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Robo-Signing Settlement in The Works: No Foreclosure Until Loan Modification Fails?

realpropertycheck.com November 16, 2010

Robo-Signing Settlement in The Works: No Foreclosure Until Loan Modification Fails?

UPDATE: H.R. 3808 INTERSTATE RECOGNITION OF NOTARIZATION ACT OF 2010, seen by many as an attempt at legalizing robo-signing, was averted by a Presidential Veto which was sustained when the veto override procedure failed in the House of Representatives on Nov. 17th 2010. H.R. 3808 would have required “each federal and state court to recognize any lawful notarization (…) by a notary public” in another state while legalizing the use of digital signatures and digital-only document storage (see also -> MERS). It does not take a rocket scientist to figure out how this would have both legalized and streamlined the robo-signing of foreclosure documents. Luckily, the President’s Veto stands and the measure cannot be reconsidered by the House or the Senate. This does not resolve any of the current problems caused by robo-signers, however.

50-state attorney general investigation into robo-signing foreclosure practices is reportedly nearing a settlement.

As reported by CNBC’s Diana Olick, Bank of America and JPMorganChase appear to be agreeing to the same framework of a settlement.

1. Banks would pay into a fund administered by attorneys general which could be used to compensate borrowers who can prove valid claims to having been wrongfully foreclosed upon (in exchange , those borrowers would presumably have to agree to forgo ever seeking legal recourse elsewhere).

2. There are talks of some kind of third-party mediation for review of eligibility as per the first point above.

3. Banks would have to eliminate dual track of modifications and foreclosures, which have often resulted in homeowners in negotiation of a loan modification being foreclosed upon by another arm of the lender. Only after all options of modification are exhausted will a bank be able to begin foreclosure proceedings (what looks good on paper can be still subject to interpretation, so don’t celebrate just yet).

i, Robot, Columbia Pictures, 2004
i, Robot, Columbia Pictures, 2004 (buy at Amazon.com)

The final agreement could still look a lot different from this framework.

Principal write downs as part of the settlement have been on the table as well.

Banks are apparently in no mood to lavish money at a compensation fund if they can dodge the bullet.

In an interview last week, Iowa Attorney General Tom Miller hinted at the possibility that

maybe instead of paying huge fines, they [the banks] adequately fund the modification process

What sounds so laudable comes down to this: The arrangement mentioned by AG Tom Miller would keep the money and the leverage in banks’ hands. It is difficult not to wonder whether past victims of the robo gate who had been wrongfully foreclosed upon as a result of a clerical mistake and/or fraud are going to get shortchanged again.

We will keep you posted.

In the meantime, if you happen to be a victim of robo-signing, your property was a subject of a regular foreclosure or a short sale or you cut a loan modification deal with your lender, you could be liable for taxes on phantom income unless you preempt the IRS. Read how you can legally dodge the bullet in: “Negative Equity and How You Can Avoid Tax On Phantom Income From Relinquished Property.”

You can also find out how to get out of trouble with your lender in: “How To Stop A Foreclosure (And Walk Away With Money In Your Pocket).”

Filed Under: Homeowners' Club, The Economy Tagged With: foreclosure, Robo Gate, robo-signing

realpropertycheck.com October 24, 2010

Banks Gobble Up Tax Liens Hoping to Put More Homeowners Through Foreclosure

Homeowners who paid off their mortgage can still loose their home to foreclosure if they default on property taxes. This hurts a lot.

As if the current foreclosure mess weren’t enough, some banks have been creating front entities in which they are buying up tax liens en masse, then harass homeowners with legal fees while hoping to put them through a foreclosure and make a killing on the property.

How Tax Liens Work (Really)

When a homeowner defaults on their property tax, the county places a lien on the property, then sells the right to collect the tax to a private investor. Interest accrues at a rate of up to 50 per cent per year while the investor waits for the homeowner to pay up. If the homeowner pays his or her back taxes with penalties and other fees in the allotted time, the holder of the tax lien recoups his or her original investment with a sizeable profit. But what if the homeowner can’t pay everything he or she owes? Tax liens are secured by the property and are senior to almost all other types of debt (except for liens of the federal government such as IRS tax liens, but also HOA dues and other claims which survive a foreclosure).

If the homeowner fails to pay up, the holder of the tax lien can seize the property through foreclosure. Homeowners who can’t pay their property tax bill must sell their home at a loss before it’s too late. The county is out of the woods, the taxes are paid.

Counties have their own bills to pay so they are selling tax lien certificates left and right. But guess who is buying them up? The same banks we the taxpayers propped up with bailout money.

Banks Anonymous

Banks discovered tax liens as a safe and high-yielding investment vehicle and there is nothing wrong with that, except that some banks are not satisfied with high yields. Instead, they are pushing the envelope. In an apparent attempt to increase the likelihood of default and subsequent foreclosure, banks hire an army of lawyers and then go about harassing homeowners with legal fees you can only describe as excessive. In fact, they range from excessive to astronomical.

Banks are so image-conscious, however, that they set up new legal entities in order to disguise themselves. According to http://huffpostfund.org, Bank of America has been using front entities by the names of:
– Osprey, LLC,
– Ecru, LLC,
– Bennu, LLC,
– Investments 2234, LLC.

All of them are run from a single P.O. box location:

P.O. Box 403357
Atlanta, GA 30384

JPMorganChase hides behind an entity which calls itself Plymouth Park Tax Services, LLC, and is the largest tax lien investor in the country, also known as XSPAND (which is a DBA).

Fortress Investment Group, a hedge fund, disguises itself as Travis Farm Investments, LLC and Pleasant Valley Capital, LLC for example. (There is nothing “pleasant” about this.)

In June, Bank of America acquired tax liens on properties in Florida owned by low-income residents and nonprofit public interest groups, including a Salvation Army shelter, a preschool and a wildlife rescue group involved in the cleanup of the oils spill in Gulf of Mexico, along with some glamorous properties of the very wealthy.

Five big banks involved in tax lien investing (or, shall we say, in predatory tax lien investing) collected a total of more than $106 billion in TARP bailout funds, courtesy of the taxpayer. But when the taxpayer chokes up on the tax bill, he or she ends up homeless. Banks can borrow from the Fed at interest rates hovering near zero, then buy up tax liens and collect outrageous fees on top of astronomical interest rates, and then harass homeowners into foreclosure. It may be legal, but it sure as hell is unethical. When will Washington finally wake up and rein these banks in?

Filed Under: Financing, Homeowners' Club, Investing, Other Stuff, The Economy Tagged With: default, foreclosure, property tax, TARP, tax lien

realpropertycheck.com August 29, 2010

HARP: All You Have to Do is Ask? The Pitfalls of Government-Backed Mortgage Refinancing

Record low interest rates are no good if you can’t get the lender to give you the time of day let alone a new mortgage. Government-administered home refinancing programs are mired in red tape. There are two of them right now and none is working. Here is what awaits you and how to avoid trouble.

IMPORTANT UPDATE: In early November 2010, a federal judge granted a La Jolla homeowner by the name of Kaveh Khast his motion for a temporary restraining order…

[Read more…]

Filed Under: Financing, Homeowners' Club Tagged With: Fannie Mae, foreclosure, Freddie Mac, HAMP, HARP, keeping records, notice of default

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