LEGAL SERVICES OF GREATER MIAMI, INC. - lsgmi. · PDF fileLEGAL SERVICES OF GREATER MIAMI, INC. ... their rights, options, and defenses and Legal Services ... The mortgage company

LEGAL SERVICES OF GREATER MIAMI, INC.Chesterfield Smith Center for Equal Justice

3000 Biscayne Boulevard, Suite 500 • Miami, Fl 33137-4129Direct Line: (305) 438-2427 • Fax: (305) 573-5800 • TDD: (305) 573-1578

[email protected] • www.lsgmi.org

JOHN W. McLUSKEYPresident

B NJAMIN L. REISS1s Vice President

YANICK LANDESS2nd Vice President

GARRETT J. BIONDOTreasurer

GISELA M. MUNOZSecretary

DARRELL PAYNEImmediate Past President

MARCIA K. CYPENExecutive Director

Hello, Volunteer Attorneys:

These materials will give you an overview of the foreclosure process and some defenses. I will goover the materials before you start seeing clients and answer any questions you may have.

I look forward to meeting with all of you.

Sincerely,

Carolina A. LombardiAttorney at Law

LSCPASSIONATELY COMMITTED TO EQUAL JUSTICE

MATERIALS FOR THEMORTGAGE FORECLOSURE DEFENSE CLINIC

A Joint Project of Legal Services of Greater Miami, Inc.and the Put Something Back Program

WHEN:

Wednesday, October 28, 2009 from 5:00 p.m. until about 8:00 p.m.(Sandwiches or pizza and drinks provided gratis)

WHERE:

Legal Services of Greater Miami, Inc.3000 Biscayne Boulevard Suite 500Miami, FL 33137(Free Parking in the rear of the building)

WHY:

Thousands of homeowners are facing foreclosure and need to be advised oftheir rights, options, and defenses and Legal Services cannot assist all lowincome clients who qualify for assistance.

Legal Services attorneys will provide you with mortgageforeclosure training defense materials in advance of theClinic, and will also be present at the Clinic to provideassistance. The clients will have been pre-screened and theirdocuments all copied. You will see two clients and provideadvice, and if so inclined, perhaps represent one or both ofthe clients that you see.

OTHERDETAILS: Your attendance at the Clinic is covered by the malpractice insurance of the

bade County Bar Association's Put Something Back Program. You will receive3 hours of pro bono credit for participating in the Clinic.For more information contact:[email protected] or (305) 579-5733 ext. 2246

This 8 page handout is provided to clientsFORECLOSURES

This handout was prepared by Legal Services of Greater Miami, Inc.(LSGMI) withsupport from the Institute for Foreclosure Legal Assistance. LSGMI representshomeowners in foreclosure and homeowners having problems with their mortgage.Unemployment, divorce, death, and abusive lending practices put manyhomeowners at risk of losing their home. If you are facing foreclosure, you may betempted to give up and walk away from your home. Don't give up! You shouldconsult with an attorney to find out about your options. This flyer is intended to giveonly general advice about your possible options and may not cover your specificsituation. It is not intended as a substitute for individual advice. If you have aquestion about the information in this flyer, you should contact an attorney as soonas possible. If you cannot afford an attorney, you can contact LSGMI at thelocations listed at the end of the flyer, to see if you qualify for our services.

I'm behind in my mortgage payments, what should I do?

Contact your mortgage company to find out if it will assist you. You should ask tospeak with the loss mitigation department. This department works with homeownersthat are behind in their mortgage payments. Generally, it is better to contact themortgage company as soon as you have a problem.

The mortgage company may offer you a repayment agreement which would allowyou to catch up with your mortgage over time. If your payments are not affordable,try to negotiate with the lender to restructure the terms of your loan to make yourmonthly payments temporarily or permanently affordable. The lender might alsoagree to place the missing payments at the end of the mortgage.

Many borrowers have complaints about the loss mitigation process. Most likely youwill have to make several phone calls to the mortgage company and the mortgagecompany will ask you to send proof of your income. Many homeowners haveproblems finding an employee from the mortgage company that will help them. Youmay speak to a different person each time you call the mortgage company. To avoidproblems, you should always write down the full name, job title, and phone numberof each person you speak to. Keep copies of any papers you send to the mortgagecompany. If you reach an agreement on the phone, you should write a letter to themortgage company confirming the terms of your agreement. If the mortgagecompany sends you an agreement to sign, be sure you understand the entireagreement. Do not agree to a payment plan that you cannot afford.

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In May 2009 President Obama expanded the Making Homes Affordable Program tomake it more attractive to mortgage companies to participate. Through this program,residential homeowners may have their mortgage modified or refinanced so that theterms are better. If your mortgage company denied you relief in the past, or said thatthey were not participating in any program, you should contact your lender again.You can also go to the government website http://makinghomeaffordable.gov/ formore information.

If you have an FHA (Federal Housing Administration) mortgage, you are entitled toadditional help. Call 1-888-297-8685 for more information. VA (Veteran's Affairs)mortgages also have additional assistance for homeowners. Call 1-800-827-1000for more information.

What is a foreclosure?A foreclosure is a lawsuit filed by a mortgage company when the borrower has notmade payments. Through the foreclosure, the mortgage company asks the Courtto sell the property so the mortgage company can recover its money.

I was served with court papers for foreclosure. What happens next?Once the mortgage company files a foreclosure, you will be served with theSummons and Complaint. Either the sheriff or a process server will deliver thecomplaint to you. The Summons and Complaint can also be left with anyone in yourhome over 16 years old.

You should talk to an attorney immediately if you are served with a foreclosurelawsuit. This is especially important if you fear that you may have been takenadvantage of by the lender or are the victim of a foreclosure-related scam. To findan attorney that represents consumers, you can contact the National Association ofConsumer Advocates (http://members.naca.net/findanattorney.php) You can alsocheck the yellow pages of the phone book for the names of private attorneys. Wealso suggest that you check with friends and relatives for the names of attorneys thatthey can recommend. Legal Services of Greater Miami, Inc. also represents low-income people in foreclosure.

You can also call the Florida Bar Lawyer Referral Service at 1-800-342-8011 andask for a referral to the Low Cost Panel. The clerk will ask you about your income.If you qualify, you will be referred to a private attorney who charges a reduced fee.If you do not qualify for the Low Cost Panel reduced-fee attorney, you will be giventhe name of an attorney who charges regular fees, however, the first half hourconsultation will only be $25.

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You can also get a referral by going to the Florida Bar Lawyer Referral website athttp://www.floridabar.org . Simply click on the "Find a Lawyer" button and then followthe instructions on the right side of page where it states "Lawyer Referral Service."

If you do not have an attorney, and respond to the foreclosure yourself, follow theseinstructions:

•

Read the Summons and Complaint

To begin, you should read the Summons and Complaint for Foreclosure. TheSummons and Complaint will give you important information about the lawsuit,including the claims made by the mortgage company and directions for youto follow. The mortgage company will be called the "Plaintiff' (the party filingthe lawsuit) and you will be called the "Defendant" (the party being sued).Once you have read the Summons and Complaint, you can begin to prepareyour Answer.

Write an Answer to the Complaint

An "Answer" is your written response to the claims made against you by themortgage company in the Complaint. It is also your chance to explain why thelender should not be entitled to force the sale of your home. You must file theAnswer with the Clerk of Court. Your Answer is due 20 calendar days afteryou were served with the Summons and Complaint. If the deadline falls ona weekend or holiday, the Answer will be due on the next day the Court isopen.

Your Answer should point out anything in the Complaint that you believe isuntrue or wrong. Your Answer should also explain any reason that wouldmake it unfair for your house to be foreclosed. These are called "AffirmativeDefenses." For example, if you believe the lender did not do what it wassupposed to do concerning your mortgage or refused to work with you toavoid foreclosure, you should give the details in your Answer. Also, if youthink the amount demanded in the Complaint is incorrect, you should explainwhy it is wrong. If you have proof that you paid the mortgage, you shouldattach copies to your Answer.

At the end of your Answer, sign your name and include your address andtelephone number. You must also write that you have mailed a copy of your

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Answer to the mortgage company's attorney and the date you mailed it. Youcan mail the Answer by regular U.S. Mail.

•

File the Answer with the Clerk of Court

Once you have finished writing your Answer, make several copies. Take theoriginal Answer to the Clerk's Office for filing. In Miami-Dade County, mostmortgage foreclosure lawsuits are filed in Miami-Dade Circuit Court. Forthese cases, your Answer can be filed at the Miami-Dade County Courthouse,73 W. Flagler Street, Miami, Florida. It does not cost any money to file yourAnswer. Ask the Clerk to stamp your extra copies, so you can prove that youfiled your Answer. Be sure to keep a copy of the Answer for your ownrecords.

I make my mortgage payments to "Florida Mortgage Company." Why did"National Bank, as Trustee for XYZ Trust" file the foreclosure against me?

