Developments in the Commercial Real Estate Sector

The residential mortgage crisis is currently the primary focus of the media and the bulk of America. However, there is a looming crisis that has the potential to make the residential melt down seem like a picnic. The commercial sector is poised to collapse in a similar fashion as the residential sector. Commercial lenders must act now before the collapse comes to perform commercial loan modifications in order to prevent a major financial disaster.

Recently, 20 major commercial lending banks failed and were taken over by the regulators, but there has been no uproar. The FDIC and the IRS have both issued statements to commercial lenders attempting to prevent a financial collapse similar to that seen in the residential sector.

The FDIC released a Policy Statement on Prudent Commercial Real Estate Loan Workouts in October. This policy statement outlined the possible issues that are expected to arise in the coming months pertaining to commercial real estate and how lenders can act to minimize these risk issues.

The main way in which the Policy Statement suggested that commercial lenders deal with these future issues is to be proactive now in finding a workout solution with the borrower to modify the loan. The FDIC is basically telling these commercial lenders to modify commercial loans or there will be a catastrophe similar to that in residential.

The IRS issued a similar statement in October that encouraged commercial lenders to modify loans by specifically laying out how the IRS would look at the workouts from a taxation point of view. The IRS states that they will give certain tax benefits to commercial lender who perform workouts as well as treat the assets differently if they are in a workout.

What we see here are two large institutions foreseeing a problem on the horizon and attempting to take proactive steps to address the problem. The issue is that the FDIC and the IRS are only making recommendations on how to stave off collapse. There is nothing forcing the commercial lenders to negotiate workouts. Lenders had proven that their greed knows no bounds and they will just look for a bailout from the government if they start to fail.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Senate Bill 94 – FAQS from the CSB

The California State Bar recently issued a FAQ on how to interpret SB 94 and what practices will be allowed under the new law. However, the FAQ is only 3 questions long and addresses only a few of the issues raised by SB 94. Nonetheless, it is helpful and gives attorneys insight on how the California State Bar and other institutions will read the statute.

CLICK HERE TO READ THE CALIFORNIA STATE BAR’S FAQS ON SB 94

The most interesting point in the FAQ is the State Bar’s interpretation of the word “receive”. One of the most confusing points of SB 94 was whether an attorney could collect money into their trust account until the end of the process. This protected the attorney because they had insurance that if they performed their services they would be paid. The client was still protected because the trust account is strictly regulated by the State Bar and any funds that are not earned must be returned to the client.

The State Bar FAQ makes it very clear that accepting funds into a trust fund is a violation of SB94. They also go on to discuss their reading of the term “received”. The State Bar looks at the plain meaning of the word received and determines that “the term is broad enough to encompass a lawyer’s receipt of advance fees into a trust account.”

The State Bar has basically refused to define what received means, but has clearly determines that accepting money into a trust account is receiving money, even though the attorney cannot actually use those funds. Following this logic, if any money is taken from client for any reason and held in anyway this will be considered “received”.

This is not the best news for attorneys doing loan modifications, but it is better to have a clear rule than an ambiguous one.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Senate Bill 94 – The law has changed, now what?

On October 11, 2009, Governor Schwarzenegger signed into law Senate Bill 94. This law addresses how third parties can accept fees for loan modifications. The bill covers not only loan modification companies, but also attorneys who are hired by homeowners to represent them in negotiations with the lender to modify their loan.

I have discussed the ramifications of this bill in previous posts so I will not belabor the point. But for those new readers I will provide a brief overview.

SB 94 makes it criminal for anyone to accept up front fees for performing a loan modification. This includes attorneys, loan modification companies, and brokers. This essentially means that in order to do a loan modification a company or law firms must first perform all their work and hope to get paid at the end. This creates a tremendous amount of liability for anyone performing loan modifications. SB 94 has basically sent every lawyer and loan modification company, legitimate or not, running away from homeowners who need help for fear of violating the laws.

The law is clearly reactive to the few bad apples who were taking advantage of homeowners. Furthermore, the banks totally supported the law because it would insure that the unsophisticated homeowners were at the mercy of the banks when requesting a loan modification. A homeowner will now have to take it on faith that the lender was actually helping them to modify their loan.

