All posts in Foreclosure Corner

Two Peas in Pod: Foreclosure + Fraudulent Sale

Think about this — a month before a debtor files bankruptcy, you buy his rental property at a foreclosure sale at a significant deal – 70% of the market value. Great deal!     Debtor then files bankruptcy and seeks to avoid the sale and take back his property from you because the debtor did not receive reasonably equivalent value in return, and thus a hidden “constructive fraudulent transfer.”

Under §548, a trustee (or debtor) may avoid a transfer made prepetition if the transfer was based upon actual fraud or if the transfer of the property resulted in the debtor receiving “less than reasonably equivalent value” in exchange (called constructive fraud).

So – how do we tell whether the Debtor received ‘reasonably equivalent value‘ in his prepetition foreclosure sale?

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One Action Rule

Be careful Banks – in California you get one bite at the apple in collecting a deficiency judgment against a homeowner (or possible debtor in bankruptcy).

For creditor attorneys - make sure you’ve complied with the ‘one action rule,’ or you waive your client’s right in a deficiency judgment against the former homeowner.

For debtor attorneys -  if the creditor has violated the ‘one action rule,’ and are seeking to recoup against your debtor-client now, make sure to object to their proof of claim under §502(b)(1), such that the claim is unenforceable against the debtor under state law. Read more…

Wrongful Foreclosure – What is “Tender”

I usually try to stay away from what might appear to be blatant advertising for my firm.  But this is an exception.  And besides, its bragging rather than advertising.

Matt Resnik did a masterful job at the Court of Appeals downtown on Tuesday.  He filed a wrongful foreclosure action for a client to undo a foreclosure.  The bank of course demurred and the court, on the second try, dismissed the case with prejudice.  The court ruled that “tender” means actually paying the bank the entire amount owed as a condition of being permitted to pursue the wrongful foreclosure.  That is clearly not what the code says.  The code says the Plaintiff must – in the complaint – allege “plausible” tender.  The Court of Appeals seemed to agree.  We will find out in a few months.

Foreclosed Homeowner Goes to Jail for Stripping Home on Way Out the Door

Thanks to Mike Avanesian for this:

People v. Acosta
California Court of Appeal, Fourth District, Division 3 (Ikola, J.)
May 12, 2014
2014 WL 1878105

Penal Code section 502.5 defines larceny to include a defaulted or foreclosed borrower’s stripping a house of its fixtures or destroying them with intent to harm the lender or buyer at the foreclosure sale. Though the statute was enacted 91 years ago, this is the first decision interpreting it. The borrowers were real estate brokers and they thoroughly trashed a very high-end house, carting away kitchen appliances, destroying the pool, stripping rock facing off the house, and more. They were convicted and sentenced to 5 years probation including 270 days of actual imprisonment. The decision upholds the constitutionality of the statute as well as the conviction and most of the conditions of probation.

California Foreclosures Down ….but Numbers May Be Misleading

For three straight quarters, California foreclosure starts remain little changed, hovering at a level last seen in early 2006. According to a market study released by DataQuick, steady economic growth and higher home values are responsible for the steady pace of new foreclosures.

Lenders and servicers in the first quarter of 2014 recorded roughly 19,000 notices of default on California house and condo owners, up 6 percent from the previous quarter.

Compared to peak numbers of roughly 135,000 in Q1 2009, foreclosure starts have dropped significantly over the intervening years. However, DataQuick posits that the numbers could be misleading.

“It may well be that the foreclosure starts in recent quarters don’t reflect the ebb and flow of financial distress as much as they reflect a steady state of workload capacity on the part of the servicers. They may well be just working their way through a backlog, stacks of paper piled high on desks,” said John Karevoll, DataQuick analyst.

This year’s first quarter was the first to see a year-over-year increase in default filings since 2009, but that gain can be attributed to new laws in California, known as the “Homeowner Bill of Rights” which took effect in January and February of last year. The laws caused lenders and services to pause, artificially decreasing notices sent to homeowners and pushing foreclosure start numbers downward.

DataQuick points out that most of the loans in California going into default are still from the 2005-2007 period. The median origination quarter reported by the company for defaulted loans is still the third quarter of 2006, noting that weak underwriting standards peaked in that period of time.

California homeowners were a median 9.8 months behind on their payments when the lender filed the notice of default. Borrowers owed a median $22,538 on a median $301,732 mortgage. There are lower numbers with the foreclosure bridging loans, this Bridging Loans for Property Development can be access by both individuals and companies to meet certain obligations. Bridge loans are usually arranged within a short time and with little documentation, they are mainly used in real estate to retrieve property from foreclosure or to close on a property quickly.

The most active companies in the foreclosure process last quarter were Wells Fargo (2,834), Bank of America (1,637), and Nationstar (1,282).

“The trustees who pursued the highest number of defaults last quarter were Quality Loan Service Corp (for Wells Fargo and others), MTC Financial (Bank of America, Greentree, JP Morgan Chase) and Western Progressive (OCWEN and Deutsche Bank),” DataQuick said.

Nationstar Mortgage-Servicing Growth Probed by Lawsky

New York’s top bank regulator asked Nationstar Mortgage LLC for information about “explosive growth” in its mortgage-servicing business, citing hundreds of consumer complaints about the company’s practices.

Benjamin Lawsky, superintendent of New York’s Department of Financial Services, also asked about Nationstar’s apparent failure to fund 141 loans in a letter to Nationstar Chief Executive Officer Jay Bray.

“We have received hundreds of complaints from New York consumers about your company’s mortgage practices, including problems related to mortgage modifications, improper fees, lost paperwork, and numerous other issues,” Lawsky said in the letter.

The request marks an expansion of Lawsky’s investigation of non-bank mortgage servicers. U.S. officials have also raised concerns that mortgage servicing is increasingly being transferred from banks to specialty firms that don’t face the same degree of regulatory oversight.

Lawsky last week said he was probing possible conflicts of interest at Ocwen Financial Corp. and four related firms that could harm borrowers and push homeowners into foreclosure.

Nationstar had fallen 3.5 percent to $29.99 at 2:05 p.m. New York time after dropping more than 5 percent on news of Lawsky’s letter. Shares are down 19 percent this year. Ocwen slid 0.2 percent to $37.90, bringing its 2014 decline to 32 percent.

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FANNIE MAE — Allowable Bankruptcy Attorney Fees Exhibit

The attached table contains the maximum attorney’s fees that Fannie Mae allows for legal work related to bankruptcy  services provided on Fannie Mae whole mortgage loans and MBS mortgage loans serviced under special servicing  options. The fee will vary depending on the Chapter under which the bankruptcy is filed (and, if applicable, the status of  the mortgage loan at the time of the bankruptcy filing).