Calling a Bank about a loan is THE most frustrating experience … even more so than sending in a loan mod request package — for the 15th time.

From a legal perspective, it gets worse, especially when “Joy” or “Nancy” tells you one thing (like, “You’re approved for our internal Loan Modification Program…”) but refuses to put it in writing. Or the letter you get says something different than the Bank’s representative said on the phone.

What do you do to protect yourself?

Try this:

When someone from the Bank calls, tell them: “I am recording this call for LEGAL purposes. Please state your full name and your birthdate – for identification purposes.”

How much you wanna bet the call will end – right there?

It will. And that’s OK.

If the Bank representative won’t agree to be recorded – END THE CALL. Nothing that is said in it will will matter anyway. The Bank will change its position. And you won’t be able to prove a thing. (And having the Bank’s representative refuse to be recorded, can work to your advantage later in court…)

Oh, and when Joy or Nancy balks, remind her that the Bank is recording the call already. For “training purposes.”

In a recent California case (as reported by firsttuesday) “an owner of property defaulted on a mortgage encumbering the property, causing the lender to record a notice of default (NOD). Prior to the trustee’s sale, the owner’s loan broker arranging financing to pay off the delinquent mortgage requested the lender postpone the trustee’s sale, which the lender did. The lender’s representative also orally promised to further postpone the sale on a further request from the loan broker. Before the trustee’s sale, the loan broker called the lender’s representative and left messages requesting a further postponement of the trustee’s sale. The lender’s representative did not respond. The trustee’s sale was not postponed and the property was sold. Unaware of the foreclosure sale, the broker and owner completed the financing and forwarded the payoff funds to the lender. The lender refused receipt of the payoff funds. The owner suffered money losses due to the loss of his property by the lender’s foreclosure and the cost of obtaining the payoff funds. The owner made a demand on the lender for the losses, claiming the lender was liable since the owner relied on the lender’s oral promise to postpone the trustee’s sale on request. The lender denied liability for the owner’s losses, claiming the oral promise to postpone the trustee’s sale was not enforceable since the lender received no consideration for the promise. A California court of appeals held an owner of property is entitled to money losses from a lender who orally promises to postpone the trustee’s sale of the owner’s property when the owner relies on the promise to his detriment since the owner’s detrimental reliance on the lender’s promise serves as a substitute for the consideration necessary to enforce an oral promise. [Garcia v. World Savings (2010) 183 CA4th 1031]”

What does all this mean?

It means that – in some very limited circumstances – a borrower CAN compell the Bank to honor an ORAL agreement NOT to foreclose. It is a very difficult promise to enforce, and most judges (especially one particular one in Contra Costa County) simply don’t give a damn; they feel overloaded with “just another mortgage case.”

If you think you have a situation where a foreclosure should not have happened, give us a call…

In July, the California legislature passed SB 458, which revised Ca Code Civ Procedure 580e to prevent “short sale” deficiencies on second position loans.

So, here’s the rub. No one knows for certain if it is retroactive.

If you closed a deal in 2010, and the Bank has not yet sued for a deficiency on that second loan, can it do so now? What if it HAS filed suit, can you get out of the lawsuit now based on CCP 580e?

There are arguments – pro and con.

HLF can represent borrowers who have been subjected to these kinds of claims – and brokers/agents who are being brought in for indemnity cross complaints because a borrower is being sued by a Bank for a deficiency.

The latest and greatest news is that FHA will allow borrowers who are unemployed up to one year of deferred mortgage payment relief (read: live for free) while they get back on their feet.

This represents about 4% of the troubled California mortgages.

Fannie Mae and Freddie Mac loans are NOT included in this program. Neither are portfolio residential loans held by banks (like all those pesky seconds out there…).

So, for the very few that the “new” program will help (the unemployed, FHA insured, one loan only borrower), congratulations!

For the rest of us: Isn’t it grand how the Government is here to help?

Next.

 Last month I wrote about the new law requiring the installation of carbon monoxide (CO) detectors and its impact on the TDS as of 1/1/11.  This month I want to clarify what the new law does and does not require.  To begin I will repeat the opening paragraph of last month’s article.

Effective July 1, 2011 all single family residences in the State of California must have at least one CO detector installed as required by California Health and Safety Code Section 17926, et seq. Multiple dwelling units have until January 1, 2013 but a prudent landlord would get the property in compliance as quickly as possible. The only exceptions are for dwellings that are not designed to burn fossil fuels and do not have an attached garage.

The law seems relatively straight forward and might be more so if it were not inconsistent with other laws we have learned to comply with over the years.  For many years we have dealt with smoke detectors and water heaters and the certifications sellers must make to buyers.  In those two instances the seller must certify the property will be in compliance at close of escrow.

This new law is different.  It only requires that the seller disclose if the property has a CO detector installed.  Although the law requires the detectors be installed in all SFR by 7/1/11 there is no requirement that the property be in compliance at close of escrow any more than there is a requirement that properties be up to other code requirements at close of escrow. If the seller does not state there is a CO detector installed and the buyer proceeds to close escrow no violation has occurred based upon the sale transaction.  The only the violation of the law that at least one be installed in the property has now become the buyer’s violation.

