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Foreclosure Rates Increase in New Jersey Despite Nationwide Decline


While the national average foreclosure rate is 2.4 percent, New Jersey hovers around 6 percent, which is the second highest rate in the country. Late this September, a leading provider of consumer, financial and property information, analytics and services to business and government, CoreLogic, issued a press release revealing foreclosures in the U.S. have been dropping at a significant rate.

In fact, during July alone the report discovered a 25 percent drop in foreclosures when compared to the number of foreclosures in July of 2012, a decrease from 65,000 in 2012 to only 49,000 in 2013. Sadly, however, New Jersey did not contribute to this trend as homeowners in the Garden State actually saw their foreclosure rates increase.

Continue reading Foreclosure Rates Increase in New Jersey Despite Nationwide Decline

New Oregon Case May Ease Loan Modification Unfair Practices for Homeowners Facing Foreclosure

Trial payments that go on endlessly or that squeeze a few thousand dollars more from the homeowner before the lender forecloses anyway are a common complaint among struggling homeowners trying to save their homes and get back on their feet during the recession with the help of the federal Home Affordable Modification Program, or HAMP. Consumer advocates and regulators say problems converting trial modifications continue today.

For instance, take Joyce McNair, a Beaverton, Oregon resident who thought she’d made a breakthrough when Bank of America agreed to try modifying her mortgage to help her avoid losing her home in foreclosure.

After six months on a plan that would make her payments a little more affordable, the bank said, it would make the modification permanent. So McNair, whose own mortgage company had failed during the housing crash, made all six payments, then eight more while waiting for paperwork to show up finalizing the arrangement.

Instead, she received notices that her loan had been transferred and that her new loan servicer would foreclose unless she paid $231,000 in back payments and fees by the following month.

Joyce McNair is not alone. Banks have argued numerous times that the trial payment plans aren’t a binding contract and that completing the trial was never intended to offer a guarantee about permanent modification.

However, a new federal court ruling turns that argument upside down.

The 9th Circuit Court of Appeals in San Francisco ruled in August that lenders are required under HAMP to make a loan modification permanent upon completion of a set of trial payments. Consumer attorneys and advocates say the decision is a big win for homeowners in the 9th Circuit, which includes Oregon and Washington.

In the case of Corvello v. Wells Fargo, plaintiffs Phillip Corvello and Karen and Jeffrey Lucia, whose two cases were consolidated before the appellate court, each said Wells Fargo offered them a trial-payment plan. They said they made the required payments but were never offered the permanent modifications they had been told would be forthcoming.

The decision in Corvello v. Wells Fargo is binding for lower federal courts in 9th Circuit states. However, it is not binding for state courts, but consumer attorneys say it’s likely to be taken into consideration by courts that had routinely rejected modification cases in the past. While not setting precedent, the decision could also affect other federal and state courts.

Corvello is a very important decision and should put lenders on notice that they can’t play bait and switch with borrowers any longer without possible repercussions.

No longer will banks be easily allowed to avoid their obligations to borrowers merely by choosing not to send a signed modification agreement, even though the borrowers made both accurate representations and the required payments, the court noted.

The court called the idea that Wells Fargo could be allowed to keep the trial payments unfair and an “injustice” that would be averted by its ruling.

According to government reports on HAMP, 88 percent of completed trial modifications are successfully converted to permanent modifications after an average of three or four months of trial payments. For the rest, a lot can go wrong.

The Consumer Financial Protection Bureau, a federal agency created in 2011 to oversee the nation’s largest banks and financial firms, said this month that its reviews of mortgage servicers have uncovered disorganized and missing files for foreclosure mitigation programs, including loan modifications. And without naming specific institutions, it faulted lenders for sloppy handling of documents when mortgage servicing is transferred, including “lack of controls” regarding the handling of documents, including modification paperwork.

In a statement, Wells Fargo downplayed the significance of the decision: “The 9th Circuit did not rule on the merits of the underlying cases and found only that the District Court should consider the arguments put forth by the plaintiffs. Wells Fargo has strong defenses to those arguments and is prepared to present its case in the district court.”

However, many attorneys, and many homeowners are rejoicing at the recent news. One prominent attorney stated, “Before, judges were chucking these cases out, to get one to trial on any theory was a win.”

How this case will affect states around the U.S. and homeowners alike is unclear, but one thing is for certain, it’s a step in the right direction.

Mediation’s Effect on Mortgage Modifications’ Success

On July 24th a report was released by the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) that gave an update on the success rates of homeowners participating in the Home Affordable Modification Program (HAMP). HAMP is a federal government program designed to help homeowners impacted by financial hardship by modifying their monthly mortgage payment. For homeowners who are eligible, the modification permanently changes the original terms of the mortgage. The report shows that of 1.2 million homeowners who received a HAMP permanent modification since the beginning of the HAMP program, 26% had redefaulted. Moreover, the more time that had passed since a homeowner had received a HAMP permanent modification, the more likely they were to have redefaulted, with the oldest HAMP modifications from 2009 at a 46% redefault rate.

