Tag Archives: foreclosure

Foreclosure Abuse: Banks Treat Homes as Vacant When Homeowners Still Live There

BurglarHomeowners who have missed mortgage payments (and even some that haven’t) might be subject to the newest foreclosure scandal – property management firms (hired by the banks) declaring homes abandoned and then breaking down doors, removing or damaging personal items, or changing the locks.

How does this happen? If a homeowner is 45 days late in making mortgage payments, banks often hire property management firms to determine if the home is vacant or abandoned. All in all, that’s not a bad thing to do.  Here’s the problem:  Apparently some property management firms have been deeming homes vacant when they clearly aren’t.

A recent lawsuit filed by the Illinois Attorney General Lisa Madigan alleges that Safeguard, the largest property management company in this industry, has been breaking into homes, damaging property, and changing locks even when there are clear signs that the homes are occupied — such as barking dogs, neighbors’ statements that someone lives in the home, cars in driveways, or even, in one case, the homeowner’s repeated calls to the property management company stating that he still lived in the home.

According to Madigan, her office has received over 400 complaints against Safeguard.

House Flip From Hell: Can Bankruptcy Help?

Upside Down HouseASK LEON 

Bankruptcy expert Leon Bayer answers real-life questions.

Property Flipping: Don’t Try This at Home! 

Dear Leon, 

I’m in the middle of the house flip from hell. I bought a fixer-upper with the intention of remodeling and selling it. But I’ve run out of money, maxed out my credit cards, and cannot pay the mortgage. The project is stuck – I can’t continue with improvements and no one wants to buy it as is. If I file for bankruptcy, will the bankruptcy trustee finish the construction and sell the house to pay my debts? 

Flipping a house sure isn’t as easy as the TV shows make it sound! 

— Franco in Riverside California

Dear Franco,

I’m sorry your project won’t succeed. If you file for bankruptcy, you will at least have the chance to wipe out your credit card debts.

But as far as the house flip is concerned, don’t get your hopes up. A bankruptcy trustee sells real estate “as is.” It sounds like there is no equity in the property. What usually happens in such cases is that the trustee abandons the property and the lender winds up taking it back in foreclosure. After that, the lender will probably sell it “as is” to recoup whatever it can get. (To learn how Chapter 7 bankruptcy works, including the role of the bankruptcy trustee in selling your nonexempt property, see Nolo’s Chapter 7 Bankruptcy area.)

You should see an experienced bankruptcy lawyer right away for further case evaluation. You might also consider getting Nolo’s The Foreclosure Survival Guide. It explains the foreclosure process and helps you make realistic decisions if you cannot afford your home or other property. It wouldn’t hurt to read it immediately.

To find a bankruptcy lawyer, take a look at Nolo’s Lawyer Directory. Or check out Nolo’s article How To Find a Bankruptcy Lawyer for tips on getting the right lawyer for your case.

And about those Property Flip TV shows…they should come with a warning: Don’t try this at home.

— 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.

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Strike Two for Wells Fargo, Says 9th Circuit

Second strikeIn its second opinion this summer that involved Wells Fargo and mortgage modifications, the Ninth Circuit ruled that Wells Fargo violated the Equal Credit Opportunity Act (ECOA) when it agreed modify the mortgage of Mr. and Mrs. Schlegel, accepted payments from them under the new agreement, but then pursued foreclosure anyway.

(In the other case this summer, the Ninth Circuit told Wells Fargo that it cannot enter into a trail plan period agreement with a homeowner under the HAMP program, and then fail to live up to its end of the bargain after the homeowner has done his part.  See 9th Circuit Tells Wells Fargo: You Can’t Have Your Cake and Eat it Too.)

Saying Sorry Is Not Enough

In 2010, Wells Fargo and the Schlegels entered into an agreement that modified their mortgage. The Schlegels began making payments in accordance with the new agreement. When the Schlegels received a default notice from Wells Fargo, they contacted the bank. When they got no action, they eventually filed a lawsuit. After receiving the lawsuit, Wells Fargo sent two more default notices. After the fifth notice (and presumably after a lawyer finally read the Shlegels’ complaint), Wells Fargo admitted that the default notices were sent in error.

According to the Ninth Circuit, Wells Fargo’s belated apology was not enough to get it off the hook. Schlegel v. Wells Fargo, No. 11-16816 (9th Cir. July 3, 2013) It ruled that Wells Fargo’s threats to foreclose on the Schlegels violated the modification agreement and therefore also violated the section of the ECOA that prohibits lenders from taking an “adverse action” without providing the consumer with a statement of reasons for taking such action.

