Is it Possible to Reverse a Foreclosure?

          The short answer: Maybe.  If the foreclosure was conducted improperly then there are limited remedies, but only in a few rare situations can a reversal be granted. And those remedies are not statutory based.  Our office has successfully reversed a foreclosure.  In that instance the homeowner received a letter from her servicer stating that they would not foreclose on her property within the next 20 days because she was in a modification trial period.  The letter also stated that if foreclosure proceedings had begun (which they had) they would be ceased.  Well our client relied on this letter and decided not to file a bankruptcy, which would’ve ceased the foreclosure.  After the foreclosure the bank tried to evict her but we showed up to court with that letter and the bank agreed to reverse the foreclosure. 

           There is also another way in which a foreclosure can be reversed, but this is more of a technicality.  For any real estate to change owners, the sale must occur in writing.  It is not possible to transfer real property without a writing.  Thus a foreclosure is effectuated in writing through a Trustee’s Deed.  Well, in Tennessee, foreclosures occur as an auction at the court house steps.  The problem is that just because a winner was selected at the highest bid and the gavel struck does not make the property sold.  It must be conveyed through a Trustees Deed.  Many foreclosures result in the lending bank buying the property themselves for the amount of the loan.  When that is the case there is usually no hurry to prepare a Deed and it may take them 7 days, 10 days, or 2 weeks to sign a Trustee’s Deed.  If that is the case and a bankruptcy is filed before the Trustee’s Deed has been signed, then the sale never actually occurred.  So while technically the foreclosure was not reversed, it was still prevented after a winner was selected and “sold” during an auction.

Wrongfully Foreclosed? 4 Tips to Protect Your Rights!

      Since the collapse of the housing market in 2008, the number of foreclosures on people’s homes has dramatically increased.  However, with that increase of workload on the bank’s, not all of the foreclosures were properly done.  Now if you are the victim of a Wrongful Foreclosure, there are certain steps you must take to protect your rights. 

  

     First, as with any legal issue, consult an attorney immediately.

     Second, if you get served with detainer warrant, you MUST attend the hearing.  A detainer warrant is how an eviction is done in Tennessee.  After your home is foreclosed on the Bank will open a law suit to gain possession of the property.  There will be a hearing and it will be in front of a judge.  It is absolutely critical in your case to show up to this hearing and tell the judge that you were wrongfully foreclosed on.  Many strong wrongful foreclosure cases in Tennessee have been later dismissed because at that original hearing, the victim did not claim wrongful foreclosure.  There is a legal doctrine called Res Judicata, which means that the same issues cannot be litigated again in a different court.  And by failing to raise an issue out of the same fact scenario and circumstance bars that claim forever.  Now, the law in Tennessee is not settled on this issue with foreclosure, but it is not worth having to fight that battle.  Show up to the hearing!  Be sure to bring up the wrongful foreclosure at the eviction proceeding.   Hire and have an attorney there with you.

 

      Third, start building up a savings fund.  Because you were foreclosed on and still living in the property, you are not paying a mortgage or rent.  So start paying yourself the rent/mortgage.  For example, if your mortgage was $1,000 per month, then on the first of every month take $1,000 and place it in a separate savings account so you will not spend it.  This fund will help you in many ways.  It will help you find a new place to live and move if unsuccessful, and it will help you make bond if you sue for wrongful foreclosure.  If you sue, then the Bank is not able to sell that house or have someone living in it paying rent or a mortgage.  So to protect them, most courts will require you to purchase a bond in the amount of the year’s mortgage from an insurance company.  This account will help with that purchase. 

 

       Lastly, save every written communication between you and the bank, save every payment and statement, and take detailed notes on phone conversations you have with the bank.  All of this could be critical evidence in a wrongful foreclosure case.

 

      Tennessee laws weigh heavily in the favor or mortgage companies.  It is difficult to reverse a foreclosure once it has happened, but we have done it in the past.  Call us to protect your rights. 

