Forensic Loan Audit- All that glitters is not gold! Part 2

Ok, so it’s been a wee bit over a week since we last touched on this topic.. ok, over a month but the point is here we are! 

Do you know the difference between the loan originator, the owner of the loan and/or the servicer of a mortgage loan? 

Many, many, moons ago in a galaxy far, far away all these labels referred to the same company. Some companies still service loans ‘in house’ meaning they originate and service the same loan.  It is very rare in this day and age that all 3 parts would be played by the same company.  The originator of the loan is the company that actually funded the original loan (i.e. gave you the money) in exchange for a lien against the property.  The servicer of the loan is the company that you make your payments to, complain to about customer service that sort of thing.  Sometimes if the original company retains the loan (for example B of A) they would pay a servicing company to do all the servicing related maintenance on the loan (for example B of A Servicing Corp). 

The ‘owner’ or ‘investor’ on the loan could conceivably be anyone or any entity that cared to buy the loan product on the open market.  Please keep in mind that this is a very simplified explanation of this model.  There are many twists and turns, regulations, companies buying loans back, borrowers defaulting.. any of millions of things that can change the analysis but in its simplest form the owner is the person/entity that purchased the loan from the originator and pays the servicer to maintain the loan. 

The reason for this simplified explanation is related to the loan audit.  If an audit of your mortgage loan reveals loan origination violations of mortgage regulations (law) that could give you some leverage in trying to negotiate a loan modification or refinance right? No, not always. 

There are bars to recovery such as a statute of limitations running out of time or a company that declared BK since they funded your loan- these facts usually mean you are out of luck altogether.  A significant obstacle to obtaining leverage with a loan audit against a loan originator is that they no longer own the loan.  If company A funded your loan, then sold the loan to investor B, who paid Servicer C to maintain the loan why would C care if A made a mistake?  In theory, yes every mistake is significant, in practice however..not so much.  Even if all the stars are in alignment, you kept your loan documents with proof of the error, you have discovered the issue within the applicable statute of limitations and the loan was sold from A straight to C it is unlikely that you will gain any advantage with a loan audit by trying to go through the ordinary customer service/loss mitigation channels.

The standard customer service representative with your loan servicer knows little to nothing about loan origination.  They wouldn’t know an origination RESPA violation if it leapt up and bit them in the nose!  Why would they?  That’s not what they do is it? No, it isn’t what they do at all. Generally speaking if you were to find a significant origination error in your loan documents I would suggest you run straight to the nearest qualified attorney to discuss it. 

Notice I said qualified attorney?  Your task is not only to find an attorney that can unearth and explain the violation, but will also understand the remedies available to you as a result of that violation as well as who to present that information to.  Depending on the seriousness of the violation, the timeliness of its discovery and the remedy available by statute the ‘who’ in this equation may shift.  Unfortunately this is a very fact dependant analysis that doesn’t lend to simple explanation here.  Some examples of the ‘who’ that are often overlooked include the following:

• Department of Housing & Urban Development (HUD) [www.hud.gov]
• Department of Real Estate (DRE)
• State Attorney General (AG)
• Local Congressperson
• State Insurance Commissioner
• State Department of Consumer Protection (not in all states)
• Department of Corporations (not in all states)

Of course any demand that goes to the list above should also include the loan originator, servicer and the owner/investor if you find out who that is.  Always start any RESPA complaint with HUD, the federally funded agency charged with enforcement of RESPA.  Bear in mind the statute of limitations if you are going it alone without the assistance of a qualified attorney.  Government agencies are incredibly busy and especially backlogged with the recent mortgage meltdown.  The HUD website has detailed instructions and forms which will assist in any RESPA issue you may have discovered. 

When all else fails don’t underestimate the power of the media.  If you have been wronged, have significant damages and your attorney can’t get past the wall of paper the mortgage company is hiding behind it is possible to nudge them along with a phone call from Chanel 9 News or the local Congressman. 