So this is where we are today. SB 94 is law and effective immediately. No upfront fees can be collected until all work has been completed. But what does this really mean?

Does this mean that an attorney cannot accept money and hold it in a trust account until services have been performed? Does this mean that as long as the services contracted for are performed that you can collect that money? Can an attorney charge a client for incidental administrative costs (copying fees, filing fees) during the process? What about a consultation fee, if an attorney has a standard practice of charging $100 for a consultation to determine if they will take a case can the attorney no longer charge this fee for loan modification clients? SB 94 Fails to answer these and a multitude of other questions.

Basically SB 94 is not very clear on what it means by advance fee or what constitutes a completion of services. This has left those lawyers who wish to continue helping clients with loan modifications hanging in the wind trying to determine what will be compliant with the new law. The state bar has not made a statement pertaining to SB 94 since its passing.

Many lawyers have attempted to contact the state bar ethics hotline in order to clarify what is acceptable under the new law. However, the state bar ethics hotline is being flooded with phone calls and offers no answers to these questions.

The state bar stood strongly behind SB 94 but now when people have questions they leave them to figure it out on their own and potentially be the first test case as to what is and is not acceptable. No attorney wants to be the first case to determine what is acceptable under SB 94, especially with possible criminal punishments.

Right now the law has passed and is in full effect. Trying to go back and get rid of the law is a waste of time and resources. What is needed is clarification of what is allowed and what is not allowed so that companies who wish to continue helping homeowners can act knowing they are not going to be brought up on criminal charges.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

A federal judge has ruled that Bank of America Corp cannot have a lawsuit by investors seeking to force it to buy back mortgages heard in federal court, saying he lacks jurisdiction to decide the case. Tuesday’s ruling by Judge Richard Holwell of the U.S. District Court in Manhattan means the case will move to state court. Holwell did not decide the merits of the case. “Congress passed two statutes within a year of each other to address the mortgage crisis,” the judge wrote. “In neither of these statutes did Congress federalize the case.”

The ruling is a win for investors, to the extent that Holwell rejected a claim by the bank’s Countrywide Financial Corp unit that new federal laws to encourage loan modifications to help struggling borrowers stay in their homes govern this case. Countrywide had argued that the laws negated obligations it might have had to buy back modified loans. In 2008, Countrywide agreed with some 11 state attorneys general to modify $8.4 billion of loans made to roughly 400,000 borrowers. Investors who own mortgage securities typically receive interest and principal payments. If servicers modified the underlying loans to reduce borrower obligations, investors would be harmed because they would receive lower payments.

Holwell did rule that investors bear the burden of showing that pooling and servicing agreements for their loans, taken “as a whole,” require Countrywide to buy back the loans. The current case was brought by two investment funds holding Countrywide mortgages, Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC. These investors complained they would be harmed if Countrywide shifted the burdens of loan modifications to 374 trusts into which loans had been repackaged and securitized.

These investors would rather Countrywide repurchase modified loans for the full unpaid amounts. Countrywide had been the largest U.S. mortgage lender before Bank of America acquired it last July for $2.5 billion. The case is Greenwich Financial Services Distressed Mortgage Fund 3 LLC and QED LLC v. Countrywide Financial Corp, U.S. District Court, Southern District of New York (Manhattan), No. 08-11343.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Banks Fail To Modify Mortgages - Homeowners tell how firms failed to redo home loans

By Kevin G. Hall
McClatchy Newspapers

Nearly three years into the deepest U.S. housing slump in generations, lenders are modifying only a small number of problem mortgages, and rising foreclosures are retraining the economy’s recovery.

The Obama administration has stepped up pressure on lenders and their mortgage servicers, who act as bill collectors on behalf of investors who own mortgage bonds. The administration on Aug. 4 unveiled the first of what will be monthly “name and shame” exercises, publishing data on the loan-modification efforts of about three dozen companies. McClatchy received calls and e-mails from borrowers across the nation in response to a recent story about the “name and shame” effort.

