Tag: mortgages

Surprise! You Don’t Have To Pay As Much As You Thought On That Mortgage

by:  Peter J. Gallagher

Last week, Bank of America agreed to a multi-billion dollar settlement with upset investors who had purchased securities comprised of subprime mortgages originated by Countrywide Financial (which Bank of America acquired in 2008) and serviced by Bank of America ("Bank Of America Settles Claims Stemming From Mortgage Crisis").  Among other things, the investors claim that that Countrywide "created securities from mortgages originated with little, if any, proof of assets or income," and that Bank of America then "failed to heed pleas for help from homeowners teetering on the brink of foreclosure."  While the settlement still needs to be approved by a judge, and has already run into some opposition ("Investors Challenge Bank Of America Settlement" and "Bank Of America's Proposed Mortgage Debt Settlement Criticized"), it was generally seen as the first major concession by a bank in connection with its role in the mortgage meltdown

On the heels of this settlement comes news that Bank of America (along with JPMorgan and a few other lenders) is also taking a more proactive approach with homeowners who are not even in default.  As the New York Times reports in its article, "Big Banks Easing Terms On Loans Deemed As Risks," the banks are "quietly modifying loans for tens of thousands of borrowers who have not asked for help but whom the banks deem to be at special risk."  The article tells the story of Rula Diosmas, a Florida (of course) woman who had $150,000 shaved off of the mortgage of her Miami condominium by JPMorgan even though she did not request a modification and was not in default.  The bank explained its reasoning as follows:

Banks are proactively overhauling loans for borrowers like Ms. Giosmas who have so-called pay option adjustable rate mortgages, which were popular in the wild late stages of the housing boom but which banks now view as potentially troublesome.

. . .

Option ARM loans like Ms. Giosmas’s gave borrowers the option of skipping the principal payment and some of the interest payment for an introductory period of several years. The unpaid balances would be added to the body of the loan.

. . .

“By proactively contacting pay option ARM customers and discussing other products with better options for long-term, affordable payments, we hope to prevent customers from reaching a point where they struggle to make their payments,” Mr. Frahm [a spokesman for Bank of America] said.

The banks' efforts have not come without some critism, however, including the claim that the banks are behaving in "contradictory and often maddening ways" — showing concern for those who might get in trouble while at the same time being punished by regulators for doing a poor job modifying mortgages that are already in default.

Fair Foreclosure Act Does Not Apply When Borrowers No Longer Reside at Secured Premises At the Time of Default

by:  Matthew J. Schiller

New Jersey’s legislature enacted the Fair Foreclosure Act in order to afford homeowners “every opportunity to pay their home mortgages, and thus keep their homes.”  Amongst its safeguards, the Fair Foreclosure Act gives residential mortgagors statutory rights to cure defaults and requires mortgagees to notify mortgagors of their rights before filing a foreclosure action and another detailed notice before seeking entry of judgment. 

In Aurora Loan Services, LLC v. Einhorn, the Appellate Division concluded that the protections and requirements of the Fair Foreclosure Act do not apply if the mortgagors do not reside at the mortgaged property at the time of default – even if they did at the time of origination of the loan.    The Appellate Division interpreted the statutory definition of “residential mortgage” to have two requirements in order for the Fair Foreclosure Act to apply: (1) the mortgage must secure residential property that is occupied, or is to be occupied, at the time the Fair Foreclosure Act is to be applied; and (2) when the mortgage loan originated, the secured property must have consisted of four or fewer units, and one of those units must have been, or planned to have been, occupied by the debtor or a member of his or her immediate family. 

Accordingly, the Appellate Division concluded that if the debtor or its family do not occupy, or plan to occupy, the property when the loan originated, the Fair Foreclosure Act does not apply – even if the debtor resides at the property at the time of default.  Likewise, even if the debtor and/or its family occupied or planned to occupy the property when the loan originated, the Act will cease to apply if the debtor and its family vacate the property and convert it into a rental or investment property.    Therefore, if a debtor resides in another location at the time of default and provides no evidence of its intent to return to the mortgaged premises, the Fair Foreclosure Act, and the obligations imposed thereby on a mortgagee do not apply.