In summary, yes I suppose loan audits could be helpful in certain situations, but I wouldn’t ever recommend paying $1,500 for a loan mod shop to slap one together for you.  When in doubt, contact HUD or an attorney with experience in mortgage loan compliance to protect yourself adequately.

B of A Servicer sued for abuse of homeowners!

Today on my favorite foreclosure blog I read that B of A is finally being sued by borrowers for the three stooges act they have been getting away with in the loss mitigation departments.  If you have ever worked on either side of this ‘mod madness’ it is obvious that the servicers are playing a game trying to wear out their borrowers so they just go away.

If a borrower applies for a loan modification they begin by filling out a packet of paperwork that rivals a bankruptcy petition.  They must fill out all the documents correctly (most of the time without assistance or instruction), attach years worth of tax returns, paycheck stubs, 6 months to a years worth of bank statements, insurance declarations, profit and loss sheets if they are self-employed.  This initial packet isn’t always the application, it is the documentation that is submitted to find out if they can submit an application! yep, all this before they can even find out if they might qualify to apply for a mod.

To add to the fun the servicers tend to lose the paperwork at least once, if not twice during this process, which wouldn’t be too bad but borrowers don’t find out the paperwork is lost immediately. Standard operating procedure is to submit your documents, then wait up to 6 weeks for a loss mitigation rep to be assigned to the file.  During that 6 weeks, no one at the servicer will talk to you, acknowledge they have received the packet, or if they do say the company received it they won’t tell you if any documents are missing.. for 6 weeks.  By the time you find out that page 6 of your 2008 tax return didn’t transmit over the fax the company has rejected your application and closed your file.  So, borrowers start over again from scratch.

After submitting documents 2 or 3 times over a 6-9 month period borrowers are in serious loan delinquency, the trustee sale is already scheduled.  You wouldn’t want the servicer to hold the FC since you have submitted 3 applications in 9 months which were lost by their company would you??  After all, it’s the borrowers fault the loan is in default, what could the servicer do since it isn’t their fault in the first place? (umm, sure it’s always the borrowers fault…not)

unfortunately at this point in the game desperate borrowers at the end of their rope get online and find a FC Rescue law firm or some such organization to ‘negotiate’ the loan mod for them.  For a mere $5,000 they will submit the application and keep an eye on it with the servicer to make sure it doesn’t get lost.  There are some really good law firms out there that do just that.  There also exist predatory firms that take advantage of a consumer that is already down on his luck.  It’s hard to tell them apart.

The first place to start your research into such a firm should be the California Bar Association.  Check out the attorney search, it will give you the disciplinary records of the attorney you are seeking to hire.  Google the firm name, see what’s out there-  I don’t mean you should believe everything you read on Rip Off Report, but in the July issue of the CA Bar Journal the lead article is about 3 more attorneys being disciplined for FC rescue activities.

Once you find a reputable company they will work with you to ensure your paperwork is completed correctly, submitted in its entirety and they will hound the servicer constantly to make sure they don’t lose your submission.  It is a long and frustrating process.  Sometimes even the best firms can’t get you a loan mod, but they will be able to document their efforts on your behalf.

Support the 1st Amendment! 1forall.us

I just came across a blog topic that is a perfect backdrop to the recently passed 4th of July holiday.  Support of the 1st amendment- The post is about the first amendment to the US Constitution which begins the process of enumerating the freedoms the founding fathers wanted to preserve for citizens of this country.   The article referenced a campaign to build awareness of the first amendment and its applications called  1forall  I don’t profess to be a constitutional scholar, by any means, but I think we all have a certain familiarity with the 1st Amendment beyond what we hear on Law & Order.  

Have you ever read the Amendments (outside of the forced reading that happened in the high school government class you slept through)?  It’s dry, but interesting reading when you look at it in the context of legislative intent.  By that I mean what exactly were the framers getting at? What were they trying to protect us from?  What had happened in their lives that made these issues so important that they wrote it down as an amendment to the US Constitution?  Remember that people died for the right to draft this document, you have to ask why was this so important to their lives.