Mortgages are frequently sold and transferred by the banks that hold them. Yourmortgage may have been sold to a trust. In Florida, to file a foreclosure, the plaintiffmust own the mortgage and note (your promise to pay money back to the mortgagecompany).

After I file an Answer in the foreclosure, what is the next step?

While the foreclosure is pending, you should continue trying to negotiate with yourmortgage company or the attorney for the mortgage company.

The 11 th Judicial Circuit which covers Miami-Dade County, issued an AdministrativeOrder, effective May 1, 2009, stating that there must be mediation in mortgageforeclosures for all residential occupied homes on foreclosure cases filed after May1, 2009. This mediation program is called CHAMP. If your foreclosure case wasfiled before May 1, 2009, your case will not be part of CHAMP.

Under CHAMP, when the foreclosure case is filed, the mortgage company sends theCollins Center all the contact information for the homeowner. The Collins Center isa non-profit agency that is working with the Court to assist homeowners. CollinsCenter staff contact the homeowner and assist the homeowner in getting in touchwith a USHUD certified counselor. The counselor assists the homeowner in fillingout financial forms. Once the forms are completed, a mediation date is set. Themortgage company's attorney and the homeowner attend the mediation and try to

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work out a settlement of the foreclosure case. The mediator in an impartial personwho is trained to help the parties work out a settlement. If a settlement is reached,it is written down and the foreclosure process stops. The services of the USHUDcounselor and the mediator are at no cost to the homeowner.

If no settlement is reached at mediation or the homeowner does not participate in themediation, the mortgage company will file a Motion for Summary Judgment. Thisdocument tells the Judge that there are no facts in dispute and asks the Judge toschedule a foreclosure sale. If you receive a Motion for Summary Judgment and youdisagree with any facts raised by the mortgage company, you should file an Affidavitopposing Summary Judgment. An Affidavit is your version of the facts. Forexample, if you do not owe what the mortgage company says you owe, you shouldwrite this in your affidavit. By signing the affidavit, you are swearing that everythingyou write is true and correct. The Affidavit must be signed in front of notary. Youshould file the Affidavit with the Clerk of Court and mail a copy to the attorney atleast five days before the hearing on the Motion for Summary Judgment. Keep acopy of your Affidavit for your records.

You will receive a notice of hearing by mail. You must attend the hearing. Bring acopy of your Answer and any other documents you filed. If you filed an Affidavit, youshould be prepared to explain what facts are in dispute. If you and the mortgagecompany disagree about the facts, the Judge should not enter Summary Judgmentand the case will go to trial at a later time.

If the Judge decides there are no facts in dispute, the Judge will enter Judgmentagainst you and tell the Clerk to schedule the sale of your home. The sale issupposed to be scheduled within 35 days, but you can ask the Judge to have thesale scheduled at a later date.

How does a foreclosure sale work?

Shortly after the Judge signs the Judgment, the Clerk of Court will schedule a saleof the property. The property will be sold at auction to the highest bidder. If thereis no bid on the property, the mortgage company will purchase the property. InMiami-Dade County, foreclosure sales occur at 140 W. Flagler Street, Room 1502,Miami, Florida 33130.

Once the house is sold, do I have to move out right away?

The new owner must wait 10 days after the foreclosure sale before asking the Courtto issue a Writ of Possession to remove you from the property. A Writ of Possession

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is a document where the Court orders the Sheriff to remove you and all of yourbelongings from the property. It is illegal for the new owner to change the locks orshut off the utilities to force you out.

The Court can not issue a Writ of Possession in foreclosure actions involvinghomestead or non-homestead residential properties without evidence that you wereproperly served with the foreclosure case. You have to be provided a notice ofhearing when the new owner asks for the Writ of Possession and a hearing has tobe held before the Judge. You should attend that hearing and explain to the Judgewhy you may need more time to move out of the house.

Am I entitled to any money if my house is sold at a foreclosure sale?

The money made at the foreclosure sale will be given out according to the FinalJudgment. If there is money left over, you may be entitled recover these funds. Youdo not need an attorney or assistance to recover these funds. You can contact theMiami-Dade Foreclosure Clerk, 140 W. Flagler Street, Room 1502, (305) 375-5943to determine if your house was sold for more than you owed the mortgage company.If your house was sold for more than you owed, you are entitled to receive the extramoney. This is called a "surplus."

Can I file bankruptcy to stop the foreclosure?

A Chapter 13 bankruptcy case can be filed up until the day of the sale to stop theforeclosure sale of your home. With this type of bankruptcy you must have enoughmonthly income to meet all your regular monthly expenses and have enough moneyleft over each month so that you can bring your mortgage current within 60 months.Under most circumstances, when the bankruptcy is filed, the foreclosure processstops and if any foreclosure sale is scheduled, it is canceled. You must obtain debtcounseling prior to filing of the bankruptcy so you cannot wait until the day of the saleto make a decision about filing a Chapter 13 bankruptcy. You should consult abankruptcy attorney for more information. You can find a bankruptcy attorney fromthe National Association of Consumer Bankruptcy Attorneys(http://www. nacba.org/attorneyfinder/).

I have decided that I can't afford my house. What are my options?

If you decide that you cannot afford to keep your house, do not walk away from themortgage. If the house is sold at a foreclosure sale, you run the risk of losing anyequity you may have and further damaging your credit record. Here are otheroptions:

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Sell your home

You may sell your home even after a foreclosure is filed. You should considerthis option especially if you have owned your home a long time or the houseis worth much more than the amount you owe on your mortgage. You shouldcontact a real estate agent with a good reputation for assistance in listing andselling your home. You should also hire an attorney to review all of the salespaperwork and to represent you at the closing. If you have a contract to sellyour home, but you will not complete the sale before the foreclosure sale, youshould file a "Motion to Cancel Foreclosure Sale." This is a letter to the Judgeasking that the foreclosure sale be reschedule so you can complete your saleof the property. You should attach a copy of the sales contract to the Motion.

•

ShortsaleIf you find a buyer for your home, but the buyer will not pay you enoughmoney to pay off the mortgage, you may want to consider a short sale. Forexample, the buyer is willing to purchase the property for $140,000 but youowe $150,000 to the mortgage company. In this case, you should contact themortgage company to see if it will accept a reduced payoff. Generally, thebank will not allow this if you receive any money from the sale.

•

Deed in lieu of foreclosure

Instead of selling your home, you could execute a deed in lieu of foreclosure.By doing this, you would give your house to the mortgage company. Youmight want to consider this option if you have no equity in your home and youhave found no other way to avoid foreclosure. By executing a deed in lieu offoreclosure, you can avoid the time, expense of a foreclosure lawsuit and youmay be able to avoid having a foreclosure judgment entered against you.However, you should not do this unless you first obtain written confirmationfrom the mortgage company that you will not owe it any more money. Youshould have your own attorney review this agreement.

If you choose a short-sale or deed in lieu of foreclosure, it could affect the amountof income reported to the IRS. You should consult with a tax professional or a LowIncome Taxpayer Clinic. Clinic locations are available on the Taxpayer Advocate'swebsite (http:www.irs.gov/advocate). Legal Services of Greater Miami, Inc.'s LowIncome Taxpayer Clinic may also be able to advise you concerning the taxconsequences of a deed in lieu of foreclosure or a short sale.

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Can I refinance to avoid foreclosure?

Yes. If you refinance your mortgage, you will stop the foreclosure. If you arecurrently having a problem paying your mortgage, you will want to review whetheryou can afford the potential new mortgage. Any refinance will only increase theamount owed on your property. If you are significantly reducing your interest rate,it might make sense to refinance. However, many refinancing options that lookhelpful may, on closer inspection, be far more costly or a scam. Have aknowledgeable advisor review the proposed loan before signing anything.

If you are over 62 years old, you may want to consider obtaining a reverse mortgage.A reverse mortgage is a mortgage product for senior citizens which allows you to livein your home without making mortgage payments, as long as it is your primaryresidence. With a reverse mortgage, you are only responsible for property taxes andproperty insurance. The amount of reverse mortgage you qualify for is based uponyour age and the value of your home. AARP has more information about reversemortgages on their website: http://www.aarp.org/money/revmort/

I was contacted by someone who claims they can help me save my home fromforeclosure. Can they help me?

After a foreclosure is filed you will get many offers to help you "save your home."You should avoid any transaction where an "investor" will take over the home andyou will "get the home back" after a period of time. Most of these offers arefraudulent. These transactions are never set up to succeed and these companiesare only looking to steal money from your property and take your home.

This flyer was prepared by Legal Services of Greater Miami, Inc. We are located at:

Main Office

South Dade Law Center

3000 Biscayne Boulevard

10720 Caribbean Boulevard

Suite 500

Suite 400

Miami, FL 33137

Perrine, FL 33189

(305) 576-0080

(305) 232-9680

www.lsgmi.org

August 2009 Ed.