5 Tips to Avoid Foreclosure

1.      Prioritize!

 

 

In order to keep  your home out of foreclosure, you need to make your house the number priority.  We see many cases where a person’s obligations exceed his income, and it is the mortgage that does not get paid.  Instead of missing the mortgage: cancel your cable, quit eating out, and take the bus.   Do you want to keep your house or ESPN?  Want to keep your house or your iPhone?  Instead of paying your credit card bill, pay the mortgage.  But the credit card has a 20% interest rate and late fee!  Well, being late on your house equals losing your home!  Therefore, making the house your top priority ahead of your other creditors and daily luxuries can keep you in your home.

 

 

 2.      Savings!

 

 

This tip is two fold.  First, just as Dave Ramsey preaches, you should always have an emergency fund.  Dave says when you are cleaning up your debt to put $1,000 in an emergency fund for when disaster hits.  I personally prefer to have at least the $1,000 but if your mortgage payment is $1,200 then make the fund $1,200.  That way you always have at least one month of a mortgage payment ready just in case you will not be able to make it with your current checking account.  

 

 

Second part of savings.  If you fall behind on your mortgage payments, almost every bank out there will not accept any payments to catch back up unless it is the full amount including late fees, interest, etc.  Therefore, if you are $3,000 behind, and have $1,500 ready to give to the bank, but they won’t accept it, do not keep it in your checking account.  Otherwise you will see your account with an extra $1,500 and it will be used at the grocery, gas, other bills, etc.  Instead, open up a separate savings account, and place that $1,500 in there.  And then when the next month begins and you will owe another mortgage payment, which will not be accepted, pay yourself the mortgage payment in the savings account.  Therefore, you can catch yourself back up and be ready to pay the bank in full. 

 

3.      Watch out for scams!

 

 

There are a plethora of scammers waiting to pounce on desperate homeowners.  Since the home is almost everyone’s prized possession, we are willing to spend lots of money on the hope of a solution.  A lot of people offer services that will stop a foreclosure, but they end up with the money instead of the bank, and instead of you.  Please be careful.  If you choose to go through a third party to work with the bank on stopping the foreclosure, instead of through bankruptcy, use only HUD approved housing counselors:  http://www.hud.gov/offices/hsg/sfh/hcc/hcs.cfm.

 

 

 4.      Communication!

 

 

Be sure to open all mail you receive from your bank and respond to everything.  The lender might be offering modifications, loan restructuring or other relief options to help you keep your home.  You need to know your rights and options and you cannot do that unless you open all of your mail.  Also, be sure to respond to all of it as well.  Keep a record of all communications.  Also, when speaking to a bank representative or customer service, keep a record of the phone calls such as date, time, person, phone number, and notes of the conversation.  These records can help you in the long run with a future cause of action if the bank does not do what they promised you, so you are not going only from memory and “he said, she said.”

 

5.      Bankruptcy

 

 

Bankruptcy is a last resort option, but filing a bankruptcy will stop a foreclosure and allow you to repay the bank over a three to five year period to get caught back up.  Bankruptcy is a legal way to force your bank to listen to you instead of just ignoring you.  Bankruptcy is not for everyone and you must contact a local attorney to see if your situation warrants filing Bankruptcy.  This is something we have much experience and do regularly.   

The Automatic Stay and Creditor Harassment on Surrendered Property

       One of the most important and influential aspects of Bankruptcy is the Automatic Stay.  The Automatic Stay is just that, automatic.  As soon as the bankruptcy petition is filed, all of a debtor’s creditors are stayed (prohibited) from making any attempts whatsoever to take any property, money, income, etc., from the debtor.  This means that all lawsuits, phone calls, repossessions, foreclosure proceedings, EVERYTHING must immediately stop otherwise the debtor can receive money damages from the creditor for a stay violation. 

