Articles Posted in loan modification

Published on:

Since the start of the HAMP program, servicers have been providing trial plans while leaving the door open to claim that there has not been a modification. As described by Diane Thompson in “Foreclosure Modifications” (86 Wash. L.Rev. 755) servicers recover all their costs after a foreclosure) and receive fees beforehand – the incentive is to stretch out the delinquency without a modification or foreclosure. Courts have slowly been acknowledging the unfairness of this system, in which the property is eventually foreclosed. One decision was based on enforcement of contract based on an offer and acceptance ; another on grounds of promissory estoppel. In a recent decision, the servicer claimed that, as there was no modification agreement signed by the servicer, the owner’s claim is barred by the statute of frauds. The court said no -the doctrine of equitable estoppel barred the defendant from raising this defense, as it would constitute fraud.

Sacramento real estate attorney1.jpg In Angelica Chavez v. Indymac Mortgage Services, Chavez had a $380,000 refinance loan secured by a deed of trust. She got behind and began loan modification talks with Indymac. They offered her a “Home Affordable Modification Trial Period Plan (Step One of Two-Step Documentation Process)” (the Trial Period Plan) under HAMP. The Trial Period Plan required her to make three monthly payments.

The Trial Plan Language

Published on:

California real estate law applies the first in time, first in right rule to recorded mortgages and deeds of trust. The lien recorded first, (senior) has priority to any recorded later. The result is that if the senior lender forecloses, the security of the second (junior) is wiped out. That means that the junior merely has a promissory note to enforce against the debtor, and no lien to foreclose. The lien is relied on by the lender as security, meaning that the best chance to get paid back the debt is to foreclose. After the senior forecloses, the junior can only file a lawsuit against the borrower, who may not have assets beyond the real estate that was foreclosed upon. There is an exception to the rule – if the senior modifies their loan enough that it significantly changes the risk to the junior that the senior loan may not be repaid, the senior may lose priority, and they swap places – the junior, or second, lienholder, may move into first place. Parties modifying a senior loan may should consult with a California real estate lawyer to determine whether this is a problem in their situation. In a 1998 decision the third district court of appeals explains the ground rules, and the junior lienholder was disappointed because the senior loan was not modified severely enough.

junior lienholder real estate law.jpgIn Thomas P. Friery et al. v. Sutter Buttes Savings Bank (61 CalApp 4th 869), Friery owned commercial property in Yuba City subject to a loan held by Sutter Buttes Savings Bank the first, or senior loan). She sold the property to Herminito and Eloisa Briones, and took back a note secured by a deed of trust (the 2nd, or junior lien). The sale triggered the “due on sale” provision of the senior loan, which allowed Sutter Buttes Savings Bank to call the entire loan balance as due. The Bank and the Briones entered a workout agreement, which allowed the Briones to assume the loan, and modified terms of the original promissory note. The maturity date was advanced five months, and the Briones were required to pledge two additional properties as security. Friery did not know about the modification.

The Briones defaulted, the Bank began foreclosure, and Friery brought this lawsuit, claiming that the modification agreement so increased the likelihood of Brione’s default as to amount to a substantial impairment of their security interest. They argued that the Bank owed a duty to refrain from making such a modification.

Published on:

California residential borrowers, in trouble on their mortgage, know the lengthy frustrating process for seeking a loan modification. Some have told me that they believe it is a con game, where they get the borrower to make more payments under a trial program, with no intent to modify the loan -get some more cash, then foreclose. I recently wrote about the West v Wells Fargo decision where a California Court found that, due to promissory estoppel, Wells Fargo could not tell the homeowner that they would get a modification if they followed the rules, but then not offering the modification after the borrow did everything required. Recently, in Corvello v. Wells Fargo Bank the Court of Appeals for the Ninth Circuit, governing all federal courts in California, addressed the issue. Where the loan modification was conditional on Wells Fargo returning a signed copy of the agreement, and the borrower did everything required, the Ninth Circuit held that the lender was obligated to offer the modification – otherwise, injustice would result.

Yolo real  estate attorney.jpgIn Corvello v. Wells Fargo Bank, the court framed the issue: whether the bank was contractually required to offer the plaintiff a permanent loan modification after they complied with the requirements of a trial period plan (“TPP”). The answer was yes. The court first reviewed the federal programs resulting from TARP to assist homeowners. It noted that Wells Fargo, and others, signed “Servicer Participation Agreements” with the U.S. Treasury. It entitled the lenders to incentive payments for loan modifications, and requires them to follow Treasury guidelines.