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HOMEOWNER- OCCUPIED FORECLOSURE PROCESS

Lender files foreclosure case usually after 90 days of

delinquency

At time of filing Lender gives Collins Center contactinformation for the homeowner -Collins Center has 30 days

to contact homeowner

Collins Center refers homeowner to USHUD certifiedcounseling agency which assist homeowner in filling out.financial documentation

Counseling agency has 21 days to assist homeowner incompleting financial information and download completedforms to Collins Center website where lender can access

information

Collins Center sets case for mediation between homeownerand lender. Homeowner and lender or representative withsettlement authority must appear at mediation.

If agreement is reached, it is reduced to writing and signedby the parties. A report of the agreement shall be filed withthe Court and/or dismissal of the foreclosure case shall be

filed

1.,SGMI August 2009 edition

Homeowner files answer to complaintwithin 20 days

If Collins Center unable to contact thehomeowner within 30 days OR thehomeowner does not want toparticipate in mediation, then lendercan proceed to final hearing and entryof Final Judgment of Foreclosure andobtain sale date. Homeowner mayappear at hearing and ask for extendedtime for sale. Writ of possessioncannot issue without hearing.

If homeowner does not appear or casedoes not mediate, then lender canproceed to final hearing for entry ofFinal Judgment of Foreclosure andobtain sale date. Homeowner mayappear at hearing and ask for extendedtime for sale. Writ of possessioncannot issue without hearing.

FORECLOSURE PREVENTION

During the foreclosure prevention counseling process, a number of different issues arise whichmay require the assistance of legal counsel for the client whether a foreclosure has been filed ornot. The following is a list of steps in the foreclosure prevention counseling process, withspecial emphasis on areas where the advice or assistance of legal counsel is recommended.

Step 1: Understand the homeowner's objectives and needs. Getting a clear picture of theclient's special situation is the first step in determining the overall strategy for helping the client.It is important to find out from the client if they are interested in remaining in the property or ifthey are more interested in entering into a short sale or deed-in-lieu of foreclosure. If the clientis interested in remaining in the property, it is important to determine if the client:

a. Qualifies for a reverse mortgage because the client is age 62 years or older;

b. Qualifies to receive special mortgage modification assistance because they have a loaninsured by the Federal Housing Administration;

c. Qualifies to receive a Trial Period Plan modification under the Home AffordableModification Program;

d. Qualifies for rescission of the loan under the Truth-in-Lending Act (as discussed later in thishandbook); or

e. Qualifies to file for bankruptcy (as discussed later in this handbook).

Step2:Determine any time constraints in the case. The client may have already been sentmodification papers or a foreclosure may have already been filed. It is a good idea to check theonline court dockets when a client comes to the office to verify that a foreclosure has not beenfiled. A significant amount of time can pass between when the foreclosure is filed and the clientis formally served. If a foreclosure has been filed, the client should be referred to an attorney forlegal advice regarding how to respond to the foreclosure and how to prepare for any hearingswhich may have been scheduled.

If a foreclosure has not been filed, pay special attention to any deadlines located in themodification documents the client has been given. If an extension of time is needed to prepareand gather the requested documents, the lender or servicer should be contacted as soon aspossible so that they know the client is working to get the modification package ready.

Step3: Establish the reasons for the default and prepare a hardship letter. Thisinvestigative step is important to any eventual foreclosure that may be filed. During this time,additional information about how the client came to enter into the loan may be discovered. Ifyou suspect that the client was misled with respect to the terms of the loan or that the cliententered into a foreclosure rescue scam, the client should be referred to legal counsel.

LSGMI August 2009 edition

Step 4: Prepare a current budget. Due to the current mandatory mediation in Miami-DadeCounty, preparing an accurate budget for clients is extremely important. Until clients have anidea of what type of mortgage payments are actually affordable, it is difficult to enter into anykind of modification or determine if that is an option for the client to pursue in a foreclosuredefense.

Step 5: Consider ways to increase the homeowner's income or available cash. Somepossible increases in income the client might consider are:

1. Is the client eligible for public benefits that they are not taking advantage of'? Forexample, could the client qualify for unemployment compensation, food stamps,Medicare, Medicaid, Social Security, disability, child support payments, or workers'compensation? If this might be a possibility, the client should be referred to legal counselto assist in getting the benefits for the client.

2. Does the client have any lump sum payments coming due such as an insurancesettlement, tax refund, or lump-sum payment for Social Security, workers' compensation,or a lawsuit?

3. Is the client currently receiving help from a relative or would the client be able to receiveassistance in the future? If the client needs to produce a formal arrangement in writing torely on that income for the modification, an attorney can assist the client in drafting adocument the lender can rely on.

4. Is the client currently renting space on the property to tenants or is that an option at theproperty? If the client is renting space to a tenant without a lease agreement, an attorneycan assist in formalizing the arrangement so the client can rely on the income forpurposes of the modification. If the client has tenants who are not paying rent, the clientmay need an attorneys' assistance in getting back rent from the tenant or filing aneviction against the tenant.

5. The client may have additional assets that need to be sold in order to become current.These assets may include automobiles, boats, vacation packages, other property, valuablecollectibles, jewelry, stocks or bonds.

6. Can the client increase employment income in the short term by adding additional shiftsor taking a second job?


Step 6: Consider ways to reduce the homeowner's other financial obligations. Clientstypically have many other expenses that need to be taken into consideration during theforeclosure process.

1. Other Mortgages. If the client has a second mortgage or a home-equity line of credit, itis important to determine the status of those loan payments. Many times these lenders arealso not being paid and have filed a foreclosure or are threatening to. When more thanone party is involved in the loan workout, it can become a complicated process where theassistance of an attorney is needed. In addition, some or all of the debt owed on thesecond mortgage may be dischargeable in bankruptcy. When seeing a client dealing withother mortgages, get the help of an attorney to assist in determining options for the client.

2. Homeowner's and Condominium Associations. Many clients also owe money to theirhomeowners or condominium association and many associations have begun filingforeclosures against clients. If your client is facing delinquent payments from theassociation, the client may be able to work out a payment plan on their own. If the clienthas attempted to do so without success, the assistance of an attorney may be required.However, if the client is facing foreclosure from the association, the client should bereferred to an attorney to attempt to work out a solution with the association as well asthe mortgage company.

3. Property Insurance. You should ask your clients about the state of their propertyinsurance. Specifically, find out from the client if they pay the insurance themselves or ifit is escrowed as a part of the mortgage payments. Also, take a look at the servicingstatements to see if insurance is collected as part of the escrow. If the client hasabnormally high escrow payments or is not paying for insurance, it is likely that theclient's lender has secured insurance for the property at substantially higher than marketrates. The client should be directed to get their own, more affordable insurance. If itappears that the client is paying for both private insurance and force-placed insurance, theclient should provide proof of the private insurance to the lender and have the force-placed insurance removed. If the lender is not responsive, an attorney should beconsulted to determine what other options might be available to the client to have theforce-placed insurance removed and to determine if any servicing violations haveoccurred.


4. Private Mortgage Insurance. If clients are paying for private mortgage insurance, youshould try and determine whether private mortgage insurance should still be required. Ifthe client has now reached the threshold of twenty per cent (20%) equity in the home, theprivate mortgage insurance should be cancelled automatically. If the client has reachedthis threshold and continues to pay for the private mortgage insurance, the lender shouldbe contacted to have that payment removed. If the lender is not responsive, an attorneyshould be consulted to determine what other options might be available to the client tohave the private mortgage insurance removed and to determine if any servicing violationshave occurred.

5. Utilities. Clients should be advised that finding ways to conserve energy could decreasetheir utility bills and give them more money to fight the foreclosure. If clients haveseriously past due utility bills, they can be referred to an attorney to discuss payment planor bankruptcy options that would allow them to have more money to put toward payingthe mortgage.

6. Credit Card Bills, Medical Bills, and Other Unsecured Debts. Clients should be advisednot to pay these unsecured debts before they pay their mortgage payments. Only after themortgage has been paid should clients even consider paying unsecured debts. If theamount of unsecured debt appears to be keeping a client from getting a mortgagemodification or keeping their home, the client should be referred to an attorney to discussfiling bankruptcy to discharge these unsecured debts and give them more money to paytowards the mortgage.

7. Student Loans. If the client has student loans, they should be advised to get in touch withthe student loan servicer to determine whether different payment arrangements can bemade. Many student loan servicers offer forbearance and deferral plans, as well asmonthly payment modifications.

Step7:Ask the homeowner to start putting money aside to commit to the foreclosureavoidance plan. The client should be instructed to put aside the money they would normallypay towards the mortgage in a special savings account. This demonstrates the client has theability to follow through and the budget to make mortgage payments. This money may need tobe used to make a lump sum payment toward the modification or to secure alternative housing ifa modification cannot be secured.


Step 8: Get exact totals on the amount of current mortgage payments, the arrears, and thebalance due on the mortgage. The client's current mortgage situation should also be taken intoaccount by determining exactly how much the client owes. This information should be obtainedfrom the lender or servicer. Once the information is received, it should be broken down intocategories allowing for an easy assessment of the amounts paid in each mortgage payment forprincipal, interest, taxes and insurance. In addition, it is important to determine how much theclient owes in arrearages and how much has been assessed to the client for foreclosure costs(such as filing fees and attorneys fees). Having a clear understanding of these amounts allowsyou to know if a modification is a possibility, especially if the amount of taxes and insurancecannot be reduced to make the payments more affordable.

