MERS Active in the Loan Mod Business

Attorney Steve Vondran can be reached at steve@vondranlaw.com or (877) 276-5084.  Mr. Vondran is licensed to practice law in California and Arizona and is currently assisting homeowners in foreclosure defense, predatory lending, bankruptcy, and loan modification (Arizona only).  The following is general legal information only, and not legal advice.

MY NAME IS MERS AND I AM THE BENEFICIARY OF YOUR LOAN, NO I MEAN THE NOMINEE OF YOUR LENDER AND ITS SUCCESSORS AND ASSIGNS, I CAN LIFT THE AUTOMATIC STAY IN BANKRUPTCY – DO NOT CHALLENGE ME! RESPECT MY AUTHORITY.

Yes, to a certain degree we have been calling this “produce the note” bankruptcy style (or to be more accurate, “prove you are a creditor”).  Here is a general overview of what we are talking about here.  If you have a MERS loan (check your deed of trust see if it lists MERS as the nominee of the lender and its successor and assigns and the beneficiary of the loan), and you are thinking of filing Bankruptcy Chapter 7, give this article a close review.

We are a debt relief agency and we help people file for Bankruptcy Protection under the Bankruptcy Code.  The following article is general legal information only and may not be current, up-to-date or accurate as law can be subject to interpretation and is constantly evolving.  In addition, this article is not legal advice and not to be construed as a substitution for legal advice.  If you have specific legal questions, please contact a bankruptcy lawyer or real estate lawyer or foreclosure lawyer as your case may require.

MERS IN BANKRUPTCY – RIP OPEN THE CURTAIN AND LETS SEE THE “WIZARD OF OZ” STANDING THERE WITH NOTHING BUT SMOKE AND MIRRORS.

WHAT IS MERS?

MERS stands for the Mortgage Electronic Registration System.  They are essentially a software company that was set up to track the transfer (sale) of loan ownership rights, and loan servicing rights where loans are originated and transferred (sold) on the secondary market.

Where you see MERS pop up in the loan context is look on your deed of trust, if you see it say something similar to the following you have a MERS loan:

“MERS is the nominee of the lender, its successors and assign.  MERS is the beneficiary.”

That is typically what you will see.  Yes, you may be scratching your head like we do in our foreclosure defense work and asking yourself the following question, HOW IS IT THAT MERS IS BOTH A NOMINEE OF THE LENDER AND THE BENEFICIARY?  It is a bit strange, but basically MERS is trying to hedge its bets.  Where it needs to be an agent (nominee) it will act as an agent.  Where they want to pretend to be the beneficiary, it will put the beneficiary hat on.  Yes, MERS gets to be whoever it wants to be, or at least we should say that MERS can pretend to be whoever it wants to be in regard to loan foreclosure, trying to life a stay in bankruptcy etc.

Yes, MERS is assuming you will not challenge them, or that you do not have the money to challenge them, and/or that the judge will go right along with them in a civil lawsuit or allow them to lift the automatic stay in a bankruptcy setting.

Alas, there is the rub, people are starting to learn about MERS, and trying to find ways to challenge them.  Our firm is also putting forth some new strategies to take on MERS, and MERS-related loans.

The analogy for MERS (pretender lenders) can also be extended to Trustees of Securitized trusts (as pointed out in California State bar MCLE units taught by Neil Garfield, a lawyer who can probably be called the “father of produce the note theory”).  The point being that a trustee of a securitized trust who does not have the original promissory note, transferred and endorsed, along with an assignment of the note and deed of trust (the note and deed of trust are supposed to be assigned together for “the note without the deed of trust is a legal nullity” according to some legal cases.  For example, where a trustee of a securitized trust cannot show proper transfer of the note and deed of trust, no one in their right mind should just assume that because the Trust claims to hold the loan, that they should be treated as a legitimate “creditor” in a bankruptcy case.

The point becomes, in this day and age, we are finding it increasingly difficult to find out WHO THE HOLDER OR OWNER OF YOUR LOAN IS.  WHO IS ENTITLED TO PAYMENTS?  WHO IS ENTITLED TO FORECLOSE ON YOU?  WHO IS REQUIRED TO CONTACT YOU PURSUANT TO CALIFORNIA CIVIL CODE SECTION 2923.5 TO TRY TO WORK OUT LOAN MODIFICATIONS WITH YOU BEFORE THEY FORECLOSE?  WHO DO YOU SUE WHEN YOU ARE FILING A TRUTH IN LENDING RESCISSION CASE TO FORCE THEM TO GIVE BACK THE MONEY THEY MADE AS PART OF THEIR TENDER OBLIGATION.

What we have found to be absolutely amazing in our work as a foreclosure defense and loss mitigation law firm is that when you contact your lender as ask them what should be a relatively simple and straight-forward question such as “WHO IS THE OWNER OF MY LOAN I WANT TO TALK TO THEM ABOUT A LOAN MODIFICATION” many California and Arizona homeowners will typically get the same answer:  NONE OF YOUR BUSINESS……OR SORRY, WE CANNOT TELL YOU…….OR SORRY, WE DO NOT KNOW……OR, YES WE OWN IT, WHEN IN FACT THEY DONT.

If you think I am kidding, call your lender or more likely, your loan servicer and ask them who owns your loan.  They may insist that Fannie Mae or Freddie Mac owns your loan.  Both fannie and freddie have a loan lookup tool and you can google this to see of they “own your loan.”  Of course, the result you will get you will have to take on faith, because you will not be able to download a copy of your note assigned to them, or a copy of your deed of trust assigned to them.  Instead, Fannie Mae and Freddie Mac will be asking you to take it for granted that when they tell you they are the owner of your loan, that that is true and indisputable.  If you ask for proof however, they will likely tell you to “pound sand.”

