To Modify or To Defend? That is the question.

Should I try to modify my loan or should I defend the foreclosure action?  That is a question I get very often.  My answer is to proceed with caution on a modification but DEFEND and FIGHT your foreclosure in court.

A typical response from people is that my bank (not really their bank) told me that I can modify my loan and that they will hold off any foreclosure proceedings until the modification is complete.  Whew, one of the greatest lies ever told.  A story told all to often to the millions of struggling Americans in the throws of foreclosure and economic disaster.

First of all, you are not talking to your bank.  You are talking to the servicing company typically owned by the bank that made your loan originally.  That company may use a name starting with your banks name such as YOUR BAnk Loan Servicing, Inc. and as such lead you to believe they are the bank.   In other words, the beginning of the name is the same as your bank but it is a wholly owned subsidiary – a totally different corporate entity – of your bank.  IT IS NOT YOUR BANK!  A servicing company in a simplified definition is no more then a collection agency hired by the owner of your mortgage and note to collect the payments and keep track of the accounting on your loan.  Yes, they are often owned by a bank – but not always – but they always lead you to believe they are.  In reality they operate under much different guidelines and corporate governance as well as Federal and State regulation.  These servicng companies are not regulated By FDIC or your state Banking Departments. In other words, they don’t have the same rules to play by.

It is well known that about 90% of all loans were sold and resold ultimately winding up in a security pool, which was then sold to multiple – thousands – of investors worldwide (even Fannie Mae and Freddie Mac did the same). 

Each investor then owned a “share” of the security pool and as a result a share of your mortgage.  This security pool typically retained a TRUSTEE – usually a bank and sometimes the same bank that made you your loan.  The Trustee is responsible to collect the monies from that the servicing companies collected from all of the homeowners  – their monthly payments – and then pay the appropriate share to each of the bondholders of that particular security. 

Each Trustee can and does represent many different security pools for loans originated by hundreds of different lenders.  By the same token, each servicing company can and does represent different loans originated by different lenders not only those that carry the same name as your original lender. 

Confusing isn’t it?  Yes it is and it is! It is this confusion that – they – the servicing companies and the Trustees – use against you.  You are led to believe all the way down the path of foreclosure that you are dealing with the RIGHT PARTY IN INTEREST – the person who actually owns your loan, can make decisions on it and help you.  And you are led to believe from your servicing company that they are going to help you by modifying your loan.  Yeh, right!

This could not be further from the truth.  In all the cases – estimated again to be around 90% of all loans originated over the past several years – the servicing company is obligated to inform the Trustee the status of any one loan they are servicing (collecting).  If that loan is in default and the servicer (collector) has exhausted all collection methods they then report to the Trustee  and suggest that the Trustee foreclose.  The Trustee then hires a law firm – typically one that is considered to be a “foreclosure mill” – and initiates the action on behalf of the security issue they represent and your mortgage resides in. 

What is now important to understand is that the Servicing Company – the one you call your bank has nothing to do with the legal action now commenced against you.  The Servicing Company – your bank IS NOT the attorney’s client.  This means that the attorney cannot take any lead or instruction from them.  They cannot hold off or stop any legal actons.  The attorneys cannot take any direction from them at all.

So, if you are talking to your bank – the servicing company – and they are telling you that they will work on modifying your loan and that they will hold off the foreclosoure action against you, THEY ARE LYING.  Further more they lie more often then not when they tell you that you qualify for a modification only to find out 4 or 5 months later that you do not and the foreclosure action is about to be finalized.  (There is a conspiracy to commit fraud going on here.  Pretty harsh words but I believe them to be true.  My premise for this comment will be explained in another post explaining more as it is a long, compliated topic onto itself.)

Lying you say, Larry?  Yes, I do say.  The banks and all of their related companies involved in your mortgage almost from the time it was originated have been lying to you and everyone else – even the courts.  They have lied to the government, got our government to give them billions of dollars, pay their executives hundreds of millions in compensation and  through lies and deceipt are continuing to rape and pillage the American people.  Lies, lies and more lies.  (hmm, could be the topic of another post)

Let me share this recent news release from the House Committe on Financial Services whose Chairman is Rep. Barney Frank.  Highlighs within the announcement are mine.

Frank Statement on the Progress of Reducing Foreclosures

Washington, DC – Financial Services Committee Chairman Barney Frank (D-MA) today welcomed the announcement by Secretaries Geithner and Donovan that the meeting held by their top assistants with representatives of the mortgage servicing industry on July 28th was productive, and that they expect there to be a significant increase in the number of mortgage modifications.  But Frank noted that there is great disappointment in both Congress in particular and the country as a whole in the failure of these institutions to do a much better job at modification so far, and he cautioned that if the progress the administration foresees is not soon evident, more drastic legislative measures will be back on the agenda.