Step 9: Work with the homeowner to make realistic choices. Based on the informationobtained at this point from the client, a clearer idea of possible choices may be available. This isa good time to refer clients to attorneys for consultation on filing for bankruptcy or rescinding apredatory loan under the Truth-in-Lending Act. In addition, it may become clear that the clientshould consider a short-sale or deed-in-lieu of foreclosure. Finally, if it does not appear theclient has a reasonable chance of getting a modification or other legal options are not available,preparing the client to leave the home in a dignified manner should also be discussed.

Step 10: Fill out the budget papers and obtain necessary documentation of income andexpenses. The client normally has copies of these types of documents, such as paystubs, benefitsletters and bills. If the client is waiting to get a benefit award letter, an attorney may be able toassist in getting the necessary documentation for the client.

Step 11: Request a delay of the foreclosure sale to give enough time to put a workout planin place. The status of a client's foreclosure should be checked on the online court dockets thatare available. This is a quick way of seeing whether a foreclosure has been filed, and if so howfar along the case is. Clients who are already in foreclosure should be referred to an attorney toassess available options and also to ensure that the client responds to the foreclosure in anappropriate manner.


Step 12: Determine which of the available workout options is appropriate given thehomeowner's goals and resources. A number of different workout options are available toclients including:

1. Repayment Plans2. Forbearances3. Modifications4. Short Sales5. Deeds in Lieu of Foreclosure6. Assumptions

When clients are ready to enter into any of these types of agreements, they should typicallybe memorialized in writing. Many of these transactions are extremely complicated and mayrequire clients to waive rights they may have in bankruptcy, waive claims against the lenderthey are not aware of, or create tax liability. It is important that clients are referred to anattorney prior to signing these agreements so that an attorney can advise them of the legalimplications of any document they sign.

It is also important to pay attention to how the lender is going to treat any shortages the clientmay have if there is a short sale. A client should not agree to allowing a deficiency judgmentto be entered for the difference in the amount due on the loan and the amount of the shortsale. These judgments can follow the client and may have to be paid later when the client isnot expecting it. Clients seriously considering a short sale should be referred to an attorneyto discuss all the legal ramifications of the process.

Clients who are considering a deed-in-lieu of foreclosure should be advised that before alender will enter into the agreement, the property will have to be listed for sale for a certainamount of time.


Step 13: Review of other options not requiring the lenders consent. A number ofdifferent options are available to homeowners other than workouts including:

1. Bankruptcy2. Litigation3. Staying Until Eviction

If it does not appear that a workout with the lender will be possible, clients should be advisedof other options they have.

Bankruptcy may be an alternative for clients who currently have enough income to maketheir normal mortgage payments and enough left over to pay arrears. Bankruptcy is acomplicated process and clients should be referred to an attorney if it appears they mayqualify and are interested in pursuing this option. A bankruptcy can be filed for the clientany time before the foreclosure sale, but due to requirements imposed by federal law, clientsshould not wait until the last minute. It is best to allow approximately two weeks so that theclient's paperwork can be put in order and the client can go to bankruptcy counseling.

If it appears that the loan was predatory or abusive, clients should be referred to an attorneyto discuss options they may have in litigation. Clients can either defend a foreclosure thathas already been filed or clients can file an action against their lender. Sometimes thisalternative works in conjunction with a modification by giving the client leverage and alsoreducing the amount of debt the client has to pay back. If a client's paperwork indicatesthese types of abuses, they should be referred to an attorney.

Clients are often confused and frightened by the process of foreclosure if they are planningon staying in the home until the finalization of the foreclosure. Clients may want legaladvice on their rights after the Final Judgment and foreclosure sale of the home. Clientsinterested in this information should be referred to an attorney to answer these questionsregarding their rights in foreclosure.

LSGM1 August 2009 edition

Step 14: Making the proposal and meeting documentation requirements, and what todo if the proposal is rejected. When the proposal is made, make sure to send all of thenecessary paperwork to the loss mitigation department of the client's lender or servicer. Ifthe client has received a default notice, the address may be listed there. If you are not surewhere to send the documents, you should call the servicers customer service number for anaddress. If a proposal is rejected, you may want to send the client's loan paperwork to anattorney for review. It is possible the attorney will be able to identify predatory practices thatmay give you leverage while working with the loss mitigation department to get the workoutaccomplished.

Material from National Consumer Law Center Foreclosure Prevention Counseling 2"d Ed.

LSGM1 August 2009 edition

TRUTHIN LENDING ACT (TILA)

15 U.S.C. § 1600 et seq., 1968, as amended, 1980, 1994.

The Homeowner, when applying for a mortgage, has a right to cancel the loan and void themortgage for three business days after the loan has been signed. The Homeowner can cancel forany reason or even no reason. The Homeowner must receive a Notice of Right to Cancel statingthis.

BUT ON A REFINANCE OF HOMESTEAD PROPERTY (A NON-PURCHASE MONEYMORTGAGE), the right to rescind is extended to three years (instead of three days) if thelender fails to provide the Notice of Right to Cancel or the proper information in the boxes onAmount Financed Itemization Form (the TILA boxes). Homestead property includescondominium units, cooperative units, and mobile homes if used as residences. Copies of bothforms are attached.

Common Reasons the Homeowner Can Rescind

1. The homeowner can rescind if each hoeowner did not receive TWO copies of the Noticeof Right to Cancel and the Notice must state:a. that the homeowner has a right to rescind;b. the date of the rescission period expires;c. that the homeowner is giving a security interest in their home;d. the effects of rescission; ande.

how to exercise the right to rescind and the lender's address where the rescissioncan be sent.

2. The lender is required to include certain closing costs in the Finance Charge. Sometimeslenders do not include these items in the Finance Charge, but put them in the AmountFinanced. The lender may do this because it deceptively reduces the APR (AnnualPercentage Rate) and then the APR is incorrectly disclosed on the TILA boxes form.Incorrect disclosure of the APR or the Finance Charge is a ground for rescission withinthree years of the closing.

An attorney will look at the HUD 1 and make sure that the closing costs are correctlyassigned to the Finance Charge and the Amount Financed. When the homeowner alreadyhas a foreclosure case filed in court, then the attorney only has to find $35 of differencein the Finance Charge in order to be able to rescind the mortgage.


The term 'rescission' means the following:

a. Creditor's security interest in the property is void, so the creditor cannot pursueforeclosure (move to have foreclosure dismissed when this defense is raised);

b. The creditor may not collect any fees or interest, so must return (or credit to reduceprincipal) all interest and settlement charges paid by the Homeowner;

c. The Homeowner is required to pay only the principal left after interest and fees havebeen credited;

d. All payments made prior to rescission are applied to reduce the principal.

When a homeowner has grounds for rescission and rescinds the mortgage, it may result in thelender seeking to settle with the homeowner and offering a more affordable mortgage. If thelender will not settle, then there will be a trial and the judge will decide if the mortgage isrescinded.

Please be advised that this is a basic description of the TILA rescission process and should beused only as a guide to determine if a client should be referred to an attorney for further TILAevaluation.


SOME SIMPLE MATH ,

When looking at a client's documents and financial information, there are a few quick things youcan do to see if a client should be referred to an attorney. PLEASE NOTE: These arevery

basic calculations and should not be relied on totally. Even if a client does not appear tomeet these thresholds, after a more thorough review of the client's documents and financialinformation, an attorney may be able to proceed on the claims due to other factors thatonly an in-depth review will find.

The Truth-in-Lending Act

If the loan is both (1) a refinance and (2) less than three (3) years old, you can do some simplemath under The Truth-in-Lending Act.

The Truth-in-Lending Act Disclosure Statement

1. Find the client's Truth-in-Lending Disclosure Statement that was given to the client at theclosing of their loan.

2. There are four (4) boxes displayed at the top. Below is an example with some numberswe will use:Annual

Percentage Finance Charge Amount Financed Total of PaymentsRate11.656% $915,563.25 $270,524.93 $1,186,088.18

3. Add the numbers in the Finance Charge and Amount Financed boxes ($915,563.25 +$270,524.93). These numbers should add up to the number in the Total of Payments box($1,186,088.18). If these numbers do not add up, the client should be referred to anattorney.

4. Underneath the boxes, there should be a payment schedule telling the client the amountof the payments and how long each payment term is. In our loan the schedule looks likethis:No. of Payments Amount of Payments When Payments are Due24 $2,197.73 4/1 /076 $2,525.35 4/1/09329 $2,792.64 10/1/091 $199,412.00 3/1/37First, for each row, multiply the No. of Payments by the Amount of Payments

24 x $2,197.73 =$52,745.526 x $2,525.35 = $15,152.10329 x $2,792.64 = $918,778.561 x $199,412.00 = $199,412.00


Now, add up the results:$52,745.52 + $15,152.10 + $918,778.56 +$199,412.00 = $1,186,088.18.