The rationale of many lenders seems to be this: “you took out a loan……you know you owe somebody……..that somebody might as well be us…….and there is no obligation for us to “show the note” in order to conduct a private trustee sale in California and Arizona (unfortunately the case law backs them up on this wild assertion) and if you try to file for an injunction to stop the foreclosure sale, we will point out the case law that says an original copy of the promissory note is not required in seeking to foreclosure in a non-judicial foreclosure sale.  THAT MY FRIENDS IS BASICALLY WHAT YOU ARE UP AGAINST.

Meanwhile, Attorneys like me would like you to know that things are not always as they seem to be.  Remember the Wizard of OZ?  The guy behind the curtain that wanted you to believe he was the ultimate authority and not subject to challenge?  Well, the lenders, loan servicers and MERS like to do the same thing when in comes to acting like they have all the credentials to prove their right to ACT IN RESPONSE TO REQUESTS FOR LOAN MODIFICATIONS, SHORT SALES, DEED-IN-LIEU OR FORECLOSURE, IN PRIVATE NON-JUDICIAL FORECLOSE SALES, TRYING TO LIFT AUTOMATIC STAYS IN BANKRUPTCY COURTS, AND EVEN EVICT PEOPLE FOLLOWING AN UNLAWFUL SALE BY A PRETENDER LENDER AS NEIL GARFIELD CALLS THEM.

In short, it is time to start asking the tough questions, and making these guys answer them with honesty, and in accordance with commercial law and other legal standards and making them PROVE they are the true creditor, or an agent of the true creditor when them come pushing people around in loss mitigation settings (even after they got their real nice bailout that saved their asses from bankruptcy and embarrassment).

IS MERS THE BENEFICIARY OF A LOAN?

As mentioned above, MERS is NOT A LENDER…….NOT A BENEFICIARY OF ANY LOAN.  They did not lend you any money; they do not accept your loan payments, they do not discuss loan modifications or short-sales with you.  Again, MERS is nothing more than a software company that is essentially made up of its member banks who like to hide behind the “MERS Curtain.”  The use of MERS allows the TRUE OWNER of the loan to remain anonymous.  That way, nobody knows who to go sue, unless and until a borrower goes into a default in which case MERS will ask one of its members to step forward and act as the creditor of the loan and move to foreclose.  Until that day, you will never likely learn who “holds your loan or who “holds your loan” or who “the creditor or beneficiary of your loan is.”  Again, the big banks, lenders, and wall street investors (who typically are the loan beneficiary as they are the ones seeking your loan payments after the servicer takes its cut) do not want you to know about them, because they do not want to answer for any predatory lending claims you may have.  They would rather hide in the shadows for 4 or 5 years until statutes of limitations run, collecting your loan payments, trading your loan as many times as possible, and basically just living covertly off your interest payments.
Court cases have come down that have basically stated that MERS is NOT A BENEFICIARY OF A LOAN JUST BECAUSE IT CALLS ITSELF A BENEFICIARY UNDER YOUR DEED OF TRUST (CALLING A PIG A HORSE DOES NOT MAKE IT SO).  AT BEST, COURTS WHO HAVE HEARD “MERS CASES” HAVE NORMALLY HELD THAT MERS MAY BE AN AGENT (NOMINEE) BUT THEIR CLAIM TO CREDITOR OR BENEFICIARY STATUS IS NOT MUCH MORE THAN SMOKE AND MIRRORS.  We have discussed the Arkansas MERS case and Kansas Supreme Court Case on other blogs.  We have also addressed “MERS BANKRUPTCY CASES”  which have held that MERS does not have “standing” to lift an automatic stay in a bankruptcy court and that MERS is not a “real party in interest” in a BK case.

MERS hates these cases, even though it touts some of their alleged “successes” and the MERS TRIAL STRATEGY AND MERS LEGAL PRIMER on their website (assuming the article is still up there).

At any rate, do not expect MERS to stop, and as we discussed above, TRUSTEES OF A SECURITIZED LOAN TRUST (who like MERS cannot produce the note and assignment of deed of trust properly endorsed and transferred) should also not be acknowledged as TRUE CREDITORS who can do whatever the heck they want in private foreclosure sale settings, short sales, loan modifications, deed-in-lieu-of-foreclosure and in bankruptcy courts in California and Arizona where we are licensed to practice law.  Note, we only serve loan modification clients in Arizona since California passed SB94 which essentially was the lenders way of putting loss mitigation representative out of business.  That being said, we still file lawsuits seeking money damages, injunctions, TILA rescission, elder abuse cases, file lis pendens, file trial plan breach of contract cases seeking specific performance of the trial plan agreement, and force them to prove their creditor status (standing and real party in interest) in a BK Chapter 7 case where a debtor has legitimate debts (including deficiency judgment liability) that they seek to wipe out.

IF MERS IS NOT THE BENEFICIARY OF THE LOAN, THEN WHO IS?

This is the million dollar question.  The Beneficiary is normally the party entitled to payment on your loan.  Recall in the normal loan situation you have the Trustor (who is the borrower) and the Trustee (who has the power of sale given to them by the borrower) and the Trustee (who is the beneficiary of the loan, and the one who loaned the money).

This is the typical arrangement in a deed-of-trust setting.  Mortgages are different and have only a mortgagor (the borrower) and the mortgagee (again, the bank that normally lends its own money).

