Wednesday, June 30, 2010
Government Takes a Stronger Hold On HAMP
Since the Making Home Affordable plan has been implemented, about 300,000 homeowners have enjoyed an average reduction of $500 a month. Unfortunately, however, this has done very little to improve the housing market.
Borrowers have complained that there are no consequences for the lenders who fail to follow the foreclosure prevention program's guidelines. Until recently, there was no recourse for a homeowner who was wrongfully denied access to the plan, whose mortgage information was incorrectly calculated, or whose documents were lost.
On Wednesday, June 16, 2010, the Senate approved an amendment creating the Office of Homeowner Advocate under the Treasury Department. This new office will be responsible for investigating homeowner's complaints of improper exclusions and conduct by lenders and correcting mistakes that have denied them eligibility. The cost of the program is expected to be around $1 million a year which will be funded by the Troubled Assets Relief Program. The program will be modeled after the Office of Taxpayer Advocate at the Internal Revenue Service that has been reported as a success.
The Office of the Homeowner Advocate hopes to allow more homeowners access to the HAMP program and enable HAMP to reach its goal of benefitting three to four million homeowners as originally expected.
Friday, June 25, 2010
Key Victory for Creditors in Florida Supreme Court
Today the Florida Supreme Court ruled in favor of the Federal Trade Commission (FTC) in the pivotal case Olmstead v Federal Trade Commission. The decision greatly favors creditors in their attempts to collect personal debts from debtors with assets held in single member Limited Liability Corporations (LLCs). LLCs are business entities created to provide tax benefits similar to that of a partnership, and liability protection similar to that of a corporation. The ruling of Olmstead threatens these benefits and protections for LLCs that have only one member (owner).
The issue before the Court stems from an advanced-fee credit card scam being operated by the appellants (Olmstead). This prompted suit by the FTC for unfair or deceptive trade practices. The assets of the appellants were frozen and placed in receivership. Several single-member LLCs were among the assets which were placed in receivership. Ultimately, the FTC was awarded over $10 million in restitution. The FTC was then granted an order compelling the appellants to forfeit all of their right, title, and interest in their respective LLCs to partially satisfy this judgment. Olmstead appealed this decision, claiming that this violated their statutory rights under the Limited Liability Corporation Act.
The Florida Supreme Court rejected this contention, stating that "Florida law permits a court to order a judgment debtor to surrender all right, title, and interest in the debtor's single-member LLC to satisfy an outstanding judgment." The ruling was not passed unanimously. Supreme Court Justice Lewis dissented, arguing that this could potentially have adverse effects on multimember LLCs and "render the assets of all LLCs vulnerable".
In light of the foreclosure epidemic and that Florida is a recourse state (banks can pursue mortgage deficiency often referred to as deficiency judgments), the Olmstead case would make mortgage borrowers' LLCs susceptible to bank deficiency judgments stemming from short sales, foreclosures and deed-in-lieu of foreclosure. If you have any questions regarding assets that may be vulnerable to judgment creditors, please contact Yesner & Boss, P.L. for a free consultation or visit www.yesnerboss.com.
Thursday, June 24, 2010
Seven Year Penalty for Strategic Default
Strategic default is often defined as the conscious decision of a borrower to stop payments on an otherwise affordable mortgage because the property is worth less than the mortgage balance.
The recent trend of strategic foreclosures has sparked concern and action on the part of Fannie Mae. In an effort to curb such default, Fannie Mae stated on Wednesday that it would "lock out" homeowners from receiving a new loan for a seven year period if it is determined that the borrower is guilty of strategic default.
The lock out period replaced the previous five year period adopted in 2008. Unless a borrower can demonstrate extenuating circumstances through documentation or show a good faith attempt with the lender to avoid foreclosure, the borrower will not be eligible for a new Fannie Mae for at least seven years. Other lenders, such as Freddie Mac, also punish defaulters with lesser lock out periods.
In addition to the new "lock out" plan, Fannie plans to more aggressively pursue deficiency judgments by executing on borrowers' assets, as well as monitoring and studying delinquent loans to identify cases that should receive extra attention. It is important to note that Florida is a recourse state that allows lenders to pursue deficiency judgment post-foreclosure.
