Maryland Foreclosure Lawyer Blog

My last post, The High Cost of Mediation and Failure of the Maryland Courts, presented a hypothetical couple who were facing foreclosure. They were waiting for mediation and also hoping to get a modification to save their home. They had exhausted their saving. Their home was under water so selling it was not an option. The most frustrating thing was that they were both working and could easily keep their property if the note was modified.

Mediation is a method whereby all parties to a dispute meet and attempt to settle a dispute. Maryland basically requires mediation, when requested, in all foreclosures. However, in order to mediate all parties must proceed in good faith, and each party must have a financial benefit that would result if the case were settled. The Maryland Judiciary is generally providing that financial benefit to the lenders through litigation and therefore removing that incentive to mediate in good faith. Here is how it works.

The term "robo signers" is a term familiar to most homeowners going through litigation. In Maryland robo signing also applied to foreclosing attorneys. These attorneys would have someone sign their name to an affidavit, usually the notary, and then swear that the attorney stood before them and gave oath. The affidavits were bogus. On a national level, lenders would hire people who had only one attribute - the ability to sign their name. The lenders would give them a fancy title like "Vice-President of Loan Documentation." These robo signers would sign their name to thousands of documents each week. These documents would be passed on to the courts for use in foreclosures.

In addition to robo signed documents, much of the paperwork used by the lenders was improperly executed. Simply put, the foreclosing lender did not have the legal power to foreclose.

Laws flow from two sources, statutes and appellate decisions. Appellate courts decide issues arising from statues (and common law). Published opinions from these courts are binding on lower courts. The problem is that a significant number of the trial courts in Maryland ignore appellate law. The result is that foreclosing lenders who have lied, cheated and stolen their way into court are given a pass by the trial courts while the homeowners whose only mistake was to be a victim of a recession, in large part caused by these lenders, lose their homes and get put onto the street.

As I proceed in this series of articles, I want to set the stage for the next article in this series. First, most homeowners want to keep their homes and want to pay for their homes. Second, we as a society should help these people, if not for compassion for our neighbors, then for a very selfish reason. Every foreclosed property brings down values in neighborhoods. If you think that this does not apply to you, look again.

I hear a lot of attorneys banking on the philosophy that a judge will not give somebody a free house. My question is, why not? Let that thought sink in for a minute. If a lender has so mishandled paperwork, cheated by presenting forged and bogus documents, and as a result, cannot prove his case in court, then why is a court so loath to say to a lender, you lose. Failure to pay a mortgage does not give these lenders a free license to cheat their way into the courthouse and succeed in a lawsuit that, if presented in any other context, would lose.

So long as these lenders know that the courts will pave their way to success they have very little incentive to mediate in good faith.

Maryland adopted a law requiring all parties to a foreclosure to attend mediation if requested. "The goal of the law is to help homeowners get relief through a loan modification if they qualify or to find an alternative to foreclosure." See Maryland's Foreclosure Mediation Law. The problem in Maryland is that in many cases lenders do not proceed in good faith. Many of the lenders simply take a position of take it or leave it when they come to the table. Moreover, this "my way or the highway" attitude is mostly ignored by the courts. The result is fewer homes saved, more foreclosures, more foreclosed homes that are left vacant and ignored and the continued depressed values of homes and neighborhoods.

Three years ago judges, commentators and the general public took the attitude that "I pay the mortgage, why shouldn't they? They simply bought more house then they could afford." However, as the mortgage crises spread into middle and upper-middle class neighborhoods the public became more aware of the fact that few people were immune from foreclosure. Today many of those same nay-sayers have seen their own properties devalued because the a similar foreclosed home down the street can be purchased for forty percent less than they would get if they had to move.

The full effect of the foreclosure crises has yet to be realized and can easily exceed epic proportions. Let us assume that a couple has worked hard all of their life and has owned their home for about five years. They paid $400,000 for the property and put $100,000 down. As a result of the economic recession one or both of the wage earners lost their job(s). As responsible adults they immediately start looking for another job and tighten their belts.