The Treasury Regulations require the following steps;

Published on:

Loan modifications for California homeowners has become less a rarity in recent times. A loan modification is an enforceable contract between the borrower and lender, and as long as the borrower performs, they will be able to keep the property. However, now as before, lenders lose track of the status of their relationships with their borrowers, and may not realize that a mortgage has been modified. Recently, the federal Court of Appeals, 9th Circuit, found that a lender who forgot they modified a loan, and began foreclosure proceedings, could be in violation of the Equal Credit Opportunity Act requirements for adverse actions by lenders.

sacramento real estate attorney ECOA.jpgIn Schlegel v. Wells Fargo Bank NA, the borrowers took out a $157,000 loan in 2009 secured by their home. The loan and deed of trust were assigned to Wells Fargo. There was trouble, they went into default, and filed bankruptcy. Wells Fargo proposed a loan modification which extended the maturity date for the loan, and retained the same interest rate. The bankruptcy court approved the modification, and a bankruptcy discharge was granted. Wells Fargo quickly sent the borrowers a default notice, saying that the loan was in default for failure to make payments – the letter did not take into account the loan modification. The borrowers contacted Wells Fargo, who told them not to worry. The borrowers continued to make payments as per the loan modification. Of course, Wells Fargo continued to claim they were in default and accelerated the loan, and then claimed that there was no modification. The borrowers filed this lawsuit.

One of the claims in the suit was a violation of the federal Equal Credit Opportunity Act. The ECOA which makes it illegal “for any creditor to discriminate against any applicant, with respect to any aspect of a credit transaction…” Applicable in this case, each applicant against whom adverse action is taken is entitled to a statement of reasons for such action from the creditor.”Each applicant against whom adverse action is taken shall be entitled to a statement of reasons for such action from the creditor.” § 15 USC 1691(d)(2). ECOA defines an “adverse action” as a:

Published on:

Promissory estoppel is a legal argument and cause of action raised when one party makes a promise for which they do not receive any compensation, which the other party relies on in changing their position, such as a promise to modify a mortgage loan. If the promissor had received some consideration, for example ten dollars, then there may be an enforceable contract. However, the promissor in our situation gets nothing in return, but the promise is still enforceable. Sacramento and Yolo business and real estate attorneys argue promissory estoppel as a consideration substitute used when it is required to prevent injustice.

The elements required to show promissory estoppel are (1) a promise, (2) the promisor should reasonably expect the promise to induce action or forbearance on the part of the promisee or a third person, (3) the promise induces action or forbearance by the promisee or a third person (which we refer to as detrimental reliance), and (4) injustice can be avoided only by enforcement of the promise. In a recent California state court decision, lender to a buyer promises involving a trial plan agreement resulted in the court allowing the promissory estoppel claim to proceed.

Sacramento real estate attorney mortgage.jpgIn West v. JPMorgan Chase Bank N.A., West was in default on her Washington Mutual loan. In 2009 Washington Mutual told her that she had approved for a trial plan agreement. The approval letter stated: The approval letter stated: “Since you have told us you’re committed to pursuing a stay-in-home option, you have been approved for a Trial Plan Agreement. If you comply with all the terms of this Agreement, we’ll consider a permanent workout solution for your loan once the Trial Plan has been completed.” West made the required trial payments and Chase (which by now had taken over WAMU) confirmed that it had received her request for a permanent loan modification. Chase then denied the loan modification. They said they would provide her with the net present value calculations; she requested them, and said asked for a recalculation using updated information. Chase never provided the calculations. In a conference Chase allegedly promised West that she could resubmit her updated financial data, and that there was no foreclosure sale scheduled. Suddenly the property was sold at a trustee sale.