In subsequent interviews with them, a common theme emerged: Virtually all say they were encouraged, directly or indirectly, by their lenders to fall behind on their mortgage payments in order to qualify for loan modifications. Then the modifications never came. These borrowers burned through retirement savings, destroyed their credit reactions and suffered mental and financial hardship.

Here are two of their stories:
Phil Stubblefield, 61, arrived in loan modification hell quite by accident. His ex-wife died of heart failure April 20, and her Sacramento home and Countrywide mortgage passed to their daughters, one of whom was in college and the other starting medical school. As students, each had limited income.

Stubblefield reached out in May to Bank of America, which had bought Countrywide in January 2008, as it faced a bankruptcy filing because of problems with its loan portfolio. Stubblefield sought to modify the loan on the property in order to stay current amid unusual circumstances.

“Virtue was met with no help at all. The only recommendation was, ‘We can help you when the loan goes into default,’ “said Stubblefield, an Amtrak train conductor in California’s capital.

After the mortgage payment became two months late in June, the girls started receiving what Stubblefield dubs “nasty-grams.” After becoming authorized to speak for his daughters, he tried to negotiate a lower interest rate to reduce payments enough for him to help, or to have some portion of the loan forgiven.

“I was waiting for them to turn around and say, ‘What can you do for us?’ There was no coming together, no negotiation,” he said. “It was ‘Sell the house,’ and that’s when I came back and said, ‘Don’t you read the newspapers? There are 40,000 foreclosures in Sacramento and a 19-month turnaround on [real estate] listings.”’

A work-from-home psychotherapist and real-estate agent, Helen Rudinsky, 53, bought property in the nation’s capital in June 2004. At the height of the housing boom, she took out an interest-only loan, offered for pricier homes and marketed as virtually risk-free because of climbing home values.

A few years later, she gave birth to a boy who was diagnosed with autism. She temporarily moved to Bend, Oregon, seeking easier access to expensive testing and therapy for her child. Rudinsky contacted Wells Fargo last October about mortgage options because her payment of $2,500 a month was set to leap by $1,000 this month. She said that a Wells Fargo employee advised her that only loans that fell behind on payments were reviewed for modification. Rudinsky has never missed a payment, had a credit score of 770 (anything higher than 600 is considered good) and put down $130,000 when she bought her home - clear evidence that she was a reliable customer. She took the employee’s response as a suggestion to miss payments, and as a solution to her problem. “I got behind, and then it spiraled out of control,” she said.

Assigned a loan negotiator, Rudinsky called many times a week but got nowhere. She followed a checklist to ensure that all necessary documents were with the lender, but it was never enough, she said.

In May, she was told that she was approved for a program with interest payments potentially as low as 2 percent. After more documents and more back-and-fourth, Rudinsky was finally assured that things were on track and that the foreclosure process was on hold. Later, to her shock - nearly 10 months after her initial call to Wells Fargo for help, her home suddenly headed for auction.

The sale was scheduled for 10:15AM, August 4th. Rudinsky raided her retirement funds to pay $30,795 in a last-ditch move that saved her home minutes before the auction. Days later, when Wells Fargo called again, demanding that she make good on her loan or lose her home, she said, “I don’t know what to do anymore. I feel like Alice in Wonderland, because whatever you do, it isn’t enough.”

Wells Fargo had modified only 6 percent of its eligible loans through June.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Nevada recently passed a bill that requires all lenders to appear for mediation prior to foreclosing on a property. The bill has now been utilized to force lenders to the mediation table before they foreclose.

The Nevada Foreclosure Mediation Program has received its first three requests for mediation as the homeowners work to save their houses.

Two requests came from Clark County residents and the third came from a Carson City homeowner. Mediations have not yet been scheduled, but will be within 80 days of the filing of the foreclosure notice under Nevada law and Supreme Court rules. The first mediations are expected to occur in August.

In the first three weeks of the Nevada Foreclosure Mediation Program, which began on July 1 under Assembly Bill 149, more than 2,400 foreclosure notices have been filed in Nevada. More than 2,000 of those originated in Clark County. Those default notices include commercial and non-owner-occupied properties as well as the owner-occupied homes eligible for the mediation program.