To combat the issue, the SIGTARP report recommended that the US Treasury Department conduct greater research on what factors seem to contribute most to these numbers and identify solutions. SIGTARP also suggested the potential use of “early warning systems” that would identify and help troubled homeowners sooner in an attempt to prevent the slide back into foreclosure. The details of how such an early warning system would work are left to the discretion of Treasury, but the report suggests greater use of “counseling and other assistance” for homeowners.

This leads many to speculate what “counseling and other assistance” might look like and discuss the ways in which alternative dispute resolution techniques, foreclosure mediation in particular, could play a role in reducing redefault rates.

While more information is needed about how homeowners who undergo mediation fare in the long term as compared with their non-mediating counterparts, statistics reported by the National Consumer Law Center do show evidence that in jurisdictions with foreclosure mediation programs in place, such as Philadelphia, Maine and Connecticut, homeowners are more likely to receive a modification when compared to the national average. In terms of a homeowner’s ability to remain in his or her home, receiving a modification to begin with can be a game-changer, making retaining the property a possibility.

However, what the SIGTARP report reveals is that, in terms of long term home retention, the quality of the modification also matters a great deal. The report states that “homeowners who received the worst deal on a HAMP modification were the most likely to redefault.” Factors at play included the degree to which a modification lowered monthly mortgage payments and how in the red property homeowners remained.

Homeowners with subprime credit scores and high overall debt burdens were also most at risk. While mediation cannot remove the risk factors that may put home retention out of reach for some, mediation can be used as an effective tool to identify homeowners for whom mortgage modification is a promising option and help them work towards a lasting solution. Mediation can increase communication and the creative exploration of solutions so that the most promising long term outcome can be reached. SIGTARP reports that it has received thousands of calls through its hotline from homeowners that site lack of communication and miscommunications as stumbling blocks that led to homeowner redefault. Foreclosure mediation has the potential to significantly reduce these stumbling blocks.

The mediation process may also provide homeowners with a safe space to discuss fears and concerns, which could lead to greater understanding of their options and, therefore, greater long term follow through with modification terms. Even for homeowners who do not retain their homes, mediation can offer benefits. A clear and understandable evaluation of all options serves to empower homeowners so they can set their path going forward and feel invested in the process. What homeowners learn during the foreclosure process and the ways in which they are involved in decisions and provided with coping skills could have a significant impact on the ways in which families and communities recover from the foreclosure crisis.

As foreclosure dispute resolution methods mature, we need to know more about their long term impact and the ways in which programs can be designed to maximize stable outcomes. Exploring the relationship between foreclosure mediation and home retention rates can help identify the best path forward.


What is a Deed in Lieu of Foreclosure and What is Required?

For those behind or for those who are about to fall behind in their mortgages, they often hear the regular options, mainly: short-selling, staying and paying, or defaulting. The easiest option of these three is usually short-selling their homes and dealing with the deficiency, if there is one, later.

However, there is another, similar option that many homeowners may not know about called “deed in lieu of foreclosure.” In this option, the homeowner offers the lender the deed to the property, and in exchange the creditor cancels the mortgage agreement. If the bank resells the property, it may seek a deficiency from the former owner if it sold the property for less than the remaining value of the mortgage.

There are five requirements for a successful deed in lieu agreement in most circumstances:
(1) The homeowner must have listed the residence for sale for a certain time period (usually 90 days). The point is to make ensure that the house can’t be sold under normal market conditions.
(2) There can be no liens or encumbrances on the property.
(3) The bank must not already be foreclosing on the property. One cannot have a deed in lieu of foreclosure if it’s already in foreclosure.
(4) Both parties must enter the deed in lieu agreement voluntarily and in good faith. This usually means the homeowner makes the first offer.
(5) The agreement must equal the fair market value of the property. This is to prevent fraud or other possible scams.

Both parties gain from deed in lieu agreements. The borrower no longer pays on a defaulted mortgage and does not suffer the adverse effects of foreclosure, especially the hit to his or her credit score. The borrower also usually receives better terms than if it initiates foreclosure. Banks benefit by coming into possession of the property more quickly and efficiently than by foreclosure, and it is less likely to endure acts of vandalism and revenge by the former homeowner, such as selling the copper pipes for scrap, etc.

The biggest question for homeowners is what terms the bank asks for in a deed in lieu agreement, and looming largest among them is what happens to a deficiency after resale if there is any (which there probably will be). Banks prefer more money to less, so it will likely pursue borrowers for the deficiency after it resells the home.

