Real Estate Articles
Loan Modifications are Difficult, Complicated, according to Legal Team
Thursday, February 11, 2010
Edward Lear, Esq., founder of Century Law Group LLP with offices in San Jose and Los Angeles, and certified credit specialist Julie Macc recently shared more information on loan modifications with SILVAR members.
The Department of Real Estate has repeatedly asked REALTORS® to warn their clients about loan modification scams. At a recent tour meeting of the Silicon Valley Association of REALTORS®, REALTORS® learned more about the issue from a team of legal experts.
Edward Lear, Esq., founder of Century Law Group LLP with offices in San Jose and Los Angeles, and certified credit specialist Julie Macc traced the beginnings of loan modifications to 2008. Lear said before the summer of 2008, few people heard of a loan modification, but the service was already being provided by some mortgage brokers in Orange County, with few problems and with many finalized within 30 days. By September of 2008, loan modifications "no longer were a secret," Lear said, and a vast number of mortgage brokers jumped on the bandwagon to provide this service.
By November of 2008, upon hearing about the occurrence loan modification scams and to protect the public, the DRE began enforcing certain regulations, including the requirement that advanced fee contracts should be approved first by the DRE. This was then followed by desist and refrain orders on the prosecution's side and moves which many perceived as attempts to shut down the loan modification industry, according to Lear.
Lear said while loan modification scams exist, he believes majority of people providing the service are legitimate. Yet he also stressed it is no easy task to modify a loan and few modifications are successful. It's been reported that only 20 percent of modifications have become permanent under the government's Home Affordable Modification Program (HAMP). The latest government data also shows more than half of all modified loans defaulted within six months of modification.
"For homeowners who cannot continue to pay their mortgage, loan modifications are the preferred solution," Lear said. "As much as you want to engage in a short sale, it doesn't always work. In some cases, foreclosure is the better way to go."
Loan modification just won't work when the income earner(s) in a household have lost their jobs or if the homeowners have a six figure loan deficiency. "Any situation without income is dead on arrival," Lear announced.
Short sales are not an easy process; they have pitfalls. "You should always have your clients get a lawyer's advice because there are legal ramifications," Lear warned REALTORS®. "There are the client's expectations and you are held to a higher standard in court than homeowners who are not as sophisticated."
Lear also alerted REALTORS® to a new field of litigation concerning trial modifications. In these cases a bank, clearly acting in bad faith, agrees to a trial modification and without the homeowner's knowledge turns around and sells the house as a foreclosure. In such cases the only recourse for the homeowner is litigation and, unfortunately, Lear said it's "not the best tool since homeowners do not have the money to hire a lawyer to sue the bank." He said a solution to this growing institutional practice is to file a class action lawsuit against the lender, but this too can be complicated, costly, and takes time.
Lear asked the REALTORS® to share with troubled homeowners statistics that show few loan modifications are successful. In a short sale, Lear said REALTORS® should advise the homeowners to hire a lawyer, especially when lenders won't provide the homeowner with a written release of the loan deficiency; if the homeowner has outstanding loans other than the primary mortgage loan; or when it is obvious that the lender is not acting in good faith.
Edward Lear, Esq., founder of Century Law Group LLP with offices in San Jose and Los Angeles, and certified credit specialist Julie Macc traced the beginnings of loan modifications to 2008. Lear said before the summer of 2008, few people heard of a loan modification, but the service was already being provided by some mortgage brokers in Orange County, with few problems and with many finalized within 30 days. By September of 2008, loan modifications "no longer were a secret," Lear said, and a vast number of mortgage brokers jumped on the bandwagon to provide this service.
By November of 2008, upon hearing about the occurrence loan modification scams and to protect the public, the DRE began enforcing certain regulations, including the requirement that advanced fee contracts should be approved first by the DRE. This was then followed by desist and refrain orders on the prosecution's side and moves which many perceived as attempts to shut down the loan modification industry, according to Lear.
Lear said while loan modification scams exist, he believes majority of people providing the service are legitimate. Yet he also stressed it is no easy task to modify a loan and few modifications are successful. It's been reported that only 20 percent of modifications have become permanent under the government's Home Affordable Modification Program (HAMP). The latest government data also shows more than half of all modified loans defaulted within six months of modification.
"For homeowners who cannot continue to pay their mortgage, loan modifications are the preferred solution," Lear said. "As much as you want to engage in a short sale, it doesn't always work. In some cases, foreclosure is the better way to go."
Loan modification just won't work when the income earner(s) in a household have lost their jobs or if the homeowners have a six figure loan deficiency. "Any situation without income is dead on arrival," Lear announced.
Short sales are not an easy process; they have pitfalls. "You should always have your clients get a lawyer's advice because there are legal ramifications," Lear warned REALTORS®. "There are the client's expectations and you are held to a higher standard in court than homeowners who are not as sophisticated."
Lear also alerted REALTORS® to a new field of litigation concerning trial modifications. In these cases a bank, clearly acting in bad faith, agrees to a trial modification and without the homeowner's knowledge turns around and sells the house as a foreclosure. In such cases the only recourse for the homeowner is litigation and, unfortunately, Lear said it's "not the best tool since homeowners do not have the money to hire a lawyer to sue the bank." He said a solution to this growing institutional practice is to file a class action lawsuit against the lender, but this too can be complicated, costly, and takes time.
Lear asked the REALTORS® to share with troubled homeowners statistics that show few loan modifications are successful. In a short sale, Lear said REALTORS® should advise the homeowners to hire a lawyer, especially when lenders won't provide the homeowner with a written release of the loan deficiency; if the homeowner has outstanding loans other than the primary mortgage loan; or when it is obvious that the lender is not acting in good faith.
The Silicon Valley Association of REALTORS® (SILVAR) is a professional trade organization representing over 4,000 REALTORS® and Affiliate members engaged in the real estate business on the Peninsula and in the South Bay. SILVAR promotes the highest ethical standards of real estate practice, serves as an advocate for homeownership and homeowners, and represents the interests of property owners in Silicon Valley.
The term "REALTOR®" is a registered collective membership mark which identifies a real estate professional who is a member of the National Association of REALTORS® and who subscribes to its strict Code of Ethics.
Variations of this article have appeared in local area newspapers.
For further information, please contact Rose Meily at SILVAR Public Affairs, email , or phone (408) 200-0109.