Matt Weidner – Fighting With The American People

Archive for October, 2009

1. Misrepresenting tax consequences.

Although it’s true that the federal government passed a law in 2007 directing the IRS not to count mortgage debt forgiven by a lender as income, the provision is limited. It applies only to purchase money; it doesn’t apply to debt on a cash-out refinancing, and it doesn’t apply to second homes. There’s also a dollar limitation, albeit a generous one ($1 million for married couples filing separately, twice that for joint filers). “A lot of associates are telling people there are no tax consequences,” says Lance Churchill, a short sales specialist and trainer who operates in Boise, Idaho, and San Diego. “But it’s a limited law and you just need to be accurate about it.”

2. Misrepresenting how secondary debt is treated.

Practitioners might mistakenly tell sellers that all the house debt is forgiven once the primary lender approves a short sale. But that might not be the case, Churchill says. Holders of second deeds of trust don’t typically forgive the debt. More commonly, they accept a partial payment, like $2,000; and rather than write off the balance, they sell the balance to a collection agency for another few thousand dollars. In many states, these second loans are recourse, so sellers can be caught by surprise when the collection agency contacts them a year later seeking payment of the debt.

3. Acting on inappropriate lender requests for seller contributions.

It’s not uncommon for lenders to go after money that the sellers have in the bank or in a retirement account before they approve a short sale request. They’ll sometimes seek to put the onus on the real estate practitioner to get sellers to sign over a note for the amount they have in the bank as a condition of sale. But in states where mortgage debt is nonrecourse, lenders have no right to the money, and associates that suggest otherwise to the sellers might be later sued for negligence.

4. Breaching fiduciary duty.

Investors are increasingly executing what’s known as a “double close and flip,” a type of short-sale transaction that can leave practitioners exposed to irate sellers who say they got a raw deal. Here’s what typically happens: Investors insist on handling short-sale negotiations with the lender, freeing up their real estate practitioner to concentrate on finding a buyer. During the negotiations, the investors—often without the practitioner’s knowledge—talk the sellers into turning over the deed. Once the practitioner finds a buyer, the investors do a double closing, buying it themselves at a deep discount and then flipping it to the buyer at the listed price, making money on the spread. “The seller might feel he got less than he would have had the associate done his job and not handed over negotiations to the investor,” says Churchill.

5. Providing poor oversight of a loss mitigation company.

Companies that specialize in managing short sales promise to focus on the complicated details of the short sale, freeing up practitioners’ time to find buyers. But if you take a hands-off approach, you can be charged with negligence if a deal falls apart. “A lot of these companies are fly-by-night or have one person who’s overworked,” Churchill says. “Practitioners are coming back a month later to find no one’s even opened the file.”

6. Lacking the required license to undertake loss mitigation.

It often makes sense for practitioners to take a two-pronged approach with clients facing a difficult time paying their mortgage—first trying to help them accomplish a loan modification (for a fee), and then finding a buyer if a modification doesn’t work. But watch out. Depending on your state, you could need a specific license, sometimes called a credit repair license, to earn a fee for helping owners modify mortgage terms. Without having the right credentials, taking a fee for loan modification assistance could be a criminal offense.

7. Facilitating transactions not listed on the HUD-1 form.

It’s not uncommon for investors to offer incentives to sellers to move a deal forward, but lenders typically frown upon sellers who walk away with money when they’re supposedly taking a loss. Investors sometimes work around this limitation by offering to buy something from the sellers at an attractive price, such as a couch for $5,000. Associates who communicate these offers to sellers can get tied into charges of lender fraud because the deals may be deceptive.

Under the existing FAR BAR Residential Real Estate Contract and its companion Short Sale Addendum, a contract may be formed between the buyer and seller that requires the buyer to close even if the lenders do not explicity and clearly waive all claims to pursue a deficiency judgment against a homeowner who is obligated under the mortgages.

Although language does exist in the Short Sale Addendum that addresses the lender waiving its right to collect any proceeds beyond what are received as part of the sale, the exisiting language may not go far enough to protect the seller from efforts by a purchaser to force a short sale closing even when all necessary releases from liabilty have not been obtained from the lender.  This situtuation poses risks for the homeowner–and the realtor who represented the homeowner in the transaction–if the lender tries to pursue the homeowner at any point during the five years after the transaction is consummated.  In most instances, homeowners will believe their liability has concluded after the transction has closed and they will be surprised to learn they may still be on the hook for a considerable liability–whether they signed a promissory note or not.  The first person the borrower will come looking for to redress their perceived wrong will be the professsional who advised them (or who did not advise them) of the potential liability of the transaction.  For this, and many other reasons, realtors are encouarged to advise all their clients to retain legal counsel who understands this process and the long term implications of a short sale.