The alternative isn’t necessarily better: if the bank decides to forgive the deficiency, and it’s greater than $600, then it must file a 1099C form with the IRS telling it that it forgave the borrower’s loan, which counts as income for the borrower’s tax year. Fortunately, the Mortgage Forgiveness Debt Relief Act of 2007 eases the income tax burden from forgiven deficiencies.

Offering a bank a deed in lieu of foreclosure isn’t necessarily the best option for every individual, so consulting with an experienced attorney before deciding how to resolve a poor mortgage situation is important.


Many Loan Modifications Are In Default Again

Approximately 46% of homeowners who received loan modifications under the Treasury Department’s Troubled Asset Relief Program (TARP) in 2009 have defaulted again. According to a report by TARP’s special inspector, more than one-third of homeowners who received loan modifications under TARP have stopped paying.

The special inspector’s report found that the smaller the reduction in mortgage payments and overall debt, the more likely the homeowner would re-default. Most of these homeowners had a reduction of less than 10% on their monthly mortgage payments. Other homeowners more likely to re-default included those with low credit scores and those with mortgages that were less than 5 years old. More than 10% of the 865,000 people who have current loan modifications are 1 or 2 payments behind. More than 306,000 homeowners have re-defaulted on their modified mortgages as of the end of April.

While the report indicated that more research was needed to discover the causes of so many re-defaults, it is estimated that as many as 9.7 million households out of 75 million households still owe more on their mortgages than their homes are worth. Continued unemployment and underemployment are possible reasons for continued defaults on mortgages.


How To Get the Lowest Interest Rate Possible

Lowest Mortgage Interest Rate Factors

Refinancing your existing mortgage to get a lower mortgage interest rate is one of the top ways to decrease your payment each month and generate guaranteed extra money each month. Of course everyone fantasizes about the advertised lowest mortgage interest rate, but numerous factors determine who gets the top mortgage interest rate when looking to refinance. Continue reading How To Get the Lowest Interest Rate Possible

After Losing Their Homes in Foreclosure or Short Sale, Many Families Are Back in the Market

Owning a home is the staple of life in the United States. Families dream of the day that they will have a home of their own to share the many memories of life. Sadly, approximately, five million Americans have lost their homes in foreclosure proceedings and an additional two and a quarter million families have sold their homes in short sales. Little by little, many of the homeowners who have previously lost their homes due to foreclosures are now returning to the marketplace.  They are looking to reestablish the American dream of home ownership. Continue reading After Losing Their Homes in Foreclosure or Short Sale, Many Families Are Back in the Market

Real Estate Settlement Procedures Act: What You Need to Know

In 1974, the Real Estate Settlement Procedures Act (RESPA) was passed to protect consumers from unnecessary cost increases for settlement services, as well as to promote the shopping experience when using these services. The act covers loans that have been secured with a mortgage for one to four family residential properties, which is enforced by the Interstate Land Sales and HUD’s Office of RESPA. Most often, this includes loans, refinances, assumptions, property investment loans, and equality lines of credit.

The act requires disclosures at various times, such as the costs associated with the settlement. It may also include the lender servicing, escrow account practices and business relationships between settlement service providers. It also limits certain practices that increase the cost of settlement services, such as requiring home buyers from purchasing title insurance from a particular company. Continue reading Real Estate Settlement Procedures Act: What You Need to Know

Protect Yourself from Credit Repair Scams

When facing a credit problem, you’re looking for someone who can lend a helping hand and lead you in the right direction. Many individuals take the approach of “whatever help I can get, I’ll take” however, that attitude is dangerous and may possibly cause more harm than good. Continue reading Protect Yourself from Credit Repair Scams

New Jersey Mediation Program for Foreclosure is Facing Foreclosure Itself

The New Jersey State Foreclosure Mediation Program has become a helpful tool for many homeowners facing foreclosure. It has allowed homeowners the benefit of skilled attorneys and housing counselors to help them navigate the maze of rules and regulations which meant the difference between securing a modification on a mortgage in default and losing their home. Both legal counsel and the housing counselors were available free of charge as they were paid through State programs. But the money for these programs has run out. Homeowners in need of these services will have to retain private counsel and housing counselors for services previously provided at no cost. This will prove to be a large burden for homeowners who are unable to make payments on their mortgages.

In addition, unlike previous liberal guidelines where homeowners could get into the mediation program until there was a Sheriff’s sale, commencing April 1, 2013, residential homeowners that are being foreclosed upon are eligible to participate in the foreclosure mediation program if they request mediation within 60 days of service of the complaint. For existing cases already older than 60 days from the service of the complaint the homeowner must have requested mediation before April 1, 2013.

As of March 1, 2013, due to loss of funding, housing counselors are no longer accepting new clients exclusively for mediation. However, there are still some agencies that are continuing to offer services to homeowners under other programs. What was already a confusing process for many to navigate, will become even more confusing.

With the rules continuing to change, those that are in threat of foreclosure must act quickly and diligently to ensure their rights are protected.