November 9, 2010
Who is at fault with Servicer/Investor Agreements?
The simple answer is: everyone.
The banks are at fault for selling their loans off to investors in pooling agreements. These pooling agreements are designed to make some less-appealing subprime loans look more appealing by clumping them together with other prime loans. The level of appetizing is determined by the likelihood that the funds will be retrieved in the loss mitigation department. The problem when selling these loans off is that the court still holds the bank responsible for negotiating in court. The PSA agreement, which runs between 600-800 pages, clearly restricts the bank from having the settlement authority to effectively negotiate in court. The wording is as follows:
“…the Servicer shall not permit any modification with respect to any Mortgage loan that would (i) change the Mortgage Interest Rate, defer or forgive the payment thereof of any principal or interest payments, reduce the outstanding principal amount (except for actual payments of principal) or extend the final maturity date with respect to such Mortgage Loan…”
It then follows that the Investor is equally at fault for including such clauses in their PSA agreement. Holding such strict guidelines is in direct contradiction to the purpose of Obama’s mandated foreclosure settlement conferences. Not only does the agreement put the Investor’s failure to “Act in Good Faith” in writing, but it defers the Investor from researching potential workout plans that are beneficial to both parties. So while the Investor will continue to accrue properties that are continuously losing value, they could have rather allowed these homeowners to retain their properties while setting them up on repayment plans that keeps the income steadily flowing to the Investor.
The homeowner is ALSO at fault, for not making a bigger fuss about this in court. Plaintiff firms all over New York are becoming increasingly exhausted with their clients asking them to mask these Investor’s guidelines in court and are beginning to spill the beans about what is actually going on behind closed doors. The homeowners then passively attend court and listen as they are told that someone, other than the bank that their loan originated with, is preventing them from being reviewed for Obama’s Making Homes Affordable Plan. They should, ultimately, be making a bigger deal about this! Though, it could also be argued that they could be at fault for not hiring an attorney.
Referees and Judges, too, are displacing their anger at the incorrect parties. They persist in coming down on the Plaintiff firms and their bank clients, ordering Bank executives to fly across the country on 24 hours notice to appear on a matter that they have no authority to settle on. I say, make the Investor appear. Get to the source of the complications and write a court order demanding the investor to appear. That way, the Investor can show face with a copy of the PSA agreement and attempt to voice their opinion as to why they think keeping firm to the agreement will be more beneficial for all parties rather than attempting to modify.
Finally, the foreclosure law firms are at fault. Plaintiff firms should be putting heavier pressure on their bank clients to push the investors to re-think their agreements before going after these properties in foreclosure. A simple threat of a court order is often times enough to get someone to re-evaluate the pros and cons of the agreement guidelines.
The Servicer/Investor agreement is an old concept that is just now surfacing its ugly face in the New York Supreme courts. It has caused a lot of controversy and remains a taboo subject that receives different judgments in every county. Understanding the source is the first step towards untangling what has become another speed bump in saving homes in New York.
April 26, 2010
He said, She said
By: Eric Freedman (Eric Freedman is the Senior Real Estate Paralegal at Pulvers, Pulvers & Thompson, LLP. He is not an attorney.)One of the more difficult dilemmas plaguing the Supreme Courts in our current real estate market happens to be a petty one. For most problems found in court every day, all parties are issued a solution. If the bank is not complying, toll interest; if the borrower does not appear, mark the matter off and proceed with foreclosure. But when it comes to bald claims regarding submission of financial documents and hardship affidavits, no standard solution exists. I have compiled a list of a few methods to ensure that the modification review process is as short as possible, to keep attorney’s fees low and the Judges happy:
1. Do not cheap-out on the mailings – Do not mail a standard envelope to the bank and pray that it gets into the right hands. Spend the extra five dollars and send it certified mail signature required upon receipt. In doing this, you will be able to bring the signed receipt to court to show the Judge that you are actively attempting to get your loan modified.
2. Appear in court – It sounds self-explanatory but hundreds of mediation conferences are thrown out every week due to homeowners failing to appear. It is simple; appear in court when you are told to. Never assume you are exempt.
3. Submit your financial documents in their entirety - So many conferences are held and adjournments granted simply because the bank only has partial information needed to review. The fees accrued from such conferences will be tacked on to your loan (unless otherwise directed by the Referee or Judge). Go through your checklist of every piece that the bank needs and do not send anything out until you have consolidated your information into an organized package. Do this as quickly as possible. Be sure to submit a profit/loss statement in lieu of pay-stubs if you are self-employed. Proof of income is the most important variable when your file is being reviewed.
4. Send your financial documents to the bank AND the bank’s attorney – By mailing in this manner you, quite simply, double your chances of getting your loan modified in a timely fashion. Each bank has a specific medium they prefer for receiving documents. No persons know better about how to best reach the bank than the bank's own attorney. So send the lender a copy and send an additional set to the attorney to have them forward it to their client through the preferred form of submission.
5. Make copies of your mailings – It sounds simple but you would be surprised how many borrowers fail to show up to court with a copy of what they sent to the bank. Go the extra step and make a copy of the envelope with postage to present to the Judge or Referee. Do this the court will be looking for an explanation from the bank’s attorney.
6. For heaven’s sake, FOLLOW UP- Call after you mail. Call after you fax. Call after you e-mail. Give the bank a week. They’re flooded with these foreclosures and it’s unlikely the financial documents will be received and put into the right hands in under a week. Call until you speak to someone who has received them and be sure to write their first and last name down.
These steps, which will cost less than $100.00, could help prevent all of the "he said, she said," and also save you from losing an extra $1,000 in attorney’s fees. Beyond that, following these guidelines will demonstrate to the court and the bank that you are serious about keeping your home and in turn you will, undoubtedly, find yourself with the upper hand in court. Avoiding the arguments of who submitted what on which date will help keep the Judges and Referees happy and absolved from trying to diffuse the impossible. And that, is good news for all parties involved.
