Who's On First? (Stop that Foreclosure Now!)

Bankruptcy Court Decision Pronounces Holder of Note and Real Party in Interest Requirements For Foreclosure

In both Chapter 13 and Chapter 7, real estate lenders can not continue foreclosure proceedings against real estate without first getting permission from the Bankruptcy Court. This permission is most commonly pursued by filing a motion for “relief of stay.” In other words, the lender requests the court to grant permission to continue their foreclosure proceedings against the real estate and relieve the lender from the restraining order as instituted under 11 USC 362. This bankruptcy Code provision prohibits any collection efforts against the debtor or property of the debtor once a bankruptcy case is filed.



Typically, a relief of stay motion is an expedient proceeding requiring little evidence before the bankruptcy court. In chapter 7, they are typically unopposed. In chapter 13, they are ether granted or resolved by an adequate protection order(stipulation between the debtor and lender to hold off relief of stay provided the debtor complies with getting current on the loan by a date certain).



Nevertheless, the requirement to move for relief of stay just got a little tougher, at least in one bankruptcy court in the Central District of California. On October 29, 2008, Judge Samuel Bufford rendered his decision in the Hwang Case.



In that case, Judge Bufford ruled that lenders need to meet both the substantive and procedural requirements in moving for relief of stay. More specifically, lenders must satisfy both 11 USC 362(d) of the Bankruptcy Code and Rule 17a of the Federal Rules of Civil Procedure.



Ironically, even though the Court found that only Indymac (who moved for relief of stay in the first place) could move forward on a foreclosure sale (since it could enforce the note by being in possession of the note with its endorsement, thus satisfying the holder requirements of CCC 3301(a)), it still was not entitled to relief of stay. Instead, Indymac’s ability to foreclose only satisfied the substantive requirements of 362(d) as being the “party in interest.”



Indymac failed, however, to satisfy the “real party in interest” requirement to move for relief of stay as required by FRCP 17a. This was because no one knew who the owner of the note was. Indymac never transferred the note upon sale, and admitted at trial that it sold the note and was no longer the owner. Instead, Indymac was servicing the note for some entity, but could not say for who. Accordingly, since the owner was not joined via FRCP 19 or did not ratify or move for relief as the original party in the action under 17a, the real party in interest requirement was not met, and the motion for relief of stay was denied.



This was a very ironic twist, since the Court agreed that Indymac was the proper party under California Law that could foreclose since it possessed the note with its endorsement. “Thus, the court holds that, notwithstanding the sale of the note, IndyMac remains the holder of the note and is entitled to enforce it.”



Yet, despite Indymac having the ability to foreclose under California Law, relief of stay could not be granted to Indymac because they admitted that they did not OWN the note. ”The court concludes that the real party in interest has not joined in the motion before the court. Indeed, neither the court nor IndyMac even knows who the real party in interest is. Pursuant to Rule 17(a)(3), the court must give IndyMac a reasonable amount of time to accomplish this joinder. Despite two continuances (totaling more than two months) to accomplish this joinder, IndyMac has refused to join the owner of the note in this motion. Thus, the motion must be denied on these grounds……….. IndyMac gives no explanation for its failure to join the owner of the note in this motion. The likely reason is that IndyMac does not know who the owner is, and thus cannot have any authority to join the owner voluntarily.”



So what can one take from this decision? If a lender attempts to move for relief of stay, be sure to make them prove that they meet the substantive and procedural requirements for a relief of stay action:

1) SUBSTANTIVE: They must prove they have the ability to foreclose (under California, that means they must possess the physical note and have it endorsed to them or their principal), and

2) PROCEDURAL: They must also actually own the note. If the note was securitized (sold in a pool of notes on wall street) that means the real party in interest is the Trustee of the securitization trust, not the servicing agent. See LaSalle Bank N.A. v. Nomura Asset Capital Corp., 180 F. Supp. 2d 465, 469-71 (S.D.N.Y 2001) (”LaSalle-Nomura”); accord, LaSalle Bank N.A. v. Lehman Bros. Holdings, Inc., 237 F. Supp. 2d 618, 631-34 (D. Md. 2002) (”LaSalle-Lehman”).



Since most relief of stay actions typically only meet one of these requirements, relief of stay should not be granted. The next hurdle, of course, is then attempting to convince your local Bankruptcy Judge to agree.Judge Bufford’s analysis.