The initial mediations will be conducted by Senior District Judges or Supreme Court Settlement Judges in addition to experienced mediators and some attorneys. These will participate in the program’s initial training sessions on Aug. 5 in Reno and Aug. 6-7 in Las Vegas. The media is invited to attend the training.

More than 400 attorneys have offered to become mediators, but are not yet trained. Under AB-149, the Nevada Supreme Court was responsible for adopting the rules for the program, which is being operated by the Administrative Office of the Courts. The rules require that the parties to mediate in “good faith.”

While the program will offer homeowners the opportunity to sit down with their lenders, mediation will not be the solution for everyone and some homes inevitably will be lost to foreclosure. AB-149 only affects single-family, owner-occupied housing in Nevada and currently applies only to foreclosure notices (formally known as Notice of Default and Election to Sell) filed on or after July 1, 2009.

A request form and easy to understand instructions will accompany the foreclosure notices when they are served. That form, along with other forms and information, is available on the Supreme Court website.

The Administrative Office of the Courts has established hotline phone number for questions about the program. The number in Carson City is 775-687-9816. The number in Las Vegas is 702-486-9380. Questions may also be directed over the Internet to foreclose@nvcourts.nv.gov. This e-mail address is being protected from spambots. You need JavaScript enabled to view it.

The foreclosure mediation program is self funded through fees and will not require the expenditure of any taxpayer dollars. Lenders pay an increased fee for filing a foreclosure notice, which is used to fund administrative costs of the program. Homeowners and lenders will share the $400 costs for the mediators, with each party paying $200 prior to the mediation.

Forcing the lender to the mediation table is a great step in the right direction to help homeowners protect their homes from unethical and wrongful foreclosures.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

The California State Senate has passed Senate Bill 94 (”SB 94?), legislation proposed by Sen. Ron S. Calderon (D-Montebello), Chairman of the Banking, Finance & Insurance Committee. The senate passed the bill on May 21, 2009, by a vote of 21 to 14. It is now in the state assembly where it has been read once and “held at desk,” which means that it’s awaiting referral to a committee.

Senate Bill 94 is intended to protect California homeowners from scam loan modification companies.

In my view, the problems with SB 94, as written include:

1. It was created to protect consumers from loan modification “scammers” who charge distressed homeowners up front fees and deliver nothing in return, but it was written without the benefit of accurate data on the contribution being made by the legitimate loan modification industry in California. Without knowing how many homeowners the private sector loan modification firms save each month, or the sustainability of the modifications obtained by the private sector, it would not be possible to design a solution in the best interests of homeowners and the state’s economy.

2. The SB 94 bill, as written, is based on a fundamental misconception. As stated in the in bill’s narrative:

“It is not necessary to pay a third party to arrange for a loan modification or other form of forbearance from your mortgage lender or servicer. You may call your lender directly to ask for a change in your loan terms. Nonprofit housing counseling agencies also offer these and other forms of borrower assistance free of charge.”

While both of these statements are technically true, this language ignores the fact that there are also reputable private sector firms that homeowners may choose to hire to help them negotiate with their banks when seeking a modification of their mortgages. Private sector firms, including those licensed by the state’s Department of Real Estate and/or law firms offering that such services, have helped tens of thousands of California homeowners get their mortgages modified. With the number of foreclosures continuing to increase each month, it would seem clear that the state’s homeowners would not benefit from any legitimate avenue being overlooked or unfairly maligned.

3. Defrauding a homeowner has always been against California law, so in that sense, SB 94 is redundant. When you consider that “scammers” who did in fact defraud consumers in conjunction with the promise of a loan modification, did so in violation of existing law, it would seem that a new law making it illegal to charge an advance fee when offering to assist a homeowner with a loan modification would be unlikely to prevent future scammers from attempting to do the same.

4. Legitimate firms offering to assist troubled homeowners could be regulated and monitored, without requiring these firms to operate at a financial disadvantage by disallowing advance fees. The process of obtaining a loan modification is not similar to other real estate transactions in several key ways:

A. The process can take six weeks, or six months… and in some cases even longer. The lenders and servicers are not consistent in how loan modifications are handled or on what basis they are granted.

