Tag Archives: mortgage

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

January Rings in New Federal Laws Protecting Homeowners

ring in the new yearIn early January, a number of new federal rules in the foreclosure and mortgage context became effective. The changes came out of the Dodd–Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act) which provided authority to the Consumer Financial Protection Bureau (CFPB) to issue rules to implement the changes. The changes were many; below are just a few of the highlights.

No Dual Tracking

In recent years, dual tracking was a frequent practice among many mortgage lenders and servicers. With dual tracking, a bank would consider a homeowner’s application for a loan modification while simultaneously continuing to foreclose on the homeowner’s home.

A number of states passed laws prohibiting this practice in 2013, and the signatories to the National Mortgage Settlement agreed to stop this practice as well. But even better, as of January 10, 2014, federal law prohibits dual tracking. For details on the new rule, see New Laws Prohibiting Dual Tracking in the Foreclosure Context.

Ability to Pay Standards for Mortgages

In the 2000s, mortgage lenders often approved loans without running numbers or inquiring into whether the homeowner could actually afford the mortgage. Lenders signed people up for mortgages with “teaser rates” that later increased dramatically or low rate loans that had a large balloon payments after a few years. The homeowner would inevitably default and lose the home through foreclosure.

The new CFPB rules, which became effective January 10, 2014, require mortgage lenders to consider specific factors and make a good faith determination that the borrower has an ability to repay the loan. The “ability to repay” (ATR) requirements apply to almost all closed-end residential mortgage loans. (A closed-end loan is one that must be repaid by a certain date. Most mortgages are closed-end loans.) However, there are a number of loan types that are exempt from these requirements. For details on what the lenders must do under the new rule, and which loans it does and does not apply to, see New Mortgage Rules on Ability to Pay.

More Protections for Borrowers of High-Cost Home Loans

The Home Ownership and Equity Protection Act (HOEPA) provides protections to borrowers taking out certain types of loans with high interest rates or high fees. The Dodd-Frank Act expanded those protections and the CFPB’s rules implementing those changes became effective on January 10, 2014.

Among other things, the new rules:

  • require lenders offering high cost loans to provide more disclosures to borrowers
  • prohibit lenders from including certain types of onerous loan terms in the loans, like balloon payments, and
  • restricts fees that lenders can charge for these loans.

For details on which loans the new CFPB rule applies to, and what is required and prohibited, see New Protections for High-Cost Mortgages.

Other Mortgage Servicer Requirements

The CFPB implemented a whole host of other rules that protect mortgage holders, people shopping for mortgages, and those facing foreclosure. These new rules require mortgage servicers to:

  • provide monthly billing statements to borrowers (there are exceptions for some types of loans) that include specific information
  • notify borrowers when the interest rate changes on adjustable interest rate loans
  • promptly credit mortgage payments
  • provide alternatives to force placed insurance
  • quickly resolve errors and respond to borrowers’ information requests, and
  • contact any borrower who falls behind in payments.

To get details on these new rules, see Federal Rules Protecting Homeowners With Mortgages.

Richmond, California Threatens Mortgage Lenders With Eminent Domain

home on lifeboatIf you are a struggling homeowner facing foreclosure, your city may use eminent domain at some point in the future to help you save your home. The first city to use this innovative approach is Richmond, California — it plans to seize underwater mortgages and restructure the loans. Of course, the mortgage lenders aren’t taking  this course of action lying down.

Other cities around the country are keeping eye on Richmond. If the city meets with success, others may follow suit.

Richmond’s Plan

Usually when people think about eminent domain they associate it with the government forcibly taking private property to be used for new roads, schools, parks, and other developments that are for a public use. However, Richmond’s idea is a bit different — it plans to use eminent domain to seize mortgages.

Under its plan, the city would use eminent domain to:

  • purchase underwater loans by paying a portion of the fair market value to the lender
  • reduce the loan principal so that it is more in line with current property value, and then
  • find new investors to purchase the loans.

Opposition From Lenders (Surprise, Surprise)

In July 2013, Richmond sent letters to banks and other entities seeking to purchase over 600 home loans. If the institutions decline to accept the offers (and it looks like the offers will be rejected), the city said it intends to forcibly acquire the mortgages through eminent domain.

As a result, several major banks filed lawsuits seeking an injunction against the city alleging that using the power of eminent domain in this way illegally violates the U.S. Constitution, the California Constitution, and other state laws. Additionally, the Federal Housing Finance Agency, which regulates Fannie Mae and Freddie Mac, is threatening to stop guaranteeing loans in cities, including Richmond, which condemn and seize underwater mortgages.

