modification requests and giving them 30 days to appeal; however, in many cases, those letters were backdated by more than 30 days. This means the deadline to appeal had passed by the time the homeowners received the letters. (Learn more about government loan modification programs.)

In other cases, Ocwen sent letters to borrowers who were behind in payments giving them a deadline to cure the default and avoid foreclosure — but the deadline was months before the borrower actually received the letter.

How Many Borrowers Received Backdated Letters?

The DFS indicates that the backdating issue goes back to 2012, though the New York Post has reported that the problem may have started as early as 2010. As of now, there’s really no way to know how many backdated letters Ocwen has sent (or continues to send). Ocwen is the largest non-bank mortgage servicer in the country and currently services over two million mortgage loans, so it’s quite possible that thousands of improperly backdated letters have gone out. 

Ocwen’s Track Record of Servicing Errors and Abuses

This isn’t the first time that Ocwen’s mortgage servicing procedures have hurt borrowers. A previous investigation into Ocwen’s servicing activities revealed extensive misconduct, including robosigning and charging improper fees, among other errors and abuses in their mortgage servicing processes.

As a result, in December 2013, Ocwen reached a settlement with 49 state attorneys general, the District of Columbia, and the Consumer Financial Protection Bureau that, among other things, required Ocwen to comply with certain standards for servicing loans and to provide $125 million to eligible borrowers. (Learn more in Nolo’s article Foreclosure Relief for Homeowners With Ocwen Mortgages.)

What the Backdating Scandal Means for Harmed Borrowers

It looks very likely that Ocwen will subject to yet another settlement and have to pay millions of additional dollars in restitution payments to borrowers who were harmed by backdated letters.

Also, if you have a mortgage loan that Ocwen services and you applied for a loan modification, but were denied, review your denial letter closely. If the dates don’t make sense, you might want to consult with an attorney who can help you enforce your appeal rights.

You should also speak to an attorney if you’ve received a letter from Ocwen giving you a deadline to cure a mortgage default and avoid a foreclosure, but that deadline had already passed. If that letter (the “breach” letter) is invalid, any subsequent foreclosure steps may also be invalid.

Posted by guest blogger Amy Loftsgordon

Options for Underwater Homes: Foreclosures, Short Sales, and Loan Modifications

FIFODear Leon, 

I have a bloated, interest-only loan on my home. (I purchased my home in home in Los Angeles around February 2007). I am totally ‘upside down’ and I can no longer afford to make the payments. 

For the past few years, I have been juggling my work and flying back and forth to the east coast to care for a family member with Alzheimer’s. Now my reserves are almost wiped out and I am seriously struggling to make my first and second mortgage payments. In spite of rumors that the housing market is on the verge of making a comeback, for me, the odds of that happening are not worth betting on. 

I am completely overwhelmed – trying to do the right thing while maintaining my excellent credit. However, I am at my wits’ end and need guidance. Should I do a short sale, let my home go into foreclosure, try to get a loan modification, or try some other option? 

I have no other debt beside my car, and I managed to pay off my recent credit card debt with my 2012 tax return.

Can you help? 

Thanks, Monica  

Dear Monica,

Caring for a loved one plus mortgage troubles is overwhelming. No wonder you feel at your wits’ end. I would feel the same way.

Here are some of your options.

Loan Modification

I suggest that you first seek a loan modification. The big banks have become much more lenient. You have nothing to lose by trying.

You can get information on the federal Making Home Affordable programs, which include loan modifications, on Nolo’s Government Foreclosure Prevention Programs topic page.  You may also be able to negotiate a modification directly with your lender/servicer.

If you can’t get a worthwhile modification, you may have several other ways to go. But before you quit paying your mortgages, decide what your highest priority is: to dump the house or protect your credit? People rarely can do both, but you can still try.

Short Sale

If you can’t get an acceptable loan modification, you might want to consider a short sale. If you go this route, I suggest you keep both of your mortgage loans current. By doing so, the adverse impact to your credit will be minimal or none.  But before you negotiate a short sale, check with a good CPA to find out if there is a tax bite waiting to get you after the sale.

Unfortunately, your lender may not agree to a short sale unless you are behind on your mortgage payment. In fact, most real estate agents will advise you to stop paying your mortgage to increase your chance of getting the lender’s approval of the short sale. Of course, when you stop making mortgage payments, your credit will take a hit. You’ll have to decide whether short selling is worth the damage to your credit.

Letting Your Home Go Through Foreclosure

If you can’t get a short sale approved and you plan to let your home go through foreclosure, you might be on the hook for the balance remaining on the second mortgage. I would advise meeting with a local bankruptcy specialist right away for basic advice. Bankruptcy can wipe out your liability for any deficiency. In some cases, you won’t be liable for a deficiency anyway, which would mean a bankruptcy wouldn’t be necessary. A good bankruptcy attorney can tell you whether you’ll be on the hook for the second mortgage or not.