It used to be the case (before securitized loans, and the secondary loan market) that banks would lend their money and then hold the loan, servicing it, and foreclosing on it if need be.  The would, of course, hang on to your promissory note (which is evidence of the debt obligation) and would record the deed of trust in the local County Recorder’s office as evidence of the security interest in the loan.  If you went into default on the loan, the bank would send you a notice of default or a notice of sale, and eventually they would foreclose on you.  You never really had any reason to question who the owner or your loan was, or who your creditor was under this type of arrangement (which is often called “portfolio loans” or “whole loans.”).

Fast forward to the present, where you have loan brokers and “lenders” involved in many transactions, and the “lenders” typically do not loan any of their own money (yes, this sounds strange) but typically they will have entered into an agreement with another company who has agreed to buy, or otherwise fund your loan perhaps through a credit line, or perhaps by another agreement linking to a wall street investor.

WHAT?  Yes, this means when you though your lender was “lending you money” often times there was no money lent by the original “lender” and your loan (at least the note part of it) was assigned or transferred through the secondary loan market where investment banks would carve up your note with other notes (called fractionalized notes) and create investment products for investors on wall streets to invest in (the products can essentially be called “tranches” and your loan, or a fractionalized portion of your loan is in one or more tranches).   The tranches would be rated by Moody’s or Standard and Poor and investors on wall street (such as pension funds, foreign investors, insurance companies, and even investment bankers themselves) would purchase these up, thereby purchasing the right to your payments.

If you are savvy, you may be asking yourself, BUT WHAT ABOUT THE DEED OF TRUST – THE SECURITY FOR THE LOAN, WAS THAT TRANSFERRED TOO?  Recall, we said the note and deed of trust has to be transferred together or it could be construed as a “legal nullity.”  Well, as we discussed above, MERS often records the Deed of Trust and this is never assigned along with the promissory note to the investment trust that now supposedly holds your loan.  So, they were separated.

This is one of the main points of contention, if it is a “legal nullity” to separate the note and deed of trust, doesn’t this mean that they securitized trust, or even the wall street investor who may have purchased an interest in your loan payments, does not have a right to enforce the debt they claim is owed (even though they may use the services of a specialized “loan servicer” who gets paid a percentage of each loan payment to act as if they work as the “agent of the beneficiary?”).  Doesn’t this mean that neither the loan servicer (who has also tried to act as beneficiary on occasions), nor the trustee of the securitized trust, nor the wall street investor, nor MERS is a true “creditor” if they cannot produce both the transferred and endorsed promissory note, and the assigned deed of trust?  Well, that seems to be a fair proposition.

So, if you are filing a bankruptcy petition (again, you must have bona fide good faith debts to discharge) and you are LISTING YOUR CREDITORS ON YOUR BK SCHEDULES(BOTH SECURED AND UNSECURED CREDITORS) WHAT EXACTLY ARE YOU SUPPOSED TO DO?  List these companies and entities as “creditors” or list their alleged debts as “disputed” and list their alleged debts as “unsecured?  Is it malpractice to grant these types of entities “creditor status” merely because they say they are a horse, and act like a horse, and their notice of default says they are a horse and their notice of sale say they are a horse, and their loss mitigation documents and HAMP agreements state they are the horse, when in fact, because they do not have the note properly endorsed and assigned along with the deed of trust they are just a pig?  Should we take everything for granted, and give the Wizard of Oz the status they seek?

This is the question, this is the legal issue.  These guys should be FORCED to prove they are legitimate and valid creditors given what we know of securitized loans.

WHY IS MERS SHIELDING THE IDENTITY OF THE TRUE BENEFICIARY OF THE LOAN?

Again, MERS was setup to assist its member banks to track loan servicing and ownership rights.  They also help hide the identity of the true holder of the loan (the true beneficiary) as these parties only want an interest in your loan payment stream, and certainly do not want to end up a Plaintiff in a Truth in Lending rescission case (where they may actually have to give you your money back).  So MERS helps aid this function, and MERS also allows members to buy, sell, and trade your loan without ever having to RECORD THE TRANSFERS OF THE NOTE AND DEED OF TRUST in the County Recorder.

Yes, this can deprive a County of essential revenues it needs for valuable social services) but it aids the bank in saving money so of course that is of paramount importance, at least to the banks.

MERS does other things as well, like advising its member banks on who to win lawsuits, and join MERS as a party when litigation ensues.  They have it all planned out.  It is only recently when MERS has started losing a few cases that its power, or lack of power, is coming to light, and the curtain is being pulled back.  For now, they still feel they have power over the estimated 60 MILLION MERS LOANS THAT WERE ORIGINATED IN THE PAST DECADE OR SO.

CAN THE TRUSTEE OF A TRUST BE A BENEFICIARY OF A LOAN?

Again, this is a good question, under Commercial law standards, the note and the deed of trust would need to be assigned to the trust and as we know, this rarely appears to happen.   In our foreclosure defense work, we will often hear “the trust owns the loan” or “Duetsche Bank as Trustee of the trust is the owner of the loan.”  Again, they want you to take this on face value, admit you are in default of your loan, and give way to them because they are the entity billowing smoke up into the air, and angling the mirrors to blind your sight.  As we have stated, in the past maybe you would give them credence for this type of ownership assertion.  In this day and age of MERS, securitized loans, mortgage backed securities, CDO’s, etc., you have to ask questions and demand proof before you believe a word you hear.  This is especially true in a BK filing.