(The Schlegels also argued that Wells violated the Federal Fair Debt Collection Practices Act, but the court said that Wells did not qualify as a “debt collector” for purposes of the act.)

Wells Fargo Cannot Rely on Its Own Wrongdoing to Get Out of Liability

Wells Fargo  argued that it didn’t violate the ECOA because it’s threats of foreclosure violated the modification agreement and therefore were unenforceable. Because the threats were unenforceable, said Wells, they didn’t really constitute an adverse action. What???  Yep, that’s what the Ninth Circuit thought too. You can’t rely on the illegality of your actions, said the court, to get out of liability.

Dual-Tracking Now Expressly Prohibited in California

While the Schlegels had to rely on the ECOA in seeking monetary damages for Wells’ egregious actions, getting relief is now more straightforward. The events in the Schlegels case arose in 2010. Since then, the California legislature passed the California Homeowner Bill of Rights, which prohibits a mortgage holder from pursing foreclosure while its considering a loan modification. The new law provides a private right of action (meaning consumers can sue) and allows for monetary damages. (To learn more, see Nolo’s article California Foreclosure Protection: The Homeowner Bill of Rights.)

9th Circuit Tells Wells Fargo: You Can’t Have Your Cake and Eat it Too

Processed by: Helicon Filter;In a recent case, the Ninth Circuit Court of Appeals told Wells Fargo that it had to live up to its part of the bargain when dealing with modifications under the federal HAMP program.

HAMP and the Trial Period Plan

In that case, Corvello v. Wells Fargo (and its companion case Lucia v. Wells Fargo), the homeowners applied for mortgage modifications under the federal Home Affordable Modification Program (more commonly known as HAMP).  Although lender participation in the HAMP program is voluntary (lenders get monetary incentives to join in), if a lender does choose to offer HAMP modifications, it must comply with program rules.  (To learn more about HAMP, see the articles in Nolo’s  Federal Making Home Affordable Programs topic page.)

In accordance with HAMP rules, Wells provided the homeowners with a trial period plan (TPP). Under the TPP, the homeowners were to submit required documentation so that Wells could determine HAMP eligibility. The homeowners also had to make trial payments to Wells. The TPP also lays out Well’s obligations.

  • If Wells determined that the homeowners did not qualify for modifications, Wells was required to notify them of this fact and immediately end the period of trial payments.
  • If Wells determined that the homeowners did qualify and the homeowners made all trial payments, Wells was required to offer the homeowners permanent mortgage modifications.

Mr. Corvello kept his end of the bargain – he submitted all required documentation and made the trial payments. Wells Fargo didn’t keep its end of the bargain. It accepted and kept all of Mr. Corvello’s trail payments, yet:

  • it never notified Mr. Corvello that he did not qualify for HAMP
  • nor did it offer him a permanent modification.

The facts in the Lucias’ case were similar, except that Wells actually foreclosed on their home.

The Ninth Circuit Says:  Wells Fargo Is Not King

When taken to court, Wells argued that it was not “contractually obligated” to offer Mr. Corvello or the Lucias a permanent loan modification.

The Ninth Circuit, in its majority opinion, was less than thrilled by Wells’ position which it characterized, more or less, as this:

“Hey homeowner, thanks for the trial payments and for living up to your end of the bargain. So sorry we never got back to you about your eligibility, but actually we don’t feel like offering you a permanent modification after all.”

The concurring judge (he agreed with the final result but for different reasons), was more blunt in his assessment of Wells Fargo’s business practices.  He pointed out that Wells Fargo drafted the TPP agreement itself and worded it in such a way as to engage in “flim-flam or, in plain words, to work a fraud.”

The bottom line: If the lender signs a TPP with the homeowner, the homeowner complies with the terms of the TPP, and the lender does not notify the homeowner of ineligibility, the lender is contractually obligated to provide the homeowner with a permanent modification under HAMP.

Will Mortgage Lenders Change Their Behavior?

The Ninth Circuit pointed out that the Seventh Circuit and some other courts have come to the same conclusion – that if a lender chooses to participate in HAMP and the homeowner complies with all terms of the TPP, the lender must offer a permanent mortgage modification if it does not inform the homeowner of ineligibility. Hopefully, lenders will start to get the picture – they cannot always have their cake and eat it too.  Although if history teaches us anything, it will take even more litigation to drive the point home.