Here’s how this all works:

If you stop paying your mortgages, your first mortgage lender will eventually foreclose on your home. If your second mortgage is a home equity loan, the second mortgage lender can sue you for the loan balance. This is where bankruptcy comes in – you may be able to wipe out your liability for the loan balance in bankruptcy.

To learn more about short sales, loan modifications, and other options to avoid foreclosure, visit Nolo’s Alternatives to Foreclosure section.

However, in California, if your second mortgage is a purchase money loan (meaning you got the loan to buy the home), the lender can’t sue you for a deficiency balance. In this scenario, you wouldn’t need to file for bankruptcy after the foreclosure. Of course, either way, you would sacrifice your credit. But, you would probably get to live in your house payment-free for six months or more while the foreclosure proceeds.

Leon Bayer is a Los Angeles bankruptcy attorney.  He is a partner at Bayer, Wishman & Leotta, a California law firm specializing in bankruptcy.  The opinions and advice in this blog post are from Mr. Bayer alone, and should not be attributed to Nolo.  By answering a question on this blog, Mr. Bayer does not become your lawyer. 

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Tax Relief for Canceled Mortgage Debt Is Extended Through 2013

Just in the nick of time, the United States Congress extended the Mortgage Forgiveness Debt Relief Act through the end of 2013.  It was scheduled to expire on December 31, 2012.

What Is the Mortgage Forgiveness Debt Relief Act? 

If your lender forgives part of your mortgage debt (perhaps because you’ve modified or restructured your loan, gone through a short sale, or lost your home to foreclosure), you would normally be required to pay taxes on the amount forgiven. This is because the IRS considers the forgiven loan to be income.

However, in order to protect homeowners from these huge tax bills, in 2007 Congress passed the Mortgage Forgiveness Debt Relief Act. The Act gives homeowners a break, stating that they don’t have to pay tax on forgiven mortgage debt in certain circumstances. (To learn about those circumstances, see Canceled Mortgage Debt: What Happens at Tax Time?)

The Act was scheduled to expire on December 31, 2012 (it had already been extended once).

Tax Relief for Homeowners Continues Through 2013

As part of the recent legislation to avoid the fiscal cliff, Congress extended the tax relief of the Act through the end of 2013. That means that if you meet the qualifications in the 2007 law, you can get tax relief for mortgage debt forgiven through December 31, 2013.

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Mortgage Servicers, States, and Fed Agree to Historic $25 Billion Settlement

Federal agencies and state attorneys general recently announced that the five largest mortgage servicers have agreed to pay up to $25 billion to settle legal claims related to wrongdoing during the foreclosure crisis. The participating mortgage servicers include Bank of America, JPMorgan Chase, Wells Fargo, Citigroup, and Ally Financial. If additional mortgage servicers join in the settlement, the total amount of the settlement could reach $30 billion or even $45 billion.

Where will the settlement money go?

It’s estimated that up to two million former and current homeowners will receive some form of help under the terms of the settlement. The settlement money will be allocated as follows:

  • $10 billion to principal reduction
  • $3 billion to underwater mortgage refinancing
  • $7 billion for other mortgage relief, such as forbearance
  • $1.5 billion for cash payments of $2,000 to an estimated 750,000 borrowers who lost their homes to foreclosure from January 2008 through the end of 2011, and
  • $5 billion to participating states and the federal government.

The money will be distributed over the next three years, but incentives are in place to encourage the banks to distribute the money in the next 12 months and to help those homeowners who are in most need of relief.

Who gets the money?

It’s still unclear who exactly will be eligible for help under the terms of the settlement. But some classes of borrowers will clearly not benefit, including the following:

  • Borrowers whose loans are not serviced by the participating mortgage servicers
  • Homeowners in Oklahoma (Oklahoma is the only state that has not agreed to sign off on the settlement), and
  • Borrowers whose loans are owned by Fannie Mae or Freddie Mac. (To find out whether your loan is owned by Fannie Mae or Freddie Mac, use the loan look-up tools on their websites at www.fanniemae.com/loanlookup and www.freddiemac.com/mymortgage.)

The mortgage servicers participating in the settlement will determine which borrowers are eligible for relief over the next six to nine months. If you think you might be eligible, you may want to contact your servicer directly.

What do the mortgage servicers get in return?

In exchange for their settlement payment, the mortgage servicers will no longer be subject to state and federal civil lawsuits for wrongdoing related to the foreclosure crisis, including robo-signing, the charging of excessive late fees, and the wrongful denial of loan modification applications. However, banks may still be subject to criminal prosecutions and private lawsuits.

For more information on the mortgage settlement, visit www.nationalmortgagesettlement.com.