There was a good Arizona bankruptcy Case that came down that talked about how a Securitized Trust could own a loan if the note and deed of trust were securitized, and if that occurs, then a loan servicer (GMAC in that case) would be able to claim standing in a Bankruptcy Court, and would be a real party in interest.  We will be posting our brief of the Arizona case shortly.  Google “Vondran Arizona Bankruptcy Lawyer Prove you are a Creditor” that should take you there.  This is a pretty nice case that talks about what is legally required to prove standing in a Bankruptcy Court in a manner that would allow an entity to lift a foreclosure stay in bankruptcy court.  In that case GMAC was basically told to go home as they had no standing in the Bankruptcy Court and was NOT a REAL PARTY IN INTEREST.  So yes, these things CAN be challenged, and SHOULD be challenged in a Bankruptcy Court.  The game playing, although allowed to be perpetrated in a private trustee sale, may have to come to a halt in a federal bankruptcy court, as it should.

ARE THERE ANY WAYS TO DETERMINE WHO THE OWNER OR HOLDER OF MY LOAN IS?

Sure, you can try using some of the ways we do to “ferret out the true holder of the loan….the true creditor…..the true beneficiary.  You have to ask questions, and ASK THE LENDER OR LOAN SERVICERS IN WRITING.  Here are a few of the things we do in our “Creditor Validation” and “Debt Validation” efforts.

Send in a Qualified Written Request under RESPA Section 6 (we have talked about QWR’s in other blog posts) where a bona fide billing or accounting dispute exists.
Send a request to identify the holder of the loan or master loan servicer under 15 U.S.C. 1641(f)
Send a debt validation letter demanding the “lender”  validate their alleged debt, including identifying the holder of the loan, and producing the note and assignment of deed of trust.
Send in beneficiary demand letters.

If these letters go unanswered, or not answered in detail, of course this would raise suspicion, and doubt (again, what do they have to hide except the truth, namely that they are not valid legal creditors, and cannot prove such in some cases).  This would also potentially create legal violations under TILA and RESPA and may turn them into potential defendants in a civil lawsuit if a proper predatory lending, or wrongful foreclosure case is brought.  We call this MAKING THEM DO WORK TO JUSTIFY THEIR EXISTENCE AND JUSTIFY THEIR ASSERTIONS.  Again, if they cannot answer these relatively simple questions and producing the proper documentation of their creditor status, how can we as bankruptcy lawyers treat them as legitimate secured creditors in a bankruptcy setting?

IF WE CANNOT ASCERTAIN THE IDENTITY OF THE TRUE HOLDER OF MY LOAN, AND IF WE ARE FILING CHAPTER 7 BANKRUPTCY SHOULD THE ALLEGED LENDER OR LOAN SERVICER BE TREATED AS A “CREDITOR” (EITHER SECURED ON UNSECURED) ON MY BANKRUPTCY CHAPTER 7 PETITION?

This is what we are saying above.  Where good faith, bona fide legal challenges exist, although you may not be able to raise these in private non-judicial trustee sale settings (i.e. “there is no obligation to produce the note to pursue a private trustee sale”), I have not seen any requirement that says YOU MUST TREAT YOUR LENDER AS A BONA FIDE SECURED CREDITOR ON YOUR BANKRUPTCY APPLICATION FOR YOU KNOW YOU OWE SOMEBODY MONEY AND IT MIGHT AS WELL BE BANK OF AMERICA, OR CHASE, OR WELLS FARGO, ETC.

Consult with your bankruptcy Attorney to ask them how they handle MERS loans.   You can also contact Attorney Steve Vondran’s office (offices in Phoenix, Arizona and Newport Beach, California servicing the Greater Phoenix / Scottsdale area and all areas of California) to discuss your case.

WHAT HAPPENS IF WE LIST THE ALLEGED LOAN CREDITOR / BENEFICIARY AS UNSECURED AND CHALLENGE THE DEBT AS DISPUTED?

This is another important issue, if they are not the true creditors, and their debt is challenged on a bankruptcy petition, then what happens next?  How is this handled in a BK Court?  Contact our office to setup a attorney consultation.  Toll Free (877) 276-5084.

ARE THERE ANY CASES THAT TALK ABOUT MERS LOANS AND PRETENDER LENDERS?

Yes, there are a good number of MERS cases that come out of Bankruptcy Courts.  Our office, and its BK clerk are working to brief these cases and present a discussion on our blogs located at www.LoanModRadio.com, www.AdversaryProceeding.com, www.ForeclosureDefenseResourceCenter.com, and www.BKAttorneys.net.

Please check these sites for more information.  There are also some good cases that have come out of California, Arizona, Kansas, and Arkansas that we will be highlighting on our foreclosure defense blogs.  So stay posted or subscribe to our newsletter at Loan Mod Radio (the foreclosure defense show we used to air on California Angels Radio).

IS IT MALPRACTICE NOT TO CHALLENGE YOUR ALLEGED CREDITOR IN A BK SETTING WHERE THE LOAN AT ISSUE IS A MERS LOAN?

Again, for now this is an open question.  If you are a BK attorney, perhaps you should be challenging MERS loans and demanding true creditors, lenders and beneficiaries prove such before allowing them to lift a stay in bankruptcy Court.  Perhaps you should be charging an extra fee (whether your client can afford it or not – yes there are extra costs above and beyond your normal BK Chapter 7 fee), and perhaps you can use an outside firm like mine to conduct PROOF OF CLAIM CHALLENGES, ENGAGE IN STAY LITIGATION, OR TO FILE ADVERSARY PROCEEDINGS TO CHALLENGE THE EXTENT OR VALIDITY OF A LIEN.  To those BK attorneys in California or Arizona (where we are licensed to practice law) who want to discuss co-counseling MERS cases, we are available for discussion at (877) 276-5084.