Does that mean the seller can ignore the law?  Not necessarily.  We are hearing that lenders have been requiring appraisers to confirm that the CO detector is installed as an appraisal condition.  If one is not installed at the time of the initial appraisal there may well be an additional fee for the appraiser to come back and confirm that the detector has been installed before the loan can fund.  It would be in the buyer’s best interest to insure the CO detector is present before the appraiser sees the property.

If you are taking a new listing on an SFR it would be best practice to suggest to the seller that they get the CO detector installed before the home is listed if the seller has not already complied with the law. If you are the selling broker it would be best practice to place a provision in the purchase agreement that an operable CO detector will be installed within ten days of acceptance, or some other period, so it will be present at the time of the appraisal,  .  It may save arguments and/or delays later on over a less than $30 item.

SB 458 – effective July 11, states no liability will inure to sellers of short sale 1-4 unit properties in California with respect to second position loans. (Recall that first position loans sold short lost recourse liability becasue of SB 931 in 2010).

Good news? Or bad?

Some say it will actually hurt sales in California, becasue banks won’t have any incentive to deal and will just foreclose. Maybe.

I’d bet neither law stays on the books very long. Huh? Why not?

The US and State Constitutions have Ex Post Facto laws. Fancy words that mean, in essence, “Thou shalt not pass a law that interferes with a preexisting contractual relationship.”

Isn’t that just what these laws did? Change the preexisting contractual relationship between a bank and a borrower?

With hundreds of BILLIONS of dollars at risk, don’t you think the banks will challenge the laws? I would.

We’ll all find out in about three years. That’s how long it takes for a trial, and then an appeal. (Longer if it goes to either of the Supreme Courts – state or federal.)

It’s all so much fluff and bother.

A “great victory” is achieved by the “National real estate interests.”
The FTC announces it won’t seek redress for MARS violations against real estate professional s doing ‘short sales.’

HELLO….. ANYBODY OUT THERE?

The FTC lost jurisdiction to enforce when the Consumer Financial Protection Agency took over.
The FTC can’t enforce!

Government speak – at it’s worst.

And don’t forget ladies and gentlemen:

The DRE, the State AG and those loving types called “plaintiff’s attorneys” still can (and will, I’d bet) enforce.

So, let’s not all get our happy faces on just yet.

(I’m just sayin’ … )

Holmes v. Summer. The Listing Agent’s doom.

In October of 2010 the California Court of Appeal came out with a ruling that says the Listing Agent is liable to a non-client buyer (read that carefully!) For failure to disclose material facts effecting value or desirability of a residential property.

Now, how the hell will a Listing Agent know what a non-client Buyer thinks is “material” or will effect value or desirability? Will you have the Buyer’s Agent set up a meeting so you can take the Buyer out to dinner and discuss it?

I didn’t think so.

But, the Listing Agent still has liability. (WHAT was the Court thinking?!) So, what to do?

Use the BMI. Treat it as your BFF.

Don’t know what a BFF is? Ask your teenager.

Don’t know what a BMI is? Look at WinForms. It’s been a C.A.R. Form for, what, 10 years.
It’s a “Buyer’s Material Issues” form.

Require the Buyer to fill it out at the time they remove contingencies. That way, if he Buyer doesn’t say something, I can use it in defending the Agents. After all, how are you supposed to know, if the Buyer didn’t tell you?

He’s baaaaaaack!
A week away for vacation, and look what happens!

As we’ve pointed out before, there is a conflict between California Appellate Courts and the Federal Bankruptcy Courts in California with respect to the authority MERS has to assign notes and deeds of trust. Looks like the California Appellate Courts are going to hold their position!

In a June 2011 case, Ferguson v. Avelo Mortgage, LLC (2011), Cal.App.4th , (2nd District, case B223447), the Court addressed the conflict directly, and said, in essence: We don’t care what the Federal Bankruptcy Courts have to say, we’re not stuck with their rulings, and we won’t follow them.

Specifically, the Court said:

“Appellants cite two federal cases for the proposition that MERS, as the nominee of the lender under a deed of trust, does not possess the underlying promissory note and cannot assign it, absent evidence of an explicit authorization from the original lender. (See Saxon Mortgage Services, Inc. v. Hillery (N.D. Cal. Dec. 9, 2008, No. C-08-4357) 2008 U.S. Dist. LEXIS 100056; see also In re Agard (Bankr. E.D. N.Y. Feb. 10, 2011, No. 10-77338-reg) 2011 Bankr. LEXIS 488.) Not all courts agree on this issue and appellants do not distinguish nor address other cases that have upheld MERS’s ability to assign a mortgage. (See US Bank, N.A. v. Flynn (N.Y.Sup. 2010) 897 N.Y.S.2d 855, 859 [assignee of MERS has standing to initiate foreclosure proceeding because where "an entity such as MERS is identified in the mortgage indenture as the nominee of the lender and as the mortgagee of record and the mortgage indenture confers upon such nominee all of the powers of such lender, its successors and assigns, a written assignment of the note and mortgage by MERS, in its capacity as nominee, confers good title to the assignee and is not defective for lack of an ownership interest in the note at the time of the assignment"]; see also Crum v. LaSalle Bank, N.A. (Ala. Civ. App. Sep. 18, 2009, No. 2080110) 2009 Ala. Civ. App. LEXIS 491 at pp. *6-7.) We are not bound by federal district and bankruptcy court decisions, and the cases cited by appellants are in direct conflict with persuasive California case law.”