Written by Michael G. Doan in Bankruptcy Law Network




In re Hwang is the 600 lb Gorilla in the Room - The MERS Debacle

The Mortgage Backed Securities ("MBS")industry (remember, "lenderless loans")created an electronic registration system for tracking purchase, sale and transfers of home ad other mortgages (promissory notes and their related security, mortgages or deeds of trust) and called it MERS.

The problem with MERS legally speaking is that while this facilitated the trading of mortgages as securitized intruments in vast numbers, this Wall Street driven device did not necessarily meet state by state requirements for the physical possession of documents by a real party in interest to foreclose on a defaulted mortgage This gives rise to a defense of "lack of standing to sue"

Foreclosure Defense and Loan Modification Significance

In addition to Reg Z, RESPA, HOEPA, "tortious making of loan" and servicing fraud legal analyses to determine the enforceability of any mortgage loan, an investigation into the actual "ownership" of the servicer or putative "lender" trying to foreclose must be done.

How to:

California Foreclosure Law

California Commercial Code

If you are considering a "loan service" company for your loan modification instead of representation by an attorney, it should be able to discuss these issues and defenses with you. If they don't, or don't give you a clear understanding of these issues, ask them why.

Being evicted after foreclosure? Tenant eviction law. State law in California gives you 60 days from foreclosure. Cities have additional laws that may assist you in staying longer, depending on your circumtances. Generally, it is just a matter of time if the new owner after foreclosure wont reach agreement to let you stay on.

California Court Forms


California Codes (including Civil Procedure and Evidence)

California Rules of Court

Los Angeles County Superior Court Case Information

Federal Rules

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Predatory Lending Practices

Predatory Lending Practices

Loan “flipping” – frequent refinancings that result in little or no economic benefit to the borrower and are undertaken with the primary or sole objective of generating additional loan fees, prepayment penalties, and fees from the financing of credit-related products;

Kickbacks;

Refinancings of special subsidized mortgages that result in the loss of beneficial loan terms;

“Packing” of excessive and sometimes “hidden” fees in the amount financed;
Using loan terms or structures – such as negative amortization – to make it more difficult or impossible for borrowers to reduce or repay their indebtedness;


Using balloon payments to conceal the true burden of the financing and to force borrowers into costly refinancing transactions or foreclosures;

Targeting inappropriate or excessively expensive credit products to older borrowers, to persons who are not financially sophisticated or who may be otherwise vulnerable to abusive practices, and to persons who could qualify for mainstream credit products and terms;

Inadequate disclosure of the true costs, risks and, where necessary, appropriateness to the borrower of loan transactions;

The offering of single premium credit life insurance; and

The use of mandatory arbitration clauses.

Common law fraudulent loan schemes:

Bait and switch

Forged signatures and documents

appraisal fraud

Loan to own ("you can't possibly repay the loan I'm about to make you; I'll own it by foreclosing on you")

What to look at

The five most crucial documents in the analysis of any loan fraud file are: (1) the HUD-1 (or HUD-1A); (2) the loan application (1003); (3) the loan submission form (1008); (4) the escrow instructions; and (5) the preliminary title report. These few documents often serve as a blueprint of the fraud, showing the trail of money and the identity of the people who stood to gain. (by C. Robert Simpson, Esq.)


Properly analyzing and highlighting these documents will assist your attorney in more effectively representing you, and in developing a plan of attack. The effectiveness of your attorney increases exponentially if he or she can litigate your case, i.e., examine witnesses, conduct depositions, etc., having a complete knowledge of the motivations and involvement of each of the parties.

Do not pay for a stop foreclosure or loan modification that does not include these analyses. Make sure you are given a Truth in Lending (TILA) RESPA (Real Estate Settlement Procedures Act), and HOEPA (Homeowners Equity Protection Act) analysis


Deceptive and Unfair Mortgages

By L. Jed Berliner, Massachusetts Foreclosure Defense Attorney on Dec 9, 2008

Mortgages are “presumptively” deceptive and unfair if they have these four characteristics, says the Massachusetts Supreme Judicial Court.

First, the mortgage must be adjustable, with the first adjustment taking place within the first three years. (Well, okay, this is two requirements which the court combined into one.)

Second, the introductory interest rate is at least 3% lower than the fully indexed rate (the base index rate plus the adjustment factor). The rest of us call this a “teaser” rate, since it teases the borrower into thinking that the early affordable payments will always be affordable. It also teases the borrower into thinking that the loan can be refinanced if the payments became too expensive, since home prices would always go up - right?

