Ultimate Help For Homeowners: Mortgage Litigation

Over the past three years while writing this blog, I have combed every source I came across for avenues that could possibly help homeowners keep their homes, reduce their payments or avoid foreclosure. I have written about loan modifications, federal loan modifications, loan restructuring, short payoffs and forensic loan analysis, trying to see if any of these cold provide a solution to the housing crisis we are facing. In the end, though some of these helped some individuals a bit, nothing has actually made much of a difference.

Ultimately, I have come to believe, banks are not going to help homeowners because it is not in their financial interest. Because of TARP and really for PR purposes, banks have done a few loan mods, helped a few homeowners avoid foreclosure and participated in a few forums to help individual property owners. In the aggregate, though, their efforts have been puny in the face of massive numbers of underwater homes. Their public pronouncements about their interest in remedying the situation have clearly been hypocritical in light of the little they have done.

Banks have become the most hated institutions in America and for good reason.


Quite some time ago, I came to the conclusion that only massive legal force would give homeowners any leverage in dealing with banks. Forensic loan audits seemed for a while to provide this. Legal firms analyzed individual loans uncovering in the process RESPA violations, fraud, and numerous questionable actions in almost every loan done since around 2002. The attorney would then send this information to regulating agencies and to the fraudulent bank, expecting some repentant reaction.
But, when faced by an individual attorney representing an individual homeowners, each bank’s response was, “So what? What do you intend to do about it?” Since lawsuits are very expensive, the banks were aware individuals behind in their mortgage payments were highly unlikely to file suit.

What To Do?

Finally, we may have some recourse. It seems that across the country many attorneys have been filing suit against banks for their fraudulent actions and, little by little, the database of suits has been growing. At this point, more than three years into the crisis, attorneys have banded together to file on behalf of individual homeowners and, if a suit against that individual’s bank already exists, to add him to the list of plaintiffs.
This seems the only way to go. Joining such a suit costs money, of course, and no results can be guaranteed, but to me it seems like the best solution so far.
Here are some of the benefits of mortgage litigation.

  • A lawsuit is filed-a judge decides the merits of a case, not the banks
  • If it goes to trial, banks know that juries now universally favor homeowners
  • This is not a loan modification–the banks do not control the outcome

Possible Outcomes

If the attorney or legal firm accepts the case, the demand is always to completely tear up the note or mortgage on the property. While this is not always the outcome or even usually, the next demand is for the note to be re-written to 70% of current value of the property. Of course, another outcome is always that the homeowner and his attorney might lose the suit. That is possible but highly unlikely.

What Is Loan Restructuring?

Why Loan Mods Stink

As mentioned in previous posts, loan modifications, as practised by most major banks,  do not offer the results most homeowners had expected. Very few are altering the loan balance, yet millions of mortgages are upside down, many, especially in California, by hundreds of thousands of dollars.

What did we expect? We thought that the huge influx of tax payer money from TARP to keep the banks in business would result in more consumer-friendly lenders.  What were we thinking? We were  massively deluded. When banks have the upper hand as they do when homeowner/consumers are petitioning for a better deal, they will do the obvious. Take all the time in the world for the process, then order up massive amounts of paperwork, then lose the paperwork and finally offer a tentative agreement, possibly with a big cash payment,  diddling  as long as possible before making it permanent.

How Homeowners Can Gain the Upper Hand

What’s the alternative? How can homeowners shuck the petitioner role and instead gain the upper hand? Let’s remember that banks are regulated.  Yes, during the boom years many of the regulators were asleep at the switch and irregularities and downright fraud became business-as-usual. Despite the lack of enforcement, the laws and regulations still exist and did exist even when not well enforced.

Today, specially trained attorneys are seeking to force the banks to restructure the loans done incorrectly, irregularly or even downright illegally. Many avenues of approach exist. Sometimes banks or brokers did not follow regulations in the origination process; sometimes the entire loan itself was a complete fraud. But, federal law does cover these situations. In these cases the law gives homeowners the upper hand.

What Is Loan Restructuring?

Really, this is what happens when regulations and laws are actually enforced. Oversight, we now realize, is key for the financial industry as with so many others.  Loan restructuring can have several possible forms. Complete loan rescission is one possible outcome.  The lender may issue an entirely new loan with a new balance, a new interest rate and even a new investor or any combination of these. Alternatively, the lender may agree to a financial settlement. It all depends upon the specific original loan itself.

