Posted on December 2, 2009 by Living Lies dot WordPress dot com

My statements here
relate to general information and not legal advice. Generally we the
vast majority of short-sales fail. Whatever the reason told to you, the
real reason is that there is trouble amongst the ankle-biters on Wall
Street and a challenge to come up with a real creditor who has the
right to execute a satisfaction of mortgage as opposed to some
self-appointed agent whose status is at best dubious and at worst that
of a thief. Then you have the problem that you signed new papers that
will at least attempt to waive the rights and defenses you have now.
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.

A short-sale is a sale in which the price on sale is less or
short of the amount due under the note “secured” by the mortgage. You
will of course remember that one of the points we have been hammering
on in these pages is that the security was split off from the note and
is therefore no enforceable and has been extinguished by a variety of
legal doctrines. Thus while the obligation might survive and perhaps
even the note, there is no valid security instrument. In order to have
a successful short-sale you need to have the true creditor/lender or
the successor to the true creditor/lender execute a satisfaction of
mortgage along with an agreement that they will take the amount
tendered in full satisfaction of the loan. Under ordinary circumstances
the borrower would and should take a hit on their credit score. In the
context of the mortgage meltdown your position should be one that
asserts yourself in the superior position — not the bowing begging
petitioner looking for a favor. In all probability whoever signs the
document has no right to do so — which means that whatever money they
get from the proceeds is pure profit and is NOT being applied to reduce
the obligation.

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 or the new owner own the
house free and clear except for whatever the new deal is with the new

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 Boot Camps 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 short-sale unless it has the following attributes:

  1. I would treat the short-sale pretty much the same as a
    modification. Assume they OWE you a reduction, not that you are
    pleading with them to be good guys. This is a swindler’s game and they
    are the swindlers. You need to understand that you have a bigger club
    in your hand than you might think. They are not good guys. If they were
    good, you would not have been sold the loan product under a false
    appraisal and various predatory lending violations.
  2. Forgiveness of all late fees, late payments etc. No tacking on fees, payments, interest or anything else.
  3. Removal of all negative comments from your credit rating.
  4. A reduction or settlement of the amount of the obligation
    currently outstanding. And despite the general rule that they will
    NEVER approve a short-sale where the homeowner gets any money, I think
    the tide will turn on that if you pursue the right strategy and tactics.
  5. How do you know what to ask for?
  6. 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.
  7. 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. Contrary to the advice you are probably receiving from
    everyone else including lawyers, loan mod companies, TILA Auditors
    etc., I think you should push hard, threaten litigation and actually
    sue if necessary to get money back in your pocket.
  8. 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 they accept $101,000 with a
    settlement probably no higher than $150,000 PLUS take the position that
    it is none of their business where the money is going or the amount or
    price or proceeds of sale.
  9. Judge’s execution of final judgment ratifying the deal and
    quieting title against he world except for you or the new owner 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.
  10. SILENCE IS GOLDEN: If you do not get a response to
    correspondence or to service of process of a suit, it indicates that
    nobody wants to tackle this one. Include in your filing a suit to quiet
    title and you might just have free and clear title to the home. That
    means you can either stay there or sell it and keep the proceeds
    without paying ANY “lender” or “pretender lender.”
  11. 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 vica versa. In that
    case your lawyer would write a demand letter for money damages instead
    of an offer of short-sale. 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.

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