For more information on the new FAR BAR Short Sale Addendum visit http://www.floridarealtors.org/LegalCenter/HotTopics/upload/1Short%20Sale%20FAQ%20plus.pdf for assistance with your short sale transaction or for more information, visit my website at www.mattweidnerlaw.com

In news that is directly related to the foreclosure crisis in Pinellas County, Florida, Bank of America last week announced losses totaling more than one billion dollars for the third quarter of 2009.  See story here.  http://www.latimes.com/business/la-fi-bank-america17-2009oct17,0,4906039.story?track=rss So why should the everyday American be concerned with this?  Well, anyone involved in fighting Bank of America or Countrywide (who Bank of America assumed in 2008) in either foreclosure or who is attempting a short sale with Bank of America will tell you that Bank of America is one of the worst corporations to deal with in the process.

The horror stories of dealing with short sales in general are legendary, but in my experience Bank of America is among the worst.  The problem is compounded when you are defending or trying to resolve issues related to Countrywide mortgages.   While other lenders are finally making reasonable business decisions, liquidating their losses and moving on, Bank of America seems stuck and unable to make any decisions or pursue any reasonable solutions in the individual cases I am actively working on.

While it is impossible to know just exactly how much Bank of America paid for the mortgages they assumed as part of the Countrywide takeover, informed professionals (who are familiar with the technical, legal and other problems that plague many of the Countrywide mortgages) assume that the purchase price was cents on the dollar relative to the face value of the mortgages.  Even if this assumption is true, Bank of America would need to be making reasonable business decisions on how to treat and servicing the existing Countrywide loans to earn a profit on them.  Based on what I’ve seen up until this point in time, they have not yet started making the kind of reasonable short sale or foreclosure decisions necessary to make the venture profitable.

If the decision-making at Bank of America continues as it is, expect continued losses at Bank of America!

Hot off the presses is a recent Florida 4th Circuit Court Opinion which dismissed a foreclosure case when the Plaintiff could not substantiate its right to maintain the foreclosure action.  Among other problems with the Plaintiff’s complaint is the fact the note was lost.  If this strategy was pursued aggressively by homeowners in foreclosure, I’d estimate that about 30-40% of the currently-filed cases would be dismissed.   For more information on the opinion, visit my website at www.mattweidnerlaw.com

16 Fla. L. Weekly Supp. 939b

JP MORGAN CHASE BANK, N.A., Plaintiff, vs. SAID Y. HUSSEIN, et al., Defendants. Circuit Court, 4th Judicial Circuit in and for Duval County. Case No. 2009 CA 05516, Division CV-D. August 4, 2009. Jean M. Johnson, Judge. Counsel: Shapiro & Fishman, LLP, for Plaintiff. Joe Schacter. Christy Greene, for Defendant Said Y. Hussein.

ORDER GRANTING DEFENDANT’S

MOTION TO DISMISS COMPLAINT

THIS CAUSE CAME TO BE HEARD this 10th day of June, 2009, upon the motion of Defendant, Said Y. Hussein, to dismiss the Plaintiff’s complaint. The parties were both represented by counsel. The Court, having heard the argument of counsel, reviewed the record, and been fully advised in the premises, finds as follows:

1. Plaintiff, JP Morgan Chase Bank, N.A., filed the above styled foreclosure action on April 7, 2009.

2. Plaintiff’s composite Exhibit “A”, attached to the complaint and incorporated therein, includes a photocopy which purports to be a Mortgage dated August 12, 2005 which secures an interest in the real property in favor of Long Beach Mortgage Company, who is not the Plaintiff.

3. No promissory note was attached to Plaintiff’s Complaint.

4. No assignment of the subject mortgage was attached to Plaintiff’s Complaint.

5. Thus, the named grantee in Exhibit “A” directly conflicts with the Plaintiff’s allegations regarding ownership of the subject Mortgage as set out within the complaint.

6. Inconsistencies between the allegations of material fact within the complaint and the content of the documents attached thereto presents conflict within the complaint itself and a present uncertainty as to the real party in interest to prosecute a foreclosure. As a result of this conflict, the allegations are canceled by the conflicting content of the document. See Fladell v. Palm Beach County Canvassing Bd., 772 So. 2d 1240 (Fla. 2000); Costa Bella Dev. Corp. v. Costa Dev. Corp., 441 So. 2d 1114 (Fla. 3d DCA 1983); Greenwald v. Triple D Props., Inc., 424 So. 2d 185, 187 (Fla. 4th DCA 1983).

7. In Florida, a party is not entitled to maintain an action to foreclose a mortgage that secures a promissory note unless that party holds the note and owns the mortgage. Your Constr. Ctr., Inc. v. Gross, 316 So. 2d 596 (Fla. 4th DCA 1975).

8. Due to the conflicting contents of the mortgage attached to the complaint, the Plaintiff’s allegation that it owns the subject mortgage and holds the note is nullified and canceled. As a result, Plaintiff has failed to allege standing to bring this action.

9. Moreover, Fla.R.Civ.P. Rule 1.130(a) states: “All bonds, notes, bills of exchange, contracts, accounts, or documents upon which action may be brought or defense made, or a copy thereof or a copy of the portions thereof material to the pleadings, shall be incorporated in or attached to the pleading.” (Emphasis added)

10. The requirement to attach such documents is mandatory, not discretionary, as illustrated by the application of conventional rule of statutory interpretation. Fla.R.Civ.P. 1.130(a) utilizes the command“shall”rather than the hortatory, or general, “will” or “may,” in charging Plaintiff’s to attach all of the document(s) forming the basis of the cause of action to the Complaint.

