Where is Blackacre anyway???: July 2009

Evidently the government is serious about getting these delinquent mortgages modified - here is another positive change to HAMP:

Press Release from HUD:

WASHINGTON - U.S. Department of Housing and Urban Development Secretary Shaun Donovan today announced the Federal Housing Administration (FHA) has implemented changes to its loan modification program to ensure consistency with the Obama Administration's Home Affordable Modification Program. By August 15th, FHA borrowers will be able to significantly reduce their monthly mortgage payments by seeking a loan modification through their current mortgage company or loan servicer under the new FHA-Home Affordable Modification Program (FHA-HAMP).

"Today, we're bringing another important tool to the table to help struggling families who are desperate to keep their homes," said Donovan. "Tens of thousands of FHA borrowers will now be able to modify their mortgages in the same manner as so many others who are taking advantage of the Administration''s Making Home Affordable program. This is just the latest tool we are providing to help homeowners prevent foreclosures through the Making Home Affordable program. Earlier this month we announced an expansion of the Home Affordable Refinance Program to borrowers who are up to 125 percent underwater. Together, these actions will significantly increase the help available to homeowners.

"The Helping Families Save Their Homes Act of 2009, signed into law on May 20, allows FHA to give qualified FHA-insured borrowers the opportunity to reduce their monthly mortgage payment by modifying the mortgage through FHA-HAMP. FHA released the program's implementation guidelines today. FHA expects all servicers to implement the changes by August 15. The program permanently reduces a family's monthly mortgage payment through the use of a partial claim, which defers the repayment of mortgage principal through an interest-free subordinate mortgage that is not due until the first mortgage is paid off.

FHA has used the partial claim option in the past, which allows a lender to advance funds on behalf of a borrower, to reinstate a delinquent loan that was up to 12 months delinquent. Now, this program will allow HUD to bring the borrower's payment down to an affordable level. This will be accomplished by bringing the mortgage current, buying down the loan by up to 30 percent of the unpaid principal balance and deferring these amounts in a partial claim.

FHA will pay an incentive to loan servicers for each FHA loan modified under this program. A Mortgagee Letter, along with detailed requirements for the FHA-Home Affordable Modification Program, was distributed to all FHA lenders today. The implementation of this program will further the Obama Administration's efforts to stabilize the housing market by helping homeowners to stay current on their mortgages and stay in their homes, therefore preventing the destructive impact of foreclosures on families and communities.

Making Home Affordable, a comprehensive plan to stabilize the U.S. housing market, was first announced by the Obama Administration on February 18. More than 200,000 trial loan modifications are already underway, tens of thousands of refinancings have closed, and informational mailings about the program have been sent to more than one million borrowers who may be eligible.

FHA borrowers who are experiencing difficulty making their mortgage payments should contact their loan servicer or HUD's National Servicing Center at (888) 297-8685 to determine if they qualify for the FHA-Home Affordable Modification Program. The Mortgagee Letter, with detailed information about the program, is available on the HUD website. Non-FHA borrowers can find information about the Obama Administration's Making Home Affordable program at www.makinghomeaffordable.gov.

HUD News Release 09-137

I had an instant messenger conversation last night with a good mortgage broker friend of mine who was very upset. Her client's home was due to be auctioned shortly, even though there was a loan modification in progress. The consultants,retained by the homeowner to assist in filing an Order to Show Cause to stop the sale, refused to supply any documents without a $500 weekly payment (they had already collected a decent sum up front). After a heated discussion with the consultants, my friend threatened to file a complaint with the authorities to which the consultant promptly replied that he had a lawyer, he didn't do anything wrong and he wasn't concerned. I realized at this moment that this gentleman had no idea that he was violating the law but he most certainly was and there are serious consequences involved. New York enacted the "Foreclosure Prevention and Responsible Lending Act of 2008 effective September 1, 2008 but utterly failed to properly educate members of the real estate industry in its application and proper compliance. To obtain the pertinent provisions of the law, I did a quick google search but failed to turn up the actual statutes themselves (This Act amended NY's Banking Law, Real Property Law (RPL) and Real Property and Proceedings Law (RPAPL). I was only able to find interpretations of the Act which did not fully provide the definitions and rules pertaining to Real Property Consultants. As a member of the New York State Bar Association, Real Property Section, I am subscribed to their email listserve. Anyone who knows me can attest to my practice of keeping every email so I was able to do a quick search and find the text of the law. In this post, I will provide the tools to assist you in understanding and complying with the law so that you don't end up with a visit from the NY Attorney General's office. Those who have actually heard of the Act think it only applies to loan modification companies. The statute is far broader in its definition of Distressed Property Consultants and the services they provide. The Act amended NY's Real Property Law by adding Section 265-b which defines certain terms including "distressed homeowners", "distressed property consultants", and "distressed home loans" among others.