Fannie's new measures were adopted to prevent the increasing number of losses that may result if borrowers continue to strategically default on loans they can afford because the value of their home has greatly depreciated. As of February, Morgan Stanley estimated 12% of defaults to be strategic. With almost 25 percent of homeowners with mortgages currently "underwater", continued strategic default would most certainly exacerbate Fannie and other lender's mortgage loss.
Fannie Mae is acting on concerns held by most lenders that it is becoming common and acceptable among society for financially able borrowers to stop paying their loans. Executives of Fannie believe this growing practice of strategic default is "bad for borrowers and bad for communities." Such default strategy may be viewed as being in the best interest of the particular borrower, but if the use of strategic default continues and grows it could worsen the already depressing conditions of the housing market.
Although Fannie has sharpened its penalties, it is also preparing to counter the increased penalty period by reducing the lock out periods for borrowers experiencing legitimate hardships who cannot avoid foreclosure. The previous waiting period of five years was applied to all borrowers who went into foreclosure across the board, regardless of the borrower's circumstances. Under the new plan, borrowers experiencing legitimate hardships will receive a two year lock out period if they exercise the option of transferring their homes to the lender through a "deed in lieu of foreclosure" or completing a short sale. In the absence of a deed in lieu or short sale, if the borrower can provide documentation of extenuating circumstances and/or show that an effort was made to negotiate with the lender, the lock out period may be shortened to as little as three years.
Some believe that the increased lock out period will do little to curb the number of strategic defaults based on the little deterrence that resulted from Fannie's previous lock out period increase in 2008, however, Fannie Mae's new policy of pursuing deficiency judgment should be taken very seriously by borrowers who live in recourse states such as Florida.
For information on strategic default, deficiency judgments and other mortgage and debt issues, please visit www.yesnerboss.com
Tuesday, June 22, 2010
The dire housing market has left buyers with an upper hand and sellers with few choices. The government's $8,000 tax credit for home buyers program recently expired leaving the seller's market weaker than ever. Under the terms of the program, buyers were required to get a signed sales contract by April 30 and complete the sale by June 30.
There was a nationwide housing market fall about a month ago immediately following the expiration of the housing tax credit. In some areas of the country, sales dropped over 20 percent from the prior year.
The conditions for those attempting to sell their homes are worse than ever and buyers are taking advantage of these opportunities to make unreasonable demands of panicked and desperate sellers. Last-minute demands for concessions, improvements, and substantial price reductions are becoming common of buyers who believe the seller will meet any demand to avoid ending up underwater and being forced to sell the home through the bank.
Buyers sometimes reserve these tactics for when the inspection is conducted on the seller's home. The buyer will make unreasonable demands for repairs or improvements on the home leaving the seller feeling trapped in the deal. If the seller refuses the demands the only alternative option is putting the home back on the market somewhat damaged.
These conditions have also adversely affected builders. According to the Commerce Department, new home construction fell 17.2 percent from April and permits being issued for new construction fell 10 percent. Home mortgage rates are the lowest they have been in decades but this has done little to boost the market. There has been more than a 30 percent decrease in the number of home loan applications compared to last year.
Buyers think they are playing it smart by taking advantage of struggling sellers but these demands will eventually meet a wall. In some situations, it's not a matter of negotiation and the seller cannot afford to concede anything further because knocking off another $5,000 will force the seller underwater. Buyers feel they have the upper hand and should get the best deal possible and sellers are frustrated to see their home traded for so little. The conflicting expectations of both parties often times lead to disappointment on both ends, even when a sale is successful.
Fortunately, the Senate recently approved a three month extension to allow homebuyers to complete qualification for the tax program that helped increased home sales last spring. Homebuyers now have until September 30, 2010 to complete their purchases and qualify for the tax credit. This will allow the large number of homebuyers, roughly 180,000, who were in the process of purchasing homes but just missed the deadline to complete these purchases.
This silver lining, however, is only temporary and the brief period following the original close of the tax credit program and the extension period was very telling of what the state of the housing market will become once the tax credit program expires for good in September.