Published on:

I commonly hear from clients that they were told by their loan servicer that they would not be considered for a loan modification because they were current on payments. They were either told, or it was implied, that they needed to miss a payment in order to be considered for a loan modification. I never advise a client to skip a payment, as that is their own decision- once it happens, the foreclosure freight train starts downhill and does not stop. Anyone thinking of skipping should consult with an experienced Sacramento and Yolo real estate lawyer to be advised as the full range of options & risks. A recent decision out of Southern California involved a borrower who said she was told to skip a payment, which created a triable issue as to whether the lender induced her to miss a payment, wrongfully placing her loan in default. But that’s not all- there was evidence that her loan documents had forged signatures.

lender foreclosure.jpg In Ragland v. U.S. Bank, the homeowner refinanced through Downey Savings in 2002. (Downey was later taken over by the FDIC, who turned over the loans to US Bank.) She got an adjustable, but claims she thought she was getting a fixed rate. One month later she told the lender that her signature had been forged on the estimated closing statement, escrow instructions, and statement of assets and liabilities. The forgery was confirmed by a handwriting expert.

By 2008 the rate had adjusted up to 7%. She spoke with a lender rep who said they would work with her to modify the loan, and told her not to make the April payment because the worse that would happen is that she would have a late fee. On the last day to make the April payment, she called the lender again, and was told that if there was anything forged, she would not owe anything. They put the loan in “legal” and told her they could not collect while the investigation continued. Later she was told they could not do a modification during the investigation.

Published on:

My last post was about a California loan modification, where the borrower signed the modification documents and returned them to the lender, but the lender foreclosed anyway. The court decided that the there was a binding contract once the borrower signed and returned the modification agreement, even though the lender said it did not happen until after the lender returned a copy signed by them. This is a good result, as otherwise the borrower would be in limbo, making payments, while wondering why they lender did not send back the documents. Finding that a contract was created helped the borrower another way- in her claim for wrongful foreclosure.

WRONGFUL FORECLOSURE.jpgIt is a general rule in California law that a lawsuit to set aside a trustee’s sale for irregularities in sale notice or procedure should be accompanied by an offer to pay the full amount of the debt for which the property was security. This is known as the tender rule. I think that the tender may be made on filing the lawsuit, but some courts may differ.

However, in our case, there is no claim of irregularities in sale notice or procedure. The claim is that the lender offered a modification, the borrower accepted, and they had a deal. The court noted that the power of sale, which gives the trustee the right to foreclose, is a creature of contract, not statute. If, after a default, the borrower and lender enter into an agreement to cure the default and reinstate the loan, no contractual basis remains for exercising the power of sale. Thus, under the terms of the modification agreement, there was no default, but they foreclosed anyway. The borrower had made a claim for wrongful foreclosure, and there was no need to allege tender of the balance of the loan.

Published on:

Loan modifications have been getting a bit more predictable recently, but several years ago it was a crap shoot of false hopes and unreliable loan servicers. Issues I often saw surrounded what happened when the borrower signed the loan modification documents, and make the trial payments, but was told that they didn’t qualify. Borrowers in the loan modification process should consult with an experienced Sacramento real estate attorney, who can advise them as to the meaning of the documents they have been presented. A recent decision covers such an agreement proposed in 2009. This post covers the impact of the borrower signed and returning the documents. Part 2 will cover her claim for wrongful foreclosure.

In Barroso v. Ocwen, the borrower bought her house in 2005 for $372,000. She got behind on payments, and a notice of default was recorded in 2009. Ocwen told her that she qualified for the HAMP program, and sent her agreements for her signature. They were:

a. Trial Period Plan; payments for three months;

Published on:

The California state bar has weighed in on deposits in attorney trust accounts. Agreeing with my prior post, the state bar, in a question and answer format, provides it’s opinion:

“Is it a violation of Civil Code Section 2944.7(a)(1) to collect an advance fee, place that fee into a client trust account, and not draw against that fee until the services have been fully performed?
Yes. The statutory language of the prohibition uses the word “receive” and the plain meaning of that term is broad enough to encompass a lawyer’s receipt of advance fees into a trust account. “

There used to be many good intentioned attorneys providing a useful service in assisting clients deal with modifications. I doubt that there are many left.

Published on:

Federal bank regulators issued guidelines allowing banks to keep loans on their books as “performing” even if the value of the underlying properties have fallen below the loan amount.

As reported in the Wall Street Journal, Regulators said that the rules were designed to encourage banks to restructure problem commercial mortgages with borrowers rather than foreclose on them. But the move has prompted criticism that regulators are simply prolonging the financial crisis by not forcing borrowers and lenders to confront, rather than delay, inevitable problems.

Banks have generally been avoiding commercial real-estate losses by extending these mortgages upon maturity, a practice, billed by many industry observers as “extending and pretending.”