Archive for October, 2010

Foreclosures in the News

October 25, 2010

Foreclosures have received a lot of media attention in past weeks due to revelations that foreclosure documents have been signed without proper review.  Setting aside the media and political hype, you may be wondering what this means to you.  Even if you never face foreclosure on your home, potentially faulty practices in the mortgage industry require that you pay close attention to the management of your loan.

Your mortgage loan is represented by a promissory note that you signed promising to pay back the borrowed money in monthly installments to the lender.  Oftentimes, the lender will sell the note to another company.  Whether the note is held by the original lender or by another entity, the holder of the note may have an outside company service the loan for them.  The servicer collects payments on a monthly basis and applies them to principal, interest, and escrow according to the terms of your note.  In most instances of foreclosure, the servicer manages these proceedings, as well, on behalf of whoever currently owns the note.  Legally, when foreclosure proceedings are brought, whether in a jurisdiction with court oversight (such as Maryland) or a jurisdiction where there is no court involvement (such as DC and Virginia), the noteholder must bring these proceedings and not the servicer.

The issues that have gained media attention have to do with court documents being filed by individuals attesting to facts such as who the actual holder of the note is and the exact amount of money due to the lender.  Individuals have admitted that they have signed affidavits and other court pleadings attesting to the ownership of the note or the exact amounts overdue on the notes without actually reviewing the file to determine the accuracy of the information.  While such poor practices undermine the judicial process of a foreclosure, these foreclosures were usually brought against homeowners that were actually in default on their loans and would have lost their homes anyway.  There were, however, a small number of homeowners that might have been able to redeem their loans and avoid foreclosure had the documents been properly reviewed.  Furthermore, even in “non-judicial” jurisdictions, filing defective documents within the foreclosure process could potentially cause the foreclosure proceedings to legally fail.

Most of the foreclosures that have been conducted with tainted documents, however, have gone uncontested by the homeowners.  Most uncontested foreclosures have been conducted against homeowners that realize that they cannot make their mortgage payments and cannot save their homes.  For this majority, the defective filings will not have an effect.  This is not to say that some wrongful foreclosures do not slip through the cracks, but only a small percentage of foreclosures occur in error.  In contrast, those homeowners that do not agree that they are in default, or those that have been working with their lenders to avoid foreclosure, will make the effort to defend or stop the foreclosure action. For this minority, defective filings could unfairly undermine their chances of defending against foreclosure.

Defective filings have shined a light on the fact that the volume of loans in default has overwhelmed the ability of the banks and the judicial system to process foreclosure cases efficiently.  The process of negotiating loan modifications and short sales has also suffered.   In addition, many individuals have started to question the application of their payments to principal, interest, and escrow and have complained that they have not received an accurate accounting.  In many instances, the failure of the servicers to properly apply payments can make a loan in good standing appear to be in default.

What should you do to protect yourself?  Carefully review all correspondence from your mortgage lender, servicer, and their attorney.  Make sure that their information on your loan matches what you believe to be true.  Question any discrepancies.  If you are in default or default is imminent, contact an attorney or a qualified non-profit organization to assist you in negotiating with your lender.  If you receive a notice of foreclosure or a notice of intent to foreclose from an attorney’s office, do not ignore it, even if you are in the middle of negotiations with your lender.  Many people wrongly think that such correspondence has been sent in error and do not respond to these letters.  If you receive such a letter, you need to both contact your lender immediately to find out why it was sent and seek immediate legal advice.