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The Foreclosure Crisis: Navigating Mortgage Payment Difficulties

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By George W. Mantor

RISMEDIA, November 24, 2009—If you or someone you know has fallen behind on their mortgage, take heart; there is hope. Not from the government though; you’ll have to fight this one on your own, but you are not alone. And soon, your numbers could grow into a powerful army as more and more borrowers find out the truth and learn the reason why lenders of securitized mortgages are having difficulty foreclosing.

In the last few weeks, I have written a number of articles on various aspects of securitized mortgages, foreclosures, loan modifications and short sales, and I am being flooded by requests for more information on what to do when you cannot get a modification and how to fight foreclosure.

I’m sorry I have not been able to respond to all. Almost all of the questions, searches for information, background, judicial opinions and requests for help are addressed in detail on my blog, http://www.realtown.com/gwmantor/blog.

According to Aldo Svaldi, in an article in the business section of Sunday’s Denver Post regarding the limited success in modifying these loans, “The program’s way of dealing with consumers and handling paperwork is definitely outdated and a source of frustration, housing counselors and consumer advocates say.”

But, what if there were another way?

Up to now, most borrowers have been approaching loan modifications with their hats in hand, sending tons of documentation and, both literally and figuratively, begging for a trial modification that in all likelihood will never result in a permanent modification.

By everyone’s admission, that isn’t working. But, if you are one of approximately fifty to sixty million borrowers whose loan was securitized, the balance of power may possibly revert to you.

I’ve seen a lot of self serving advice columns aimed at people who cannot pay their mortgages, and most of it is bad. Take for example, “When you realize that you might not be able to make your payment, call your lender immediately.”

Why? In all likelihood they are not even legally allowed to modify your loan, so no modification is permanent, nor are they intended to be. And who exactly are you supposed to call?

The originator is probably out of business, the funder got their money back, and the investor was insured. And, tax payers bailed out the insurers. That leaves the collector of the payments.

More than likely the servicing rights to your loan were probably sold to a collection agency that collects and distributes the payments for a small percentage of the payment. But, they also have the right to keep 100% of all late fees, forbearance programs, and any other monies they can squeeze out of fearful, mislead, misinformed homeowners. This has lead to numerous instances of conflict of interest.

Companies that are actually collection agencies are acquiring the servicing rights to mortgage loans, not to process checks, but to put the borrower over a barrel and then offer more and more expensive “solutions.” True, they don’t want your house and would not be the ones entitled to the proceeds of the auction. They do want every spare dime you can fork over. They don’t care one way or the other what happens to your home; they’re just a collection agency.

I believe that servicing companies have gone from passive collectors and distributors of other people’s money to active, predatory, hard-money lenders targeting sub-prime borrowers.

In my opinion, calling the servicing company is the equivalent of placing a sign in your front yard advising to burglars that you will be away for a while. Here are some suggestions for navigating mortgage payment difficulties:

Your first objective is to buy time—time to find a job if you are unemployed, time to save some money, time to find another place to live if you are out of a home.

The next step is to analyze your situation and set a strategy.

Do you want to keep your home or just prolong the foreclosure? Set aside for the minute that you may be underwater and answer the underlying question, do you want to keep your home?

If so, the next thing you want to discover is if your loan was sold as part of a securitized pool of mortgage backed investments. There are two types of entities who package and sell loans. Government agencies such as Fannie Mae and Freddie Mac have been doing it for years.

But, private label players began entering the market in the early nineties coining the phrase sub-prime and finding an enormous market for loans outside the Fannie/Freddie guidelines, including non-conforming loan amounts, alt-A, sub-prime, non-residential property, and other debt packages such as student loans, car loans, and credit card debt.

It now appears that some of that activity has created a legal roadblock to foreclosing on many of the securitized loans.

If you want to keep your home and you live in a state that does not require the foreclosing entity to take you to court, a non-judicial foreclosure state, you’ll need to sue them. Many people counter that they do not have the money, but if you have the facts on your side, the law on your side, and a fair judge, you could wind up owning your home without a mortgage. That is definitely worth the money.

For those who are facing foreclosure, you have real skin in the game, and you need to assess your situation to determine if you have grounds to challenge and win. For those who have already lost their homes, many of you have standing to get them back.

Do you have a MERS loan?

If the word MERS appears on your trust deed, it is almost certain to have been securitized. This will require a visit to your County Recorders Office to see if MERS is recorded on your deed. Depending on where you live, this information may be available online. If your loan has been assigned through MERS, they may have separated the note and the trust deed, or not be able to produce the note at all.

In a judicial foreclosure state, such as Florida or Illinois, they will be suing you. During the discovery process, you will demand to see the original note, not a copy. Your purpose in identifying the current note holder is to seek additional discovery regarding TILA and RESPA violations in your loan.

In a non-judicial foreclosure state, like California, you will have to sue to stop the foreclosure. Either way, I strongly suggest that you retain counsel to assist you in determining your legal position and establishing a strategy. This is going to be a fight. They will have their lawyer and, if past cases are any indication, they may attempt a fraud upon the court and manufacture evidence.

Are there RESPA and/or TILA violations in your loan documents?

In a non-judicial foreclosure state, this is the heart of your case. This is what will bring the major issues into focus for the Judge. The different levels of fraud are the basis for probable cause. Loan paperwork is pretty sloppy and interested parties are greedy. In all likelihood, your loan will contain one or more violations of the Real Estate Settlement Procedures Act (RESPA) or Truth in Lending Act (TILA).

You will need a legitimate Forensic Loan Audit to determine the existence of these violations and their potential legal remedies which may include rescission of the contract and damages. This should range from $350 to $1,500.

Armed with that analysis, your lawyer will know how to craft your pleading. Be very cautious of modification scams and unqualified loan audits. See my blog, do your homework and know your rights.

This column is not intended to be legal advice. Its opinions are solely those of the author and not RISMedia.

George W. Mantor is known as “The Real Estate Professor” for his wealth building formula, Lx2+(U²)xTFP=$? and consumer education efforts. During a career that has spanned more than three decades, he has amassed experience in new home and resale residential real estate, resort marketing, and commercial and investment property. He is currently the founder and president of The Associates Financial Group, a real estate consulting firm.

Mantor can be reached at GWMantor@aol.com.

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