        Now just focusing only on Chapter 13 cases, a creditor does have the right to ask the court for permission to be relieved from the stay (Motion for Relief from Stay), for instance, in order to repossess a car that the debtor is not paying for or is uninsured.  Furthermore, many times in a bankruptcy a debtor will voluntarily surrender a car or home to the creditor. When this happens, the creditor usually does not need permission from the court to recover the collateral, as such permission is typically included in a confirmation order.  Here is an example from an actual order:  “The plan surrenders the debtors interest in collateral to the creditors listed below. The automatic stay has been lifted to allow these creditors to repossess the collateral upon which they have liens.”  Well when the stay is lifted, does that mean the creditor can begin harassing the debtor again?  As counsel for debtors, we say no; however, there are creditors who say yes!  While in my research I have yet to find a case that addresses this particular issue, I found many cases that are analogous. 

       For example, a reaffirmation agreement is a voluntary agreement between a debtor and creditor that allows a debt to be exempt from discharge and remain in effect after the bankruptcy (This is done for debtors who wish to keep cars or houses).  It has been held by many bankruptcy courts that a creditor can contact debtors about such an agreement since both parties have this right. However, litigation soon followed because the creditor was trying to harass the debtor into such an agreement.  Courts have held that while a creditor is allowed to contact the debtor for this purpose, the creditor cannot do so through harassment, threats, or coercion, as this defeats the purpose of the Bankruptcy Code protections.

       Usually, when property is being surrendered, the discourse between the creditor and debtor is tranquil and they arrange a time for the surrendered car to be picked up or a time limit for the debtor to move out of a house.  There is currently a case going on right now where the debtors moved out of their house, which was surrendered, two years prior but are still getting harassing and threatening phone calls about transferring the property.  Though the stay had been lifted, the debtors are contending that like reaffirmation agreements, surrenders cannot be coercive.  It will be interesting to see how the case turns out.

QWR: Qualified Written Request

Practice Tip for practicing Bankruptcy attorneys:  Qualified Written Request (QWR). 

      One thing we do at Nevin Law Firm is send out a QWR for any bankruptcy client who has a mortgage.  What is a QWR? Glad you asked.  A qualified written request gets its name from RESPA, the Real Estate Settlement Procedures Act.  This act, and Section 6 dealing with a QWR, was put in place to give borrowers of a mortgage a dispute resolution mechanism.  As most of us know, it is really hard to deal with large institutions such as a bank.  Always receive a recording, voicemail, put on hold, or told you called the wrong department.  Well a QWR was Congress's giving borrowers a weapon to combat this type of customer service when a borrower has a legitimate concern regarding his mortgage. Specifically, the QWR is for when a borrower is concerned that an error has occurred in calculating how much money is owed.  RESPA requires that when a QWR is received by a mortgage lender, the lender must send an acknowledgement of receipt within 5 days and answer or correct any alleged miscalucaltions and provide any requested information within 30 days (as modified by the Dodd-Frank Act).  If the bank fails to abide by these deadlines then a borrower is allowed actual damages, statutory damages (not to exceed $1,000), and attorney fees.  The bank, however, is allowed to give the borrower notice that they are extending the time to respond by up to 15 days so long as in the notice the provide reason for the delay. 

       Now, there are specific requirements of what makes a letter a QWR and just a letter.  The letter must state that it is a Qualified Written Request, state that the bank must abide by the requirements of RESPA, be mailed to the actual servicer (not servicer's attorney), and allege errors, omissions, of defects occurred in calculating payments, fees, costs, charges, notice, etc. (These requirements are not an exhaustive list). This is a great tool for attorneys because it does a number of things: (1) if it goes unanswered you get fees; (2) forces the bank to provide you with mortgage documentation so you can look for errors; and (3) allows you to dispute any differences made on a proof of claim filed by the servicer in the bankruptcy case. 

      Major Caveat!! A couple things you need to be careful about.  QWRs are not to be used as a "fishing expedition" and doing so can have the potential to adversely affect a client.  A Deed of Trust may have a provision that in a dispute the borrower is responsible for legal fees.  In such a case, if used as a "fishing expedition" and there is no actual specific error alleged, you may have added a few hundred more dollars to the balance of your clients mortgage.
 

      Before sending out your own QWR and taking action to recover damages and fees if no response is given, be sure to read section 6 of RESPA and research the caselaw as this article only scratches the surface. 

