My statements here
relate to general information and not legal advice. Generally we are of
the opinion that the loan modification programs are a farce. First they
end up in foreclosure in 6-7 months — more than 50-60% of the time.
Then you have the problem that you signed new papers that will at least
attempt to waive the rights and defenses you have now. A trial program
is a trial program — it is not permanent. It is usually a smokescreen
for the “lenders” (actually pretender lenders) to appear to comply with
the federal mandate and thus collect the bonus from the Federal
government for entering into a modification agreement. And let’s not
forget that the entities with whom you would enter into this “new”
agreement probably have no rights, ownership or authority over your
mortgage — they are only pretending. Their game plan is that they have
nothing to lose and everything to gain because they never advanced any
money on the funding of your mortgage.
So the very first thing you want to do is ask for proof of
real documents that can be reviewed by a forensic analyst which will
demonstrate they have the power to change the terms, and assuming they
can’t produce that, their agreement that any deal you enter into with
them will be taken to court in a Quiet Title Action in which they will
allow you to get a judgment that says you own the house free and clear
except for whatever the new deal is with the new lender. The New Lender
is necessary because the REAL Lender is quite gone and possibly
Any failure to agree to such terms is a clear signal you are
wasting your time and they are jockeying you into default, which is the
only way they collect insurance on your mortgage through the credit
default swaps purchased on the pool containing your mortgage. They
actually make money if you default because they were allowed to buy
insurance many times over on the same debt. So on your $300,000
mortgage they might actually receive (no joke) $9 million if you
default. That means they have far more incentive to trick you into
default than to REALLY modify your mortgage terms. and THAT means you
need to be careful about what they are REALLY doing — a modification or
deception. If it’s deception don’t fall into self deception and wish it
weren’t so. Go after them with whatever you can. The law is on your
side as to title, terms and predatory and fraudulent loan practices.
Your strategy is simple: (1) present a credible threat and
(2) demonstrate that you have knowledgeable people (forensic analyst,
expert witness, lawyer).
Your tactics are equally simple: (1) Present an expert
declaration or affidavit that raises issues of fact regarding the
representations of counsel or the pleadings of your opposition, (2)
Pursue expedited discovery
(ask for things that they should have had before they started the
foreclosure process — a full accounting from the real creditor/lender,
documentation showing chain of title/possession, documentation
regarding the money that exchanged hands from the bond investor all the
way down the securitization chain to the homeowner) and (3) ask for an
evidentiary hearing on the factual issues.
It would probably be a good idea if you went through a local
licensed attorney who really knows this stuff — like a graduate of Max
Gardner’s seminars or a graduate of the Garfield Continuum. This
attorney can create some credible threats like the fact that you are
claiming, under TILA, your right to undisclosed fees on your mortgage,
including the SECOND yield spread premium paid in the securitization
chain when the pool aggregator sold the “assets” to the SPV pool that
sold bonds to investors — investors who were the the sole source of
cash advanced to make this nightmare come true. Picking the right
lawyer is critical. Anyone who has not studied securitization, anyone
who has not been working hard in the area of foreclosure defense AND
offense, should not be used because they simply don’t know enough to
achieve a satisfactory result.
My rule of thumb is that I don’t like any modification unless it has the following attributes:
1. Forgiveness of all late fees, late payments etc. No
tacking on fees, payments, interest or anything else to the end of the
2. Removal of all negative comments from your credit rating.
3. Reduction of the principal due on your obligation in the form of a
new note or an amendment executed by all relevant parties. The amount
of the reduction should be no less than 30%, probably no more than 75%
and should average across the board something like 40%-60%. So if your
mortgage was $300,000 your reduction should be between $90,000 (leaving
you with a $210,000 obligation) and $225,000 (leaving you with a
a. How do you know what to ask for? First step is on the appraisal. Had
you known that the appraisal used in your deal was unsustainable, you
probably would have taken a different attitude toward the deal and
would have insisted on other terms. Assuming you had a zero-down
mortgage loan(s) [i.e., including 1st and 2nd mortgage] then you
probably, on average have spent some $15,000-$20,000 in household
improvements that cannot be recouped, but which were also spent based
upon the apparent value of the house.
b. So you look at the current appraisal and let’s say in your community
the actual sales prices of homes closest to you are down by 50% from
what they were in 2007 or when you went to the “closing” on your loan.