The total should be the same as the amount listed in the Total of Payments box. If thosetwo numbers are not the same, the client should be referred to an attorney for a Truth-in-Lending Act violation.


The HUD-1 Settlement Statement

1. Find the client's HUD-1 Settlement Statement that the client was provided at theclosing of the loan. Violations can appear anywhere on this document, but thefollowing are the two easiest areas to see if something may be amiss.

2. Look at the items listed in box 1100 TITLE CHARGES. Line 1108 is a charge forTitle Insurance, Line 1109 is a charge for Lender's Coverage and Line 1111 is acharge for Alta Endorsements. Let's take a look at an example:

1108 Title Insurance to ABC Title Co. $775.001109 Lender's Coverage 140,000.00 775.001111 Alta Endorsements to ABC Title Co. 5.1, 6.1, 8.1, FF9 $302.50

This gives us some information about the loan. The loan here is for $140,000.00.Now, all you have to do is input some information in an online calculator located athttp://www.fullservicetitle.com/html/title insurance calculator.html

Enter the amount of the loan in the box Insured Amount.Next, make sure that there is NOT a check mark in the box for the SimultaneousPolicy.

The number listed in the Insurance Rate box should then be the same as the amounton Line 1108.In our case, they match up.

Next, you can do some work with the amounts listed under Florida Title InsuranceEndorsements.Click the boxes next to the endorsements listed on Line 1111. In our case that isALTA 5.1 PUD ($25)ALTA 6.1 Variable Rate Mortgage ($25)ALTA 8.1 Environmental Protection Liens ($25)Florida Form 9 (10% of Insurance Rate)

When you click the correct boxes, the Estimated Total adds up to $927.50 (theamount of the Insurance Rate and the Amount of the Endorsements).

Add the amounts from Line 1108 and Line 1111 ($1,077.50)

Because the amounts on the calculator ($927.50) and the amounts on the HUD-1($1,077.50) are different, it appears there may be a Truth-in-Lending Act violationand the client should be referred to an attorney.


3. Next, look at the items listed in box 1200 GOVERNMENT RECORDING ANDTRANSFER CHARGES. Line 1201 gives the charge for Recording Fees, Line 1202gives the charge for City/County Tax/Stamps, and Line 1203 gives the charge forState Tax/Stamps.

In our case the boxes look like this:

1201 Recording Fees: Mortgage $171.50 $171.501202 City/County Tax/Stamps: Mortgage $490.00 $490.001203 State Tax/Stamps Mortgage $280.00 $280.00

Now, you have to enter some information on the recording fees calculator located on theMiami-Dade County Clerk's website at:

http://www.miami-dadeclerk.com/dadecoc/Recorder Calc.asp


The calculator looks like this:

Automated calculation for Documentary Stamps, Surtax and Intangible Tax for Deeds and Mortgages.

DEED

Number of Pages :

Amount of Consideration :

MORTGAGE

Number of Pages : 20

Amount of Consideration : $140000

Reset

Doc Stamps: $

Total:

Doc Stamps: $

Recording Fee: $

Surtax: $

Total: s

Doc Stamps: $

Recording Fee: $

Intangible Tax: $

490.00

Total:

171.50

280.00

You will need to find the mortgage and count how many pages it is. Enter that number in theNumber of Pages box under the Mortgage heading. Then enter the amount of the loan in theAmount of Consideration box.

In our case, the Mortgage is 20 pages, and the loan amount is $140,000.00.

Hit the "Calculate Fees" button (which is next to the reset button). The amount of DocStamps, Recording Fees, and Intangible Taxes will display.

The amount of doc stamps should be the same as the number in Line 1202.

The amount of recording fees should be the same as the number in Line 1201.

The amount of intangible tax should be the same as the number in Line 1203.


If the numbers are not calculated correctly, the client should be referred to an attorney forpossible Truth-in-Lending Act violations.

PLEASE REMEMBER, THESE ARE NOT THE ONLY VIOLATIONS. IFANYTHING ABOUT THE CHARGES OR THE LOAN SEEMS FUNNY TO YOU,THE CLIENT SHOULD BE REFERRED TO AN ATTORNEY FOR A THOROUGHTRUTH-IN-LENDING ACT VIOLATION ANALYSIS.


THE HOMEOWNERSHIPAND EQUITY PROTECTION ACT OF1994 (HOEPA)

HOEPA is a section of TILA that contains very stringent rules associated with refinancinghomeowner occupied residences.

These types of mortgages are also called "Section 32" high-cost mortgages.

It is a HOEPA mortgage if the APR (Annual Percentage Rate) exceeds the Treasury Bill at thetime of the loan by 8% (10% for second mortgages) or, if points and fees are greater than $583(adjusted annually) or 8 percent of the Total Loan Amount.

Generally, if the loan's interest rate is above 10% or the loan amount is below $120,000 the loanshould be reviewed to see if it is a HOEPA loan.

If the loan is considered a HOEPA loan, then certain material disclosures must have been madeat least three days before closing or there is a right to rescind. If even one of these is not made,the right to rescind arises. The HOEPA notice must state:

You are not required to complete this agreement merely becauseyou have received these disclosures or have signed a loanapplication. If you obtain this loan, the lender will have a mortgageon your home. You could lose your home and any money you putinto it if you do not meet your obligations under this loan.

The lender must also disclose THREE DAYS BEFORE CLOSING:

The APR

The dollar amount of the regular payment

If the loan is variable rate, a statement from the creditor informing the homeownerthat the interest rate and monthly payment amount mayincrease and disclosing the maximum possible monthly payment


In addition, if it is a HOEPA mortgage it cannot contain any of the following terms. If any one ofthese terms is present, there is a right to rescind:

• Balloon payment after five years or less

• Negative amortization (borrower's payments are less than the interest accruing, soprincipal grows over time instead of decreasing

• Advance payment (payment schedule combines more than two periodic paymentsand pays them in advance from loan proceeds)

• Interest rate that increases after default

• Prepayment penalties, in most cases

• Certain types of rebates

If it is a HOEPA loan and the homeowner did not receive the required notices three days prior toclosing, then the homeowner can rescind the mortgage and the lender must refund: double all theclosing costs (called enhanced damages); any down payment; and all principal and interest paid.


Ch. 3 RECOGNIZING THE ABUSIVE SIDE OF MORTGAGE LENDING 41

CHECKLIST: IDENTIFYING A PREDATORY MORTGAGE LOAN

# IndicatorCheck ifincluded

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:::

::::::::::::::::::::::::::::::::::::::::::::::::::::: ' : : : : :::::::::::::::: ::::::::

1 Aggressive telephone or mail solicitations to targeted neighborhoods2 Door-to-door solicitation by home improvement contractor3 Kickbacks to mortgage brokers4 1 Steering to high rate lenders5 Promising specific terms, e.g., a fixed rate loan; switching at closing6 Property flipping

:::::::::::::The

A::pplication

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::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

7 Structuring loans with payments borrowers can't afford8 Falsifying loan applications (particularly regarding income level)9 Adding Insincere" co-signers

10 Making loans to mentally incapacitated homeowners11 Forging signatures on loan documents (i.e., required disclosures)12 Paying off subsidized mortgages or lower interest rate loans13 Shifting unsecured debt into mortgages14 Loans in excess of 100% LTV15 Falsifying appraisals:: ::,:: II_:::::::::::::: ::

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::

::

:

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::::::::::::::::::::::::::::::::::::::::::::::::::::: :

:::::::::: : :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

16 High annual percentage rate17 High points or padded closing costs18 ARM sold to borrower with limited/no ability to pay higher payments19 Balloon payments20 Negative amortization21 Bogus broker fees22 Requiring credit insurance23 Falsely identifying loans as lines of credit or open-end mortgages24 Mandatory arbitration clauses25 Excessive prepayment penalties26 Rushed loan closing27 Back-dating documents, esp. the notice of right to cancel28 Failing to give copies of documents to homeowner at closing

:::::: Closing::::::

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i ::::

::

:: ii

::

::: i :::::::::

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29 Loan flipping (repeated refinancing, often after high-pressure sales tactics)30 Excessive late fees (including daily interest)31 Deliberately posting payments late32 ' Abusive collection practices33 Incomplete or shoddy work by home improvement contractor

_

34 Shoddy installation of mobile home/damaged mobile home35 Failure to pay off debts as promised36 Foreclosure "rescue" scams


REVERSE MORTGAGES ,

Obtaining a reverse mortgage may be an option for clients who are 62 years of age or older.Clients need to have equity in their homes and meet certain other requirements. Clients who areinterested in obtaining a reverse mortgage should be referred to a reverse mortgage lender. TheAARP has a reverse mortgage calculator on line that can give you a quick idea of whether theclient can get a reverse mortgage.