Thursday, June 10, 2010
Freddie/Fannie – Modification Now Possible for Higher Income Households
The Home Affordable Modification Program (HAMP) was created to provide struggling homeowners the opportunity to avoid foreclosure and formulate more affordable payments by modifying or refinancing their mortgage. Program guidelines provide a maximum reduction in monthly mortgage payments to 31 percent of the borrower's monthly income. However, Fannie Mae and Freddie Mac have started modifying loans for borrowers whose payments do not exceed 31 percent of their monthly income. Some of these borrower's mortgage debt constituted as little as 20 percent of their monthly income.
These more fortunate borrowers have received these benefits, despite the HAMP guidelines, courtesy of "backup plans." Backup modifications are designed for borrowers who make the requisite three trial payments but did not receive permanent modifications because their debt-to-income ratio is less than 31%. Critics of these backup strategies claim that allowing borrowers with the ability to pay their mortgages to benefit from HAMP could provide an incentive for other non-struggling consumers to seek aid. Because so many borrowers are struggling to some degree and would like a reduction in their mortgage payments, potentially every borrower could be asking for a reduction.
In response to these criticisms, government-sponsored enterprises and advisors of the Federal Housing Finance Agency (FHFA) have stressed that a borrower's mortgage debt is just one factor in determining financial distress. Many times the borrower's debt as a whole, not the mortgage debt by itself, is the source of the problem. Although some borrowers may be paying a smaller percentage of their income towards their mortgage, it is hardly fair to categorize a borrower as able to pay when their total monthly debt obligations are reserving more than 70% of their income.
In addition, it has been determined that these lending organizations would lose more of the taxpayer's money by foreclosing than by working with the borrowers. FHFA advisors have stated that a modification may result in a 10% loss while foreclosures result in a 50% loss at minimum.
The Treasury Department did not initially require borrowers to verify their income before the 3 month trials so many borrowers who entered the program don't qualify and are now slowly being eliminated. An estimated 277, 640 trial modifications have been eliminated. Less than 1 million of the applicants qualify for the backup plans and the plans are only available to those who participated in trial modifications prior to March 1st, and as of April the number of borrowers participating in trial modifications was 637, 353.
Tuesday, June 8, 2010
Bankruptcy judges have broad powers when it comes to erasing consumer debt. A bankruptcy judge may help a borrower who has leased a car that is no longer affordable, or incurred substantial credit card debt. However, when it comes to former students attempting to obtain relief from loans incurred to finance education, bankruptcy judges are almost always unable to assist in erasing the debt.
In 2005, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act. This Act added private student loans to the small list of debts that cannot be forgiven (government funded student loans had been long been included on the list). Students are able to borrow much more money with private loans than with government funded loans. This makes students more likely to use the private sector, as well as enabling them to fall much deeper in debt.
Consumer advocate groups are currently rallying to have Congress alter their stiff policy on student loan debt forgiveness. The proposed changes would make it easier to obtain relief from private student loans. However, there are pros and cons to such bankruptcy code changes.
One thought is that this would encourage more people to declare bankruptcy which may anger tax payers already tired of watching their neighbors walk away from home loans during the current mortgage crisis. Additionally, banks would have less incentive to grant young people, typically with little or no collateral, the large sums of money needed to obtain certain college degrees. This will raise borrowing costs, since the banks would pass this risk to borrowers as a whole.
On the other hand, such changes could allow those borrowers that truly cannot repay such loans necessary relief.
It is uncertain whether any changes will be enacted. The current policy favoring creditors over borrowers is likely to continue for some time. If you are struggling with student loans, obtaining representation can help you get the best results out of a law unfavorable to your situation. Yesner & Boss, P.L. has attorneys that will help you navigate your way out of debt. We will fight to restore your credit and get you out of debt.
Friday, June 4, 2010
Homeowners Turn to Mediation for Relief
Nationwide foreclosures being initiated have slightly dropped in the past year. However, delinquent home loans have actually increased by 40 percent. An estimated 10 percent of all home loans are delinquent by 60 days or more, and in Florida the rate is more than 20 percent. HOPE NOW, a group of 38 private lenders started in 2007, recently reported that 2.9 million permanent home loan modifications have been offered since their program began. In addition, the Home Affordable Modification Program (HAMP), which allotted $75 billion towards the prevention of foreclosures, was implemented by President Obama last March. HAMP recently released a report stating that 300,000 modifications have been granted and an estimated 3.275 million delinquent loans are eligible for the program. Even with the measures taken by these programs, the increasing number of delinquent borrowers requires additional steps to encourage lender/borrower negotiations and prevent foreclosures.