CONCLUSION – MERS (AND OTHER “PRETENDER LENDERS” AS NEIL GARFIELD CALLS THEM) IN BANKRUPTCY COURT.

In the world of securitized loans where the note and deed of trust is often separated by the use of MERS (the software company) and where it is often not clear who holds your loan or who your lender might be (this is often kept a big secret), it may be time to consider whether you should challenge these entities claims that they are your true creditor who is owed the money, and who has the right to foreclose on your loan, or lift your automatic stay in a bankruptcy court.  The ramifications of taking such a position may threaten the “Wizard of Oz” hiding behind the loan curtain, but it also may work to your ultimate benefit.  It is not clear who Bankruptcy Judges will treat such claims, but where you have a good faith belief the alleged “creditor” is just trying to pull a fast one because “you owe somebody it just might as well be me” and where you have bona fide debts, including potential deficiency judgment liability you want to discharge, perhaps the Bankruptcy Court may be your “court of last resort” to “make them produce the note.”  These are strategies our firm is willing to investigate, consider, and allege where appropriate.

Also, you may want to bookmark a good reference site for Produce the Note issues – http://www.ProduceTheNoteAttorney.com.

__________________________________________________________________________________________________________________________________________________________________

Keywords:  bankruptcy Chapter 7 / bankruptcy Adversary Proceeding / Bankruptcy Prove they are a Creditor / QWR / Debt Validation Letter / Arizona BK Attorney / Phoenix BK Attorney / Scottsdale bankruptcy / California Bankruptcy Lawyer / Orange County Bankruptcy Lawyer / Securitized Loans / Phoenix Foreclosure Defense Lawyer / Phoenix Foreclosure Defense Attorney / Scottsdale Loan Modification / 949 Foreclosure Defense / 602 Foreclosure Defense Law / 480 Foreclosure Defense Attorney / Filing Chapter 7 / Unsecured Creditors in MERS Loans / MERS loans / Mortgage backed Securities / Trustee of a TRUST and MERS / Produce the Note Attorney / Produce the Note Lawyer

__________________________________________________________________________________________________________________________________________________________________

This is an advertisement and communication pursuant to state bar rules.  No guarantees or representations as to any case outcome are ever given, and no predications made.  Every case, lender, servicer, property, borrower, jury, and legal theory is different.  Please do not email confidential information as there is not guarantee of confidentiality and no attorney-client relationship is formed until and unless a retainer agreement is signed by Client and Attorney .

Whether it is Chapter 7 or Chapter 13, everybody must go to a 341 meeting. Section 341 of the Bankruptcy requires a meeting with creditors. It is a very brief appearance. Your bankruptcy attorney will be there, you will be there (the debtor) and the Trustee will also be there.

Creditors are permitted to attend and question various things, but they will rarely show up and, in fact, almost never. Showing up as a creditor doesn’t change your rank. You don’t go from an unsecured creditor to a secured creditor just because you show up. So your credit card company cannot show up at a 341 hearing and acquire secured creditor status. There’s no point and it wastes time. Some credit unions might show up if they feel there has been some kind of fraud, like a lie on an application. They could show up and ask a couple of questions. Other times you might find crazy ex-spouses or girlfriends show up or people who just want to vent in which case the Trustee might let it go on a couple of minutes and then they will cut it off.

Basically it is just an opportunity to check your ID’s and make sure you are who you are. You have to show up on time with your driver’s license and Social Security card. They swear you in and then begini by asking some general questions (nothing that you haven’t answered on your Petition).

For example, (1) did you examine the petition before you signed it, (2) did you list all your assets? (3) are you a Plaintiff in any lawsuits, (4) do you have any other personal property you have not listed on the schedules, etc.?

The questioning is tape recorded and is basically 4-5 minutes long. It goes very quickly. Like I said, it is mostly an opportunity to verify your ID’s. Before you go there you meet with your Trustee and the Trustee will send out a Trustee letter a couple of weeks before your 341 meeting. It is a letter that requires you to fill out a form, and it is going to require you to submit the documents that he/she asked you to submit. So they might want 6 months of bank statements. You will want to mail all the requested items into the Trustee’s office before you show up and then when you show up he/she will have everything prepped and they will be ready to ask you about any assets you have and what not.

For the most part, 95% of the time it is only about 5 minutes long because they do about six every half an hour in Maricopa County. So it is like 5 minutes – six people every half hour, on the half hour. They call everyone in as a big group and they even call you individually into the main chamber and then they will go one at a time.

That is a basic overview of what happens in a 341 creditors meeting.

Now, in the context of shot sales, there are a few things to consider:

(1)  Will you be liable for a deficiency judgment (meaning if the lender allows you to sell your home for less than its worth, can the lender come back against you for a deficiency judgment?

We have talked about deficiency judgments in Arizona on one of our other websites: Click here for more general legal information: http://www.arizonadeficiencyjudgment.com/

(2)  Are there tax implications involved with the lender forgiving debt owed?

(3)  Are you entitled to $1,500 relocation expenses following a short sale under the HAFA (Short Sales Incentives law)?

(4)  Do you qualify for HAFA?