Distressed Home Owners
The Act defines in Sec 265-b(1)(a) the "Distressed Home Owner" as a natural person who is the mortgagor with respect to a distressed home loan or who is in danger of losing a home for nonpayment of taxes. Therefore, if your client is a corporation, LLC, Trust etc., they are not natural persons and therefore not Distressed Home Owners under this Act. In conjunction with this definition, it is imperative to view same in light of the definition of "distressed home loan" in subsection (d) which defines it as a home loan that is in danger of being foreclosed because the homeowner has one or more defaults under the mortgage that entitle the lender to accelerate full payment of the mortgage and repossess the property, or a home loan where the lender has commenced a foreclosure action. To be a Distressed Home Owner, your client must be in default under the terms of their Note and Mortgage which entitles the Lender to accelerate the loan. You must examine the Mortgage, discern the acts that constitute a default as well as under what circumstances allow the Lender to accelerate the loan. Further, the act defines a "home loan" as a loan in which the debt is incurred by the homeowner primarily for personal, family or household purposes, and the loan is secured by a mortgage or deed of trust on property upon which there is located or there is to be located a structure or structures intended principally for occupancy of from one to four families which is or will be occupied by the homeowner as the homeowner's principal dwelling. The loan must be secured by your client's principal residence and have been originated as a residential loan to be covered by this Act.

Distressed Property Consultants & Consulting Services

Section 265-b(1)(c) Defines the nature of the consulting services covered by the statute. Such definition is very broad and encompasses far more than loan modification:

(c) "Consulting services" means services provided by a distressed property consultant to a homeowner that the consultant represents will help to achieve any of the following:
(i) stop, enjoin, delay, void, set aside, annul, stay or postpone foreclosure filing, a foreclosure sale or the loss of a home for nonpayment of taxes;
(ii) obtain forbearance from any servicer, beneficiary or mortgagee or relief with respect to the potential loss of the home for nonpayment of taxes;
(iii) assist the homeowner to exercise a right of reinstatement or similar right provided in the mortgage documents or any law or to refinance a distressed home loan;
(iv) obtain any extension of the period within which the homeowner may reinstate or otherwise restore his or her rights with respect to the property;
(v) obtain a waiver of an acceleration clause contained in any promissory note or contract secured by a mortgage on a property in foreclosure;
(vi) assist the homeowner to obtain a loan or advance of funds;
(vii) assist the homeowner in answering or responding to a summons and complaint, or otherwise providing information regarding the foreclosure complaint and process;
(viii) avoid or ameliorate the impairment of the homeowner's credit resulting from the commencement of a foreclosure proceeding or tax sale; or
(ix) save the homeowner's property from foreclosure or loss for non-payment of taxes.

Therefore, if you perform loan modifications and/or workouts, short sales, credit repair your services are covered. If you assist a distressed home owner with obtaining financing, including refinancing or any type of loan or advance, your services are covered (Note exception below for licensed mortgage bankers & brokers). If you provide "consulting" services wherein you assist a distressed home owner in defending a foreclosure defense action, your serviced are covered. Or, if you do anything whatsoever that will result in "saving" the home owner's property from foreclosure or loss from non-payment of taxes, your services are covered. Paragraph (ix) is extremely broad and ambiguous - what constitutes "saving"? That will require clarification by the courts in the future.

What is a Distressed Property Consultant?
While you may have determined that your client is a distressed homeowner who has a distressed home loan and your services are covered by the Act, but the question remains - are you a Distressed Property Consultant?

The Act defines "Distressed Property Consultants" as an individual or a corporation, partnership, limited liability company or other business entity that, directly or indirectly, solicits or undertakes employment to provide consulting services to a homeowner for compensation or promise of compensation with respect to a distressed home loan or a potential loss of the home for nonpayment of taxes.
Note: A consultant does not include the following:
(i) an attorney admitted to practice in the state of New York;
(ii) a person or entity who holds or is owed an obligation secured by a lien on any property in foreclosure while the person or entity performs services in connection with the obligation or lien;
(iii) a bank, trust company, private banker, bank holding company,savings bank, savings and loan association, thrift holding company, credit union or insurance company organized under the laws of this state, another state or the United States, or a subsidiary or affiliate of such entity or a foreign banking corporation licensed by the superintendent of banks or the comptroller of the currency;
(iv) a federal Department of Housing and Urban Development approved mortgagee and any subsidiary or affiliate of such mortgagee, and any agent or employee of these persons while engaged in the business of such mortgagee;
(v) a judgment creditor of the homeowner, if the judgment creditor's claim accrued before the written notice of foreclosure sale is sent;
(vi) a title insurer authorized to do business in this state, while performing title insurance and settlement services;
(vii) a person licensed as a mortgage banker or registered as a mortgage broker or registered as a mortgage loan servicer as defined in article twelve-D of the banking law;
(viii) a bona fide not-for-profit organization that offers counseling or advice to homeowners in foreclosure or loan default; or
(ix) a person licensed or registered in the state to engage in the practice of other professions that the superintendent of banks has determined should not be subject to this section.
Therefore, a Distressed Property Consultant does not necessarily have to be a natural person. Further, if you are an attorney, a Lender, Servicer, Mortgage Banker, Mortgage Broker, Judgment Creditor, Title Insurer, or a Non-Profit you are exempt.

In my next post, I'll discuss Distressed Property Consultant compliance, proscribed activities and more. Stay tuned!