The calculator is located here:

http://rmc.ibisreverse.com//rmc pages/nnc aarp/aarp index.aspx

Clients who get reverse mortgages should be advised to consult with an attorney to review theloan documents they are signing. There are a number of issues that arise with respect to theproperty at the death of the borrower or their spouse that should be considered before the cliententers into the reverse mortgage.


BANKRUPTCY ,

There are two types of consumer bankruptcies available, Chapter 7 and Chapter 13. A Chapter13 bankruptcy is the only type of bankruptcy that will allow a homeowner to keep their home.The homeowner must be in a position to pay all of their bills as they become due, plus the arrearson the mortgage over the course of the plan (typically 5 years). If a client is only interested indoing a short sale or getting a deed-in-lieu of foreclosure a Chapter 13 bankruptcy is not the bestoption for that client. A Chapter 7 bankruptcy can be useful to clients who have a lot ofunsecured debt, such as credit card or medical bills, but cannot be used to keep a client in theirhome.

In order for clients to qualify for a Chapter 13 bankruptcy they must be able to do the following:

1. Pay their normal bills as they become due, including the mortgage.2. Pay the arrears on their mortgage over the term of the bankruptcy plan (typically 5 years).3. Pay an additional 10% as the trustee's fee.

Because your clients have prepared an up to date budget, you can do an approximation of thisamount. We'll use a simple example.

Client's monthly mortgage payment: $1,000.00

Client's monthly car payment: $250.00

Client's other expenses (including utilities, food, etc.): $500.00

Client is behind 6 months on the mortgage payment, so there are arrears of $6,000.00

Divide the arrears by 60 months ($6,000 / 60 = $100.00): $100.00 per month arrears payment.

The client will have to pay her monthly mortgage payment and mortgage arrears to the trustee($1,000.00 + $100.00 = $1,100.00). The client will then have to pay 10% of that amount to thetrustee as a fee ($110.00).

Therefore, the client will have to have an income of at least $1,960.00 per month to do a Chapter13 bankruptcy ($1,000.00 + $250.00 + $500.00 + $100.00 + $110.00 = $1,960.00).

If the client does not meet this income, but is close, you should still refer them to an attorney ifthey are interested in filing for bankruptcy because some expenses may be able to be reduced oreliminated through other means.

For clients who have previously filed for bankruptcy, the rules regarding refilling arecomplicated and the client should be referred to an attorney to determine if refilling is an option.


NET PRESENT VALUE AND THE FDIC

The FDIC has introduced an online tool for finding the Net Present Value of property. Althoughlenders are not required to use this particular formula, it is helpful when trying to determine theterms of the modification to have some idea of how the lender is coming up with its numbers.

To access the tool go to: http://www.fdic.gov/consumers/loans/loanmod/loanmodguide.html

Then click on "Net Present Value Worksheet." This launches an Excel spreadsheet.

Click the "test scenario" tab at the bottom of the page. This will launch the calculator and youcan enter the information about the client and their loan in the gray and blue boxes. The tool willthen give you the modified loan terms that would get the client to an affordable level. These arelocated on the right hand column and look like this (as an example):

Affordable DTI level 31%

Modified Payment $946.93

Interest Rate at 30 Year Term 3.3%

Interest Rate with 40 Year Term 4.5%

Modified Loan Terms Required to Achieve Modified Payment

UPB adjusted for Accrued Interest and Escrow $205,081

Modified Rate 3.31%

Modified Payment $946.93

Modified Loan Term 330

Modified Full Am Payment $946.93

Difference from Affordable Payment $0.00

Principal Forbearance $0.00

PV Reduced Cash Flow ($19,221.08)

Valuation Given Redefault After Modification

Redefault Rate 40%

Months to Redefault 3

Home Price Appreciation Forecast (from current date) -4%

Future Interest and Advanced Escrow

$ 11,407

REO Value

$ 141,517

PV Estimated Loss ($58,010)


Value of Modification

Modification Value ($34,737)

Benefit from Modification $15,945.80

NPV Test (Pass/Fail) Pass

Modification Terms

% Difference from Original Payment -45.9%

Borrower Payment after months:

$946.92

60 $1,043.15

72 $1,140.71

84 $1,149.82

96 $1,149.82

108 $1,149.82

For this example loan, the FDIC has told us that the client will need a payment of $946.43 at aninterest rate of 3.3% over a 30 year term.

In the Value of Modification box, the FDIC has told us that the lender's Benefit fromModification as opposed to foreclosure is $15, 945.80.

In the Modification Terms box, the FDIC has told us how the loan payments will increase overtime. As you can see, in this loan the payments will go from $946.92 to $1,149.82. For clientson fixed incomes or who have significant restraints on their prospects for increased earnings,having this information may help you determine what types of terms to negotiate with the lender.

Nothing in this calculator is binding on any lender, it is merely a tool for you to use to see whatkind of terms a client is likely to get and whether those are affordable.


DETERMINING IF THE MORTGAGE IS ELIGIBLE FOR THE MAKING HOMESAFFORDABLE PROGRAM

In order to be eligible for the Making Homes Affordable Program (HAMP) a client's mortgagemust meet a few initial requirements:

1.

The home must be the client's primary residence.2.

The client must owe less than $729,750.00 on the mortgage.3.

The client must have a reason for their inability to make payments (unemploymentrecent increase in expenses, significant increase in the mortgage payment due toreadjusting ARM's).

4.

The client must have received the mortgage before January 1, 2009.5.

The client's lender or servicer must be participating in the program. To determinethis, go to http://www.financialstability.gov/impact/contracts_list.htm . On theright hand column is a list of lenders and servicers participating in the programunder the title Making Home Affordable Program.

NOTE: This article is about post-foreclosure evictions, but all of the defenses areapplicable to homeowners during the pendency of the foreclosure action.

Reprinted with permission of the author

0ne of many destabilizing by-products of the foreclosure epidemic is the ac-companying upsurge in postforeclosure evictions of people living in fore-closed properties. As lenders continue to foreclose and evict instead of ag-

gressively modifying home loans or allowing current occupants to rent back theproperty, low-income homeowners and tenants are being displaced in increasingnumbers. Over the past six months, our relatively small office has received over sev-enty calls about postforeclosure evictions.

These evictions harm communities as well as individuals and families. The resultingincrease in competition for affordable rental housing leads to tighter rental marketsand higher rents and, in an alarming number of cases, to homelessness.' Moreover,foreclosed properties often sit vacant and untended for long periods after an eviction,leading to vandalism and other forms of blight and driving down property values ofnearby homes.

Here we review some of the issues that advocates should consider when represent-ing low-income tenants and homeowners facing postforeclosure unlawful detainer(eviction) actions. First we discuss applying some of the standard eviction defensesin the postforeclosure context. Next we look at some possible defenses that would notnecessarily be available in a standard eviction case.

'See Bob Erlenbusch et al., National Coalition for the Homeless, Foreclosure to Homelessness: the Forgotten Victims of theSubprime Crisis (2008), www.nationalhomeless.org/publications/foreclosure/foreclosure_report.pdf.

20n the impact of nationwide foreclosures on tenants see Homeowners Are Not the Only Victims of the MortgageForeclosure Crisis; Tenants in Foreclosed Rental Properties Are Being Displaced Nationwide: Hearing Before the H. Comm.on Financial Services, 110th Cong. (2007) (testimony of Judith Liben, Housing Attorney, Massachusetts Law ReformInstitute), http://financialservices.house.gov/hearing110/testimony-_liben_1.pdf.

Maeve Elise BrownExecutive Director

Lisa SitkinStaff Attorney

Housing and EconomicRights Advocates

P.O. Box 29435Oakland, CA 94604510.271.8443melisebrown©[email protected]

Clearinghouse REVIEW Journal of Poverty Law and Policy n July—August 200996

Defending Postforeclosure Evictions

I. An Eviction Is an Eviction—theStandard Defenses

In many respects an eviction followinga foreclosure is like any other eviction.Before filing and serving an unlawful de-tainer complaint the plaintiff must givethe occupants the statutorily requirednotice.' Once the case is filed and docu-ments are served, the proceedings gen-erally move very quickly: the defendantmust answer within a matter of days,notice periods for any motions are brief,and trials are set within weeks. The scopeof issues is usually narrow, focusing ex-clusively on the right of possession.

The unprecedented volume of foreclo-sures over the past couple of years has ledto an assembly-line approach to post-foreclosure evictions. Foreclosed prop-erties frequently end up in the handsof an absentee investor group or otherinstitutional owner, which hires a localreal estate company as property man-ager, which in turn hires a law firm tohandle the eviction. Whether from sheervolume, inattention, or deliberate disre-gard, many of these firms are preparingeviction notices and complaints that arerife with errors. The law firms are alsomaking other procedural errors, such asfailing to serve notices and complaintsin a timely fashion (or at all). As a result,many standard eviction defenses—vio-lation of just-cause ordinances, failure

to comply with procedure requirementsregarding notice and service, and lackof standing—are available to tenants inforeclosed properties. 4

A. Just-Cause-Eviction Jurisdictions

Several U.S. jurisdictions have state lawsor local ordinances that require a justcause to evict tenants from covered rent-al units. Many of these laws define "land-lord" to include a party who acquires theproperty at a foreclosure sale and excludeforeclosure as a just cause for eviction.

