Are Banks Stopping Foreclosures?

The short answer is that over the past month-6 weeks certain banks (ex. Bank of America, Chase, etc.) have paused some of their residential foreclosures. This does not mean that delinquent mortgages will be forgotten. It simply means that banks are slowing down their foreclosures and halting the beginning of certain new foreclosures while they review their paperwork.

The main reason banks are pausing some foreclosures is because they have discovered that many affidavits and assignments of mortgages have errors. It doesn't mean the foreclosure itself is fraudulent as many people are speculating. What it means is that banks are pumping out too many foreclosures and don't have the time to review all of their paperwork. A law firm sends a bank hundreds of affidavits a day and instead of inspecting each one carefully the Vice President sign dozens a minute. Assignments of mortgages are created in a similar manner.

Regardless of whether the bank has engaged in fraudulent practices or not, these errors can be used against the bank to your benefit. A faulty assignment of mortgage can mean that your bank does not have standing to bring a lawsuit on the mortgage. In addition, courts will no longer allow foreclosures to proceed on mass-produced affidavits and are actually requiring affidavits from attorneys to verify all of the information is correct. Therefore these issues can result in your foreclosure action being dismissed and thrown out of court. This won't solve the underlying problem because the bank will simply fix their paperwork and re-commence the action. If your goal is to annoy the bank then this is a perfect result. If your goal is to modify the better course of action would be to use this as a negotiation tool with the bank. Law firms don't want to tell their clients their actions are being dismissed and banks don't want to pay to recommence their actions.

I understand these are complicated topics and not easy to comprehend by homeowners without extensive litigation and mortgage experience. If you are in foreclosure please contact a foreclosure attorney to walk you through this process.

Reverse Mortgages and Foreclosure

A reverse mortgage operates completely differently from a normal mortgage. A person with equity in their home trades their equity for the right to live in the home for as long as they are living and the ability to cash out the equity over time similar to a Home Equity Line of Credit. Since the person, who must be over the age of 62 and from my understanding not own the home with anyone below that age, can cash out the equity there is a possibility that equity can be used to pay off outstanding mortgages and liens. The amount of money a person can receive in a reverse mortgage depends on their age (the older you are the higher percentage of equity you can take out) and the value of the home. Therefore, in certain situations a Reverse Mortgage is a viable alternative to foreclosure. The following are two examples. The first is where a Reverse Mortgage is a viable option. The second is where it is not.

Example Where It Works: Person A owns a $800,000 home with a $200,000 mortgage with Bank B. Person A receives an equity line in a reverse mortgage from Bank C for $300,000 (half the remaining equity). Person A takes out $200,000 from that equity line with Bank C and pays off the mortgage with Bank B. Person A now has a $300,000 reverse mortgage on the property with Bank C but no mortgage with Bank C.

Example Where It Doesn't Work: Person A owns a $500,000 home with a $550,000 mortgage with Bank B. The property lost a lot of value when the market fell apart and was once worth nearly a million dollars. Bank C won't give Person A a reverse mortgage because there is no equity in the home.

Reverse Mortgages are a complicated topic. If you are looking into applying for one you should see someone who has experience handling their application process.

Home Affordable Unemployment Program (HAUP)

HAUP offers unemployed homeowners who are unable to make their monthly mortgage payments a few extra months to get back on their feet while looking for employment. Homeowners are eligible if they:

(1) Are unemployed;
(2) Live in the mortgaged premises (meaning the property is their primary residence);
(3) Have a first lien mortgage originated on or before January 1, 2009; AND
(4) Have an unpaid principal balance less than or equal to $729,750.10.


Homeowners that qualify will have their mortgage payments suspended for up to three months (or until they are employed). Homeowners that find a job while on the program will be considered for the Home Affordable Modification Program. If the homeowner does not find a job they will be considered for the Home Affordable Modification program 30 days prior to the completion of the Unemployment Program forbearance plan.

HAUP does not cancel any mortgage payments, it merely suspends such payments. Homeowners that successfully complete the program will resume normal payments once the plan ends.

Home Affordable Refinance Program (HARP)

A refinance can perform a number of different functions. It can be used to consolidate debt, pull equity out of one's home, obtain a mortgage with a lower rate, change from adjustable to fixed, etc. Typically as interest rates drop the economy experiences a influx of refinances. Currently we have low interest rates but few refinances because many homes are "upside down". This means that the homeowner owes more on that property than the property is worth. HARP is the governments solution to this problem.

When a homeowner owes more on a property than what it is worth the homeowner is typically unable to find a bank that would give them a new mortgage. Here's an illustration of why this situation doesn't lend itself to refinancing:

John owns his home and owes $500,000 on the premises. The property is worth $300,000. His original mortgage is with Bank A and he'd like to refinance with Bank B. In a refinance Bank B would pay Bank A for the entire amount due (here $500,000) and John would then owe Bank B the value of his property, therefore giving him a new mortgage. In this situation Bank B would pay $500,000 to satisfy John's mortgage with Bank A and then receive a new mortgage from John of $300,000. Clearly Bank B is losing too much money. Therefore John would need to pay Bank B $200,000. In today's economy people like John don't have excess capital sitting around and therefore they are having problem taking advantage of lower rates.

The government's solution to this problem is called HARP (Home Affordable Refinance Program). A person may be eligible for HARP if they:

(1) Own a one-to-four unit home as a primary residence;
(2) Have a mortgage owned by Fannie Mae or Freddie Mac;
(3) Are current with their mortgage;
(4) Have not been late on the mortgage within the past 12 months;
(5) Have a first mortgage not exceeding 125% of the current market value of the home;
(6) Have income sufficient to support the new mortgage payments; AND
(7) Can improve the long-term affordability of the loan with the refinance.