Third, the borrower’s debt-to-income ratio is at least 50% if the fully indexed rate is used, and not the teaser rate. This means that, half the borrower’s income or more would go to mortgage payments if there is no change to the interest rate calculation factors and there were no teaser rate.

Last, 100% of the home’s value is being borrowed.

In this case, “presumptively unfair” means that the Massachusetts Attorney General must be notified before any foreclosure can take place by the lender, Fremont, allowing time for a court to stop the foreclosure unless the lender can show it took reasonable steps to work with the borrower to avoid foreclosure.

The court rejected Fremont’s argument that its earlier loans should not be held to current standards of unfairness, noting that many government agencies warned against these loans as far back as the late 1990s. Fremont knew, or should have known, that loans with these characteristics would guarantee default by the borrower unless home prices rose indefinitely, which was an unreasonable assumption. But a default would not hurt Fremont, since it sold most of its mortgage loans.

The Attorney General filed the case to stop unfair foreclosures, but it did not seek damages. This issue is left open for another suit by a private borrower, but the decision throws open the door to recovery.

Commonwealth v. Fremont Investment & Loan, and another, 2008 WL:5122699 (Mass.).

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Mortgage Modification Poker - "Call,and Raise You $10,000"

California Foreclosures: Must Your Lender Accept Your Loan Modification Offer?

By Michael Doan on Sep 8, 2008 in Mortgage Law Network

A new law enacted on July 8, 2008, now requires Lenders of residential loans in the State of California to accept loan modifications in most foreclosure situations. California Civil Code 2923.6 went into effect on July, 2008, and applies to all residential loans made from January 1, 2003, to December 31, 2007, inclusive, that are secured by residential real property and are for owner-occupied residences.

Practically all residential mortgages have Pooling and Servicing Agreements ("PSA") since they were transferred to various Mortgage Backed Security Trusts after origination. These vehicles likewise almost always contain a duty to maximize net present value to its investors and related parties. Under the new laws, California Civil Code 2823.6 broadens and extends this PSA duty by requiring servicers to accept loan modifications with borrowers.

Essentially, California Civil Code 2823.6(a) states that "a servicer acts in the best interest of all parties if it agrees to or implements a loan modification where the (1)loan is in payment default, and (2) anticipated recovery under the loan modification or workout plan exceeds the anticipated recovery through foreclosure on a net present value basis."

Likewise, California Civil Code 2823.6(b) now provides "that the mortgagee, beneficiary, or authorized agent offer the borrower a loan modification or workout plan if such a modification or plan is consistent with its contractual or other authority."

So what does all this mean? Well, lets take an example:

John Martin's loan is presently in default, or reasonably foreseeable of near default. The house he previously bought 2 years ago for $800,000 with a $640,000 first and $140,000 second, has now plummeted to $375,000. While Mr. Martin can no longer afford the $9,000 per month mortgage payment, he is willing, able, and ready to execute a modification of his loan on the following terms:

a) New Loan Amount: $330,000.00

b) New Interest Rate: 6% fixed

c) New Loan Length: 30 years

d) New Payment: $1978.52

While this new loan amount of $330,000 is less than the current fair market value, the costs of foreclosure need to be taken into account. Foreclosures typically cost the lender $50,000 per foreclosure. For example, the Joint Economic Committee of Congress estimated in June, 2007, that the average foreclosure results in $77.935.00 in costs to the homeowner, lender, local government, and neighbors. Of the $77,935.00 in foreclosure costs, the Joint Economic Committee of Congress estimates that the lender will suffer $50,000.00 in costs in conducting a non-judicial foreclosure on the property, maintaining, rehabilitating, insuring, and reselling the property to a third party. Freddie Mac places this loss higher at $58,759.00.

Accordingly, the anticipated recovery through foreclosure on a net present value basis is $325,000.00 or less and the recovery under the proposed loan modification at $330,000.00 exceeds the net present recovery through foreclosure of $325,000.00 by over $5,000.00. Thus California Civil Code 2823.6 would mandate a loan modification to the new terms.

The homeowner just got a new arrow to add to his foreclosure defense quiver. Pursuant to California Civil Code 2823.6, the lender is now
contractually bound to accept the loan modification as provided above.
Failure to do so should allow the borrower to sue for specific performance or wrongful foreclosure in State Court.