(1) Write down the purchase price of your home or the original appraisal when you closed the “loan.”
(2) Deduct the Decline in Appraised Value, which in our example is a
decline of 50%. If you had a zero down payment loan, this would
translate as the original amount of the note minus the 50%
$150,000-$160,000) reduction in value. This leaves $140,000-$150,000.
(3) Deduct the $15,000-$20,000 you spent on household improvements. This leaves $120,000 to $135,000.
(4) Deduct your attorney’s fees which will probably be around $15,000,
hopefully on contingency at least in part. This leaves $105,000 to
(5) Deduct any other related expenses such as the cost of a forensic
audit (which INCLUDES TILA, RESPA, Securities, Title, Appraisal, Chain
of Possession, and other factors like fabrication and forgery) that
should cost around $2500, and any expense incurred retaining an expert
to prepare and execute an expert declaration or expert affidavit that
should cost around $1000-$1500. [Caution
a declaration from someone who has no idea what is in the document, or
who has very little exposure to discovery, depositions, court testimony
etc. could be less than worthless. Your credibility will be diminished
unless you pick the right forensic analyst and the right expert]. This leaves a balance of $101,000 to $116,000.
(6) If you did make a down payment or cash payments for “non-standard”
options then you should deduct that too. So if you made a 20% down
payment ($60,000, in our example) that would be a deduction too so you
can recover that loss which resulted from the false appraisal and false
presentation of the appraisal by the “lender” who was paid undisclosed
fees to lie to you. In our example here I am going to assume you have a
zero down payment. But if we used the example in this paragraph there
would be an additional $60,000 deduction that could reduce your initial
demand for modification to a principal reduction of $40,000.
(7) So your opening demand should be a note with a principal balance of
$101,000 with a settlement probably no higher than $150,000. I would
recommend a 15 year fixed rate mortgage because you will be done with
it a lot sooner and convert you from debt to wealth. But a mortgage of
up to 40 years is acceptable in order to keep your payments to a
minimum if that is a critical issue.
4. Interest rate of 3%-4% FIXED.
5. Judge’s execution of final judgment ratifying the deal and quieting
title against he world except for you as the owner of the property and
the new lender who might have a new note and a new mortgage or who
might just walk away completely when you present these terms. There are
tens of thousands of homes in a grey area where they have not made a
payment in years, the “lender” has not foreclosed, or the “lender”
initiated foreclosure and then abandoned it. These people should be
filing quiet title actions of their own and finish the job of getting
the home free and clear from an encumbrance procured by fraud.
If you want to “up the stakes” then add the damages and
rebates recoverable for TILA violations for predatory lending,
undisclosed fees etc. That will ordinarily take you into negative
territory where the “lender” owes you money and not vice versa. In that
case your lawyer would write a demand letter for damages instead of an
offer of modification. The other thing here is the typical demand for
your current financial information. My position would be that this
modification or settlement is not based upon NEED but rather, it is
based upon LENDER LIABILITY. And if they are asking for proof of your
financial condition on a SISA (stated income, stated asset) or NINJA
(No Income, No Job, NO Assets) loan then the mere request for financial
information is a request for modification. That triggers your
unconditional right to ask “who are you and why are you the entity that
is attempting to modify or settle this claim?”
By the way the “rule of thumb” came from the old common law
doctrine that one could beat his wife and children with a stick no
greater in diameter than the size of your thumb. In this case don’t let
my use of the “rule of thumb” restrain you from using a bigger stick.
Neil F. Garfield, Esq.
Filed under: CDO, CORRUPTION, Eviction, GTC | Honor, Investor, Mortgage, bubble, currency, foreclosure, securities fraud | Tagged: Appraisal, chain of possession, chain of title, Federal government, foreclosure, forensic analyst, LAWYER, modification, mortgage lenders, pretender lender, quiet title, RESPA, securities, securitization, TILA, yield spread premium