B. There is no escrow, or objective standard for “satisfaction,” in conjunction with a loan modification transaction, and therefore there is no assurance that a company would receive payment from the homeowner once the mortgage has been modified.

These are just a few of the issues with SB 94. The law is attempting to protect homeowners, but is actually protecting the lender guaranteeing that homeowners will not be adequately represented when dealing with the lender. The lenders will take advantage of this and will offer homeowners loan modifications that do not help their situation.

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Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Stephen Hoshida, Manager of National Loan Auditors’ Online Legal Portal, continues his discussion of the loan modification process in Part II of this interview series:

4. What factors are taken into consideration by the mortgage lender when determining whether or not a borrower qualifies for a loan?
• There are a number of factors that the lender takes into account when considering a loan modification. The primary concern for lenders may be the financial status of the homeowners. The lender needs to know what the financial situation of the homeowners is to know how they need to modify the loan. The lender will consider the violations that are found in the homeowner’s forensic loan audit. There are also external considerations on the lender such as federal programs, economic climate, and the will of the investors. All of these will be incorporated into the lenders decision on how to modify a loan.

5. What challenges can homeowners expect to face during the loan modification process?
• The hardest part of a loan modification is the waiting period. The process may take some time and loan modification departments of the lenders are being over worked. If the homeowner is already experiencing financial hardship, the time it takes to negotiate a loan modification will compound the problem. Another challenge a homeowner may experience is in dealing with the lender. Lending companies have many different departments, each with a different agenda, and often time these departments are not informed as to what the other branches are doing. Also, with the unstable financial climate, banks are absorbing other banks and restructuring their own departments which results in a continual change in internal procedure.

6. How would a loan audit from National Loan Auditors benefit an attorney or other mortgage industry professional?
• Forensic loan audits from NLA can specifically benefit attorneys and other mortgage professionals by giving them a quick legally sound distilment of a borrower’s case that they can use to plan their strategy on how to litigate the case or to approach a loan modification.

7. What sets National Loan Auditors apart from other forensic loan audit providers?
• National Loan Auditors provides the best forensic loan audit on the market. NLA’s forensic loan audit contains over 125 checks to insure that the lender adhered to all the statutory regulations when issuing a loan. The Forensic Loan Audit Pro is the only “legal-centric” audit. This means that the audit not only outlines the lender violations that occurred in the loan, but also provides supporting statute an case law to explain why a violation occurred and how the violation can be used in a court of law.

8. How long does it take to complete a forensic loan audit?
• A forensic loan audit only takes about 1 day to actually complete the audit. However with the demand for audits right now it takes about 5 days for a borrower to receive their audit.

9. With new legislation designed to support and protect homeowners, how will government efforts, like the Make Homes Affordable program, affect the loan modification process?
• The MHA Program has been a huge step in the right direction to address the needs of the homeowners. MHA streamlines the process for homeowners to workout a loan modification. That being said they are still not a cure all. MHA only address a fraction of the problem loans out there because it only applies to Frannie and Freddie loan. There are still millions of homeowners out there who will not qualify through this plan. Lenders are doing what they can to come up with their own loan modification plans that address the remaining loan but they are swamped and understaffed so this process is slow.

10. Are National Loan Auditors’ forensic loan audits available only in California?
• No, NLA provides forensic loan audits nationwide. We are even developing international audits for other countries.

11. What changes occur within the mortgage after a loan modification?
• The changes to the mortgage are a modification of the terms of the agreement, hence the name loan modification. The original loan is still in effect and all the associated terms still stand, but the specific terms negotiated in the modification process are changed to reflect the new agreement. At it’s core a loan modification is a simple contract change.

