For the 3rd time this past week the real estate world has been hit with a whopping change for the better. To learn more about the announcement made during Chief Judge Lippman's State of the Judiciary 2011, you can either read a New York Times article by clicking here or the text of the speech by clicking here.

Coupled with the other changes, this change signals that we are in a homeowner / mortgagor / borrower friendly world where the government is going to influence lenders to agree to mortgage workouts.

In the speech, the Chief Judge took time to call out robosigners and the affect at curtailing robosigners that the new attorney affirmation requirement has had, topics that I will be discussing at a CLE sponsored by First American Title Insurance Company of New York on March 30, 2011. To be invited to this free seminar, please contact First American at 516-832-3263.

The striking part of the speech was when the Chief Judge said that "63% of homeowners appearing for mandatory court settlement conferences are unrepresented". The Chief Judge than promulgated a new program providing homeowners who cannot afford a lawyer with legal assistance at the foreclosure settlement conference stage of a foreclosure. Yet, the program's great ambitions were limited when the Chief Judge said "these legal services attorneys will provide legal assistance or representation to unrepresented homeowners at the initial conference in as many cases as possible. Thereafter, the attorney will either keep the case and continue with representation or refer the homeowner to a network of legal services, pro bono or law school clinic counsel who will be standing by to provide additional legal assistance in support of this project."

Of note, the project will be piloted in Queens and Orange Counties and is expected to be expanded thereafter.

My take is that this is an excellent move by the Judiciary. Nonetheless, this program has issues that must be addressed in order for it to be succesful including the following:

1. There is no constitutional right to representation here as there is in the criminal arena and therefore when this program fails homeowners cannot cite the lack of representation to keep their homes while they (lay individuals) will interpret this program as establishing a fundamental right. Therefore, the legislature must follow with creating a right to give this program real teeth or clearly articulate in public service announcements how it does not.
2. Introducing homeowners to attorneys at the conference stage means that the homeowners likely already defaulted in the matter because the time to Answer the Summons and Complaint will have expired by this stage. Therefore, the homeowner is left to negotiate a workout while the tides are against them and will also have difficulty defending the action on the merits.
3. Private attorneys with large hourly fees and budgets have a hard time making it financially viable to perform a forensic analysis of all of the mortgage documents to red flag violations of statute and case law in order to change the bargaining positions of the parties in negotiating a workout (modification, short sale, or deed in lieu), I cannot fathom how the State can afford to provide what theoretically is included in proper legal services, particularly in the face of the major budget cuts being made every day by the Governor.

I am very interested to learn of other peoples thoughts on this topic, so please share either on this blog or offline.

In a great decision for defaulting borrowers, In re Ferrel L. Agard, which can be found by clicking here, the United States Bankruptcy Court for the Eastern District of New York claims to be setting precedent whereby Mortgage Electronic Registration System (MERS) lacks the authority to assign or foreclose a mortgage.

Prior decisions seemed to state that where MERS was granted the appropriate authority it could assign or foreclose a mortgage. This decision seems to intentionally and expressly state otherwise.

Citing the Court: "MERS and its partners made the decision to create and operate under a business model that was designed in large part to avoid the requirements of the traditional mortgage recording process. This Court does not accept the argument that because MERS may be involved with 50% of all residential mortgages in the country, that is reason enough for this Court to turn a blind eye to the fact that this process does not comply with the law".

For those who are unaware of MERS and its role in our mortgage system, Judge Grossman's point is that MERS was designed to provide a database which allowed its member banks to electronically self-report transfers of the Note in an effort to circumvent governmental real estate recording systems and therefore should not be afforded anything, but a strict interpretation of its authority. You mess with the government and the government will win.

For the lawyers who read this blog, the key words used by the Court are as follows: "MERS admits that the very foundation of its business model as described herein requires that the Note and Mortgage travel on divergent paths. Because the note and mortgage did not travel together, Movant must prove not only that it is acting on behalf of a valid assignee of the Note, but also that it is acting on behalf of the valid assignment of the Mortgage."

WOW!!! - I'm betting this goes to the Supreme Court.

Of note, the Court in this case ruled in the lender's favor on a different argument, but made this decision nonetheless for the stated purpose of defining MERS' authority.

On February 11, 2011, the Obama Administration (through the Department of the Treasury and the Department of Housing and Urban Development) delivered a report to Congress that provides a path forward for reforming America’s housing finance market - LOANS WILL NEVER BE THE SAME.

To read the report, click here.

Key in the report is the need for:

1. More rental options through lending to the multifamily market
2. Increased coordination between governmental finance options
3. Increased availability of low income housing
4. Consumer protection
5. Lowering the maximum LV Ratios
1. Minimum of 10% down payment for governmentally backed loans
2. Lower conforming loan limit (highest loan amount for governmentally backed loans)
3. Decreased maximum loan size that can qualify for FHA insurance (goal - lowering market share of FHA from 30% to 15%)
6. Transparancy for investors through disclosure of information on the credit, geographic, and demographic characteristics of the underlying loans that are packaged into securities
7. Higher capital retention by lenders (originators retaining 5% of loan risk in securitization)
8. More conservative underwriting standards
9. Regulation of mortgage originator and servicer standards
10. Private guarantees of mortgages and public guarntees with increased cost to reflect risk

Interestingly, this is a small government report coming from a democratic administration. Yet, remember this is just the administration's views and will require legislation from the Congress before its enacted. In fact, it only offers 3 options into the future, not a clear direction. Nonetheless, real estate professionals should start hedging their strategies based upon this report as those who leverage change in market principles will get ahead financially.