However, belt-tightening will not pay the mortgage, so they start to dip into their rainy day or savings funds. Realizing that they cannot keep the house they contact their realtor to put the home on the market. The problem is that the home is now worth $300,000 and the balance of the loan is $290,000. With the cost of the sale factored into the equation the couple would have to come to the table with about $20,000 in order to close. Faced with that reality and most of their saving depleted the couple decides to hang on for a couple of months.

Two months later when the spouse who lost their job gets a new position, at a significant cut in pay, they decide to bite the bullet, use the last of their savings, and sell their home. The realtor visits again and delivers the bad news. In the last two months there were two completed foreclosures in their neighborhood and because of these two foreclosures their home was now worth $290,000 at best, and only if the their home was upgraded to pristine condition that would cost another $10,000. The couple decides to list their home on the off chance that they will get a decent bid. Two months go by and they have only received an offer of $270,000 which they could not accept. Faced with the reality that they are throwing good money into a black hole they stop paying the mortgage and also seek a loan modification.

While waiting for word on the modification having had to send in the paperwork four times the bank starts foreclosure action. Their only salvation is through the courts, a part of which is mediation, the subject of which will be in my next post.

I recently received a permanent modification offer from Chase on behalf of one of my clients. I was quite happy for the client until I read the actual modification offer. The client had his interest rate reduced to 2% for the first five years, with 4.5% at the end of the adjustment period. What could be better? The answer is following the HAMP Guidelines.

HAMP (Home Affordable Modification Program) was started in 2009 and promised help for homeowners who were in danger of losing their homes. The HAMP program started on a basic premise - adjust the payments to 31% of the gross monthly income of the household by reducing the interest rate to as low as 2% and extending the loan for up to 40 years, and in some cases reducing the principal and placing it at the end of the loan as a balloon payment. Each homeowner had to meet certain criteria and then it was simply a matter documenting income, filling out some forms and submitting them to the servicer. The servicer was supposed to analyze whether they got more money through modification or foreclosure. If the servicer got more money through modification they had to modify the loan.

The homeowners soon learned that documents were "lost" four and five times or the servicer claimed that they did not receive the document. The servicers chose not to follow the guidelines and some offered HAMP modification on the forms used by HAMP, but contained terms other than those in the HAMP guidelines.

That leads me back to the case at hand. Chase claimed that the lender would not allow for a term extension of the loan. There were 296 payments on the loan. If the loan was modified for a payback of 380 months there would be no balloon payment. However, since the length of the loan could not be extended the homeowner had to pay a $108,000 balloon payment.

However, there was one little "glitch" that Chase ignored. If the lender would not adjust the length of the loan then the servicer, in this case Chase, had to document this restriction. The documentation would come from the agreement between Chase and the lender (known as the Pooling and Servicing Agreement - PSA) dictating what Chase could, and could not do. Chase refused to provide this documentation. I was able to find out the identity of the lender (the entity that actually held the note) and looked up the PSA. The PSA did not contain any restriction in modifying the length of the loan.

I cannot tell you what the result is because the issue is not over. But for now, read and understand any proposed modification and check the math on the calculations.

The attorney's signatures on the first case that XYZ filed looked "funny" - they were too neat! After I saw several other cases from the same attorney in XYZ I became curious - the signatures appeared to be inconsistent. Finally I reviewed one case where the signatures were so different that I compared all of the signatures side by side. They were different; so different that I hired a handwriting expert who confirmed that there were four different people signing for the attorney and two different people signing for one of the notaries.

I want to put this into prospective. Someone signed an affidavit for attorney Bernie Lawyer. Then a notary swore that Bernie Lawyer appeared in front of him/her and signed the affidavit in person. These affidavits were submitted as a condition of going forward with the foreclosure.