12. Who should homeowners contact to receive help and more information?
• National Loan Auditors
• 877-NLA-6676
• 1820 Bonanza St. Suite 201
• Walnut Creek, CA 94596
• www.NLAudit.com
• ——————–
• eModify Inc. a Legal Advocacy Group
• 877-4-EMODIFY
• 1820 Bonanza St. Suite 201
• Walnut Creek, CA 94596
• www.eModify.net

About National Loan Auditors:

National Loan Auditors is the Nation’s leading and most reputable provider of comprehensive forensic loan audit reports, offering superior services with unsurpassed results. Founded by August Blass, a financial services veteran with more than 20 years of executive experience in the field, the Walnut Creek, CA-based company provides quality control pre-close and post-close auditing, risk assessment consulting and fraud prevention services to the mortgage and banking industries.

Stephen Hoshida is a graduate of California State University Chico, with a Bachelor of Arts in Political Science and has completed his Jurist Doctorate at Golden Gate University of San Francisco. While attending law school, Stephen focused primarily on criminal law, working in the San Francisco County and Butte County District Attorney’s Offices.

Source: National Loan Auditors, Inc.
http://www.NLAudit.com

Learn about the loan modification process and discover how a forensic loan audit from National Loan Auditors may lead to a successful workout solution in this interview with NLA’s Legal Portal Manager, Stephen Hoshida:

As the Nation’s housing crisis continues, thousands of homeowners struggling with unmanageable mortgage debt are desperate for a solution that will bring them financial relief. Predatory lending practices and subprime loans have forced an overwhelming number of loan borrowers into bankruptcy and foreclosure, and economists predict an even further decline in the real estate market as the country remains in recession. Despite the unpromising outlook foreseen by residential property analysts, there is still hope for America’s mortgage holders – relief is available and National Loan Auditors can help.

With recent legislation and lenders willing (or even required by law) to negotiate, the terms of a home loan can be modified in favor of the borrower to allow reduced monthly payments, an extension of the loan terms, or even the lowering of an entire balance due on the mortgage itself. A forensic loan audit, performed in the initial stages of the loan modification process, may uncover violations in the loan that would obligate the lender to modify mortgage terms and give borrowers legal recourse against the mortgagee should a lawsuit be filed. The forensic experts at National Loan Auditors thoroughly examine financial documents for validity and utilize state-of-the-art technology to ensure accurate and reliable results. Both a comprehensive forensic loan audit and a successful loan modification can alleviate budget strains and help families avoid bank foreclosure.

If a forensic loan audit can spot predatory lending practices and a loan modification can prevent a foreclosure sale, why don’t all homeowners modify their loans? The primary reason, unfortunately, may be that obtaining a loan modification can be a lengthy and difficult process to manage alone. Most debtors, a majority of whom do not have a legal background, have questions that require answers before taking any action, and rightfully so – failure to successfully bargain with a mortgage holder could mean foreclosure in the future.

Like any case involving legally binding contracts, the help of an experienced professional is often necessary. An attorney or loan modification company specializing in mortgage law can provide the assistance needed in order to reach an agreement with the lender. With a mutual goal of helping homeowners save their homes and avoid foreclosure, National Loan Auditors works with top attorney-based modification firms to deliver the only legally-reviewed forensic loan audit report available in the mortgage industry.

Stephen Hoshida, Manager of National Loan Auditors’ Legal Portal, understands the concerns of homeowners and recognizes the issues that attorneys and modification companies may face. In this two-part interview, Mr. Hoshida answers some important questions that explain the loan modification process and how a forensic loan audit from National Loan Auditors can lead to a successful loan workout solution.

1. What advice do you have for homeowners seeking a loan modification in order to avoid foreclosure?
• My advice to homeowners contemplating loan modification would be to act sooner rather than later. If you are already late on your payments then the lender has already put into motion the inevitable foreclosure. Loan modifications take time so you do not want to wait until the last moment to seek help. Even if you are not late, but you foresee financial difficulties in the future, take proactive action to obtain a loan modification.