California Senate Bill 1137, enacted and effective on July 8, 2008 was a variety of new laws that directly addressed California's foreclosure crisis, among the highest in the nation. Civil Code 2823.6 was among the new laws, and clearly establishes a legal standard of conduct for servicers of pooled or securitized mortgages in meeting their legal duties owed to mortgage investors where a proposed loan modification "maximizes net present value." But the law appears to direct that lenders and their agents make loan modification offers to borrowers "if such a modification or plan is consistent with its contractual or other authority" - that is, results in a "maximized net present value" if indeed their servicing contracts so provide.

Does this compel lenders to offer or accept offers for a "maximized net present value" loan modification or does it merely protect servicers if in fact they do so?

This bill

9. Would codify a legislative finding that any duty servicers
may have to maximize the net present value under their
pooling and servicing agreements is owed to all parties in a
loan pool, not to any particular parties, and that a
servicer acts in the best interest of all parties if it
agrees to or implements a loan modification or workout plan,
as specified;

10. Would codify the intent of the Legislature that the
mortgagee, trustee, beneficiary, or authorized agent offer
the borrower a loan modification or workout plan, if such a
modification or plan is consistent with its contractual or
other authority;

Creative litigation lawyers, and California's appellate courts will determine this soon, predictably.

See how this might work for you.

Present value calculator

Without legal leverage (see above, Reg Z) "loan modifications" may simply be a shell game.

A content rich source on mortgages in crisis: the mortgage lender implode=o=meter

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Feeling Guilty About Needing Bankruptcy Relief? Don't.

There's no government bailout waiting there for you, is there.

Bankruptcy Exemptions - You Can Keep Your Hat On

You can keep many things of value despite filing for bankruptcy relief. These are "exemptions." See Bankruptcy Schedule C "Property Claimed As Exempt"

You have to choose between
1) federal exemptions and

2) state exemptions to see which is more favorable for your particular circumstances.

California has two "systems" of exemptions that are mutually exclusive. Pick one set or the other, but you cannot "cherry pick." California and other states have a "wild card" exemption that will be attractive to many.

Federal law makes social security benefits exempt in bankruptcy or from creditors claims in state courts


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Batten Down The Hatches, It's A Nantucket Sleigh Ride

From my reading list

Calculated Risk

Paul Krugman

Noriel Roubini - "Da Man"

and of course

Clusterfuck Nation

Filing Bankruptcy Without An Attorney

Filing for Bankruptcy Without an Attorney

Credit Counseling | Legal Services | Foreclosure | Petition Preparers

Corporations and partnerships must have an attorney to file a bankruptcy case. Individuals, however, may represent themselves in bankruptcy court. While individuals can file a bankruptcy case without an attorney or "pro se," it is extremely difficult to do it successfully.

It is very important that a bankruptcy case be filed and handled correctly. The rules are very technical, and a misstep may affect a debtor's rights. For example, a debtor whose case is dismissed for failure to file a required document, such as a credit counseling certificate, may lose the right to file another case or lose protections in a later case, including the benefit of the automatic stay. Bankruptcy has long-term financial and legal consequences - hiring a competent attorney is strongly recommended.

Debtors must list all property and debts in their bankruptcy schedules. If a debt is not listed, it is possible the debt will not be discharged. (Lists of the documents [including schedules] that debtors must file are set out on Form B200, one of the Director's Procedural Forms.) The judge can also deny the discharge of all debts if a debtor does something dishonest in connection with the bankruptcy case, such as destroying or hiding property, falsifying records, or lying. Individual bankruptcy cases are randomly audited to determine the accuracy, truthfulness, and completeness of the information that the debtor is required to provide. Please be aware that bankruptcy fraud is a crime.

Pro se litigants, whether debtor or creditor, are expected to follow the rules that govern procedures in the federal courts. Pro se litigants should be familiar with the United States Bankruptcy Code, the Federal Rules of Bankruptcy Procedure, and the local rules of the court in which the case is filed. Local rules, along with other useful information, are usually posted on the court's web site and are available at the local court's intake counter.

Credit Counseling

Individual debtors are generally required to obtain credit counseling from an approved provider within 180 days before filing a case, and to file a statement of compliance and a certificate of credit counseling furnished by the provider. Failure to do so may result in dismissal of the case.

Finding an Attorney, including Free Legal Services

Debtors are strongly encouraged to obtain the services of competent legal counsel. Even if you cannot afford to pay an attorney, you may be able to qualify for free legal services. For information about hiring an attorney, or about free (also known as "pro bono") legal services, contact your state or local bar association. Many law schools have legal clinics that offer free legal services. Court web sites often have contact information for bar associations and pro bono legal service programs, as well as important procedural information.