For example, in California a new ownerof property covered by rent control mayevict tenants only pursuant to the localjust-cause ordinance. 5 Similarly the NewJersey Supreme Court barred purchasersof properties in foreclosure from evictingthe tenants in those properties withoutgood cause under the state's Anti-Evic-tion Acta And the District of ColumbiaCourt of Appeals held that eviction re-strictions in the D.C. Rental Housing Actof 198o applied to purchasers of proper-ties at a foreclosure sale. ?

Despite the clear protections that thesejust-cause ordinances confer on tenantsand courts ' affirmation ofthe protections,tenants in foreclosed properties are be-ing vigorously and unlawfully forced outof their properties through verbal andother threats and through eviction. The

30n May 20, 2009, President Obama signed the Helping Families Save Their Home Act, Pub. L. No. 111-22, Div. A,tit. VII, 123 Stat. 1660 (2009). The Act grants, among other provisions, new rights for tenants in foreclosed propertiesnationwide. If a foreclosure occurs after May 20, 2009, tenants with a lease have a right to remain until the end of leaseunless the purchaser plans to occupy the property as a primary residence; in this event the lease may be terminated withninety days' notice. Tenants with expiring or month-to-month leases are entitled to ninety days' notice to quit before thenew owner may file an eviction action in court. For Section 8 tenants, the new owner must respect existing Section 8leases and give Section 8 tenants with expiring leases a ninety-day notice to quit. The contract with the housing agencyremains in effect as to the successor in interest (new owner of the property) after foreclosure. On individual states'postforeclosure eviction laws (current through July 2008), see www.nlihc.org/doc/State-Foreclosure-Chart.pdf . These statelaws are now presumed to be preempted by the new federal statute, but knowing what the rules were before the new lawwent into effect may still be useful especially if a client lives in a property foreclosed before May 20, 2009.

°By contrast, a tenant's defenses that arise under a lease, such as breach of the warranty of habitability, generally donot survive foreclosure. The rule in most states is that if the mortgage was recorded before the lease was signed, theforeclosure supersedes the lease (this rule is known as "first in time, first in right") (see, e.g., Dover Mobile Estates v.Fiber Form Products, 270 Cal. Rptr. 183, 185 (1990)). Massachusetts passed legislation (Nov. 29, 2007, Ch. 206 of theActs of 2007, An Act Protecting and Preserving Home Ownership) that was supposed to increase protection of rentersin foreclosed properties, but the legislation's impact is not entirely clear (see www.masslegalhelp.org/housing/landlord-tena nt-relationsh i p-after-foreclosure).

'California cities with just-cause ordinances include Berkeley, East Palo Alto, Oakland, San Francisco, Santa Monica,and West Hollywood. In Gross v. Superior Court, 217 Cal. Rptr. 284, 291 (1985), the court barred the purchaser of acondominium at a trustee's sale (foreclosure sale) from evicting the tenants without good cause as specified in the SanFrancisco Rent Control Ordinance.

'Chase Manhattan Bank v. Josephson, 638 A.2d 1301 (N.J. 1994).

'Administrator of Veterans Affairs v. Valentine, 490 A.2d 1165 (D.C. 1985).

Clearinghouse REVIEW Journal of Poverty Law and Policy n July—August 2009 97


new property owner after foreclosure-frequently a lender, investor group, orother corporate entity—typically hires alocal real estate agent to approach tenantsand persuade them to vacate the prop-erty quickly (sometimes in exchange fora small amount of money). Neither thelocal realtors nor the attorneys who arehired to bring the eviction tell the tenantsof their right under local law to remain inthe property. Armed with informationabout their rights under just-cause laws,tenants in covered jurisdictions shouldbe able to defend themselves successfullyagainst postforeclosure evictions.

B. Strict Construction ofProcedural Requirements

A property owner 's failure to abide byprocedural requirements is a commoneviction defense that is also available totenants who live in foreclosed proper-ties. Common procedural defects thatcan form the basis for a defense againsteviction are (i) a failure to give a requiredpreeviction notice, (2) a failure to specifythe correct length of notice time per stateor local law, or (3) an improper service ofprocess (gutter service, failure to serve atall).

Because of the summary nature of evic-tion proceedings, courts consistently findthat unlawful detainer (eviction) noticerequirements, be they state or local, mustbe strictly construed.' Thus, for example,if a local good-cause eviction ordinancerequires that the precomplaint evictionnotice contain certain language referenc-ing the ordinance, courts must enforcethat requirement strictly. To the extentthat the state specifies the length of noticetime that landlords must give tenants innon-rent-controlled jurisdictions, thattiming requirement is also strictly con-strued and not allowed to be waived. 9

C. Lack of Standing or Real Partyin Interest

Challenging the named plaintiff's stand-ing—or contending that the plaintiff is

not the real party in interest—is anotherappropriate defense to a postforeclosureeviction. In a typical eviction proceeding,this defense might arise when an on-siteproperty manager brings an evictionin the manager 's own name instead ofthe property owner 's name. On the faceof such a complaint it appears that thewrong party is bringing the case.

In a postforeclosure eviction the real-party-in-interest defense might presentitself when the original property ownersigns the original precomplaint evictionnotice and loses the property in a fore-closure. At that point the former ownermight attempt to pursue the eviction andcollect damages; however, with no fur-ther possessory interest in the property,the former owner would have no validclaim to damages.

This issue may also arise postforeclosureif the entity named as the buyer of theproperty at the foreclosure sale (infor-mation that would be available in publicrecords recorded in the county where theproperty is located) is different from theplaintiff in a subsequent eviction case.Absent complaint allegations that explainsuch a discrepancy, the tenant might as-sert as a valid defense the failure to pleadproperly that the plaintiff is the real partyin interest.

This defense may appropriately be raisedin the form of a demurrer or motion todismiss the complaint, as opposed to ananswer or other type of response basedon the merits of the case.

II. Defenses Specific toPostforeclosure Evictions

Tenants may have other eviction defens-es that are specific to the postforeclosurecontext: (i) defects in the perfectionof title, (2) possession of a lease seniorto the mortgage or deed of trust used toforeclose, (3) lawful possession underthe terms of a " cash for keys " agree-ment, and (4) invalid foreclosure based

'See, e.g., Kwok v. Bergren, 181 Cal. Rptr. 795 (1982), and Superior Motels v. Rion Motor Hotels, 241 Cal. Rptr. 487(1987).

'Other states that strictly construe procedural requirements in favor of the tenant are Washington (see Housing Authorityof Seattle v Silva, 972 P.2d 952 (1999)) and Colorado (see Coto. Rev. STAT. §§ 13-40-106, 13-40-107(2), and 13-40-108(2008)).

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on lack of standing or procedural defectsor both.

A. Failure to Perfect Title

In some states a new property owner,before evicting tenants, must perfecttitle after foreclosure. Challenging thefailure to perfect title has nothing to dowith whether the foreclosing entity wasthe rightful owner of the mortgage debt.Rather, this challenge raises the questionof whether the foreclosing entity took thesteps required by state law to completetransfer of title to itself after purchase ofthe property at the foreclosure sale. Themeaning of "perfecting title" varies. Insome states merely recording a deed inthe name of the new owner in the countyin which the property is located satisfiesthe requirement. In other states the newowner must pay property tax liens firstbefore title is considered perfected.

In California a postforeclosure evictionmay be pursued only "where the propertyhas been sold in accordance with Section924 of the Civil Code ... and the title

under the sale has been duly perfected."°We encourage you to familiarize yourselfwith the relevant requirements in yourstate so that you can determine whetherthis type of defense is available.

B. Lease Senior to Mortgage andPurchaser Taking Subject to Lease

In some states, if a tenant 's lease agree-ment predates the foreclosing party ' smortgage, the tenant may have anotherdefense to a postforeclosure eviction. Inother states the purchaser of a propertyat a foreclosure sale may take possessionsubject to the lease, regardless of whenthe lease was executed.

In Colorado the tenant can protect a ten-ancy by filing with the sheriff, before thenew owner takes title, a statement thataffirms the tenant's wish to maintainthe tenancy." In Ohio foreclosure extin-guishes a lease that was subordinate tothe mortgage, whether or not the tenantswere joined in the foreclosure case." InCalifornia a lease entered into before themortgage that is the subject of the fore-closure remains in effect.'