When confronted, XYZ dismissed the foreclosure case and allowed my client the opportunity to attempt to modify the loan. However in the middle of modification XYZ brought a second foreclosure action. The servicer for Two South Lender, Jones Servicer claimed that my client submitted a modification package that was illegible. That was not true. I submitted the package myself and it was pristine.

Upon further inspection of the file I noticed something odd. Joan Smith of Two South Lender swore that the copy of the note that was attached to the first case was a true and correct copy of the original. John Doe of Two South Lender swore that the copy of the note that was attached to the second case was a true and correct copy of the original. The problem was the endorsement pages were different. How can copies of the same signature page differ so much? They can't. One or both were counterfeit.

Two days before "trial" I learned that XYZ received the original note on August 10, 2009. Joan Smith signed her affidavit saying that the copy was a true and correct copy of the original on September 21, 2009. John Doe signed the affidavit on December 14, 2009. How could they say that it was a true and accurate copy of the original when, in both cases, the note was 1000 miles away?

XYZ sold my client's home and we took exception to the sale. The judge overruled the exceptions. We are filing an appeal, but for now Jones Servicer and XYZ are probably celebrating the fact that they were able to submit false affidavits, counterfeit documents and ignore their obligation under the HAMP guidelines to take away my client's property. Did she owe the money? Yes. However, like millions of other homeowners who could be helped by the HAMP program she has, for the moment, lost her house.

My client has two grandchildren living with her while their mother, her daughter, serves with the military in the Afghanistan/Iraq wars. Yes, my client's daughter is risking her life to preserve our rights and freedom, and until changed, the rights of XYZ and Jones Servicer to submit fraudulent/counterfeit documents to make her children homeless.

The due process clause of the 14th Amendment did not always exist. Indeed, the only federal rights of due process are contained in the Fifth Amendment to the Constitution - "nor be deprived of life, liberty, or property, without due process of law. . ." The problem was that the Fifth Amendment only applied to the federal government. The states could freely violate citizens' Fifth Amendment rights, that is - until the 14th Amendment. The part of the 14th Amendment pertinent to this article reads "nor shall any State deprive any person of life, liberty, or property, without due process of law."

Due process rests upon notice and an opportunity to be heard. That is, you have a right to be notified when any action is taken against you and you have a right to be heard in court. The question in my mind is whether it will take another constitutional amendment to force the courts to recognize that homeowners have due process rights.

In Maryland, a party facing foreclosure has fifteen (15) days to respond to the papers that he gets from the Substitute Trustee. How does the homeowner know that he only has fifteen (15) days to respond? He doesn't! In every other proceeding in Maryland where a natural person or corporate entity is made a party to an action that defendant must be notified of the court action by serving him with a summons. A summons is an official court document that informs the defendant that an action has been filed against him and that he has a certain number of days (in Maryland, 30 days) to answer the claims made against him.

However, in a foreclosure action the only thing that the homeowner gets are copies of papers that have been allegedly filed with the court, may contain a case caption, but most often no case number. There is no official notice from the court. There is no notice that the landowner can lose his property if he does not act immediately.

In all other actions, if the defendant does not respond to the complaint, the plaintiff must ask the court for an order stating that the defendant is in default. The court issues an order of default and serves the order of default on the defendant. The defendant has thirty (30) days to vacate the order of default.

In a Maryland foreclosure action, if the defendant fails to respond within the fifteen (15) days but then does respond, the defendant has to "show cause" why the court should accept his response. Some courts will actively accept a late response, while others routinely deny such a request regardless of the circumstances.

I recently had a case where the entity allegedly holding the note did not exist. Instead of throwing the case out of court because the plaintiff's agent did not exist, the judge allowed the plaintiff to sell the subject property. The reason? Because the defendant did not file within the 15 days.

We are appealing this case because it is a travesty of justice.