Pitfalls of Bank's Pilot Mortgage Forgiveness Program

       Recently a large national bank has announced that it is launching a pilot program that will allow some homeowners facing foreclosure stay in their homes. The program would allow homeowners, who are behind in their mortgage, deed the property back to the bank and then have their mortgage debt forgiven. At this point the former homeowner would then lease the property from the bank at a lower rent than the monthly mortgage payment. The tenant would also not be responsible for the property taxes or insurance.

       This program benefits the bank for a few reasons. The bank saves the expenses it costs them to do a foreclosure (The average foreclosure takes nearly two years to complete, according to Florida-based Lender Processing Services, and costs nearly $78,000, according to a Congressional estimate.). However, the bank will face some additional costs/ responsibilities. The bank will bear the costs of property taxes, insurance, maintenance, land scaping, repairs, security, waste disposal, and other property management requirements. Furthermore, the bank would need to employ an attorney to oversee any evictions that would occur.

       For the property owner this may seem like a good way to remain in his home, however there would be some negative consequences. For instance, forgiveness on a debt is considered by the IRS as taxable income, so the homeowner could be left with a very large tax bill after a $150,000 mortgage is forgiven. Moreover, the former homeowner could be removed from the property a lot faster than if he owned the home. If the property were being foreclosed, the procedure could a couple of months and the homeowner has the protection of the Bankruptcy Code, where filing bankruptcy would cease the foreclosure and allow the debtor to make up any missed payments. However, with the former homeowner now renting his house, he can be evicted from the house in about two to three weeks if he were to miss a rent payment. Also, the Bankruptcy Code is very favorable to landlords. Remaining in the house during a bankruptcy does not alleviate the tenant's responsibilities from paying rent, while a homeowner can remain in the home a lot longer without making a mortgage payment; the post-petition rent that comes due during the bankruptcy will also not be discharged, and the tenant can later be sued for it, unlike a homeowner.

       Though it seems like this program could help the bank and homeowner, it may also be just substituting one problem with another.

Loan Modifcations: Tips and Warnings

       As a Bankruptcy Firm, we see many good, hardworking people whose homes are in foreclosure. And after all these stories, I am surprised to see that many of them fell behind because of Loan Modification Programs. To be clear, modifying your loan can help you financially; however, I want to set out many tips and warnings you need to know before attempting a modification so you do not fall victim to what has led others to foreclosure and consequentially, bankruptcy.

       First, you need to know the truth. Very few borrowers after the process end up with a loan modification. I recently spoke with a friend of mine in the mortgage loan market and learned that approximately only 6% of those who apply end up lowering their mortgage payments. Six percent, that's all!

       Second, if you want to hire an attorney to work with you and your bank for a loan modification, DO NOT hire an attorney, agency, or professional who wants to be paid up front. I've heard plenty of stories, where a person pays a couple thousand dollars to an attorney to work with their bank. That money would be better spent on paying down your actual mortgage or to savings. Lots of times, these agencies are scams who take your money and run. Other times they are legitimate, but remember SIX PERCENT success rate. The only fee arrangement you should make is that the attorney you hire will receive a percentage of any savings from a successful modification. If anyone wants money up front, go somewhere else. A contingent fee makes the person you hire actually try to succeed since that is the only way of him getting paid. If he has already been paid, then he won't care if you end up being part of the 94% who fail.

       Lastly, keep making your mortgage payments during the process! Many people have said how their Bank told them that they don't have to make payments while applying, or that the bank only accepts those who are behind in their mortgage. If you must be in default to qualify, do not do it on purpose, stay current. And when your bank tells you that you are not obligated to keep making payments, the fine print says that if you do not succeed in getting a modification, all of those missed payments come due immediately along with interest and late fees. And then the bank ends up foreclosing on your home. So keep making those payments, and if you choose not to, do not spend that money. Save it on the great chance that do not succeed in modifying your loan.

       The Loan Modification is a long, complicated, and drawn out process that will likely lead to nothing. So please be smart about your money. Hopefully, you may end up as part of the 6%, but as you go through the process, remember these helpful tips and warnings.