Modification on 1st

[vanroth]

So after 2.5 years of being late on our 2nd, I finally got a settlement offer. Little less than .10c on the dollar. However, it took becoming seriously late on my 1st and the threat of walking away (both are non-recourse and underwater) to make it happen.

Now I am faced with the issue of the 1st. The principal owed on the 1st is $238K. The house is worth between $190-225K. So far I've refused giving Bank Of America or Real Time Solutions (via Fannie Mae) ANY of my financial information. We have documented our "hardship" and even offered a modification proposal multiple times, but BoA has yet to budge. I figure with the late payments and fees we probably owe more than $250K by now.

Any advise? Will BoA make any modification without financials? We can afford to pay, but as these are non-recourse notes, we will not pay if it doesn't make financial sense.

Only wrinkle now is that I have two weeks to make a decsion on the paying the 2nd settlement, barring me getting that deadline moved out. I will certainly reject the offer if I can't get the 1st cured for resonable amount and walk. And their attorney threatened me that I have two weeks to re-sign/notarize my 1st lien as they never recorded it. (they never recorded the second either, but they insist it has been -- which it isn't).

thanks,
vanroth

[Cat Damiano]

vanroth,


Unfortunately if you are looking for help with the 1st, you will be unable to go through any process whether it be modification, short sale, or deed in lieu, without submitting a package that includes financials.

[JustSharon]

And their attorney threatened me that I have two weeks to re-sign/notarize my 1st lien as they never recorded it. (they never recorded the second either, but they insist it has been -- which it isn't).

thanks,
vanroth

They never recorded your 1st lien??? Really? What are they threatening to do to you if you don't re-sign/notarize? I don't get this. Sounds like they might have messed up big time and they're hoping that you'll help them fix their screw up?

Is this the way you understand this?

[TomEason]

vanroth

Thanks for your post.

It sounds as if you may not be committed to keeping your home. So, I recommend you first decide whether you like it enough to spend some time to get your loans handled.

If you decide you do want to keep it, I recommend you immediately order an abstract of title to see whether or not your lenders have recorded a lien against your property. It's highly unlikely the title company that handled your escrow omitted the recordings.

As you may know, the general rule is to never settle with a junior lender until the 1st is permanently handled. I recommend you disregard any deadline given you by your 2nd lender. Again, I wouldn't settle until your 1st is taken care of.

And no, you won't get a loan mod from BOA without submitting financials and other documentation. If you don't want to do so. I recommend you let the property go to FC.

If, after the title company runs your abstract of title report, you find that indeed one (or both) of your loans' securities isn't of record, come back to me. I'll tell you what I would do ASAP.

I recommend you order the abstract of title from a different title company than the one who handled your prior escrow. Why? Because you don't want to alert that title company of their mistake, because they would likely immediately record the liens to cover for their mistake.

[vanroth]

They never recorded your 1st lien??? Really? What are they threatening to do to you if you don't re-sign/notarize? I don't get this. Sounds like they might have messed up big time and they're hoping that you'll help them fix their screw up?

Is this the way you understand this?

Yes, that is correct. Just to show you how disorganized they are, this isn't the first time they have failed to record anything. When we first bought our house (80/20), they didn't record ANYTHING (deed, liens) until we complained 6+ months later. Then they still only recorded the first and the deed.

When we refinanced the first in 2009 they recorded the recoveyance/release, but not the new 1st lien. (So technically, the house is free and clear, per my wife's paralegal title search).

BoA tried a year or so ago to get me to resign/notarize the lien so they are aware of the problem. This time around they (Fannie Mae) hired an outside law firm to handle it, hence the threating letter. Unfortunately, the state of Arizona does not require a lien to be recorded for a bank to foreclose so it doesn't help me that much (I know that doesn't make sense, but it is AZSC case law as of 2012).

Cat/Tom,
Thanks for the info on the financials. My reasons for not giving up my info are three part:
1. Though we had a "hardship", the math shows we can afford the payments.
2. I refuse to give my info to a debt collector
3. All of the BoA modification forms require you to fill out the standarized government HAMP package. I've already been denied once (in 2009 when I REALLY did need the help) and we clearly don't qualify. It just burns me that the banks want the government hand out before they will attempt anything on their own.

And Tom, don't worry, I will not settle with the 2nd until the first is taken care of. Given that BoA is the investor on the second made it next to impossible to get any settlement in the first place. I was finally able to talk to someone intelligent enough to understand (and care) that BoA would get nothing on the 2nd if I were to FC. So I see it is a small victory, even though I will likely ultimately reject the offer and walk anyhow.

Sorry for long drawn out vent...

-vanroth

[TomEason]

vanroth

Thanks for your post.

If it were me, I'd order the abstract of title forthwith. If there is indeed no lien(s) of record against the property, I would act fast and record a "friendly lien" in an amount large enough to cover your anticipated equity.