Need Foreclosure Help? Turn to Nolo’s State Foreclosure Law Centers

debt & foreclosure helpIf you are struggling to make your mortgage payment or facing foreclosure, check out the recent addition to Nolo’s website — State Foreclosure Law Centers for each of the 50 states plus the District of Columbia.

Click on your state link on the main State Foreclosure Law Center page, and you’ll find articles on foreclosure procedures specific to your state, mediation programs provided by your state, additional funds that might be available for unemployed homeowners, and your state’s deficiency law (if you don’t know what this is, click on your state article to find out.)

Because many  foreclosure procedures are governed by state law, these law centers are a good place to start to understand the process in your state and find out what help might be available. The state law centers also provide a link to Nolo’s Foreclosure Law Center, so you can learn about federal government programs and protections as well.


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

Utah and Washington Say ReconTrust Cannot Conduct Foreclosures

Generally, states have had a hands-off policy when it comes to the interplay between federal and state law in the area of foreclosure. However, certain states are now saying no to national banks that try to sidestep state law when conducting nonjudicial foreclosures.

The Utah Lawsuit 

In a recent case, Federal National Mortgage Association v. Sundquist, the Utah Supreme Court ruled that a national bank (ReconTrust, which is a wholly-owned subsidiary of Bank of America) did not have the authority to conduct foreclosures in the state because it did not meet the qualifications of a foreclosure trustee under Utah law.

Utah law says that only Utah attorneys and title companies may act as foreclosure trustees. Even though it did not qualify as either of these, ReconTrust conducted foreclosures in Utah anyway. It said that it could do so because it was a national bank and the National Banking Act preempted state law.

The Utah Supreme Court disagreed and stated that federal law does not preempt the relevant Utah statutes. The result?  ReconTrust cannot act as a foreclosure trustee in the state.

Learn more in Nolo’s article National Bank Cannot Conduct Nonjudicial Foreclosures in Utah.

The Attorney General Lawsuit in Washington

In 2012, the Washington State Attorney General sued ReconTrust for failing to meet the obligations of a foreclosure trustee under the state’s Deed of Trust Act. ReconTrust settled the case and has since ceased operating as a foreclosure trustee in the state of Washington.

Learn more in Nolo’s article National Bank Cannot Conduct Nonjudicial Foreclosures in Washington.

Will More States Follow Utah and Washington’s Example? 

Utah and Washington are not the only states that impose certain requirements and restrictions on foreclosure trustees. Many other states have similar rules. Given the results in Washington and Utah and, it’s likely that more states will challenge national banks who conduct foreclosures when they haven’t met state criteria to do so.

What Does This Mean for You?

What does this mean for you? If you are in foreclosure and the foreclosing trustee has not complied with state law, you may be able to delay the sale of your home.

Learn more in Nolo’s article State Law Determines Who Can Conduct Nonjudicial Foreclosure.

by Guest Blogger & Nolo Contributing Editor Amy Loftsgordon


Minnesota Passes Homeowner Bill of Rights

flag of MN imageMinnesota, following in the footsteps of California, is the second state to pass a Homeowner Bill of Rights designed to protect struggling homeowners who are facing foreclosure.

The legislation provides basic protections against some of the worst practices in the mortgage servicing industry. (Learn about abuses in the mortgage servicing industry.)

Protections in the Homeowner Bill of Rights

The Minnesota Homeowner Bill of Rights requires loan servicers to do all of the following things.

  • Notify homeowners of all available loss mitigation options.
  • Assist homeowners in submitting loss mitigation documentation.
  • Offer a loan modification or another loss mitigation option to eligible borrowers.
  • Stop dual tracking (where the servicer continues to foreclose while simultaneously considering the homeowner’s application for a loan modification or other loss mitigation option).

If the loan servicer fails to comply with these requirements, the homeowner can take the servicer to court to block or reverse the foreclosure.

Properties Covered by the Homeowner Bill of Rights

The protections apply to first-lien residential mortgage loans for properties that are:

  • owner-occupied as the owner’s principal residence and
  • have no more than four units. 

Most Protections Go Into Effect August 1, 2013

The protections are effective as of August 1, 2013, except for the dual-tracking prohibition, which goes into effect on October 31, 2013.