The First Amendment

Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof; or abridging the freedom of speech, or of the press; or the right of the people peaceably to assemble, and to petition the Government for a redress of grievances.

Obviously you need to know a little about the set up of the government before its apparent what they are talking about here.  Congress, having been the 1st branch of government set up by the founders has been thought of as the most powerful of the branches of government.  This was a large part of the government run by the people- Congress was to be elected from ordinary people, not born to the post like royalty. 

The framers of the Constitution wanted to ensure that Congress wasn’t going to go on a bender and

1. Declare a mandatory national religion;
2. Prohibit United States citizens from speaking in a free society
3. Abolish the freedom of the press
4. Keep the citizens from peaceful assembly with one another
5. Petition the government as a redress of grievances

That’s a lot to accomplish in one little paragraph.  Many hours of thoughtful debate have been born of defining exactly what the first amendment does and does not protect. What most of us think of when we speak of the 1st amendment is the freedom of speech, but what does that mean exactly? 

The 1st amendment guarantees that we have freedom of speech, but not all speech is free- some things are regulated.  Obscene speech, commercial speech, speech designed to incite violence… all these things are regulated.  Do you think our founding fathers intended there to be limitations on the enumerated freedoms? or did they mean for us to have unlimited rights within the freedoms they took the time to put quill to paper?

I’m very interested to hear what other people think about this topic, please join in on the conversation and exercise your freedom of speech!

Forensic Loan Audit- All that glitters is not gold!

The forensic loan audit is advertised everywhere TV, radio, online.. every foreclosure rescue service or foreclosure rescue attorney tells you that it is a MUST to have an audit done and for only $1,995 they can audit your loan finding every mistake that evil mortgage company made when they wrote you that horrible loan.

 As a former minion of evil (aka legal department slave for the largest national sub prime mortgage company before the meltdown), not all mortgage companies are ethical, but neither are borrowers.  If you lied on your mortgage application inflated your monthly income, designated the loan as for a primary residence when it is an income property etc.. a loan audit is only going to expose the fraud.  Yes fraud.  Did you know that lying on your loan application can be criminally prosecuted?  Yep, and that’s federal law folks.. none-the-less, a borrower can’t go into negotiations with a loan audit that points out they lied to the mortgage company.  No bueno.

 That being said, are audits useful??  Yes, they can be very useful, a lot of mistakes are made every day writing loans because the process is pretty heavily regulated. If the correct box isn’t checked on the 1003 form (loan application) it can mess things up pretty nicely.  If the sales guy changes the interest rate on you without reissuing disclosures, heck, changing ANY term which is material to the loan (influences whether you will buy it) requires reissuing RESPA disclosures BEFORE the day the loan closes.  Since those pesky disclosures are mailed out snail mail, the company needs to issue them a week or so before the closing.

 A large problem with loan audits is that the remedy they give you isn’t always what you expect.  If you find the mistakes in the loan within the time limit proscribed by the statute you can rescind the loan, which is a fancy term for telling them to take the stupid thing back- undo it all!!  That’s a big-ticket item, a great threat to your mortgage originator, it costs a company a lot of money to rescind a loan, they have to buy it back from whoever they sold it to on the secondary market (which dings their reputation with that buyer and costs a pretty penny), they may also have to pay a penalty to the servicer of the loan for rescinding[1] But what are you going to do if your servicing company calls your bluff??  What if they say they will unwind the loan??  The downside to all this is they have to give you your money back, but you have to give them the loan amount back.  Anything they paid out, the cash out you spent on new rain gutters, the disbursement to the tax board for delinquent taxes and the biggie, the loan they paid off in order to refinance you into the snazzy new loan you signed.

 There are lesser remedies than rescinding the loan, but that’s the big ticket item a loan audit brings you.  I will discuss the lesser remedies you can pursue under a loan audit in the second installation of this topic, but you have to ask yourself is an audit worth the money some people are charging for one?  Check back for more info on loan audits in the next week.  I hope this topic opens a discussion where we can all learn a little from one another and as they say, knowledge is power! 