We outlined the general qualifications for HAFA and some of the general rules on our HAFA short sale blog which can be found here: http://activerain.com/blogsview/1546150/short-sales-overview-before-and-in-anticipation-of-hafa

(5)  Can a forensic loan audit and letter to your lender help assist in them accepting a short sale over forcing you into foreclosure?  Do you have any predatory lending violations that you can leverage?  Is it better to file a lawsuit against your lender?

We have previously outlined some of the things we look for in an Attorney forensic loan audit on this website: http://vondranlegal.com/2009/08/15/what-is-a-forensic-loan-audit/

(6)  What other options might you have if the lender refuses to accept your short sale?  Options such as filing bankruptcy or pursuing a deed-in-lieu of foreclosure?

Our Arizona bankruptcy website can be found at www.ArizonaBankruptcyResourceCenter.com

(7)  If the lender insists on denying your short sale, have they followed the foreclosure process that would permit them to legally foreclose on you?

(8)  Are there outstanding issues that can be solved with a Qualified Written Request under RESPA?

We have discussed in general terms the topic of Qualified Written Request under another blog that can be found here: http://www.foreclosuredefenseresourcecenter.com/forensicloan-loan-audits/qualified-written-request/

(9)  Do you have a right to rescind your loan under Truth in Lending (TILA) extended three-year right to rescind?

We have a website dedicated to truth in lending rescission rights (TILA) which can be found here: http://www.rescindmyloan.net/a-general-overview-of-truth-in-lending-law-and-the-right-to-rescind/

These are some of the loss mitigation and foreclosure defense questions/issues we deal with on a daily basis.  If you are facing any of the above legal issues, you might want to think about retaining a real estate and foreclosure lawyer to protect your interests.  The banks, lenders, and loan servicers have lawyers on their side and they are probably hoping you don’t take this step on your end.  In California, the lenders backed SB94, a law that prevents any lawyer or broker from accepting any advance fees for loan modifications which has literally allowed lenders to force California homeowners to be unrepresented in the loan modification context.  This is the way they wanted it done, and the California legislature went along with it.   In Arizona, you may still hire a lawyer to assist you, at least for the time being.

For  more information about hiring a Phoenix Short Sale Lawyer, please visit our website at www.PhoenixShortSaleLawyer.com

KEYWORDS:  PHOENIX SHORT SALE LAWYER / SCOTTSDALE SHORT SALE LAWYER / ARIZONA SHORT SALE LAWYER / SHORT SALE ATTORNEY / PHOENIX SHORT SALE ATTORNEY / SCOTTSDALE SHORT SALE ATTORNEY / ARIZONA SHORT SALE ATTORNEY / ARIZONA FORECLOSURE LAWYER / PHOENIX REAL ESTATE LAWYER / SCOTTSDALE FORECLOSURE ATTORNEY / PHOENIX BANKRUPTCY LAWYER / PHOENIX BK LAWYER / REAL ESTATE LOSS MITIGATION / DEED-IN-LIEU OF FORECLOSURE / ARIZONA INJUNCTION / FILING LIS PENDENS / PHOENIX LOAN MODIFICATION / SCOTTSDALE LOAN MODIFICATION / ARIZONA LOAN MODIFICATION / TILA RESCISSION / RESPA QUALIFIED WRITTEN REQUEST

————————————————————————————————————

This is an advertisement and communication pursuant to state bar rules.  All websites listed herein are provided as general legal information only.

So many homeowners are fighting for reasonable loan modifications that will save their homes from foreclosure.  Other people are seeking refuge in a bankruptcy Court (Chapter 13 Bankruptcy, and Chapter 7 Bankruptcy).  Still others are seeking a Deed-lieu-of-foreclosure strategy, while other homeowners who are completely upside down on their properties are either walking away, or seeking to short sale their property.  This is the current state of affairs in the United States, and banks (who have been generously bailed out) are picking and choosing who gets what.  It seems like if you want the bank to perform any loss mitigation for Arizona of California homeowners, you have to basically incentivize them to do something (e. HAMP – Making Home Affordable).

We have previously published an article on the Lender/loan servicers HAMP report card.  The results are not overwhelming.  Click here to view that blog post:http://www.loanmodradio.com/2010/03/hamp-trial-plan-fraud-or-just-off-to-a-slow-start-hamp-lender-report-reveals-some-insights/

So now comes along yet another incentive program that may help some homeowners obtain short sale relief and deed-in-lieu-of-foreclosure relief (and of course stuff more cash into the pockets of the bankers and loan servicers).  This new loss mitigation program is called HAFA – Home Affordable Foreclosure Alternatives Program.  Pretty cool name!  HAFA supplements HAMP.  Servicers implementing HAMP must also comply with the HAFA directives and consider people for short sales and deed in lieu of foreclosure.

What is a short sale? A short sale is a transaction whereby a lender agrees to accept less as a payoff than is owed by the homeowner/borrower by allowing the property securing the debt to be sold for less than the lender is owed.  In some cases the lender will forgive the outstanding debt owed and in other cases the lender may want an agreement from the borrower to pay the deficient loan balance.

What is a deed-in-lieu? This is basically where a homeowner/borrower hands over the deed to the property (with marketable title) to the lender who agrees to accept the deed, thereby eliminating the need to pursue a foreclosure sale.  Sometimes a lender will require short sale efforts before they would accept the deed in lieu of foreclosure.

Why would a lender agree to a short sale or deed in lieu of foreclosure? It costs less for a lender to do a short sale or accept a deed in lieu than it does to pursue a foreclosure.  So where it makes financial sense, the lenders will entertain these loss mitigation measures.

