Keeping the Keys to Your Home

I love reading the comments over on the CR blog. They’re great entertainment when I need a break from trying to dig my way out from deep inside the new WA State Distressed Property Law class I’m writing. Tonight, as I was reading the comments from this post on Fannie Mae lifting the “declining markets” rule, I found a link to this website (hat tip w.) is providing hope (for a fee) for homeowners who wish to use legal options to stay in their home as long as possible, or to prevent foreclosure altogether.

We’ve all read, and some RCG commenters have complained loudly, about loan servicing companies being slow to approve short sales, modify loans, or engage in any kind of foreclosure workout with homeowners. Well, perhaps the threat of predatory lending and violations of state and federal law at loan origination will bring loan servicers to their knees.

The legal team at seems to be focused mainly in California, where the current count of 1000 foreclosures per day seems to ensure a model for business growth for the next decade.

So what can homeowners do who are located in Washington State and want legal help? Sometimes homeowners in financial distress just want an attorney to take a look at their documents.  Taking this simple step is better than full blown homeowner denial, and legal help can often be more affordable than the homeowner might think.  I’ve been on the look out for Seattle area law firms offering affordable legal counsel for homeowners facing foreclosure.  Now I’ve found one and I bet you’ll never guess which firm decided to extend a hand to this market.  Thanks, Craig and Marc.

Now, what to do about all those homeowners who committed stated income fraud at application in 2007.  Hmmm.  Perhaps there’s a reason why foreclosure rates continue to climb.  Maybe it’s not just “denial” or “loan servicing” backlogs.  

26 thoughts on “Keeping the Keys to Your Home

  1. Jillayne, thanks for writing this article. I feel badly for people going through foreclosure–as you mention, I’ll bet so many of them are buried in denial, guilt and depression that they’re not being as proactive as they can to deal with their options.

    It will be interesting to see how those who overstated their incomes will be dealt with. If they cannot afford the home, and never could in the first place, I doubt the lender or servicer will be forgiving…and why should they? Over-Stated income loans are also a huge culprit for driving up home prices…those buyers should have never been in the market at those price ranges. They should have bought homes they could actually afford…oh well…would of, could of, should of.

  2. I haven’t read anything about this entity, nor do I have familiarity with what they might do legally, but this sounds on its face more legitimate than the walk away type programs.

    There was an attorney in Seattle that made a nice living defending people on collection matters using the Fair Debt Collection Practices Act as a hammer. I once saw him turn a $3,000 collection matter into a $30,000 judgment in favor of the defendant! (Amounts approximate.) I’d hope though that the banks’ paperwork would be in a bit better order (I’d hate to think they use a half ream of paper on each transaction for nothing!).

  3. What I find interesting is that the thing people need to be doing first, often seems to come last, which is talking to the lender.

    I just got this week’s NOD list for Snohomish county and it was up to 75 notices. The norm last year was around 30, so it is picking up steam here. Very sad.

  4. Hi Rhonda and Sandy,

    I’m wondering if all those who overstated their income are not necessarily in denial or stalling on contacting their lender. Maybe they don’t want to admit to taking part in what happened at origination.

  5. Hi Kary,

    I’ve been told by attorneys that working the “consumer protection laws” market is tough because your customers often don’t have lots of money to put down on retainer. Maybe if there’s a class action lawsuit, the law firm could strike gold, but that money takes years to earn, so capital is required to pursue large lawsuits.

    Sandy says NODs are up to 75 in Snohomish County. That’s 75 possible clients for Snohomish County area attorneys.

  6. Jillayne, I’m often contacted by home owners who will say, “I really need to refinance and I have on of “those stated income loans”. I ask if they can go full doc now or if their income has changed and typically the answer is nope.

    There are still a few “subprime” lenders that are offering stated–but rates are not attractive.

  7. I would say it’s not uncommon–is that better than “often”? 😉 I’m glad that I barely did any stated and the few I did (you can count on one hand and fingers left over), the borrower had the income.