11. Plaintiff failed to comply with Rule 1.130 which obligates it to attach:

a) a promissory note executed or endorsed in favor of the Plaintiff; or endorsed in blank, and,

b) a document evidencing its right to enforce the promissory note pursuant to a Mortgage on the subject real property.

As a result the complaint is defective and Plaintiff has failed to state a cause of action for foreclosure.

12. The Plaintiff’s foreclosure action should be and is hereby dismissed for Plaintiff’s failure to comply with requirements of Fla.R.Civ.P 1.130(a).

Therefore it is

ORDERED and ADJUDGED:

A. Defendant’s Motion to Dismiss the Plaintiff’s complaint is GRANTED, and

B. Plaintiff’s complaint is hereby dismissed without prejudice.

Earlier today I received the following email that was sent to my client from a realtor who listed his home for sale, then attempted to negotiate a short sale transaction after the client was served with the foreclosure complaint:

“I am concerned about the real viability of you truly being able to keep the home or if it’s a shot in the dark with the “missing paperwork strategy” and whether this route is the soundest legal advice.  During the battle (which could take time), it is likely your credit will continue to be diminished.  You should also speak to your accountant, you could possibly avoid bankruptcy in the future and be able to bounce back more quickly from a short sale without the threat of a deficiency judgment.  Discuss the phantom income with your accountant and whether you will be liable for taxes if you can prove insolvency.”

The realtor in question had negotiated a short sale transaction, but this transaction required my client to sign a promissory note agreeing to pay a significant sum of money back to the lender.  Fortunately, my client had the good sense to retain me prior to consummating the sale which would have subjected him and his wife to real liability based on the promissory note he signed.

In the email, the agent refers to the action I am taking in this client’s case as a “missing paperwork strategy” then questions whether this strategy is the soundest legal advice.  One of the most compelling legal issues involved in many foreclosure cases is the fact that in a great majority of the cases, the Plaintiff who files the case cannot prove that it has any legal basis to file the case against the Defendant in the first place, let alone present the evidence that Plaintiff needs to “win” the case they have filed and obtain the home back through foreclosure.

When local banks wrote mortgages then sued to foreclose, it was very clear they owned the mortgage because their name appears on the documents and they lent the money in the first place.  Most of the mortgages that are being foreclosed on now were sold one or more times to a variety of trusts, corporations, and legal entities (and a few illegal entities for that matter).  Many of these entites have been legally dissolved are bankrupt or have simple disappeared and are no longer doing business.  Often, when the loans were bought and sold, the sellers failed to execute the documents that were necessary to show the loan in fact was sold to a third party and if the document (called an “Assignment of Mortgage”) was executed by the seller, that document was almost never recorded with the Clerk of Court as state law requires.  The problem for the lender trying to foreclose is that if they cannot produce the original note or a properly executed assignment of mortgage, they will not take the home back in foreclosure.

Even if the Plaintiff produces the original note and a perfectly executed assignment of mortgage, they still likely will not win because the Plaintiff can almost never produce a proper accounting which shows payments made and how they were credited.  The technical rules of evidence make it very difficult for any Plaintiff to prove the amount owed on a given loan to the degree of certainty the court requires to enter a judgment.

The “missing paperwork strategy” that the above-quoted realor denigrates is nothing more than good legal practice requiring a Plaintiff to properly present their case.  When the Plaintiff cannot fulfill the basic requirments of the law, they lose and the good guys win!

Forget about solving the private credit crisis.  Forget about bailing out Wall Street. Don’t worry bout paying your own bills….the biggest bill we all face and a potentially unresolvable problem is the massive spending of the federal government….Good Ole Uncle Sam is broke folks and we’re all going down with him….

As of Sept. 30, 2009, the national debt was almost $12 trillion and interest on that debt was $383 billion for the year, according to the Treasury Department’s Bureau of the Public Debt. The Congressional Budget Office on Oct. 7 estimated the 2009 budget deficit to be almost $1.4 trillion (about 10% of GDP). In August, the White House Office of Management and Budget (OMB) estimated total government revenues at about $2 trillion. The revenue estimate included $904 billion from individual income taxes. This means the cost of interest on the debt represented more than 40 cents of every dollar that came in from individual income taxes.

http://online.wsj.com/article/SB10001424052748704429304574467071019099570.html?mod=rss_opinion_main#

In stark but simple terms, unless Americans are made aware of this financial crisis and demand accountability, the very fabric of our society will be destroyed. Interest rates and interest costs will soar and government revenues will be devoured by interest on the national debt. Eventually, most of what we spend on Social Security, Medicare, education, national defense and much more may have to come from new borrowing, if such funding can be obtained. Left unchecked, this destructive deficit-debt cycle will leave the White House and Congress with either having to default on the national debt or instruct the Treasury to run the printing presses into a policy of hyperinflation.

I know, let’s all just ignore this Big, Pesky Pink Elephant sitting in the living room and vote for a new health care program so we can spend more money we don’t have…..