Maryland Gov. Martin O'Malley recently signed a bill intended to cure defective Deeds of Trust thereby paying the way for Maryland's foreclosure steamroller to crush the rights of individual homeowners. At the same time Governor O'Malley took no action to protect these same homeowners with minimum standards of due process.

When a homeowner in Maryland purchases a home they have clear title for about 15 seconds before they sign it away. The lender who made it possible for the homeowner to purchase the property wants their investment to be protected. The lender accomplishes this by having the new homeowner sign a Deed of Trust. Specifically, upon receiving the deed to their property the new homeowner signs a deed giving that property to someone else to hold in case the property owner defaults on their mortgage. If the homeowner defaults the lender would instruct the trustee named under the Deed of Trust to sell the property. In Maryland, the trustee had to be a natural person in order to sell the property.

In Maryland, the mortgage foreclosure crisis sent defense lawyers scurrying to find ways to keep people in their homes. At the same time, lender's lawyers cut as many corners as possible in an attempt to process as many cases as possible thereby making as many people homeless as possible. While some forward thinking lenders recognized that it was more profitable to modify an existing mortgage and keep the homeowner in their home, most lenders, servicers, and plaintiffs lawyers practiced the scorched earth policy that allows vacant homes to devalue neighborhoods and be torn apart by vagrants and drug dealers.

One of the most recent challenges to foreclosures developed when foreclosure attorneys realized that many of the original Deeds of Trust named corporate entities as the trustee. As previously mentioned, only a trustee who is a natural person could sell the property. Maryland case law held that naming a corporate trustee voided the power to sell the property. The question that arose was whether this void power could be revived by the unilateral action of the lender in substituting a natural person for the corporate trustee. I felt that the defect could not be cured by the subsequent naming of a natural person. The reason was relatively basic. The four corners of the paper containing the Deed of Trust defined the powers to which both parties agreed. If one of those powers was void, allowing one party to the contract to unilaterally modify that contract violated all common law and modern rules of contract law.

Continue reading "Challenging Maryland's New Foreclosure Law on Corporate Trustees" »

Attitudes make a difference. For example, recently a client retained me to represent him in a mortgage foreclosure dispute. In discussing the case with the client I noted that he had previously spoken with the attorneys representing the lender. While the client expressed frustration because of his economic reversal, he did not appear to be antagonistic to either his lender or the lenders attorney.

In the vast majority of foreclosure defense cases that I have had, my clients have had the overall sense that the attorneys who represented the lender are arrogant, disrespectful, and seemed to take great pleasure in forcing them out of their homes. "Why", I asked, "are you not describing your lenders attorney with four letter terms of endearment?" His answer spoke volumes-"because the lawyers in that office treated me with respect. They returned my phone calls and spoke to me like a human being with problems."

I contrasted his story with that of so many other clients that have retained me. In the vast majority of cases, attorneys who have represented lenders have been rude, disrespectful, and treated my clients like vermin. They refused to answer phone calls, and when they did, they appeared to take great pleasure in winning the battle to put my client and his family out of their home and into the street.

Yesterday I got a phone call from the attorney who treated my client with respect. The attorney wanted to know what my clients objectives were in the case. I was able to have a frank discussion with the attorney. After the five minute phone call I was able to e-mail my client and start the process for what hopefully will be mutually beneficial resolution for the case.

About ten minutes after I sent the e-mail I started to review correspondence I received that day. One of the letters from opposing counsel in another case chided my client for being a "deadbeat" who did not deserve to share the air that we all breathe. He concluded his letter by demanding a settlement proposal from my client.

Just from the facts stated here, how many of you feel that the first case will settle under terms that are acceptable to both parties? In the second case, what do you think the chances of settlement are?

Attitude goes a long way. The first lender will probably settle the case and begin receiving payments on the mortgage. However, the second lender will probably spend more money on attorneys than they would have spent by modifying the loan.

