Tennessee Bankruptcy Lawyer Blog

The Tennessean is reporting that the Tennessee Attorney General, Bob Cooper, has joined other AGs in their investigation into problems with pending foreclosures. However, the effect of this investigation, at least for Tennessee homeowners, is still uncertain.

As AG Cooper stated in the article above, Tennessee is a non-judicial foreclosure state and the so-called "robo-signing" of foreclosure documents does not exist in Tennessee. The alleged "robo-signing" has to do with court documents that are needed to start foreclosure proceedings in the 23 judicial foreclosure states. Since Tennessee does not require the filing of court documents to start foreclosure proceedings, Tennessee is not affected by the "robo-signing" issue.

However, it now appears that the investigation, which now includes all 50 AGs, will expand beyond the "robo-signing" issue in an effort to determine if other problems exist. Stay tuned. This should get interesting.

Well, it didn't take long for my previous post to become outdated. This morning, Bank of America announced that it would halt all foreclosure sales in all 50 states until it can verify that its foreclosure procedures comply with applicable laws. The move appears to have been spurred by the Delaware Attorney General's questions regarding BoA's procedures in Delaware (which was not one of the original 23 judicial foreclosure states included in BoA's earlier announcement to halt foreclosures). As a result, Tennessee is now included in BoA's halt (at least for now).

So, what does this mean for Tennessee homeowners who are facing foreclosure through BoA? My opinion is this is just a delay. There is no way to know whether or not BoA will start modifying loans or make any other concessions to homeowners, but at least the foreclosures should stop for now. However, if you are already in the foreclosure process, I would encourage you to get confirmation in writing that the foreclosure sale has been stopped.

Many of my readers have heard that a number of lenders, including Bank of America, Ally (formerly GMAC), and JP Morgan Chase, have stopped foreclosure proceedings in 23 states. However, Tennessee is NOT one of those states. As a result, if you have been hoping that one of these lenders are going to stop a pending foreclosure on your home in Tennessee, don't wait for that to happen.

The reason these lenders have stopped foreclosures is because some of the documents needed to foreclose in those 23 states may have been inproperly signed. Specifically, the 23 states in question are judicial foreclosure states and lenders must file a foreclosure action with the courts in those states before the foreclose can occur. Tennessee is a non-judicial foreclosure state and those documents are not required in Tennessee. As a result, the alleged problems in those 23 states would not exist in Tennessee.

However, this appears to be the first big revelation regarding the problems lenders may have with their paperwork. As this situation unfolds, I expect more problems to be uncovered.

It has been a while since my last post, but my caseload has cut down on my time to post blog entries. Nevertheless, I wanted to take a moment to mention some of the issues that I am hearing from my clients.

First, I have a pending lawsuit against a loan servicing company where the loan is in pre-foreclosure. Two major problems have occurred on this one. The private mortgage insurance ("PMI") is outrageously expensive (it is approximately 1/3 of the total monthly mortgage payment). In addition, the clients' mortgage was sold about 3 weeks before the foreclosure sale was to occur. As a result, we couldn't find anyone at either loan servicing company who could work on the issue for about 2 weeks. With a week left before the foreclosure sale date, the new servicing company said it would stop the foreclosure if the clients wired $2,700 to them. They did (although I counseled them to get the agreement in writing before wiring the money) and, SURPRISE, the servicing company did not stop the foreclosure. The clients had to file an emergency bankruptcy to stop the foreclosure and we are now pursuing a lawsuit against the new servicing company for a number of violations, which now includes fraud.

Second, I have 2 cases where the mortgage lender offered my clients foreclosure alternatives (i.e., deeds-in-lieu, loan workouts, or HAMP modifications) and foreclosed on the house before the offers expired. The clients thought the foreclosure was delayed or stopped, but that was not the case. In Tennessee, it is difficult to overturn a foreclosure (even with these types of violations), but we are pursuing the lenders for damages.

In each case, the clients simply waited too long to act, hoping that the lender or servicing company would modify the loan before the foreclosure date. Don't wait until the last minute. If you have already been notified that your lender or servicing company intends to foreclose on your home, you need to act now. Any number of problems could arise by waiting too long to deal with the issue.