My takeaway is to concentrate on the rental markets because the administration's plan is ultimately to eliminate a homeownership option for speculators - individuals without the means to afford a mortgage without appreciating home values. Therefore, many potential homeowners will be pushed out of the market to purchase and placed into the rental market.

Of note, the report makes frequent mention of the The Dodd-Frank Act as the first steps towards the administration's goals. Therefore, a careful review is required by real estate professionals.

Lastly, the report discusses loan steering and a new requirement that loan originators will have to perform due diligence of borrowers' claimed finances to determine a borrower's ability to repay a loan. These are many of the topics that are being heavily litigated in the foreclosure world today and I believe that this report will strengthen the position of homeowner who seek a modification in foreclosure. If nothing else, the report requires national standards for loan servicing, which is the entity charged with negotiating a mortgage workout with a borrower - this will HELP!

Short sale professionals; the report also addresses working with second liens in mortgage workouts, this is a must read.

The following information is provided by the US Trustee Program. I thought it was such a good explanation, I am providing it rather than reinventing the wheel. For other great Bankruptcy Information, click here.

Chapter 7 – A trustee is appointed to take over your property. Any property of value will be sold or turned into money to pay your creditors. You may be able to keep some personal items and possibly real estate depending on the law of the State where you live and applicable federal laws.

Chapter 13 – You can usually keep your property, but you must earn wages or have some other source of regular income and you must agree to pay part of your income to your creditors. The court must approve your repayment plan and your budget. A trustee is appointed and will collect the payments from you, pay your creditors, and make sure you live up to the terms of your repayment plan.

Chapter 12 – Like chapter 13, but it is only for family farmers and family fishermen.

Chapter 11 – This is used mostly by businesses. In chapter 11, you may continue to operate your business, but your creditors and the court must approve a plan to repay your debts. There is no trustee unless the judge decides that one is necessary; if a trustee is appointed, the trustee takes control of your business and property.

If you have already filed bankruptcy under chapter 7, you may be able to change your case to another
chapter.

Your bankruptcy may be reported on your credit record for as long as ten years. It can affect your ability to receive credit in the future.

Fannie Mae has launched a new interactive video website where homeowners can role play scenarios to learn their options when struggling with mortgage payments. As an attorney, I fully endorse this product and hope that every individual in pre-foreclosure will go to this website and check it out. The video translates scary legal terms into plain English and offers a great explanation of a homeowner's choices when facing a financial hardship. Additionally, the video appears to be Fannie Mae's attempt to employ public health behavior change techniques into our country's mortgage epidemic. The key takeaway for me is that homeowners should not be ashamed by their situation and should proactively seek out help in taking control of their mortgage problem.

Click here to try it out.

WARNING - This video dissuades anyone from using any professional instead of a HUD Housing Counselor. While I agree that HUD Housing Counselors do offer a lot of great help, which should be taken advantage of by individuals in pre-foreclosure, if you receive a Summons in the mail you must Answer the Summons and you do require legal advice. Go see a lawyer immediately.

Long Islanders filing bankruptcy can now protect $150,000 for individuals and $300,000 for couples in home equity if they file for bankruptcy. This is in contrast to the $50,000 and $100,000 previously available. This is a huge change and a huge chance for a fresh start for many homeowners with equity. If you haven't considered bankruptcy because your house has a lot of equity, but you are otherwise strapped with bundles of credit card debt, this one is for you. Thank you Santa Paterson.

To read the law, click here.

Also, for all you contractors out there, the new law also increases the exemption from bankruptcy for tools of the trade from $600 to $3,000. So, now you can keep working after a bankruptcy with your tools by your side.

Many in the news are saying that Home Affordable Modification Program is dying. They point to insufficient income as the cause, I submit its insufficient application skills. My firm has many alive HAMPs. I am lecturing attorneys in Nassau this evening on how to navigate the program as well as the rest of Making Home Affordable. The problem is all of the press that says homeowners can do this themselves and that they don't need help. Yes, homeowners can technically submit their own application, but having a lawyer seems pretty important in all other aspects of citizens legal lives (for instance Miranda Rights), why not here? Lets get some really trained attorneys who can fight for our clients in CPLR 3408 Settlement Conferences and you will see HAMP be reborn!

On April 21, 2010, the United States Supreme Court ruled that an attorney for the lender in a mortgage foreclosure action can violate the Fair Debt Collection Practices Act (FDCPA") regardless of the exception for an unintentional and bona fide error under Section 1692k(c)because a lawyer is supposed to know the law and therefore an error cannot be unintentional.

This should keep foreclosing lenders in check because they often are overwhelmed and unsure of the facts and law in front of them at foreclosure settlement conferences and in HAMP applications.

It seems that our society is really moving to a pro-borrower stance.