Certain types of loans can be restructured; others cannot.  Stated income loans are  prime candidates for restructuring as well as ALT-A, Adjustable-rate loans [ARMs] and ARMs that can negatively amortize [neg-AMs] along with the famous Sub-Prime loans.

If you have one of these types of loans  and have an interest in gaining the upper hand over your bank, contact me. Sorry, but for right now, I can help only those loans on property in California.

For other states, I NOW  have additional resources.  Give me a call at 626-641-0346

Loan Restructuring v. Loan Modification: What’s the Difference?

Cover for the first Zombie-Loan manga volume
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Mortgages and foreclosures, never popular topics, are dominating the news lately. Gradually, we are learning ways to halt or at least slow this onslaught of foreclosures ravaging neighborhoods and ruining lives.  One stop-loss method is loan modification. Typically, loan mods are for homeowners who are behind in their payments and are facing  foreclosure. In fact, I’ve even done a previous post about Loan Mod Myths.

Yet, loan mods do work. Here’s who will benefit from a loan mod:

Loan Modification Eligibility

  • Minimum of 12 months elapsed since loan origination date.

  • The mortgagor [homeowner]  most be delinquent (3 full payments due and unpaid) or more.

  • Default due to a verifiable loss of income or increase in living expenses.

  • The Loan Modification mortgage must remain in the first lien position.

  • Loan may not be in foreclosure when executed.

  • Owner occupant, committed to occupy property as primary residence.

  • Mortgagor has stabilized surplus income sufficient to support the Loan Modification mortgage.

  • Does not have another FHAinsured mortgage.

In some cases, the banks today will modify loans for those who are less than three months late. And, banks will modify investor-owned or non-owner occupied. Banks do require financial information, such as pay stubs and tax returns, but credit scores are not an issue.

What this all means is that you must have enough income to support the new payment. Banks will not modify your loan if you cannot show you have the income to sustain the new, lower, payment.

If you can’t show the income, then the best option for you is probably a short sale which will do less damage to your credit than a foreclosure and allow you to purchase another home within 2 years, provided, of course, you’ve paid your debts during these years and you can qualify for a loan.

What about those who are not behind in their payments?

For those current in their payments, Loan Restructuring , may be the answer. If you have not missed payments or perhaps find yourself owing more than your home is worth, you may be able to  redo your  loans without having to bear the cost of refinancing.

How is this possible?  Who is eligible for loan restructuring? Essentially, if you do not fall into any of the loan mod categories, then you may be eligible for a loan restructuring.

Loan Restructuring Criteria

  • Homeowner may be current in mortgage payments or  have missed a payment or two
  • Mortgagor does not have to reside in the property; investment property qualifies.
  • Mortgagor may receive a reduction in principal, interest and a cash refund.
  • No “Hardship” letter is required.
  • Existing income, debt, credit scores  do not matter.

A loan restructuring may enable you to reduce your principal, especially in areas where property values have fallen drastically and many owners are thinking of “walking away.” How exactly can this happen?

In seeking to restructure a loan, the homeowner re-examines the loan at the point when it was originated.  Attorneys or real estate brokers, like myself, working with attorneys search the documentation of the loan to see if it was  predatory in nature or, if not, if it  did not fully comply with federal Real Estate Settlement Procedures Act [RESPA] requirements. If a flaw is found,  the original loan is voided and restructured (not modified). This allows the homeowner or his representative  to negotiate with the lender from a position of strength. If the loan was “bad” from the beginning, why modify a loan to the advantage of the lender? Restructuring is clearly the best option for the homeowner.

If the loan is found to be predatory or in violation of RESPA, the homeowner may also be eligible for a refund of all or part of the original closing costs.


As we have all heard, banks packaged our mortgage loans into so-called “exotic” financial instruments and sold them all over the world. It’s these mortgage-backed securities and credit default swaps which are the original cause of our Current Recession. In their bottomless greed, banks sold and resold mortgages, slicing and dicing them into parts which they cannot now put back together. It is these mortgages which are great candidates for restructuring.

If you think you might qualify for a restructuring, call or email me and for a small fee we can find out. If your loan is not eligible for restructuring, the fee will be returned.

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