Note that this allows homeowners with a second mortgage to refinance so long as the first mortgage does not exceed 125% of the current market value of the home. In addition, the homeowner does not need to actually live in the home. This is the first government program to allow refinancing for vacation and investment properties.

This program differs from typical refinancing because the homeowner cannot take cash out from the refinance and because the homeowner must be current on their mortgage.

Refinancing your home loan is not an easy process. If you would like more information on HARP or any other type of refinance/modification program feel free to email me at AFriedma@PulversThompson.com.

HAMP v. In-House Mod

A bank needs to put any HAMP eligible loan through a HAMP modification review prior to successfully foreclosing on any residential property. This is both good and bad. It's good because it gives the courts the power to slow down a foreclosure until they're certain the bank has reviewed a person's unique situation for a HAMP mod. It's bad because HAMP is a slow, drawn out process. While a homeowner is under review for a modification missed payments, interest and attorneys fees can still be added to the total amount due on the mortgage. The more that is owed on the mortgage the more difficult it is to get modified.

Time Before Response

HAMP mods require the bank to follow government created guidelines before offering the modification. In-House mods vary by bank but instead of requiring the extensive paperwork necessary for a HAMP mod an In-House mod may require very little paperwork. I've seen a few In-House mods that were actually "blind" meaning without any paperwork.

How the Modification is Structured

HAMP mods are required to be as close as possible to 31% of the household's pre tax income. The net present value of that loan is then compared to the net present value of the foreclosure. The bank is permitted to do whichever one has a higher net present value. In-House mods follow no set structure. Since they cost less to offer (less employee time and lawyer time spent on the loan) banks are quicker to offer them and sometimes offer better deals than the homeowner would receive under HAMP.

Reaching Permanent Status

HAMP trial mods come with a 3 month trial period. At the end of the trial period homeowners must resubmit certain documents prior to the loan going Permanent. Sometimes this can take months other times it can be quick. In-House mods are almost always (99% of the time) Permanent instantly. There is no trial plan period.

Documents Required

HAMP mods always require the following: Financial Worksheet, Hardship Affidavit, Bank Statements, Pay Stubs or Profit and Loss Statement, 4506-T and Tax Returns. You may also be required to submit proof of rental income, proof of occupancy and a number of other government required documents. As with any government program there is a lot of paperwork. In-house mods can require nothing and can require everything listed above for HAMP mods. They're not part of a government program and therefore the bank can make their own requirements.

Does the Bank Actually Want My House?

The short answer is a resounding "No".

In a foreclosure action the bank would much rather find a way to keep you in the home and paying your mortgage. A foreclosure takes a lot of time and money. During that time period no one is paying the mortgage and if the bank eventually purchases the property at the foreclosure auction they will be responsible for property taxes, homeowners' insurance and necessary repairs. This is good for a struggling homeowner because the bank will try to help you modify or conduct a short sale. Keep in mind however that just because the bank wants to keep you in your home it doesn't make a modification easy.

Many homeowners assume that the bank approaches the settlement conference stage with a negative attitude and numerous stalling tactics. Instead of viewing the bank behind the foreclosure as making deliberate actions with evil intentions keep in mind that these companies are over worked and under lots of pressure by the courts to get something done.

If it takes them a while to review your paperwork its likely because their staff is trying to get through hundreds of applications. If they lose a document you faxed in its likely because they have dozens of departments and your document may have been sent to the wrong one. This doesn't mean all hope is lost. If you are in foreclosure make sure you send a copy of every document to the firm representing the bank in the foreclosure. Make sure you follow up with a phone call to the firm to determine if everything has been received and if anything else is missing. Call the bank too and see if someone can verify that your documents have been received. Get as proactive as you can and follow up weekly to make sure you modification or short sale is moving along properly.

Reinstatement & Payoff

When you attend a foreclosure settlement conference there are a few papers that the you should request from the bank. Two of the most important (depending on your situation) are Reinstatement and Payoff quotes.

What is a Reinstatement Quote and Why/When is it Important?

A Reinstatement Quote tells you how far behind on your mortgage. It gives you a dollar amount that, if paid, would make you current on your mortgage. If you pay this amount your mortgage is Reinstated and you would make next month's payment as if you were never delinquent.

It is VERY rare that someone actually reinstates their mortgage. It is far more common to go on a forebearance to mod agreement (pay a certain elevated amount per month to help you catch up on areas and then have a modification) or receive a HAMP or In-House Modification. It is important to receive a copy of the Reinstatement so you can check the bank's math and make sure that (1) they are billing your account correctly and (2) they have credited your account for past payments. Its also good to know how much is owed because while you are in foreclosure you are typically unable to make mortgage payments so it is sometimes possible to save up enough money to offer a huge chunk up front for a more favorable In-House modification.

What is a Payoff Quote and Why/When is it Important?

A Payoff Quote will tell you exactly how much the bank is owed on the mortgage. This amount is typically larger then the original mortgage (depending on how long you've been in default and how long you paid the mortgage before defaulting). If you pay this amount the mortgage will be satisfied and you will no longer owe the bank anything.

A Payoff Quote is important for a few of the same reasons a Reinstatement Quote is important. You should check the bank's math and have an idea of how you are being billed. A Payoff Quote becomes very important if you are looking to sell the house. If what you owe is more than what the house is worth then you will need bank approval to conduct a Short Sale. If what you owe is less than what the house is worth then you will not need bank approval as this is a normal sale. Keep in mind that you'll need to pay a broker fee and will need to set aside for a few other expense.

When Will I receive these Quotes?

Bank attorneys are instructed to bring these documents with them to all settlement conferences. You or your attorney can request a copy of each at every settlement conference. If the opposing council doesn't have a copy you should request, in front of the court referee, JHO or Judge, for a copy to be emailed or faxed to you.