Ok, so let’s take a look at the major points under HAFA:

(1) Program is for HAMP-eligible borrowers who were (a) nevertheless denied under HAMP, (b) qualified but were not given a trial plan, (c) could not make 2 or more trial plan payments, or (d) completed trial plan but no permanent modification was given.  To see what types of borrowers qualify for HAMP see this link: http://www.treas.gov/press/releases/reports/guidelines_summary.pdf(generally must be borrowers principle residence, first mortgage loan must not exceed 729,500, and payment must be in excess of 31% of borrowers gross monthly income).

(2) Program takes effect April 5, 2010 and “sunsets” December 31, 2012.

(3) The hardship letter and financials on file with the lender / loan servicer can be used for the short sale or deed-in-lieu.  (Goal is to make easy for those denied under HAMP to be reviewed for the short sale or deed in lieu).

(4)  HAFA allows borrowers to receive pre-approved terms (ex. minimum acceptable net proceeds) before listing their property for sale.

(5)  All short sales must be at “arms length” (meaning, you cannot sell the property to any relatives or other persons with a close personal or business relationship).  The buys of the property are bound to not re-convey the property – ex. back to the borrower – within 90 days.

(6) HAFA prohibits loan servicers from requiring a commission reduction in the agreed real estate listing agreement between the seller and agent (up to 6% is protected).  However, Servicers may use short sale assistants on their end that must be paid a specified portion of the commission.

Here is Freddie Mac’s Short Sales commission policy: http://www.realtor.org/wps/wcm/connect/c126d4804f53ab6586b8c74e813808c1/Freddie+Mac+Short+Sales+Policy+10.27.09.pdf?MOD=AJPERES&CACHEID=c126d4804f53ab6586b8c74e813808c1

And here is Fannie Mae’s short sales commission policy: http://www.realtor.org/wps/wcm/connect/7e6786804018046f8d0cfd205f470b6e/Fannie+Mae+Short+Sales+Policy+10.27.09.pdf?MOD=AJPERES&CACHEID=7e6786804018046f8d0cfd205f470b6e

(7) Requires borrowers to be fully released from facing deficiency judgment liability judgments on the first mortgage (and on the second mortgage as well if the junior lien holder receives any incentives under HAFA).  This means they cannot require a deficiency promissory note be signed, seek a deficiency judgment in a court of law, or demand any other cash contribution from the homeowner seeking the short sale.

(8) HAFA requires the use of Standard forms, process, timelines, and deadlines.  See Supplemental Directive 09-09 here: https://www.hmpadmin.com/portal/docs/hamp_servicer/sd0909.pdf

(9) HAFA requires all servicers participating in HAMP to implement HAFA in accordance with their own written policy consistent with investor guidelines.   This means the servicer can have its own internal policies for implementing HAFA which policy can take into account local markets and the severity of financial loss, timing of pending foreclosure actions, etc.  Yes, the discretion on all loss mitigation efforts is always left to the discretion of the servicers.  Good for them, potentially bad for homeowners.

Other factors that may be taken into account in dealing with whether the homeowner will be permitted to seek a short sale or deed in lieu of foreclosure are (i) Expected recovery if foreclosure is pursued; (ii) current condition of title / encumbrances, (iii) borrowers financials submitted under HAMP, (iv.) property valuations, and (v.) effect of short sale/deed in lieu and perhaps (vi) predatory lending litigation and truth in lending (TILA) rescission risks.

(10) HAFA permits a 90-day timeline that gives homeowners the ability to sell their homes in a short sale without risk of foreclosure.  See our timeline discussion below.

Here is a list of the HAMP participating loan servicers:  http://www.foreclosuredefenseresourcecenter.com/2010/03/hamp-trial-plan-permanent-modification

(11)               HAFA provides financial incentives for borrower relocation assistance following the short sale ($1,500); incentives to the servicers to cover short sale processing costs ($1,000); and incentives for investors matching up to $1,000 for each lien holder ($3,000 total).

(12) Credit impact following a short sale or deed in lieu of foreclosure: following a short sale, the creditor will report to the credit reporting agencies that the mortgage was settled for less than full payment (this will still impact your credit score but should not impact as much as a foreclosure).

(13) Potential tax implications for debt forgiveness following a short sale or deed in lieu: Borrowers pursuing a short sale must investigate the potential tax ramifications involved, usually by discussing this with a tax accountant, CPA or tax lawyer prior to selling their property.  In some cases, debt that is forgiven that does not exceed the amount borrowed to acquire, construct, or rehabilitate property may not be treated as taxable income.  Again, contact a tax professional.  We will be writing a separate blog on general overview of tax issues in the loss mitigation context.

GENERAL TIMELINE UNDER HAFA:

(1) BORROWER IS REVIEWED FOR HAMP LOAN MODIFICATION BUT IS DENIED, OR CANNOT COMPLY WITH TRIAL PLAN OR IS NOT OFFERED A TRIAL PLAN ETC.  SEE CONDITIONS ABOVE;

(2) BORROWER EITHER REQUESTS A SHORT SALE OR DEED IN LIEU OF FORECLOSURE AND/OR THE LOAN SERVICER SENDS BORROWER NOTICE OF RIGHT TO BE REVIEWED FOR HAFA’S SHORT SALE AND DEED IN LIEU OPTIONS WITHIN 30 DAYS:

(3) IF BORROWER FAILS TO RESPOND WITHIN 14 DAYS, THE RIGHT TO BE REVIEWED UNDER HAFA IS LOST;

(4) IF REQUESTED, BORROWER RECEIVES A SHORT SALE AGREEMENT FROM LOAN SERVICER.  THIS AGREEMENT DISCLOSES THAT BORROWER HAS AT LEAST 120 DAYS TO SELL PROPERTY FREE FROM FORECLOSURE RISK AND HAS SPACES FOR THE BORROWER AND REAL ESTATE BROKERS SIGNATURES.  THE LISTING AGREEMENT SHOULD BE ATTACHED AND RETURNED WITH THIS DOUCMENT AS SHOULD THE HARDSHIP FORM AND INFORMATION ON JUNIOR LIEN HOLDERS AND THE PROGRESS OF ANY NEGOTIATIONS WITH THESE LIENHOLDERS.

