At the height of the housing crisis in 2009, the United State government introduced HAMP, the Home Affordable Modification Program. The founding idea for the program was to allow borrowers who were a facing a foreclosure a way to refinance their debt with lower monthly payments, while not discharging the underlying debt. This is done by a variety of tactics, including lowering interest rates, extending the term of the loan to 40 years, and rolling any outstanding interest and principal into a new loan, among other changes in a loan modification.
HAMP qualifying homes do not have to be seized by the banks through foreclosure. It is important to understand the additional options that HAMP can provide to home and property owners and the process that is involved in qualifying.
There are several guidelines that determine potential borrower eligibility for the HAMP program. These included, but were not limited to, income guidelines, property value guidelines and hardship requirements. Until June 1, 2012, one such requirement was that the home had to be owner occupied. This meant that rental or investment properties were not eligible for HAMP. However, the HAMP program was extended by the HAMP Tier 2 program in 2012 to include rental and investment properties in foreclosure or headed that way.
The underlying basis for eligibility in the HAMP Tier 2 program is the same for HAMP Tier 1, except that many of the guidelines are more relaxed, so as to provide for greater program participation. Specifically, HAMP Tier 2 has lower income and property value requirements, as well as allowing for non-owner occupied properties to be considered.
Now, whenever an application for a HAMP loan modification is made, a participating lender is required to evaluate the borrower for both, the HAMP Tier 1, and the HAMP Tier 2 modification, as well as any possible in-house options that the lender may offer. In addition, any litigation must go into a “loss mitigation hold” pending the outcome of the loan modification request. No foreclosure sale can occur while there is an active HAMP modification application pending and the stay of the litigation will extend during any Trial Payment Period and until a permanent loan modification is completed.
HAMP guidelines require a decision to be rendered within 30 days of submission of all documents to the lender. Furthermore, in New York State, any foreclosure action involving an owner occupied property must have at least a settlement conference between the borrower and an individual with the “capability and authority” to render a final decision on a possible loan modification. This encourages the banks to work with homeowners to try and keep them in their homes. While the Court cannot force the banks to grant a loan modification, it at least forces the banks to sit down with the troubled homeowner and evaluate them, giving the homeowner a chance at a modification.
However, despite the increase in useful tools for troubled borrowers, many banks continue to skirt the rules and act in bad faith. Recently, Michael B Schulman and Associates had a case in our office in which we assisted with a HAMP application for a rental property the client was leasing under market value to his in-laws. When the client suffered some financial misfortunes, the property went into foreclosure. Prior to commencing the foreclosure, the bank filed all the appropriate paperwork with the county clerk to show they owned both the mortgage and the underlying note, a key prerequisite for starting a foreclosure action.
Subsequently, we filed an application for a HAMP loan modification believing it to be a relatively straightforward process with this particular client. He easily met all of the income and property value guidelines required for a HAMP Tier 1 application, let alone the HAMP Tier 2 guidelines, which would be the modification program we should have received due to the fact that this was a rental property.
Over the course of nearly six months, negotiations for the loan modification continued. Documents were requested and provided. Status checks and progress reports were made. However, the bank never set up a trial payment schedule. In any HAMP modification, a borrower must successfully complete a 3-month trial payment schedule to confirm their ability to make the new revised payments. However, the bank was dragging its feet in the current case.
It is not entirely uncommon for paperwork to take longer than the 30-day posted guideline for rendering a decision according to the HAMP guidelines, however, six months is generally considered excessive. In addition, due to the negotiations, everything in the case should have been stayed until a decision was rendered.
Thus, when a decision on an Order of Reference motion was granted by the Court we were quite surprised. An Order of Reference in a foreclosure action sends the case to a third party, usually a retired judge, to add the total amount owed to the lender and order a sale of the property. Often the granting of this type of motion sounds the death knell for any hope the homeowner might have to retain the property. Needless to say, this was dire news for our client and very troubling, as we believed everything to be stayed during negotiations.
We immediately contacted the borrower and found out that after the motion was granted they had denied the HAMP application because the owner of loan did not participate in HAMP and had an investor restriction on modifying non-owner occupied properties. This was quite puzzling, as we knew that this bank, indeed all banks, participate in HAMP. So how could they say they didn’t?
The loan servicer then told us that the loan had been sold to a private investor. This had never been disclosed to us or the borrower as required by federal law. Loan and mortgages may be freely sold, however, the borrower must be notified of any sale of the loan or assignment of the mortgage at least 15 days prior to the transfer becoming effective according to federal law. After checking the land records for the property in the county we discovered that the mortgage and loan had been sold and assigned three times in the previous year, including twice since we first submitted our application for HAMP. No notice had ever been sent for any of the transfers.
In fact, we learned that the most current owner of the mortgage and note was a trust incorporated by a bank with the bank of sole trustee and beneficiary. The only reason for the existence of this trust was for this bank to avoid having to comply with the HAMP program. By using the trust, they were not confined to the HAMP rules and regulations while still gaining all the benefits of ownership of the mortgage and note.
Fortunately, we were able to bring an Order to Show Cause before the Court to bring the bad faith dealings of the bank before the Court. The Court then granted a Temporary Restraining Order stopping the Order of Reference from moving forward. This will allow the court to determine what the repercussions will be for violating the federal laws concerning the notice of the sale and assignments of the loan and mortgage, as well as determining what the next step will be in regards to the litigation and loan modification.
These sorts of issues come up all the time in foreclosures, with borrowers desperately trying to keep their homes. The HAMP program is a terrific resource for borrowers who are eligible for it, but unfortunately that equates to bad business for the banks. The banks are not interested in keeping homeowners in their homes; they are only interested in making money. That is why they consistently will use any loophole at their disposal to avoid complying with the HAMP program.
This leaves homeowners at a distinct disadvantage and at the mercy of a corporate behemoth. The foreclosure process itself is as daunting and confusing as any in the legal world and the loan modification alternative can be just as overwhelming. That is why retaining counsel immediately, even before you actually go into foreclosure if possible, is paramount. While sometimes miracles can be worked by lawyers arriving late, the earlier in the process that you level the playing field by hiring an attorney in your case, the higher your chances will be of staying in your home.
“Don’t Let the Banks Win, Get Home Help With HAMP” was written by Michael B. Schulman, Managing Attorney.