For information about such legal resources, check the American Bar Association's Legal Help page, the Legal Services Corporation, or the web site of the bankruptcy court where you intend to file. If you do not know where you are permitted to file a case, check the Official Bankruptcy Forms page to see the box on Form B1 (Voluntary Petition) entitled "Information Regarding the Debtor - Venue" and the part of the Instructions relating to that box.

If you are filing or involved in a bankruptcy case and do not have an attorney, the web site of the bankruptcy court where the case has been or will be filed may be of assistance. The Bankruptcy Resources page may be of help as well.

Foreclosure

Homeowners who are having trouble or have fallen behind in making their mortgage payments may have options that would allow them to avoid foreclosure and bankruptcy. For more information, check these foreclosure resources.

Beware of offers made once your house is in foreclosure - there are a number of fraudulent schemes specifically directed at individuals facing foreclosure. Contact your state attorney general or other state consumer protection agency regarding any suspicious proposal, such as one that requires transferring your property to a third party in order to avoid foreclosure.

Petition Preparers

Beware of bankruptcy petition preparers who do not comply with all legal requirements. The role of non-attorney petition preparers is solely to type information on Bankruptcy Forms (available at this link without charge). Petition preparers are barred by law from providing legal advice - they cannot explain how to answer legal questions or assist in bankruptcy court. Petition preparers must sign all documents they prepare; print their name, address, and social security number on such documents; and furnish copies to the debtor. They cannot sign a document on the debtor's behalf or receive payment from the debtor for court fees.

Click here

Bankruptcy Basics

Too poor to pay the $299 Chapter 7 fee?
(Central District of California waiver form)

Official Bankruptcy Forms

Bankruptcy Forms and Bankruptcy Forms Manual

• Part I - Official Forms, Instructions, and Committee Notes
• Part II- Procedural Forms and Instructions
• Links to Related Material
• Pending Changes

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Bankruptcy FAQs

Bankruptcy Basics

Process The Discharge in Bankruptcy Chapter 7. Liquidation Under the Bankruptcy Code Chapter 13. Individual Debt Adjustment Chapter 11. Reorganization Under the Bankruptcy Code Chapter 12. Family Farmer Bankruptcy or Family Fisherman Bankruptcy Chapter 9. Municipality Bankruptcy Chapter 15. Ancillary and Other Cross-Border Cases SCRA. Servicemembers' Civil Relief Act SIPA. Securities Investor Protection Act Glossary - Terms You Need to Know Bankruptcy Basics provides basic information to debtors, creditors, court personnel, the media, and the general public on different aspects of the federal bankruptcy laws. It also provides individuals who may be considering bankruptcy with a basic explanation of the different chapters under which a bankruptcy case may be filed and to answer some of the most commonly asked questions about the bankruptcy process. On April 20, 2005, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). BAPCPA made substantial changes to the Bankruptcy Code. And the Bankruptcy Judges Division has made significant revisions to this online version of Bankruptcy Basics to account for BAPCPA's changes to the Code. Most BAPCPA changes apply only to cases filed on or after October 17, 2005. Because the Bankruptcy Judges Division anticipates that there will continue to be a demand for the version of Bankruptcy Basics that describes the pre-BAPCPA bankruptcy process (for cases filed prior to October 17), this page contains links to PDF (print friendly) copies of both the pre-BAPCPA version as well as the current online version of Bankruptcy Basics. Bankruptcy Basics - For Cases Filed on or after October 17, 2005 (pdf) Bankruptcy Basics - For Cases Filed before October 17, 2005 (pdf) Bankruptcy Basics Video Bankruptcy Basics should not substitute for the advice of competent legal counsel or a financial expert. Neither the Bankruptcy Judges Division nor the Administrative Office of the United States Courts can provide legal or financial advice. Such advice may be obtained from a competent attorney, accountant, or financial adviser. Public Information Series Bankruptcy Judges Division Administrative Office of the United States Courts April 2006 Third Edition While the information presented is accurate as of the date of publication, it should not be cited or relied upon as legal authority. It should not be used as a substitute for reference to the United States Bankruptcy Code (title 11, United States Code) and the Federal Rules of Bankruptcy Procedure, both of which may be reviewed at local law libraries, or to local rules of practice adopted by each bankruptcy court. Finally, this publication should not substitute for the advice of competent legal counsel. ______________________________________________________________________________ Basic Bankruptcy Info (Youtube)

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