2. What steps should a homeowner take to prepare for the loan modification process?
• Get organized. There are 3 areas of information that are crucial to obtaining a loan modification.
• The first is the documents pertaining to the original mortgage transaction. Homeowners should get as much documentation from when their loan was originated and have it ready to be used as the basis of a forensic loan audit. This will include digging out the old shoe box of loan documents from when you originally obtained the loan. I would also suggest the homeowner requests a set of the lenders documents before you perform a forensic loan audit. This may not always be feasible since this takes 30-60 days, but if you can obtain the lenders package it will save time later on.
• Secondly the homeowner needs to have all the information about what has happened to the loan since it was originated. Has the loan been sold? Was the homeowner ever charged late fees? Has the interest rate adjusted? All of this information is relevant and should be documented in some way. By getting these together before starting your loan modification you will expedite the process.
• Third the homeowner needs to have a firm grasp on their financial situation and have supporting documentation to prove their income. This will take the form of pay stubs, tax returns, and bank statements.

3. How does an audit contribute to the loan modification process?
• A forensic loan audit is an integral part of a loan modification. The forensic loan audit allows a homeowner to see what statutory regulations a lender violated when originating the mortgage. This allows the homeowner to work with the lender from a position of strength. The homeowner tells the lender, “There were serious violations made when my loan was originated, I could sue you and create a huge legal battle, or you could just give me a good loan modification.” Basically, the forensic loan audit gives the homeowner more leverage in working with the lender.

NEXT: Stephen Hoshida answers more questions about forensic loan auditing and the loan modification process in Part II of our interview series. Get free updates! Subscribe to this blog for the latest news and features from National Loan Auditors!

Source: National Loan Auditors, Inc.
http://www.NLAudit.com

General Information About Representing Yourself

Foreclosure Defense | Forensic Loan Audits | Lender Negotiations

Is it ever sensible to appear in court without a lawyer?

In a regular, more formal courtroom, sometimes it’s also a good idea to represent yourself. Hiring a lawyer is almost always unaffordable for disputes that involve less than $25,000 and often unaffordable for disputes in the $50,000-$100,000 range. In these cases, representing yourself may be your only reasonable option.

Can I learn everything I need to know to represent myself in court?

The basics of how to bring or defend a case aren’t difficult, but trying to get on top of every nuance of procedure and strategy isn’t easy. A two-pronged approach can work best: learn how to handle routine representation tasks yourself while hiring a lawyer as a self-help law coach to provide advice on strategy and tactics as needed. In many situations, hiring a lawyer to coach your self-help efforts will cost only about 10-20% of what it would cost to hire the lawyer to do the entire job.

Ten years ago, trying to find a lawyer who would help you find your own way through the legal system was next to impossible. Today, given the surplus of lawyers and a gradual change in the profession’s attitude towards self-helpers, it’s much easier. Because law is an increasingly specialized field, however, you’ll want to find someone who is knowledgeable about your type of problem — not just any lawyer.

Is it difficult to prepare the paperwork to initiate a lawsuit?

Actually, it’s often fairly easy. Initiating a lawsuit is especially straightforward in states such as California and Michigan, where court clerks provide preprinted fill-in-the-blanks forms for many types of lawsuits, but even in states where lawsuits are filed the old-fashioned way, using paragraphs of appropriate legal jargon on numbered legal paper, the actual wording is almost always available word for word from forms books or CD-ROMs. These information sources, which are routinely used by lawyers, are available at all public law libraries (usually located in the county courthouse) and are usually fairly easy for the non-lawyer to understand.

I’ve filed my lawsuit. What do I need to do next?

Before a case gets scheduled for trial, a number of things need to happen. Information about most of these, for example, whether and when a settlement conference must take place, when papers must be filed, and how to place a case on the court’s trial calendar, are available from the court clerk.

Unfortunately, how to accomplish other pre-trial tasks, which often come under the broad title “discovery”, is left largely up to you and the other parties to the lawsuit. For example, one type of discovery consists of your taking the deposition (oral statement) of the other party or one or more witnesses to find out what he or she is likely to say at trial. Other types of discovery consist of interrogatories (written questions to the other party), a request to produce documents, or a request that the other party admit certain facts (stipulations).

Representing Yourself in Foreclosure Defense

Gather all your Documents

The first thing you need to do is gather all the pertinent information pertaining to your loan and your financials. The first place to start is to dig out your old loan documents that you were initially given in conjunction with your loan. Get every bit of paper that was given to you in regards to your loan. If you lost some or all of your documents then the best thing to do is to obtain copies from your lender or Title Company. This can take time so request these documents immediately.