In days of old when knights were bold the bank lent the money to the homeowner. You paid your money to the bank who never sold the note. The notes were straightforward - generally a fixed rate for a stated period of time. If you didn't pay the bank told the trustee to sell the property. There were very few defenses for the homeowner to raise because everything was uncomplicated.

Investors are always looking for a safe investment, particularly when they are investing other people's money. For example, if you are investing retirement funds you want to make sure that these funds are safe. There are not that many things that are safer than a mortgage on someone's home. Generally there had to be 20% equity in the property and the foreclosure rate was very low.

The lenders started to group the mortgage loans that they had made and sell these loans, as a group, to a trust. The trust sold pieces of the trust to investors. Enter the investor who wanted a safe investment. Sure there might be a few bad apples in the whole of the mortgage pool, but the values of homes was rising and the pool of mortgages was rated AAA. Moreover, these trusts paid more interest than other forms of investment. The lenders who sold the mortgages had already made money during the lending process and were making more money when they sold the mortgages to the securitized trusts.

Let's use an example. Joe lives in Smallville and sells firewood that he cuts from the forest. Joe has a good business and makes a nice living. Bob, the local builder, decides to start a development in Smallville. Each unit has a fireplace. Bob, being a smart guy, also sets up a store to sell firewood to the people who purchased the properties. Bob purchases the firewood from Joe.

Two years later Smallville was growing rapidly and Bob was on his third development. Fred and Jeff also developed the land, but they did not sell firewood. Everybody bought their firewood from Bob who was placing an ever increasing demand on Joe.

Instead of continuing to sell 100% hardwood, Joe started to mix some pine into the deliveries. Nobody would ever notice - and they didn't. But the forest was starting to thin out and Smallville was expecting a long, cold winter. The price of oil and electricity was rising to the point that the residents of Smallville started buying their firewood in the summer - giving Bob cash to hold the firewood. There was Bob with fists full of cash and Joe could not keep up with the orders.

Continue reading "Securitized Trusts: Why Is King Arthur's Castle Upside Down and Owned by Wall Street?" »

President Obama introduced HAMP (Home Affordable Modification Program) and MHA (Making Home Affordable) over a year ago in order to help struggling homeowners stay in their homes. Seventy-nine billion dollars was allocated for this project. During the past year few homes have been saved through HAMP modifications, not because homeowners didn't qualify, but because servicers were not adhering to the contracts they signed with Treasury. A "servicer" is a company that is hired by the lender to collect the money each month and pay the expenses associated with the property.

Under that HAMP/MHA program any servicer that wanted to participate in the program had to sign a contract with Treasury stated that it would follow guidelines established by Treasury in order to help the homeowner. However, few servicers have followed the guidelines established by the Treasury.

One of the key provisions of HAMP/MHA was requirement that servicers not initiate any new foreclosures nor proceed to sale in an already filed foreclosure pending a modification review. I want the reader to think about the irony of the situation.

You pay taxes. You purchased a home with an "exotic" mortgage that was touted as the new way to purchase a home because you could buy more home for less money. The banks, brokers, and all sorts of lenders opened their doors wide and invited you to sign on the dotted line for a financial commitment that was doomed to failure. However, the banks, brokers, and lenders didn't explain this to you nor do they care whether you failed or succeeded in paying the mortgage. After all, they all sold their mortgages to Wall Street for significant profit.

Many of these banks, brokers, and lenders have long since vanished. Those that remained had to be bailed out through TARP (Troubled Asset Relief Fund) money and later helped by the stimulus package. However, instead of using the stimulus money to rewrite loans and help you stay in your home, the financial institutions use the money for other purposes and proceeded to aggressively foreclose on properties. I started this explanation by saying that you pay taxes. I did this for a reason. You, through your taxes, are giving money to these financial institutions to foreclose on your property.

What can be done to prevent a sale of your home pending the modification process? You can ask the court to stay any schedule sale of your property pending the modification review. Some courts are sympathetic to this while other courts will allow the sale to go through. File exceptions to the sale. If you want a unique approach, sue the servicer for breach of the contract it signed with Treasury.