That lien will be a 1st, and will have to be paid off if BOA tries to FC. Although I'm not familiar with AZSC case law stating a lender is able to FC even on an unrecorded trust deed, I think a careful reading of that case would be important, as it may not apply to your situation.

The result? You and your wife will likely be the proud owners of a fee and clear house!

If BOA wanted to try to FC, they would have to do so judicially, arguing and citing that case as an applicable precedent.

Good luck.

[vanroth]

Tom,
Everything I read regarding using a "friendly lien" in this way seems to point to fraud. About the only exception is possibly having the friendly lien "aged" (i.e. if it was uncontested for some reasonable period of time) and/or having truely borrowed/owed the full lien amount to a friendly 3rd party. Case law seems to suggest that courts routinely subordinate senior liens that were recorded ahead of valid debts due to clerical errors.

Do you have any info to the contrary? I would certainly love to be wrong!!! Has anyone used the technique successfully?

Thanks again Tom.

[TomEason]

vanroth

Thanks for your post.

Why don't you give us the citation of that AZSC case so we can read it and see if it might be applicable.

[vanroth]

The AZSC case regarding foreclosing on non-recorded liens is Vasquez v. Saxon Mortgage, Inc.
Arizona Supreme Court holds narrowly for lenders in Vasquez v. Saxon Mortgage, Inc. | Syllabus | Arizona Law Review


Tom,
There is no AZSC case regarding friendly liens. I'm only referring to lower court decisions and legal blogs where judges quash friendly liens. In most cases the quashed liens either 1) were solely created to usurp valid secured liens 2) were created without materiality (i.e. the lien had no substance) 3) liens were recorded out of order due to clerical errors/omissions, 4) friendly liens were recorded by the 1st party (property owner and/or spouse). The legal blogs are clear that most states have lien laws that criminalize fraudlent lien recordings (such as false "mechanic liens").

The "aged" comment comes from Nevada state law. It is common to create friendly lien shell Nevada corps to protect equity. But I do know that the state requires these to have aged two years before they are fully protected. A Nevada corp, however is only a game to get around the 1st party rules. Again legal blogs have stated that lien holders often challenge these in court as well.

[TomEason]

vanroth

Thanks for providing the citation. The cited case is not at all on point as it concerns assignment of the TD to a new beneficiary.

In that case, a trust deed had already been recorded by the loan originator at the time of the loan's funding.

However, in your case doubt exists as to whether any trust deed has ever before been recorded. It's a totally different situation.

[JustSharon]

I got the impression there might also be something wrong with the original lien papers. Robo-signed? Not notarized? Or something else?

This could get interesting.

[vanroth]

JustSharon,
I'm not sure why they weren't recorded, but I think it was just due to laziness on the part of multiple parties.

As far as my current 1st lien, neither BoA nor Fannie Mae have the original signed and notarized copy (I do though). Not sure why they don't have it. That is what Fannie's attorney is trying to get me to resign and notarize so they can record it.


I've got a call in to an attorney to discuss my options. To be honest, I don't think there is much I can do. I also be sure to get a legal opinion on friendly liens.

[vanroth]

Spoke to the attorney. Long and short is that the recording issue is a non-issue. Yes it clears up the chain of custody, but at the end of the day it does not matter. The bank can foreclose without it.

He stated the main reason would be to prevent me from getting a new loan on the propery putting BoA into 2nd or 3rd position. He didn't spend much time talking about friendly liens, but only enough to say they are a bad idea in this case as it would put me at risk for litigation.

Attorney did not agree with me about not providing BoA my financials. He stated it is a reasonable request and it would not be used against me for the purposes of debt collection.

[TomEason]

vanroth

Thanks for your update.

It sounds to me as if your discussion with that lawyer was a free consultation and you got what you paid for, LOL. In looking back at your previous posts, I find no mention of your having a lawyer on retainer, so I presume that's what it was.

IMHO, the lawyer is wrong. If, in fact, the recording of liens doesn't matter, why do you suppose lenders put so much emphasis on recording in the proper priority.

Again, in my understanding of that AZSC case, the recordation of a lien does matter. That decision addressed the technicality of failure to properly assign the TD to the new beneficiary. Regardless of the lack of assignment, the court allowed the FC to proceed.

BTW, I agree with you that you shouldn't disclose your financials to the bank.

FYI, it's still not clear to me whether you really want to keep this home, because you alluded in your first post that you wouldn't choose to keep it if it doesn't make financial sense to you.

[Jerem]

Tom Eason, I got a question for you. I'm currently going through the Trial period and my home specialist is asking for a subordination agreement from the 2nd which is very under water.. my lawyer advised me to try a settlement with the 2nd and then finish dealing with the first. I know the rule of thumb is to not negotiate with the second until a loan mod is secured with the first.

what do you suggest??

[TomEason]

Jerem

Thanks for your question.

This is the first time I've heard a lender say they require a subordination agreement from a junior lender in order to to accomplish a loan mod.