As more information about the recovery efforts following the 2010 flood become available, we will try to post the information on this blog. In this morning's Tennessean, there is an article with the address for each of the FEMA Disaster Recovery Centers that has been opened in Middle Tennessee. Specifically, centers have been opened in Cheatham County, Davidson County, Hickman County, Williamson County, and Wilson County and the addresses are:

Cheatham County: City Hall, 308 U.S. 70 in Pegram
Davidson County: 100 Oaks Mall, 719 Thompson Lane in Nashville
Hickman County: Centerville Church of Christ, 138 N. Central Ave. in Centerville
Williamson County: City Hall, 109 Third Ave. S. in Franklin
Wilson County: 350 Outlets Mall in Lebanon (opening soon)

In addition, a recovery center specifically for businesses that have been affected has opened on the campus of Tennessee State University.

You can also contact FEMA at 1- 800-621-FEMA or www.disasterassistance.gov.

We are already getting a number of calls from clients and potential clients regarding the possibility of foreclosure if they do not make payments on their homes that have been damaged by the recent floods in the Middle Tennessee area. The U.S. Department of Housing and Urban Development ("HUD") announced that there will be a 90-day moratorium on foreclosures of FHA mortgages. As a result, If you have an FHA mortgage that is already in the foreclosure process, you have been given a 90-day grace period on those foreclosure proceedings.

However, I do no believe that the moratorium will prevent a foreclosure after this moratorium. As a result, if you have the ability to make your mortgage payments, it is likely in your best interest to make the payments. At some point in the future (maybe longer than 90 days if the moratorium is extended), foreclosure proceedings will be allowed to begin again. However, if you are already facing foreclosure on an FHA mortgage, you need to use this 90-day period to seek help. If your home was damaged by the flood, FEMA, as well as other federal and state agencies, are offering some limited help. If you have an FHA loan but your home was not damaged by the flood, you need to have a plan for dealing with the foreclosure at the end of the 90-day moratorium.

If you do not have an FHA mortgage, the moratorium does not directly affect you. However, you may be able to get assistance from the lender to delay any foreclosure proceedings by calling and talking to the lender. Hopefully, the lender will be open to this.

We encourage anyone facing foreclosure to explore any and all of the assistance that has been made available as a result of the disaster that has affected our area. However, if you are still facing foreclosure after all of your other options are exhausted, please contact us if we can be of help.

I almost hate writing anything about the mortgage modification programs anymore, but I continue to get calls from Tennessee homeowners asking what to do after their loan modifications fall apart. In yesterday's New York Times, there is another report on the failings of the HAMP. The previous reports have focused on the shockingly small number of mortgages that have actually been permanently modified. However, the New York Times article is now reporting that the number of mortgages that are defaulting after receiving a modification nearly doubled in March. That's right, even those homeowners who receive a modification are defaulting on the new payments at an alarming rate.

What does this tell us? Probably a lot of things. But from the information I am getting from my clients, it tells me that most of the modifications (even if you get one) are not sufficient to fix the homeowners' problem. In several cases, my clients have indicated that the amount of reduction they were offered under the modification was less than a 10% reduction in the monthly payment. However, the article also states that those homeowners who received a new monthly payment of at least 20% less than their prior payment still defaulted at a rate of about 40%. For most homeowners who are already facing foreclosure or bankruptcy, dropping the mortgage payment by only 10-20% isn't enough.

So what should you be doing if you need a modification? First, at least try the modification process. However, just be prepared for some frustration because the process is not easy. Second, be prepared for some mortgage companies to tell you not to make mortgage payments during the initial stages of the process. If that happens, make sure you do not spend that money on other things. Many people end up in a worse position because they don't make any payments during the process and don't have the money to make those payments when the process falls apart. Third, and most importantly, get everything in writing (including a statement that the mortgage company will not foreclose on your house during the modification process).