What Will Happen Next?

As of now, it is unknown how courts will rule on the issue using eminent domain in this novel manner. The issue could potentially go all the way to the U.S. Supreme Court.

Ultimately, Richmond will be an important test case since other local governments around the country are considering similar plans. How the situation plays out in Richmond will likely be an indicator of what will happen in those places.

To learn more, see Nolo’s article Eminent Domain: A Solution to the Foreclosure Crisis?

by Guest Blogger & Nolo Contributing Editor Amy Loftsgordon

Can I Get Title to Building When Owner-Lender Dies?

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon,

Six years ago I bought an 11-unit apartment building in Los Angeles, California. The seller carried a note for most of the purchase price. The seller died a month after I bought the property, which was six years ago. I don’t know who to pay and no one has contacted me for the note payments. I have paid nothing on the note for these past six years.

Can I file a quiet title lawsuit or adverse possession or some other kind of lawsuit to get free and clear title to my building?

Thank you.

Sheila

Dear Sheila,

The Los Angeles County Public Guardian is the branch of government that deals with unclaimed property when the owner has died. You need to notify them. They can open a probate case to administer the mortgage for the rightful heirs. If no heirs are found then the mortgage “escheats” to the State of California for the public treasury.

The bottom line:  You still owe the mortgage note to somebody, and you also owe the six years of mortgage arrears. A Chapter 13 bankruptcy case may help if you are serious about keeping the building, but do not have enough money to bring the loan current all at once. A Chapter 13 may stop any foreclosure, and give you up to five years to get current on the note. (Learn more about how you can use Chapter 13 to catch up on mortgage arrears.)

-Leon

Guest blogger 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.

Find Leon on Google+

Do I Have to Reaffirm Mortgage Debt After Bankruptcy in Order to Refinance?

ASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Dear Leon,

I filed for bankruptcy and received a discharge a year ago. I now want to refinance my home. My current mortgage is with Wells Fargo Bank and Freddie Mac.  Wells Fargo told me that in order to refinance I have to reaffirm my mortgage or take my home out of the bankruptcy. I don’t want to pay my former bankruptcy attorney to do this for me. Can I do this myself?

Alice

Dear Alice,

I can’t remember ever having a client sign a bankruptcy reaffirmation agreement covering a mortgage debt. I would say as a general rule it is a bad idea and also unnecessary. Here’s why:

If your house and mortgages were correctly listed in the bankruptcy, and if your bankruptcy case is now officially closed, then your house is legally and officially “out of the bankruptcy,” just the way Wells Fargo wants it to be.

You can go the bankruptcy court clerk’s office and get a copy for yourself of the Order Closing Case, and hopefully Wells Fargo will be satisfied with that. You could also pay a paralegal to get the document for you.

There may also be an easier way for you: I would bet that if you call your lawyer’s secretary and ask very sweetly, they will get it without charging you. A smart lawyer is always happy to do little things like this for clients, because a smart lawyer wants your referrals and to have nice things posted on the Internet!

I hope this works out for you.

-Leon

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.

Find Leon on Google+


Stripping Off Home Mortgages: An Introduction

One powerful feature of Chapter 13 bankruptcy is a homeowner’s ability to get rid of second or third mortgages in certain circumstances. This is called “lien stripping.”  Here’s how it works.

If you have a junior mortgage (basically, anything other than your first mortgage) that is no longer secured by the value of your home, you can strip it off in Chapter 13 bankruptcy.

For example, say your home is worth $200,000, the balance on your first mortgage is $225,000, and you have a second mortgage in the amount of $25,000. Since your home equity is not enough to cover even your first mortgage, your second mortgage is no longer secured by equity in your home. In Chapter 13 bankruptcy, you can strip off the second mortgage.

What Types of Mortgages Can Be Stripped Off?

You can strip off any junior mortgage, such as a second or third mortgage, or a home equity line of credit (HELOC). The junior mortgage must be wholly unsecured. This means that if even a small portion is secured by the equity in your home, you cannot strip it off.

What Happens to the Stripped Off Mortgage?

The junior mortgage becomes part of your unsecured debt. It is treated like the rest of your nonpriority, unsecured debt in Chapter 13 bankruptcy – that is, you pay it off in part through your Chapter 13 plan. Most Chapter 13 filers pay only a small portion of their unsecured debt. At the end of the plan period, the remaining unsecured debt is discharged.

Next Up: Stripping Off Home Mortgages: Proving Property Value