FYI, although a loan mod is often recorded, the priority of the original mortgage or trust deed is not affected. It will remain in 1st position.

If I were you, I'd write a letter to the lender explaining that to them, and educating them. It sounds to me as if the rep to whom you spoke needs some training, LOL.

BTW, I don't think much of your lawyer's advice.

[vanroth]

vanroth

IMHO, the lawyer is wrong. If, in fact, the recording of liens doesn't matter, why do you suppose lenders put so much emphasis on recording in the proper priority.

FYI, it's still not clear to me whether you really want to keep this home, because you alluded in your first post that you wouldn't choose to keep it if it doesn't make financial sense to you.

Tom,
Thanks again for your response. Yes the attorney was only consulting, but he still knows his stuff. And I don't think he would disagree with your accessment that liens matter. They do. His point is that it has no bearing in the overall outcome of my situation. The bank can and probably will foreclose regardless of lien recording. Yes, by not having it recorded I could challenge, but the outcome would likely be the same and I would be paying for a lawyer on top of that.

As another attorney explained to me -- the most important thing in a judge's mind is that the borrower is in default without question, so a FC is warranted/justified. The remaining issues of deed, lien, and statutes are a matter for the 3rd parties to litigate.

In regards to keeping the home -- it would be nice to keep it, but only if the loan were closer to 100% LTV. Outside of that I would walk and not feel a moment of regret. But I will sure in #### fight to make lemonaide out of the situation -- for both myself AND BoA/Fannie Mae. I just wish they saw it the same way.

[JustSharon]

As far as my current 1st lien, neither BoA nor Fannie Mae have the original signed and notarized copy (I do though). Not sure why they don't have it. That is what Fannie's attorney is trying to get me to resign and notarize so they can record it.

I don't know about the law in your state, but it seems to me that if they did not record the lien, and they don't even have a copy of it, how can they prove that it ever existed?

Can they foreclose without having a lien?

Are you trying to save the house? or just stall the process?

[TomEason]

vanroth

Thanks for your post. I agree that an outcome of any litigation would be dependent on the particular judge. We've seen CA FC cases go both ways - for the lender in some, and for the borrower in others. IMO, a judge is stretching it to go against statutory law, where mortgage and foreclosure processes are clearly delineated.

Since FC is a draconian measure and remedy, the legislature sought to enact those laws for the protection of the borrower. Hence, opinions that, since the borrower is in default, he/she deserves to FCed on regardless of statute, are regularly being appealed and overturned.

Needless to say, litigation is expensive, and appealing a decision even more so. Unfortunately lenders, usually having very deep pockets, count on a borrower's lack of the funding necessary to litigate, and seek to benefit from that.

[vanroth]

Good question Sharon. Although it is a bit of cart before the horse. They don't have to prove it to anyone right now. There is little question that a lien existed. Afterall they have a unsigned copy of my contract and I had been paying them for the loan.

Yes if it went to court they would have a burden to prove. The real question is how big of a burden do they have? If asked by the court I would have to disclose that yes I acknowledge the lien and originally signed it.

The original questioning here was that would the the lien issue give me leverage to renegotiate the loan or even stall the process. From the legal advise it sounds like it will only stall it a few weeks. They've already stalled those few weeks to give [force] me the opportunity to correct their mistake, but ultimately they will push through anyhow.

But yes, I will continue to try and save the house provided I can get the 1st to mod the loan to 100-105% LTV. The clock is just still ticking.

[vanroth]

vanroth

Thanks for your post. I agree that an outcome of any litigation would be dependent on the particular judge. We've seen CA FC cases go both ways - for the lender in some, and for the borrower in others. IMO, a judge is stretching it to go against statutory law, where mortgage and foreclosure processes are clearly delineated.

Agreed. Though it appears that some states/courts are excessively lenient regarding foreclosure laws for the benefit of economic efficiency. Sad because it is the job of the courts to protect its citizens through due process.

Regardless, I will keep the board up to date as to my progress. The lien issue is shelved for now since if the 1st won't modify it is moot point. At that point I will want to make sure it is recorded so as to not confuse any anti-deficiency protections when I walk.

[vanroth]

Well I received the "trial modification" package Friday for the 1st.

It appears that they waived all late fees/payments (except tax/insurance escrow). New payments based on the current outstanding principal @ 3.75% over 28 years (the remaining amort. period). No principal modification, though it might be the best offer I can get if I want to stay.

Few questions for those who might have already gone through this process:

1) Is it normal to receive no T&C's on the trial offer? There is no information as to the rate (I manually calculated it to get the 3.75%) or the amortization terms. The only stated term is that I make the three defined payments each month. It was very vague.

2) How firm is the trial modification? Is it SOP for BoA to deny the perm mod or come up with unrealistic terms?

3) Will the perm modification be based on other factors? I.e. gross pay, etc? Will we automatically be denied a perm since our original payment was less than 31% of our gross?

thanks,
vanroth