But I'm getting ahead of myself. Those topics are for future articles. For now, just understand that it is improper for the servicer to proceed with a foreclosure while your HAMP application is being considered.

Fourteen months ago President Obama announced the Home Affordable Modification Program (HAMP). Also known as Making Home Affordable (MHA), HAMP promised servicers with smiling faces welcoming you with open arms and expertly helping you modify your mortgage loan without the need for lawyers or any type of help other than that provided free from the government.

Yes, Dorothy wasn't in Kansas anymore, but the Tin Man was finally going to get rid of his greed and actually get a heart. However, the foreclosure mills kept churning out new foreclosure cases, people kept losing their homes, and HAMP struggled to get off the ground. Since that time the government has issued approximately thirteen Supplemental Directives designed to clarify the program, but more over force the servicers and lenders into compliance with the program.

The truth is that HAMP is an excellent program and, if followed, can have a huge impact on the current housing crisis. More Americans will be finding this out as the foreclosure crisis creeps into middle/upper income America.

This series of posts are designed to arm the Maryland homeowner with basic knowledge about HAMP and address issues that commonly arise during the modification process, or in many instances, the lack thereof. Where possible, I will use to teaching tools that I found to be very effective; humor and specific example.

So sit back and fasten your seatbelts, you're about to start on a journey that travels through time and space, you're answering the mortgage modification world.

The Making Home Affordable program announced by President Obama now includes provisions for modifying second mortgages.

The key provision for second mortgages is that they must match any loan modification made to the first mortgage. For example, if the first mortgage was modified to a 40 year loan then the second mortgage would be modified to a 40 year loan. If 10% of the principal of the first mortgage was deferred to the end of the loan then the same would hold true for the second mortgage.

The bottom line is this - you can modify your second loan down to as low as 1% for five years for interest only second mortgages and 2% for five years on conventional second mortgages.

In a presumed effort to protect homeowners against foreclosure rescue schemes, the administration has warned:

There is never a fee to get assistance or information about Making Home Affordable from your lender or a HUD-approved housing counselor.

Beware of any person or organization that asks you to pay a fee in exchange for housing counseling services or modification of a delinquent loan. Do not pay - walk away!

The problem is that you, the borrower may have a valid claim against the lender. The HUD approved housing counselor cannot and will not advise you of your rights.

Walking away from a potential lawsuit (the foreclosure) without being informed of your rights may shield a lender from liability resulting from wrongs that the lender committed. Additionally, your will not know if you have a valid defense to a foreclosure or even an action against the lender to recover damages.

I have not found any government sponsored program that will examine the loan package and give you an opinion of whether you have a claim against the lender. Not one!

In fact, most government help agencies screen your package before it is submitted to the lender. While this may sound like a good approach, the opposite may be true if it has the effect of rejecting marginal applications. That is the difference between help and advocacy.
A lawyer will advise you of your rights, liabilities, defenses and claims. An attorney will advocate on your behalf in order to achieve a beneficial result.

Yes, you will have to pay an attorney, such as myself, for doing my job, and you will have to pay me up front because I recognize the reality of your financial position. But most attorneys, me included, will provide you with a free basic legal opinion.

Remember, most people who are reading this have already tried to reason with their lender and loan servicer without any result, or for that matter, any respect. What makes you think that times have changed? If you think that it is the Making Home Affordable (MHA) program then I believe that you are mistaken. MHA has no regulatory agency overseeing the lender's acceptance or rejection of your application. So far, the best overseer is the court.

You read the last sentence correctly. The very thing that you may have feared the most, a foreclosure action, may be your salvation. Once a lender sees that its actions may form the basis for a defense to the foreclosure, or better yet, an affirmative claim against it for a damage award, the lender may think twice about rejecting a reasonable loan modification.