 Thanks for ‘listening’.

 Dawn R. VanHorn

VanHorn Legal

(714) 396-4152

www.vanhornlegal.com

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[1] Do you know the difference between the mortgage originator, the  ‘owner’ of the loan and the servicer of the loan? This concept is key for next week’s discussion.

Does Debtor’s Prison Still Exist??

According to the Star Tribune of Minneapolis, Minnesota the answer is YES!

 Authors Chris Serres and  Glenn Howatt, write in the June 9, 2010 article that consumers are indeed being jailed as a result of unpaid civil judgments!http://www.startribune.com/investigators/95692619.html?elr=KArksUUUycaEacyU

 How can this be happening in 2010??  Creditors have found a way to use public tax dollars to collect unpaid debts!!  The article doesn’t mention whether this is a quirk of Minnesota law or if this is something we should all be aware of.

 Apparently if a creditor in MN obtains a collection judgment and the defendant does not appear before the court an arrest warrant for contempt of court may then be issued, which gives local law enforcement the ability to execute the warrant.  The authors write that in most cases the amount of ‘bail’ paid to the court is equal to the amount of money owed to the creditor.

 It may be legal in Minnesota, but bad form boo, hiss!!  Most people who don’t pay their debts are unable to pay, not merely unwilling.  I can’t imagine that jailing them is going to help them get or keep employment in order to meet their obligations and feed their families.  This just adds another layer of anxiety to an already beleaguered nation of consumers.

 What strange times we live in!

Should I consider bankruptcy??

Should I consider bankruptcy? 

This is a loaded question for most of my clients.  The initial discussion of bankruptcy relief can lead to negative self-judgment regarding the handling of finances or often brings up feelings of failure. I’ve had a number of clients say they feel like they are giving up, taking the easy way out instead of fulfilling their moral obligation to pay their debts.

 I try to meet these objections with logic and alternative viewpoints, but it’s hard to overcome preconceived ideas of bankruptcy.  One thing I stress to each client is that bankruptcy is not a personal failure, it is not shameful and it is not illegal.

 Congress enacted the Bankruptcy Code in 1978, but bankruptcy law traces its roots far deeper in American culture than 1978.  The initial bankruptcy law was enacted in 1800 and allowed only for involuntary bankruptcy filed against a debtor by his creditors. That law was repealed in 1803 and thus began an evolution of legislation through the 1800’s, all of which was replaced by the Bankruptcy Reform Act of 1978, then again in 2005 by the Bankruptcy Abuse Prevention and Consumer Protection Act signed by President Bush.

 The purpose of the history lesson is to illustrate that the legal concept of bankruptcy has been well thought out and developed gradually over the last 210 years.  Bankruptcy is not a fly by night scheme dreamed up to bail us out of the current financial crisis. In enacting the bankruptcy code congress has acknowledged that there are a wide variety of circumstances where bankruptcy can assist an individual or business discharge debts and become solvent again.  Being solvent means that the consumer or business can rebuild finances, pay employees, purchase goods and services, all of which help the overall national economy.

 In filing for bankruptcy you are not cheating your creditors, you are not taking advantage of some obscure loophole, you are utilizing the legal tools available to survive. Whether your particular financial issues, stem from the loss of a job, a medical crisis or family emergency, if you meet the criteria of the 2005 amendment to the bankruptcy code, under the law, you are entitled to a fresh start.  There is no reason not to use the lifeline available to you.

Hello world!

Hello World!!  Welcome, make yourself at home, kick off your shoes and stay awhile… 

I’d like this to be an informal place to meet new people, discuss legal concepts and the real world application of those concepts. Feel free to contribute by posting and commenting when the mood strikes you.  I look forward to getting to know you and learn as much from you as you may learn from me.

Cheers!

Dawn R. VanHorn 

Attorney & Counselor at Law

 VanHorn Legal

  www.vanhornlegal.com