Banks Tentatively Agree to Modify Their Improper Foreclosure Procedures

Borrowers with loans in Northern California continue to suffer from unfair foreclosure procedures by banks that do not respond to requests for loan modifications, put borrowers through endless hurdles in the loan modification process and foreclose after declining modifications because loans are in arrears as a result of the modification process. The New York Times has reported that the nation's top lenders are expected to sign legal agreements by the end of this week compelling them to change their foreclosure procedures, according to regulatory officials. The lenders and their servicers, who violated state and local laws and regulations governing foreclosures, are agreeing to improve their methods in numerous ways. Servicers will be required to hire an independent consultant to review foreclosures done over the last two years. If owners were improperly foreclosed on or paid excessive fees, they will be compensated. Going forward, under the new rules, homeowners in default will have a single point of contact with the servicer. The servicers will end their practice of foreclosing while borrowers are pursuing loan modifications that might allow them to stay in their homes. They will be required to have more layers of oversight and proper training of their foreclosure staff. The oversight will extend to third party groups, including the law firms that do much of the actual work of eviction. As a result of the changes being imposed, banks will have two options: either hire more employees to give the millions of households in default closer attention, or slow the pace of foreclosures. While the banks have acknowledged violating the laws they maintain that very few if any people lost their house who were not in severe default. Bringing in a consultant to establish the amount of damages will give individuals who feel they were abused by their banks some means of redress. It is unclear how this will work if the bank is hiring the consultant to review the loans. Many of the reforms that the banks are agreeing to were also being sought by the fifty state attorneys general, who filed lawsuits demanding similar reforms last fall. For several weeks in January, the regulators and the attorneys general attempted to work with officials from the Justice Department and the Department of Housing and Urban Development to produce a comprehensive settlement, but the negotiations were not successful. The attorneys general met with the banks again last week at the Justice Department. The attorneys general are seeking to make the banks cut the debt of delinquent owners. The banks are resisting these efforts. Regulators expect to issue a report on foreclosure practices at the top 14 banks within the next few weeks. The report, is the result of an investigation this winter by the Office of Comptroller of the Currency, the Federal Reserve Board, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation. It will not name individual banks but rather describe their aggregate behavior. The investigators reviewed the policies and procedures, structure and staffing of the top banks, as well as their use of law firms and other third parties. They examined 2,800 foreclosures in various stages. The banks examined were Bank of America, Citibank, GMAC, JPMorgan Chase, Wells Fargo and nine others. The examination found critical deficiencies and shortcomings in foreclosure preparation and oversight, resulting in violations of state and local foreclosure laws, regulations and rules. Based on the findings, the banks will probably be assessed fines at a later point. Although the investigation by the regulators and the states attorney generals has shed some light on practices that the public has been aware of for several years and has revealed the problems and practices that have prevented homeowners from working out a solution to keep their home, there is no real solution that has been proposed that the banks have agreed upon that will allow homeowners to reduce their loans to the market value of the property or reduce their payments to an affordable level where the homeowner has lost their job or their income has been reduced. Most of the loans that are in trouble are the result of properties that were purchased before the recession that lost value and cannot be sold and combined with borrowers that have lost income because of the recession and can no longer afford their loans. Most of the borrowers are victims of the economic downturn and the banks are taking no responsibility for any role they played in creating the problem. Nor are they reaching out to their customers to work out individual solutions to their problems to keep them in their homes. One of the only remedies to forcing lenders to work with borrowers remains Chapter 13 bankruptcy which allows a borrower to stop a foreclosure and forces the lender to abandon secondary unsecured loans and enter into a payment schedule for arrearages. Most lenders begin foreclosure proceedings during loan modifications on the grounds that the loan is in default, a condition that was created by their requirement that the loan be delinquent before they will consider a modification. After taking months to evaluate the modification, the banks demand the full payment of the arrears as a condition to continuing the loan. Most borrowers are not in a position to pay the arrears in a lump sum and must seek Chapter 13 bankruptcy assistance to obtain a payment plan for the arrears. A Chapter 13 bankruptcy will stop the foreclosure and spread the arrearages out over three to five years helping the homeowner to keep the home. If you are encountering a problem with your lender in Northern California and you are being threatened with foreclosure, you should seek the advice of an attorney. We have offices throughout Northern California available to provide legal advice regarding these issues. Contact us for a free legal consultation.

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