Commentary on Washington State law and how it Relates to real Estate

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A word on the HAMP program

Posted on December 30, 2012 by Robert P. Dickson

Since the beginning of the recession in 2008, loan modification programs have been available primarily through the Home Affordable Mortgage Program (HAMP). If a homeowner was unable to quality, the individual mortgage company could offer its own programs.

Normally, the goal of a modification is a lower monthly payment through reduced interest rates, elongating the term of the loan, principal balance reduction, or a combination of all. Our firm has helped clients since the downturn’s beginning with modifications. We have seen a tremendous amount succeed through the lowered interest rates and/or lengthening the loan. Seldom, however, did lenders reduce principal balances. But now they are. Over several months, we have seen an uptick in this remedy, sometimes several thousand dollars or even tens of thousands in reduced balance. We have seen eliminations of entire second mortgage balances.

You may have heard of the settlement five banks reached with the federal government, called the New National Mortgage Settlement. In February 2012, the federal government and 49 states (Oklahoma did not participate) entered into a settlement with the country’s five largest loan lenders: Ally, Bank of America, Citi Bank, JPMorgan Chase, and Wells Fargo. In the settlement, $25 billion is set aside for mortgage relief to underwater homeowners, $17 billion of which for loan modifications and principal reductions.

As we watch the effect of this settlement unfold, we can only assume it will further benefit the homeowners who qualify though they must be borrowers of the settling banks or servicers. In a later Blog entry, focus on eligibility will be discussed.

–Contributed by Michael P. Dickson

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Foreclosure Fairness Act Guide

Posted on December 30, 2012 by Robert P. Dickson

17994ju9klmmlpuRecently, I’ve had the privilege to address some professional groups regarding the latest developments on foreclosure law in Washington State.  A lot has changed in the world of foreclosures due to the July 22nd passing of the Foreclosure Fairness Act (FFA).  The Department of Commerce has published a helpful timeline which traces the path of the new foreclosure procedures and homeowner mediation rights created by the law.  Using that as a starting point, I’ve created my own table which outlines the step-by-step process of a foreclosure under the FFA:

 

Step

Action

Notes

1

 Notification of Rights/Initial Meeting Option:

60-days prior to Notice of Default: lender must notify homeowner by letter and telephone of right for in-person meeting (must notify mediation right—must be requested before Notice of Trustee Sale).

Meeting: if borrower elects to have an in-person meeting, the parties will discuss

(i) the borrower’s financial ability to modify or restructure the loan, and

(ii) Explore options to avoid foreclosure, such as a short sale or deed in lieu of foreclosure.

 Must be both a phone call and letter. This is interesting because it requires bank to make two forms of contact.  If the borrower does timely respond, the lender must wait to send the Notice of Default until ninety (90) days after the FFA Notice was sent.

2

 Mediation Request:

Request Mediation through attorney or housing counselor through the Department of Commerce.

 This is an option up until the Notice of Trustee Sale is recorded.  Once the Notice of Trustee Sale is recorded, the option expires.

Mediators are largely from non-profit dispute resolution centers (“DCRs”)

3

 Mediation Notification:

Within 10 days after getting mediation request, Dept. of Comm. Notifies all parties and selects a mediator.  The Deed of Trust Trustee will also be notified.

 Dept. of Comm. will also notify the parties of the required documentation.

4

 Mediation Schedule:

Scheduled no less than 45 days after mediator selected. This can be agreed-upon by the parties, but 45 days is the default.

Mediator sets time at least 15 days prior to mediation.

 

 Homeowner may be represented by an attorney of other advocate, including a housing counselor.  At the mediation, the lender must have someone of authority to modify or negotiate an agreement (can be by phone)

5

 Documents:

Homeowner – (1) Financial statements, (2) current/future income, (3) debts/obligations, (4) 2 years tax returns.

 

Lender – (1) Loan balance, (2) list of fees/charges, (3) payment history, (4) net present value and loan inputs (5), (6) copy of note/deed of trust

 Not providing documents in a timely manner is often the trigger-point for negotiating in bad faith.  It is vital the individuals provide those documents on time and as completely as possible.  If they are NOT complete, the party must have an explanation.

6

 Mediation:

During the mediation, mediator will encourage the parties to look at all options, and provide a written certification within 7 days after mediation that the parties acted in good faith.

 

Considerations:

1.      Borrower’s economic circumstances

2.      Net present value of modified loan vs. anticipated recovery at foreclosure

3.       Loan mod and net present value calculations are established by the FDIC or other programs

4.       Other loss mitigation guidelines (fed. insured loans)

 

Mediation fee maximum of $400; and can last up to three (3) hours.  It is also split equally between the parties (borrower/lender).

 Parties are obligated to act in good faith. Mediator will adjudge whether parties acted in good faith towards a resolution.

Bad Faith:

(i) failure to participate in the mediation,

(ii) failure to timely share required information,

(iii) failure to pay the party’s share of the mediation fee,

(iv) failure to send an authorized representative to the mediation, and

(v) a request by the lender that the borrower waive future claims.

Good Faith:

(i) Communicate openly and understand/listen to borrower

(ii) Flexibility

(iii) Commitment to keep agreements

7

 Conclusion:

Parties come to an arrangement (loan mod, short sale, etc.). The mediator will establish terms of the resolution and provide the FFA certification on the Dept. of Commerce’s form.

 Homeowner may enjoin the sale of the property if the bank did not mediate in good faith.

Picture credit: jscreationzs,

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