Possible foreclosure settlement with the banks! $20 billion to be set aside by banks to fund mortgage modifications!

According to Fox Business there is a potential agreement to reach a settlement between the banks and the Department of Justice over the banks’ use of improper mortgage practices and robosigning.  There are numerous types of improper mortgage practices and robosigning was the practice whereby the banks signed batches of mortgages without reading them.  Bank of America and Chase are the banks that are announcing the settlement which is good because they are two of the largest banks.  I did not see Wells Fargo listed in the potential settlement agreement.

The settlement would contain $20 billion in a “monetary relief fund” that presumably would be set aside to use for mortgage modifications..  This would hopefully allow people who had previously been turned down for a modification in the past to now get a modification.  Also part of the deal is an overhaul of the entire mortgage system by putting in sweeping new guidelines that would fundamentally change the industry like the Tobacco settlement changed that industry in 1998.

None of the banks nor the justice department is commenting on the deal and there are several sticking points.  The banks want immunity from lawsuits if they do this overhaul and set aside $20 billion.  Several states have problems with giving the banks immunity.  California has already apparently said that it won’t and it has backed out of the settlement.  Arizona and Nevada are separately suing Bank of America and New York state has its reservations too.

There are numerous class action lawsuits filed against the banks which the banks want to get dismissed as part of the settlement.  Also its unclear what the requirements will be to receive one of these settlement mortgages/modifications.  The administration has a bad history of running these programs.  The article points out that the Emergency Homeowners’ Loan Program (EHLP) was just shut down as it was badly administered, had too high income requirements, and failed to help nearly the number of people who it was designed for.

It’s hard to say what will come out of this.  If $20 billion is set aside then there will be a pool of money to lend to people or to fund modifications that were previously denied.  That would be a good thing.  But if this program is as poorly run as EHLP then people may have trouble accessing it.

It would be a good thing though if there were new standards for determining what was required for a modification.  My clients would universally all tell the same horror story of what happened when they applied to get a bank to modify their loan.   They would send the same documents to the bank over and over again and each time they called they would speak to a new person at the bank.  No one at the banks knew what was going on or what was needed to process the application.  They would eventually give up or they would be denied because they suddenly made too little money.  Sometimes they would be paying the new modified rate for a year when they were denied.

This is a system that is broken beyond repair and which needs some standards and some predictability.  Why can’t there be set rules governing mortgages and mortgage modifications?  Why can’t those rules be written so that people can understand the rules and know what is required of them?  Why can’t they have some assurance that if they follow these rules or comply with these requirements they will get their mortgage or their loan modification?  It’s not rocket science and it the mortgage industry should not be an enigma wrapped in a riddle surrounded by a mystery as Winston Churchill said.

So I look forward to more straight forward standards and lets hope that something good comes out of this settlement so more people can modify their mortgages and keep their homes.  In the mean time I always advise my clients that if they have a lot of other credit card type debt then they should file for personal bankruptcy.  This will eliminate these payments and free up income so they can qualify for a modification.  It will certainly help their debt to income ratio.

I will give more updates in the future if and when this settlement is reached.

I am a bankruptcy attorney practicing bankruptcy law in San Diego, CA.  For more information please visit my website at www.farquharlaw.com or www.freshstartsandiego.com.  Or call my office for a free consultation at (619) 702-5015.  If you or someone you know is considering bankruptcy then get my FREE E-BOOK “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” bt e-mailing me at; farquharesq@yahoo.com.

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Short Sale and foreclosure- watch out for the small lenders! Can bankruptcy help?

I believe that short sales are preferrable to foreclosures because of the credit score hit that you take in a foreclosure.  Most large banks should readily do a short sale for you but watch out for small lenders who may lure you in with the promise of a short sale only to cancel the short sale at the last-minute and sell the house at auction.  Watch out for the game they play where they lure you in thinking you have a short sale approved only to find out that you don’t and the house is sold at auction to a third-party buyer.

Don’t worry the big banks are involved in 95% of loans these days so chances are you don’t have a small lender at all.  The big banks like Chase, Wells Fargo, and B of A are usually all very amenable to short sales.  They have too much foreclosed housing inventory currently and they prefer to execute short sales of homes whenever possible.  My realtor told me of a case where they told the owner to go get a realtor and do a short sale.  They apparently had no interest in a foreclosure if it could be avoided with a short sale.

This is good for you because short sales are better for your credit score.  A foreclosure can last longer on you credit report than even a bankruptcy which prevents you from getting a FHA loan for 2 years.  A foreclosure prevents FHA loans for 3 years traditionally and there are stories of them precluding FHA loans for 5 years.  A short sale appears on your credit report as a “settled” debt which is also two years so even with a bankruptcy you would only have to wait two years for a loan.

The problem I just faced in a case was with a small bank that falls in the 5% of loans category.  My client had his loan sold from a big bank to one of these small ones years ago.  We attempted to do a short sale on the property but the bank stalled our efforts from the beginning.  In the end we had a great buyer and all the docs in and the bank came up with an excuse at the last-minute and went ahead with the sale on the courthouse steps.  It was clear after that they never really wanted a short sale at all and that they were determined to do a foreclosure from the beginning.  I just wish they told us that before we jumped through all the hoops and wasted everyone’s time.

We looked up this company and discovered that they approve less than 10% of short sales brought to them.  We speculated that they are getting some government bonus for the foreclosure because the government appears to want to see more foreclosures.  It seems silly as this is hurting people’s credit but the government disincentive programs are often hurtful and wrong.

A chapter 7 bankruptcy would have stalled the foreclosure sale it is true (This client had insufficient income to fund a chapter 13).  But then the bank could have filed an immediate motion for relief from stay and it would have been granted by the bankruptcy court quickly.  Once the relief was granted, the stay lifts and the bank can proceed with the sale.  So a bankruptcy filing can only stall a foreclosure and it will not force a determined bank t accept a short sale.

I just looked up a case for a client who had a stay lifted in 3 weeks and a new sale date scheduled three days after that.  So it’s possible that a chapter 7 bankruptcy will only stall a foreclosure sale for 20 to 30 days.  But it is all dependent on how quickly they file the motion.  I have seen them take 6 weeks to file but two weeks is more common and they could file the motion for relief within just days of the bankruptcy filing.

If you have one of these small banks then the most you can do is stall them with a chapter 7 bankruptcy unless you can afford to fund a chapter 13 for years to come.  Most people cannot afford this so they opt to do a chapter seven or hope that they can get a sale through as we did.  But then you run the risk of the bank pretending to want a short sale and then cancelling it at the last moment when it is too late to file a bankruptcy.

A bankruptcy can still get rid of most of your other debts though if you have them so don’t be afraid to use bankruptcy where necessary.  A chapter 7 can’t stop a foreclosure sale but only delay it though and it can’t get your house back once it’s sold to a third-party buyer.

Beware of the tricks these small banks play on you!

I am a San Diego bankruptcy attorney.  For more information please visit my websites at www.farquharlaw.com or www.freshstartsandiego.com.  Or call for a free consulation on any debt or bankruptcy matter at (619) 702-5015.  Call now for a free credit report and analysis!

If you or someone you know needs to file a bankruptcy then get my FREE E-BOOK “13 THINGS YOU SHOULD DO TO PREPARE FOR YOUR BANKRUPTCY FILING” by emailing me at farquharesq@yahoo.com.