At the same time you are gathering your documents regarding your loan, you should also be gathering your documents pertaining to your current financial situation. This includes bank statements, W-2, tax returns, pay stubs, an itemized list of income and expenses, mortgage statements, documentation of any rental properties or alternative sources of income.

Obtain a Forensic Loan Audit

Once you have all your documents together the next step is to obtain a forensic loan audit. A forensic loan audit will uncover any statutory violations committed at the time the loan was originated. This is important because it can be used as a defense to any foreclosure action that is brought against the borrower. If a borrower’s loan contains federal statutory violations they can use those violations to claim the loan itself or the method used to originate the loan was illegal, thus reducing the amount owed on the property or invalidating the foreclosure completely.

Verify the Violation

A forensic loan audit will highlight any violations made in the origination of the loan. The first thing that should be done is that the violations should be verified. The forensic loan audit relies on the documents given to the loan auditors. This means that the auditors only have the documentation that has been given to them by the client when performing their forensic audit. While we do our best to make sure all documents have been received from the clients, sometimes clients have lost documents. If a page was not given to them, then it will not be consider as part of the audit. This could cause the auditors to find a violation when really the page is just missing.

The borrower should verify what the lender has in their files to see if the lender’s files and the borrower’s file match. To do this the borrower should send a qualified written request to the lender notifying them of the violation and request any documentation they have relating to the loan. This will allow the borrower to verify that there was a violation. For example, if the audit finds a HOEPA violation because the loan was a high cost loan and no HOEPA disclosures were made, then the attorney should send the qualified written request to the lender to determine if the lender has any documentation that the HOEPA disclosures were in fact made.

Qualified Written Request

Assuming that you have sent a written request to see if the lender has the same documentation as the client, then you should have a qualified written request filed with the lender. If not, then a qualified written request should be filed at this point notifying the lender of the violation. Once a lender has received a qualified written request claiming violation of lending regulation they are considered to be on notice of the violation. The lender then has 20 days to respond to the qualified written request. The lender than has 60 days to address any claimed violations.

The borrower should lay out in the qualified written request what violations they believe occurred when their loan was originated, statutes citing the claimed violations, what relief they seek, and contact information for the legal counsel. The forensic loan audit should be used to determine what violations have been found and the corresponding statute references. This will legitimize your qualified written request and give it weight with the lender.

The statute is vague on what actually has to happen within 60 days of receiving a qualified written request. The lender probably doesn’t have to completely remedy the violation within the 60 days, nor can they just respond with a boiler plate language response dismissing the violation. The lender is required to come to the table with a working plan that can be agreed upon with some negotiation.

Determine What Outcome you Want

Now that you have gathered all your documents and performed an audit on your loan and have evaluated your financial situation you can now make an educated determination on how to defend against the foreclosure and what you ultimately want form the result to be. It is important that you determine ahead of time what you specifically want from the lender and how you plan on defending against the foreclosure. This way you will be able to form a cohesive strategy going forward and dealing with the lender.

There are a number of different outcomes that you might consider in defending a foreclosure action. Some options might include but are not limited to:

• Working out a modification with the lender
• Reducing the amount owed on the mortgage
• Invalidating the foreclosure claim
• Working out a short sale

It is important to be realistic about what your options are and what you can hope for in your case. The more objective you can be about your case, the better you ability will be to effectively represent yourself. Regardless of what option you seek it is important to flesh out an approach of how you will lay out your arguments to the court.

At this point you should begin to gather the necessary evidence to prove you case or to support your claims. This evidence can take many forms ranging from documents, to depositions, to witness testimony.

Negotiating with the Lender

It is important to keep in mind that the foreclosure process is a last resort for the lender. The lender would rather come up with some other way to be repaid on the loan. This means that coming up with some alternative to the foreclosure, in most cases, will always be on the table as an option. If you are representing yourself always be courteous when dealing with representatives of the lender, do not let your emotions get the better of you. Always be firm in what you are requesting but do not be rude. Be prepared to give and compromise in your negotiations with the lender.