The Tennessean is reporting today that Bank of America is pledging to help certain struggling homeowners avoid foreclosure. However, whether or not this help will be available to many Tennessee homeowners is yet to be determined because the BoA offer is very limited. The New York Times is also reporting on a new BoA initiative, which appears to be the same program. Unfortunately, there are significant differences in the information in the two articles.

According to the Tennessean, the BoA program is limited to those homeowners who (1) owe at least 20% more than the current value of their homes, (2) have a subprime or "exotic adjustable rate" mortgage, and (3) are at least two months behind on their mortgage payments. But according to the New York Times, the BoA program is by invitation only and BoA is only inviting borrowers who received subprime or other "high risk" loans from Countrywide. The New York Times also reports that BoA's terms of the offer is significantly more limited than what is reported in the Tennessean article.

Regardless of which report is correct, if you qualify, the BoA offer is significant. It appears they are offering to reduce the principal balance owed on the mortgage by as much as 30%. So far, most of the mortgage modifications that have occurred have only reduced interest rates or extended payments. But under the BoA offer, a homeowner could actually owe less on the mortgage balance (at least at some point). That's great news for BoA customers that qualify.

However, many Tennessee homeowners have not seen the 20% or more drop in their home values that the Tennessean reports is part of BoA's criteria for the offer. As a result, I am not sure how many Tennesseans will qualify for this offer. More importantly, mortgage modifications have (at least in many cases) been more of a nightmare than a blessing. The fact that BoA is making the offer is wonderful, but if you qualify and start working on a modification with BoA, make sure that BoA also stops any foreclosure proceedings during the negotiation process.

I have written several times about the problems with the federal foreclosure relief program (called HAMP), but the bad news just continues to be reported. Today, two separate reports discussed the difficulties many homeowners are facing when trying to get a mortgage modification.

On MSNBC's website, there is a long report documenting the backlogs, communications problems, and failures to follow the HAMP guidelines that plague the program. The report explains that the different departments within loan servicing companies that handle the loan modification and foreclosures often do not communicate with each other and, as a result, the loan modification efforts do not necessarily stop the foreclosure process. Even Homeowners who believe they are working with the servicer on a loan modification are getting foreclosure notices on a frequent basis.

Bob Sullivan's blog post , also on MSNBC's website this morning, takes the explanations to a more personal level. It describes the experience of a couple from Pennsylvania who, despite doing everything asked of them in their trial loan modification, received a foreclosure notice. While this report is not unusual, the story itself highlights a problem that has received very little attention. The couple obtained a trial loan modification that reduced their mortgage payment by $2,000 per month. They made the payments for the 3-month trial period, but then had to work through all of the paperwork red tape for another 7 months. At that point, the couple received a foreclosure notice that indicated that their loan balance was then $20,000 more (thanks to the $2,000 per month reduction in payments, plus penalties and fees) than it had been at the beginning of the trial modification period. During their 10-month ordeal, the mortgage company reported to the credit rating agencies that the couple had made only partial mortgage payments, which caused a massive drop in their credit scores. The credit score drop caused their credit card interest rates to skyrocket, so they had a new problem on their hands.

If you live in Tennessee and are facing these kinds of problems, we may be able to help. As the stories about the problems with HAMP point out, you need to be diligent in working with your mortgage company to make sure both the loan modification and foreclosure departments are working together.

CNN reported today that the number of mortgage loan modifications, and particularly the number of permanent loan modifications, increased significantly in December. Despite the fact that the number of permanent modifications since the HAMP began more than doubled in December alone, the all number of permanent modifications is still at only 7.4% of all modifications that have been started. In addition, more than half of all people who are granted trial modifications end up being denied permanent modifications. In addition, foreclosures still outpace the number of loan modifications.

Even the best of the loan servicers that participate in the HAMP has only placed 47% of its eligible borrowers into trial modifications. The worst of the loan servicers has placed only 19% into trial modifications. If the percentages continue at the current trend, more than half of those borrowers in the trial modifications will not receive permanent modifications. As a result, the current percentages for permanent modifications are alarming. Of the largest mortgage loan servicers in the country, the percentage of eligible borrowers who have received permanent modifications ranges from 2.41% to as little as 1.68%.