So much for the brethren following one another. But what the hell, those pesky bankruptcy judges don’t know what they’re doing anyway. Sure.

Then the California Court addressed what other California Courts had to say on the issue by reviewing the earlier Gomes decision.

“The [Gomes] court rejected Gomes’s argument that MERS lacked authority to initiate the foreclosure procedure because the deed of trust explicitly provided MERS with the authority to do so. The court found that the “deed of trust contains no suggestion that the lender or its successors and assigns must provide Gomes with assurances that MERS is authorized to proceed with a foreclosure at the time it is initiated.” (Id. at p. 1157.) Thus, Gomes acknowledged MERS’s authority to foreclose by entering into the deed of trust.”

After agreeing with the Appellants’ claim that the Notice of Default was indeed defective, the Ferguson Court ignored the strict compliance with statutory requirements Courts are requiring of borrowers, and gave Banks this gift:

“Appellants offer no authority for the proposition that the defective nature of the initial notice of default corrupted all subsequent steps in the nonjudicial foreclosure proceeding such that the sale was void, not merely voidable.”

Why is that important?

Because “voidable” sales require a borrower to tender full payment as part of the complaint to set aside a foreclosure. “Void” sales do not.

Looks like the Banks won another round. The result may well have been different if the borrower/appellant had had a lawyer – rather than try to argue this appeal herself.

The New York Times recently reported that “high value” homes are going to lose government support in the secondary mortgage market – and that that loss will likely further deteriorate the real estate recovery. It was right.

“By summer’s end,” it reported “buyers and sellers in some of the country’s most upscale housing markets are slated to lose their biggest benefactor of the economic downturn: the deep pockets of the federal government. In [Monterrey, CA, a] seaside community of pricey homes, the dread of yet another housing shock is already spreading.

‘We’re looking at more price drops, more foreclosures,’ said Rick Del Pozzo, a loan broker. ‘This snowball that’s been rolling downhill is going to pick up some speed.’

For the past three years, federal agencies have backed new mortgages as large as $729,750 in desirable neighborhoods in high-cost states like California, New York, New Jersey, Connecticut and Massachusetts. Without the government covering the risk of default, many lenders would have refused to make the loans. With the economy in free fall, Congress broadened its traditionally generous support of housing to an unprecedented degree.

But Democrats and Republicans agree that the taxpayer should no longer be responsible for homes valued well above the national average and are about to turn a top slice of the housing market into a testing ground for whether the private mortgage market can once again go it alone. Michael Barr, a former assistant Treasury secretary, said the federal government’s retrenchment would be painful for many communities.

‘There’s always going to be a line, and for the person just over it, it’s always going to be an arbitrary line,’ said Barr, who teaches at the University of Michigan Law School. ‘But there is no entitlement to living in a home that costs $750,000.’

As the housing market braces for the trouble, homeowners everywhere have been reduced to hoping things will some day stop getting worse. In some areas, foreclosures are the only thing selling. New-home construction is nearly nonexistent. And CoreLogic, a data company, said Tuesday that house prices fell 7.5 percent over the past year. Each month, the number of faltering cities rises.

Federal agencies last year backed nine out of 10 new mortgages nationwide, and losses from soured loans are still mounting. Fannie Mae, which buys mortgages from lenders and packages them for investors, said last week that it needed an additional $6.2 billion in aid, bringing the cost of its rescue to nearly $100 billion.

Getting the government out of the mortgage business, however, is proving much more difficult than doling out new benefits. As regulators prepare to drop the level at which they will guarantee loans — here in Monterey County, the level will drop by a third, to $483,000 — buyers and sellers are wondering why they should be punished simply for living in an expensive region. Sellers worry that the pool of potential buyers will shrink. ‘I’m glad to see they’re trying to rein in Fannie Mae, but I think I’m being disproportionately penalized,’ said Rayn Random, who is trying to sell her house in the hills for $849,000 so she can move to Florida.

The National Association of Realtors is making an extension of the loan guarantees a top lobbying priority.

‘Reducing the limits will put more downward pressure on prices,’ said president Ron Phipps. ‘I just don’t think it makes a lot of sense.’ But he said that in contrast to last year, when a one-year extension of the higher limits sailed through Congress, ‘there’s more resistance.’
Federal regulators acknowledge that mortgages will get more expensive in upscale neighborhoods but say the effect of the smaller guarantees on the overall housing market will be muted.”

Really? No “entitlement” to live in an expensive house? Let Wall Street come up with a private secondary market for expensive (i.e. anything over $500,000?) homes? Who are they kidding? Especially in CA, CT, NT, VT.

This “sock it to the ‘rich’” business is a bunch of baloney.