Considering the enormous time and expense lenders face litigating a foreclosure action, one would think it would be in the lender's best interest to modify every loan possible and provide a way for the borrower to pay back a substantial, if not full, portion of the loan. Lenders have communicated their desire to help struggling homeowners facing true financial hardship but are also bound to honor the terms of their contracts with investors who have purchased the loans. This apparent struggle of interests between the lenders, their investors, and the borrowers may be the reason delinquent homeowners find loan modifications to be so rare and elusive.
Specialists in the area of loan modification and debt negotiation have indicated that the primary obstacle experienced by homeowners in their attempts to obtain a loan modification is the inability to get a loan servicer or lender to sit down and negotiate with the homeowner. This lack of communication between the lender and borrower has prevented early resolution of foreclosure cases. The Florida Supreme Court determined that effective case management and mediation techniques are the best way for courts to ensure that the necessary communications occur early enough to avoid wasted resources of the courts and parties.
In December of 2009, the Florida Supreme Court issued an administrative order requiring the lower circuit courts to adopt rules for mandatory mediation on all residential foreclosures. The mediation program mandates referral of new foreclosure cases to mediation within 5 days of service of process. The court may not enter any default or summary judgment until the mediation is completed. The lenders are required to file with the Complaint and bring to the mediation "any polling or servicing agreement with investors maintaining an interest in the property that may affect the plaintiff's ability to mediate and completely settle the foreclosure action." If a lender or its representative with full authority to settle does not appear, the court may dismiss the case. The cost of the mediation is born by the lender to avoid discouraging borrowers from agreeing to quickly mediate the issues because of the cost. However, the court may tax costs to the borrower as part of the judgment if the lender prevails. Some of the options discussed in the mediations are: modification of the mortgage terms, partial loan forgiveness, short sale, deed in lieu of foreclosure, placement of delinquent payments at the end of the loan term, principal set aside, waiver of deficiency, repayment plan, loan reinstatement or right of bank to rent property to the former borrower at market rental rate.
The mandated mediation program will provide struggling homeowners with an opportunity to possibly resolve the issues surrounding their loans that they otherwise might not have received. Unfortunately a downfall that accompanies this new measure is the extra burden placed on the mediation programs which have not received additional funds from the state to subsidize the increased workload and need for additional mediators. At the end of 2009, the Florida Supreme Court estimated there would be 465,000 foreclosure cases pending in 2010.
Contact one of our attorneys today to find out what your rights and alternatives may be.
Wednesday, June 2, 2010
June 1st Marks The Beginning Of What Could Be A Very Active Hurricane Season
Recent reports indicate that the approaching hurricane season will be more severe than that of years past. Studies performed by Colorado State University's Dr. Bill Gray and Dr. Phil Klozbatch indicate that there will be an above-average probability of major hurricane landfall, with 11 to 16 named storms, 6 to 9 hurricanes, and as many as five that could become major hurricanes. Dr. Gray and Dr. Klozbatch made their predictions based on comparing the hurricane cycles of the past 40 years to the trends of today.
Hurricanes and tropical storms can cause massive damage to your home and other property. Floridians are especially susceptible to the devastating effects of these powerful storms. It is crucial to insure the welfare of yourself and your family by properly insuring your home and other belongings. Unfortunately, insurance companies can be extremely difficult to deal with when attempting to get a fair settlement for the damages you incur.
Hiring an experienced hurricane insurance claim lawyer can help you ensure the best possible results from your claim. Regardless of whether you're in Tampa, Sarasota, St. Petersburg, Brandon or anywhere else in the State of Florida Yesner & Boss, P.L. is a law firm experienced in handling hurricane and storm insurance cases. Our attorneys are prepared to challenge insurance companies offering undervalued settlements, incomplete repairs, or denying your claim completely. Contact our office today to set up a free consultation. We can answer any questions you have, and can serve as your trusted partner in ensuring the insurance companies handle your claim fairly and properly.