NOTE:  YOU WILL MOST LIKELY BE DENIED A SHORT SALE IF YOU HAVE NOT NEGOTIATED YOUR SECOND MORTGAGE AND GET THEM TO RELEASE YOUR LIEN.  THIS SEEMS PRETTY BRUTAL BUT ALSO SEEMS TO BE A REQUIREMENT TO GET YOUR SHORT SALE APPROVED.

(5) BORROWER HIRES A SHORT SALES AGENT AND LISTS PROPERTY FOR SHORT SALE IN LOCAL MLS;  (SHORT SALE BROKER MUST SIGN DOCUMENT LISTED ABOVE);

(6) SELLER GETS AN OFFER TO PURCHASE THE PROPERTY (MUST BE AN ARMS LENGTH TRANSACTION);

(7) BORROWER SUBMITS A COMPLETE SHORT SALE PACKAGE TO LENDER INCLUDING A REQUEST FOR APPROVAL OF SHORT SALE (RASS); LOAN PREQUALIFICATION LETTER FOR THE BUYER, AND MUST FILL OUT A FORM INDICATING THE TRANSACTION DETAILS.  A COPY OF THE PURCHASE AND SALE AGREEMENT MUST ALSO BE ATTACHED AND CERTAIN REPRESENTATIONS, MADE UNDER PENALTY OF PERJURY, MUST ALSO BE GIVEN.

(8) THE LOAN SERVICER CONDUCTS AN EVALUATION OF THE SHORT SALES TRANSACTION USING THE FACTORS DESCRIBED ABOVE TO SEE IF BORROWER QUALIFIES FOR THE SHORT SALE OR DEED IN LIEU OF FORECLOSURE PROGRAM;

(9) THE LOAN SERVICER MUST ACCEPT OR DENY THE RASS WITHIN 10 BUSINESS DAYS OF RECEIVING THE RASS FORM AND ADVISE BORROWER ACCORDINGLY.

(10) IF LOAN SERVICER AGREES TO THE SHORT SALE IT MUST ALSO AGREE TO WAIVE ANY DEFICIENCY JUDGMENTS FOLLOWING THE RECEIPT OF SALE PROCEEDS AND CANNOT DEMAND ANY NOTES BE SIGNED AGREEING THE PAY THE DEFICIENCY;

(11) ESCROW IS OPENED – TYPICALLY A 45 DAY ESCROW – AND THE TYPICAL REAL ESTATE TRANSACTION FUNCTIONS PROCEED (APPRAISAL, FINANCING, SELLER DISCLOSURES, INSPECTIONS, ETC.);

(12) THE BUYER OF THE SHORT SALE MUST BE A BONA FIDE PURCAHSER (ARMS LENGTH TRANSACTION) AND THEY CANNOT RE-CONVEY THE PROPERTY FOR AT LEAST 90 DAYS AND CANNOT HAVE AN AGREEMENTIN PLACE TO LEASE THE PROPERTY TO THE FORMER HOMEOWNER AS A TENANT ON THE PROPERTY;

(13) FOLLOWING THE SHORT SALE RECEIPT OF FUNDS, THE SENIOR LIEN HOLDER MUST RELEASE THEIR FIRST MORTGAGE LIEN WITHIN 10 DAYS AND CANNOT PURSUE ANY DEFICIENCY JUDGMENTS.

(14) THE SELLER WILL THEN BE ENTITLED TO $1,500 RELOCATION ASSISTANCE PAID OUT OF ESCROW PROCEEDS.

(15) TAX AND CREDIT IMPLIACATIONS ARE DISCUSSED ABOVE AND IN OTHER BLOGS.

IF YOU ARE A CALIFORNIA OR ARIZONA HOMEOWNER INTERESTED IN PURSUING HAFA SHORT SALE OR DEED IN LIEU OF FORECLOSURE YOU NEED TO ACT FAST.  CONTACT OUR OFFICE TO DISCUSS YOUR CASE AND DISCUSS IMPLICATIONS COCERNING DEFICIENCY JUDGMENTS AND NEGOTIATING WITH SECOND LIEN MORTGAGE HOLDERS AND JUNIOR LIEN HOLDERS.

KEYWORDS: Arizona deficiency judgment / Phoenix HAFA lawyer / Scottsdale HAFA lawyer / Short sale attorney / Short sales lawyer / HAMP short sale program / deed-in-lieu-of foreclosure / Arizona foreclosure lawyer / Phoenix Foreclosure Lawyer / Phoenix foreclosure attorney / Scottsdale loan modification lawyer / Phoenix loan modification lawyer / Phoenix loan modification attorney / Lis Pendens / Quiet Title / Injunction / Arizona loan modification lawyer

Google our other foreclosure defense blogs on Arizona Deficiency Judgments and HAMP Loan Servicer report Card and Tax Issues in Arizona Short Sales (use keyword Vondran).

_______________________________________________________________________________________________________________________________________________