If you are eligible for loan modification under the HAMP, you must be diligent in keeping in touch with your loan servicer, completing all of the paperwork required by the servicer, and staying on top of the process to ensure that the servicer follows through. But, as I have mentioned in earlier posts, you need to make sure you can afford the modified payments. If not, the modification may only be delaying the bigger problem of foreclosure.

Many people may not have even known about the program, but President Obama's Second Lien Modification Program, a "complementary program" to the Home Affordable Modification Program ("HAMP"), appears to be over. If you are not familiar with the Second Lien Program, it was intended to help homeowners who had more than one mortgage loan adjust the terms of the second mortgage. When the program was announced back in April, the Treasury Department's release stated that when a HAMP modification was initiated on a first mortgage, the Second Lien Program would "automatically reduce payments" on any second mortgage on that home. As with the HAMP, mortgage servicers had to enroll in the program with the Treasury Department to participate. However, it appears that not a single servicer enrolled in the Second Lien Modification Program.

So, what does this mean for most homeowners? Be wary of some of the mortgage modification programs being advertised. While there is a federal modification program (at least for first mortgages), the federal modification programs are not being utilized by the mortgage servicers to the extend many people thought. Unfortunately, there are many people trying to take advantage of homeowners who are looking for help. If you are trying to obtain a loan modification, check to see if your mortgage servicer participates in the HAMP. Then, if you need help, make sure you do your research on the company that you engage to help you. Using a bankruptcy or foreclosure defense attorney may be your best option.

With the increase in foreclosure proceedings, the question will invariably come up: "Do I need to move after I receive a foreclosure notice?" Conventional wisdom has generally been to stay in the house until you receive the notice of the sheriff's sale. However, even moving out at that point may not be in your best interests. The answer to the question really will depend on your particular circumstances, but keep the following issues in mind:

• Will moving out diminish the value of your house? Some people don't seem to care anymore after getting a foreclosure notice, but keep in mind that you may be on the hook for any unpaid mortgage balance after the home sells. As a result, you really want the house to sell for as high a price as possible, even after foreclosure. If you leave the house early, the house is more likely to be the target of thieves or squatters. Abandon houses often end up with missing fixtures, pipes, and any other items (include building materials) that can be used or sold by thieves.
• Do you have anywhere else to go? If not, staying in the house as long as possible will be helpful. Although you may not be able to pay the full amount of your mortgage payments, maybe you can save enough to at least pay the upfront costs (i.e., first month's rent, security deposit, etc.) for an apartment or rental home.
• What if the lender doesn't follow through on the foreclosure? This may never have crossed your mind, but more often than ever before, lenders are "walking away" from foreclosures. As a recent article from MSM explained, "bank walkaways" create issues that you need to consider before moving out of your home. For example, if the lender doesn't take possession of your home or doesn't complete the foreclosure, you may continue to be liable for property taxes, home insurance, homeowner association dues, and building code violations. As a result, you may be better off staying in the house and trying to work with the lender to modify the mortgage loan.

No matter what situation you find yourself in, don't just ignore the situation. Walking away from the house may end up costing you much more than you ever realized. Keep in touch with the lender (or loan servicer), see if the lender is going to follow through on the foreclosure, and make sure you can find another place to live. If the time comes to either fight the foreclosure or file bankruptcy, find an experienced counselor or attorney to help you.

RealtyTrac Inc., reported on Thursday that 2.8 million homes, a new record, received a foreclosure-related notice in 2009. The number was a 21% increase over 2008 and represented approximately one out of every 45 homes in the U.S. Luckily, the same report indicated that foreclosure-related notices were actually down in 2009 for Tennessee.

A foreclosure-related notice is any notice given during a foreclosure process, so it includes notices in the early stages of foreclosure that are received before a home actually goes into foreclosure. While some of these notices did not result in actual foreclosure, the number does indicate that a record number of Americans are having trouble making mortgage payments. While it comes as no surprise that we set a new record, it doesn't appear that our troubles are over yet.