Your State (or City) Could be Next

More and more states are embracing the idea of a Homeowner Bill of Rights to protect homeowners, reduce foreclosures, and stabilize local housing markets. Nevada recently passed its own Homeowner Bill of Rights and there are several other states considering such legislation. Some cities are even enacting a Homeowner Bill of Rights. (Get details in Nolo’s article Special Foreclosure Rules in Lynn, Lawrence, and Springfield, Massachusetts.)

To learn more about the new foreclosure protections in the Minnesota Homeowner Bill of Rights, see Nolo’s article Minnesota Homeowner Bill of Rights.

by Guest Blogger & Nolo Contributing Editor Amy Loftsgordon

New Foreclosure Law in Lynn, Massachusetts Helps Homeowners

Faced with continuing foreclosures, the city of Lynn, Massachusetts (northeast of Boston) passed a strict new ordinance to protect homeowners and reduce the number of decaying, abandoned properties lying in the wake of foreclosure throughout the city.

City of Lynn’s Homeowner Bill of Rights

This month, the city of Lynn began to implement its Homeowner Bill of Rights, which requires that banks do all of the following when conducting a foreclosure. 

  • Engage in pre-foreclosure mediation with borrowers to attempt to come up with an alternative to foreclosure.
  • Put up a $10,000 bond to the city at the start of a foreclosure to ensure that a vacant property is maintained during the process. (If the bank maintains the property during the foreclosure, it gets that money back when a new owner purchases the home. On the other hand, if the bank lets the home deteriorate, the city can use that money to pay for the upkeep.)
  • If the bank is the purchaser of the property at the foreclosure sale, it must allow the former owners to become renters at a reasonable market rate, if they can afford it, until a new owner purchases the property. 

Similar Ordinances Exist in Lawrence and Springfield

The cities of Lawrence and Springfield, also in Massachusetts, have almost identical ordinances. (Get details in Nolo’s article Special Foreclosure Rules in Lynn, Lawrence, and Springfield, Massachusetts.)

Your City Could Be Next

Though national, state, and local economies are slowly beginning to recover following the recent financial crisis, there are still homeowners throughout this country that are struggling to keep their homes. Until foreclosures substantially  subside, it is quite likely that we may see more cities across the nation adopting ordinances similar to those in Lynn, Lawrence, and Springfield.

by Guest Blogger & Nolo Contributing Editor Amy Loftsgordon

Florida Passes New Law to Speed Up Foreclosures

Florida had the highest foreclosure rate in the U.S. in May of 2013, up 20% from April, according to RealtyTrac (an online marketplace for foreclosure properties and real estate data). Additionally, the state has one of the longest foreclosure timelines in the country. Due to the high number of homes in foreclosure and the complicated judicial process, a foreclosure takes 893 days on average in Florida.

To speed up foreclosures and clear out some of the backlog, Florida’s governor, Rick Scott, signed a new foreclosure bill into law on June 7, 2013. Since the overriding goal of the law is to speed up the process, the new law will likely harm many Florida homeowners.

HOAs Can Now Expedite a Bank’s Foreclosure

The new law allows any lienholder, such as a homeowners’ association (HOA), to request an expedited foreclosure, which would leave a distressed homeowner with less time to:

The bottom line is that if you’re hoping to work out a solution to avoid foreclosure with your bank, you should be sure to stay on the good side of your HOA by keeping up with the dues since the HOA now has the power to accelerate the bank’s foreclosure. 

You Can’t Get Your House Back, Even if the Bank Improperly Forecloses

Additionally, the new law makes foreclosure judgments final. Any action to set aside, invalidate, or challenge the validity of a final foreclosure judgment of foreclosure is limited to monetary damages when certain conditions are met. This means that a former owner can pursue money damages against a lender that improperly foreclosed, but cannot regain title to the property.

A Few Provisions Offer Some Protection to Homeowners

The new law does assist homeowners in a few areas. For example:

  • Lenders are required to prove in detail that they own the loan before foreclosing on a property. They must do this by certifying that they are in possession of the original note (or they must include a lost note affidavit and meet other requirements ensuring they are the proper party to foreclose).
  • The amount of time lenders can seek a deficiency judgment is reduced from five years to one year. (Learn about deficiency judgments after foreclosure.)

To learn more about Florida’s new foreclosure law, see Nolo’s article New Florida Foreclosure Law.

(For more articles on foreclosure law in Florida and programs designed to assist homeowners in avoiding foreclosure, visit Nolo’s Florida Foreclosure Law Center.)

by Guest Blogger & Nolo Contributing Editor Amy Loftsgordon