“Congress has provided every legislative tool recommended by people in the mortgage industry, and in the administration, that we were told would be helpful in facilitating the modifications we need to diminish the flood of foreclosures which has been so much a part of our national economic problem.  The one measure that did not survive the process was the right of individuals to declare bankruptcy for their personal residences, and while many of us strongly supported this and it passed the House, in the Senate the argument that it would be destructive and was unnecessary to achieve modifications succeeded.  But the evidence to date does not bear out that latter point:  people in the servicing industry and in the broader financial industry must understand that if this last effort to produce significant modifications fails, the argument for reviving the bankruptcy option will be extremely strong, and I think there is a substantial chance that the outcome will be different.  I can assure all concerned that no legislation which we are asked to pass to facilitate the full return of the lending industry to the role it should be playing in the economy will pass out of the Financial Services Committee unless we see a significant increase in mortgage modifications and foreclosure-avoidance, or the legislation includes a bankruptcy provision for primary residences.”


What does this mean?  It means that modifications are not happening for the majority.  They are not happening to the satisfaction of Congress.  They are not happening to the satisfaction of the American people.  In fact, Rep. Frank is saying to the financial industry to start modifying loans, decreasing the foreclosure rate or “they”  – the Congress will take more legislative action to force them to do so.  Pay close attention to his closing remark and statement which is important enought to be repeated here.
I
can assure all concerned
that no legislation which we are asked to pass
to facilitate the full return of the lending industry to the role it
should be playing in the economy will pass out of the Financial
Services Committee unless we see a significant increase in mortgage
modifications and foreclosure-avoidance, or the legislation includes a
bankruptcy provision for primary residences.”

As we can see, modifications don’t seem to be working or helping those facing foreclosure or already in foreclosure.  My opinion – and it is just my opinion – is that the banks are providing enough relief through modifications in an attempt to satisfy the government and Congress.  It is making a show of concern while not making a whole hearted attempt to do so.  It has been said by many that foreclosure is to their benefit financially then is restructuring a loan and keeping people in their homes.  Each time they foreclosure on a home the banks are adding “free” assets to their books, selling these “free” assets making 100% profit. 

Let me ask you this question.  If I gave you a mortgage note and told you that you had two choices;
     1.   you could reduce the payments and interest on this note making a little bit of money
or
     2.  you could foreclose on this note, take the house, own the house for no money or investment and keep all the money when you sold it.

Which would you do?

Well, many of us have feelings and emotions and perhaps would do the right thing = I still believe in the good of mankind.  But to a corporation it is a no brainer – especially a hard, cold, institution with no feelings or emotionwhich all corporations are.  They don’t operate with a conscience other then profit.  Perhaps that is one of our systemic and social problems that have us in this situation.

What is the moral of this story? 

FIGHT and DEFEND YOUR FORECLOSURE LEGALLY IN COURT.

Yes, you owe the money and have not paid, for many reasons, usually beyond your control.  Most people did not get into the mortgage with the intent to default and lose their home even if it was an investment property. 

Almost one out of five Americans are out of work.  Chances are you are one of them.  You did not choose to get laid off, you did not contribute to your company going out of business.  Most recently in the auto industry the decision by GM and Chrysler to close thousands of dealerships putting thousands of people out of work –  many of whom will now face foreclosure –  was not your fault.  Yet you face the ultimate consequences as these behemoth corporations – the too large to fail companies – get billions of dollars in corporate charity. Where is the help, charitable or deserved for the rest of us?

Are not WE, THE PEOPLE, TOO LARGE TO FAIL?

Defend your foreclosure action because in many cases it is an illegal action known to be illegal by the Trustee, the banks, the servicers and the law firms – the so called foreclosure mills – representing the party against you.  Don’t kid yourself.  THEY KNOW!  They are taking advantage and making a mockery of the courts and by the way, so are the many judges who also know the law but choose to allow this fraud to continue in their courtrooms.

STAND UP AMERICA.  FIGHT FOR WHAT IS RIGHT AND JUST.  Just becauce you find yourselves in this unimaginable situation does not mean you have to give up your dignity and be abused.  THE LAW IS THE LAW FOR EVERYONE.  And as I always say,

TWO WRONGS DON’T MAKE A RIGHT

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