The number of notices appeared to decrease as the year went on, likely an indication that government efforts to prevent foreclosures may have had some effect. The federal Making Home Affordable Program ("HAMP")loan modifications are attributed with that success. However, as I have mentioned before, most of the HAMP "successes" have been temporary modifications. Over 750,000 mortgages have been modified on a trial basis under HAMP, but as of November, only 31,000 mortgages have been permanently modified.

With the temporary status of most of the loan modifications and the continued weakness in the economy, RealtyTrac still anticipates another 3 million to 3.5 million homes to enter some phase of foreclosure in 2010. If you find yourself in this position, I would encourage you to check out all of your options as early as possible in the process.

I'm sure you've heard about loan modifications under President Obama's housing plan. You may have heard about the Treasury Department pushing lenders to do more of them. However, many people are now questioning whether the loan modification program is doing more harm than good. The New York Times recently reported that, according to some experts, loan modifications simply delay the inevitable and destroy homeowners' savings in the process, leaving homeowners worse off than before the loan modification started.

As the article points out, as do other articles (including the one from Megan McArdle in The Atlantic ), is that modifying the terms of a mortgage without reducing the principal balance may not be enough. For years, homebuyers have been encouraged to "buy all the home you can afford," and many did so at historically low interest rates. But now that so many homeowners have either lost a job or lost part of their incomes, they may be in a home they simply cannot afford, regardless of any loan modifications. If a homeowner cannot afford the principal balance on the home, none of the loan modifications currently being pushed by the Administration will solve that problem. Rather, the loan modification programs just encourage the homeowner to keep making payments to catch up, often draining any savings the homeowner may have. Oh, and the other problem the lender will likely forget to mention, these loan modifications can have a negative effect on the homeowner's credit.

The New York Times article tells the story of a foreclosure that occurred while a homeowner who was going through the trial loan modification period (typically a 3-month period step required under loan modification programs to make sure the homeowner can make the new payments before the modifications become "permanent"). The Florida homeowner did everything right under the terms of the modification, but the lender continued to delay the "permanent loan modification." The 3-month "trial period" turned into 6 months and the lender foreclosed on the home and sold it (to itself for $100, no less) before making the modification "permanent." Luckily, the homeowner got the help of a foreclosure defense attorney and the foreclosure has been overturned. However, the case highlights some of the problems with the current loan modification process.

If you have negative equity in your home, you really need to proceed cautiously with any loan modification program. Ask yourself, can I really afford the modified loan payments? If not, you need to be looking at all of your options.

HAMP stands for the Home Affordable Modification Program. It is part of the current Administration's Financial Stability Plan. Generally, this is the federal mortgage stimulus plan that has been talked about extensively in the media. Although you do not have a "right" to a loan modification, the program is available to a large number of homeowners who are behind on mortgage payments or a struggling to make mortgage payments. When a Tennessee homeowner approach our firm for loan modification help, we take the homeowner through the following steps to see if they qualify under HAMP.

There are a number of factors to qualifying for help under HAMP, but the following five requirements must be met before even starting the discussion:

• You must be the primary resident of the home (i.e., not available for rental property loans);
• Your mortgage payment is more than 31% of your monthly pre-tax earnings;
• Your loan amount is less than $729,750;
• You are unable to afford your current mortgage payment; and
• Your loan servicer (i.e., the company to which you pay your mortgage) must be a participating servicer in the HAMP (Home Affordable Modification Program).

Obviously, the last of those basic factors could be fairly subjective. The federal government has a questionnaire available to help you determine if you are "eligible" for the program. However, notice the disclaimer at the bottom of the questionnaire. The disclaimer says the questionnaire will help you determine if you are "eligible," but that "the servicer or your loan can tell you if you qualify." (My emphasis added).

The HAMP is a step you can take before falling into a foreclosure situation. There are HUD-approved mortgage counselors who can help you with the HAMP. The HAMP website has a list of HUD-approved counselors. However, if you run into problems or are already facing the possibility of foreclosure, we would be happy to help.