    We could do a whole post on stated but it’s almost pointless now…I did write one about a year ago at Mortgage Porter about why I don’t like them. A first time home-buyer had contacted me wanting a stated income loan for income they anticpated they would make in the future! Not “now” income and not 2 years of averaged income based on what they report to the IRS. “Let’s pretend we’ll make this income on day” income…and use it to buy a house.

    I preferred NIV where borrowers did not have to lie/over-state income on their application. The underwriter made the decision based on credit and assets if the loan made sense but the weight was off the borrower. I’ve maybe done just a handful of those loans in my 8 year career too.

    I wonder how many stated/niv were done because LO’s were not able to read tax returns? I did have one contact me once wanting to learn how to calculate income now that she could no longer rely on stated. I was sick. How many people paid extra (even if they qualified full doc) and didn’t have a choice–their mistake was using an unqualified LO.

    Someone earlier commented (on an another post) that borrowers who did stated income loans probably didn’t understand that they were “overstating” and what they were doing…I have a hard time with that. When you’re signing legal documents and you know you’re qualifying for a mortgage that’s based on your income which is plumped well above what you make? I don’t buy it. Somewhere in a corner of their brain, they knew something didn’t make sense…but they wanted the keys to the house.

  8. Great comments, Rhonda.

    Then how do we respond when loan originators out there continue to say: “Hey, it’s not my decision to make. I provide the loan products, if they want the keys to the house, it’s up to them. They had all the documents to read.”

    How do we balance higher duties owed to the consumer at the retail origination level along with respect for the consumer’s autonomy?

  9. In my opinion, Jillayne, it should be the LO’s job to interview the client and have an understanding of what their financial goals are. Review their documentation, credit, etc and show them the loan programs that are currently available for them to help them. They should also fully explain the programs (pros and cons) so they can understand the term and potential consequences or benefits. It is and should be the consumers choice–not the LO’s.

    When I would have someone (like the person who caused me to write the stated income post) approach me to say “I need a stated income loan”…I’d ask why. I think most people could tell it wasn’t my cup o tea (and so they would go elsewhere)… borrowers could overstate income on their application and get a slightly lower rate than if they had left the income portion blank and gone NIV. If there was a reason for going stated, I would tell them why I preferred NIV… but they usually wanted the lower rate and had no qualms about lying about their income.

    In hindsight, I didn’t offer stated or NIV products. When a borrower would come to me to get preapproved, they would be qualified “full doc”. If they all ready had a written p&s and their income didn’t fit it, they would need the credit scores and assets to go NIV (unless they had the income to go stated).

    I think some borrowers felt they could rob Peter to pay Paul (or however that saying goes)…but it catches up to you…obviously.

    Many consumers do not treat their finances or obtaining a mortgage with the respect and “duty” that it deserves. If they’re going to find any “bad actor” who will gladly shove them into a product regardless of circumstances, they’ll find it.

  10. [what I envisioned was the attorney reviewing loan docs for particular issues, and then taking only those cases where they saw defects that had a clear remedy, possibly including attorney fees.]

    Most packages don’t have significant defects, and even when they do, the criteria vary depending on whether the mortgage was a purchase loan or a refi.

    Another limiting factor is the Statute of Limitations in your particular state.

    With regards to class action lawsuits, the most recent, successful, large-scale suit was against Ameriquest. This was a company where “business as usual” included some of the most depraved practices I’ve ever seen.

    In that particular suit, how much did the “victorious” homeowners get? $675.67.

    Perhaps there was a time when you could go to OCC and file a complaint and they’d actually respond, but that was before my time.

    Or, if you’re “lucky” enough to live in an activist state, you can often submit the file to your state’s AG office and they’ll forward it on to the appropriate regulatory agency. However, there aren’t very many good state-run reg divisions, and of course, good or bad, they’re all swamped… mostly with files from people who have no legitimate claim whatsoever.

    Yes, violations can often be used as leverage to get a good workout, however this is usually unnecessary in today’s servicing climate… AND, if you know how to work the system.

  11. Pingback: Has the Distressed Conveyances law curtailed foreclosure rescue scams? | Seattle Real Estate ~ Rain City Guide

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