C. Lawful Possession Pursuant to a"Cash for Keys" Agreement

In nearly every foreclosure we have seenin recent months the occupant of theproperty—whether the homeowner ora tenant—has been offered some sort of" cash for keys" deal. A local realtor gen-erally communicates an offer to pay theoccupant a modest sum to vacate thepremises by a date certain. Sometimesthese agreements are in writing; some-times they are not. Either way, if an occu-pant of a foreclosed property accepts suchan offer and is served with an unlawfuldetainer complaint before the deadlineto vacate, raising in the answer the issuethat eviction is being sought before thedate agreed in the " cash for keys" dealis appropriate. Once a " cash for keys"agreement is made, the occupant 's con-tinued possession of the property is notan "unlawful" detainer until the deadlinein that agreement has passed.' 4

D. Lack of Standing to Foreclose

One additional postforeclosure evictiondefense we are exploring involves chal-lenging the new owner's right to evictbased on lack of standing to foreclosein the first instance. In recent months,

"'CAL. Civ. Paoc. CODE § 1161 a(b) (West 2009); Cheney v. Trautzettel, 153 P.2d 616 (1937); see also Evans v. Superior Court,136 Cal. Rptr. 596 (1977).

"COLO. REV. STAT. § 38-38-501 (2008).

' ,See New York Life Insurance V. Simplex Products Corporation, 21 N.E.2d 585 (1939).

''See R-Ranch Markets No. 2 v Old Stone Bank, 21 Cal. Rptr. 2d 21 (1993). As a practical matter, however, even if a tenantmoved into a property before the mortgage was recorded, in California and many other states most leases are month-to-month after the first year of tenancy; a senior position assures the tenant of thirty days' notice only.

"We have found in several cases that the new owner's "cash for keys" agreement permits them to pursue evictionproceedings notwithstanding the agreement. If you cannot get the new owner to remove this permission from a"cash for keys" agreement, you can still raise the "lawful possession" defense and argue that the provision permittingparallel eviction proceedings is not enforceable because the occupant agreed to it only under duress and because it isunconscionable. After all, why should a person who agrees to move out by a date certain still have to defend an evictionaction and risk having the matter appear on a credit report that landlords will review?



challenging standing has become a pop-ular means of defending against fore-closure actions. CNN reports, blogs,and websites have been promoting whatthey have tagged the "produce the note "strategy as a magic bullet for homeown-ers facing foreclosure.' 5 As we discussbelow, this strategy can be a potent toolfor certain homeowners, but it is not theuniversal solution some have claimed.

Our legal analysis also suggests thatraising this issue as a defense to a post-foreclosure eviction helps only in a verylimited number of cases. Nonetheless webelieve it presents a valuable avenue toresearch as you develop an eviction de-fense strategy.

For some context, we turn here to threerelated topics: (i) the rules governing as-signment of negotiable instruments, ()the securitization of mortgage loans, and(3) the use of standing challenges to de-fend against foreclosure actions. We offera brief, by no means exhaustive, overviewof these topics.

1. Assigning aNegotiable Instrument

A negotiable instrument is a transfer-able, signed document containing apromise to pay the bearer a fixed sum ofmoney at a future date or on demand. Apromissory note signed in connectionwith a home loan is a common exampleof a negotiable instrument.

Negotiable instruments are governedprimarily by state statutory law. Withsome modifications, every state has ad-opted Article 3 of the Uniform Commer-cial Code (U.C.C.) as the law governingnegotiable instruments.'

Under the U.C.C. an original payee whowishes to transfer to another party theright to enforce a promissory note must"negotiate " the instrument. For a prom-

issory note payable to a specific party,such as the original lender in a home loantransaction, "negotiation" requires aphysical transfer of the document and anendorsement over to the new payee madeon the document itself.' ? If the endorse-ment cannot be placed on the back of thedocument, it must be made on anotherpaper affixed to the original document.

While the rules governing the transferof negotiable instruments may seem ar-cane in our high-tech age, they do servea very important purpose. Unless theparty seeking to enforce a negotiableinstrument is required to show posses-sion of the original document, the bor-rower who signs a promissory note couldend up being sued by multiple parties,each of whom has a different copy of thedocument endorsed to him. (This has infact happened to a number of homeown-ers around the country.) It would be as iftwo or more people obtained copies of acheck you had written and then tried tocash the copies.

2. The Mortgage-Backed AssetsBoom—Assignments Galore

Back in the not-so-distant mortgagelending free -for- all of the early and mid-z000s, a huge number of home loanswere converted into securities, oftenreferred to as mortgage-backed assets,and sold to investors soon after they weremade.' $ A borrower might get a loan fromone lending institution, say WashingtonMutual, only to see the right to receivepayments under the promissory note shesigned transferred through a series offinancial vehicles controlled or adminis-tered by one or more other institutions.As a result, the promissory note the bor-rower signed in favor of Washington Mu-tual would actually end up assigned to andowned by individual or institutional in-vestors and held in a trust administeredby, for example, Deutsche Bank.

"See, e.g., Associated Press, New Foreclosure Defense: Prove I Owe You, MSNBC, Feb. 17, 2009, www.msnbc.msn.com/id/29242063/; Diane Tuman, Foreclosure Fighting Words: "Produce the Note," ZILLOW BLOC, June 24, 2008, www.zillow.com/blog/foreclosure-fighting-words-produce-the-note/2008/06/.

"See www.law.cornell.edu/ucc/3/.

17 U.C.C. § 3-201(b). By contrast, "bearer paper" payable to the bearer of the instrument may be transferred simply bytransferring possession of the document to another party.

"Tor a more detailed overview of the history of mortgage loan financing in the United States, we highly recommendChristopher L. Peterson, Predatory Structured Finance, 28 CARDOZO LAW REVIEW 2185 (2007).

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The extraordinarily high volume of thesetransactions, coupled with the largenumber of institutions involved in eachsecuritization deal, meant that the rele-vant documents passed through multiplehands. Moreover, after the initial trans-fer of ownership rights in the loan, thoserights—or subsets of the rights—might beresold again (and again) to other inves-tors or converted into increasingly exoticderivatives.' 9 Not surprisingly, the peo-ple handling these transactions got slop-py. In many cases they failed to complywith the basic legal requirements for as-signing negotiable instruments. Posses-sion of the original document was nevertransferred and, or instead, no properendorsements were made on the originaldocuments. In other cases the originalpromissory note signed by the borrowerwas simply lost or destroyed in the rushto repackage, dissect, and resell the loanagain and again.

As a result, when the time came to en-force the promissory note, the originaldocument was often missing or defi-cient. A recent study of more than 1,7oobankruptcy cases stemming from homeforeclosures found that the original notewas missing more than 4,o percent of thetime. 2° Anecdotal evidence also suggeststhat a large proportion of the promis-sory notes sloshing around in securitizedpools were never properly endorsed overto the parties who claim the right to en-force them.

To complicate matters further, severalyears ago the mortgage industry cre-ated an entity called Mortgage ElectronicRegistration Services (MERS) to facili-tate the assignments that are so crucial tosecuritization. State law requires that the

assignment of a promissory note securedby a mortgage or deed of trust must berecorded. To circumvent this unwieldyrequirement and the associated record-ing fees, in local land records lendersoften designate MERS as the owner ofthe " legal title" in a mortgage or deed oftrust, as "nominee " for the actual lender.Each time a MERS loan is assigned to adifferent entity, the assignment is reg-istered with MERS but not recorded inlocal (public) land records; in those re-cords MERS continues to appear as themortgagee regardless of how many timesownership is transferred. 2 ' MERS neveracquires any actual ownership or ben-eficial interest in the promissory notessecured by the mortgages recorded in itsname. Nonetheless MERS often initiatesjudicial foreclosure proceedings in itsown name.

3. Lack of Standing as a Defense toJudicial Foreclosure

As foreclosures began to accelerate inrecent years, a handful of attorneys rep-resenting homeowners in states withjudicial foreclosure procedures starteddemanding that the plaintiff banks berequired to produce original, properlyendorsed promissory notes to establishtheir standing. When MERS appeared asthe plaintiff, these attorneys also pressedthe courts to rule that MERS lackedstanding because no promissory noteswere ever assigned to MERS.

Judges in several jurisdictions aroundthe country are persuaded that a partywho cannot produce the original, prop-erly endorsed promissory note doesnot have standing to enforce the notethrough foreclosure. 22 Some courts haveheld that MERS and its assignees do not

"To avoid complicating things unnecessarily, we do not delve here into the myriad forms of mortgage-backed assetsdeveloped and sold to investors.

"See Katherine Porter, Misbehavior and Mistake in Bankruptcy Mortgage Claims, 87 TEXAS LAW REVIEW 121 (2008); PolicingLenders and Protecting Homeowners: Hearing Before the S. Subcomm. on Administrative Oversight and Courts, 110thCong. (2008) (testimony of Katherine Porter, Associate Professor, University of Iowa College of Law).

"Some have raised questions about the legality of this arrangement (see, e.g., Mike McIntire, Tracking LoansThrough a Firm that Holds Millions, New YORK TIMES, April 23, 2009, www.nytimes.com/2009/04/24/business/24mers .html?partner=rss&emc=rss), but such questions are beyond our scope here.

"See, e.g., In re Foreclosure Cases, 521 F. Supp. 2d 650, 653 (S.D. Ohio 2007); Wells Fargo Bank v. Jordan, 2009-Ohio-1092; Bellistri v. Ocwen Loan Servicing Limited Liability Company, No. ED91369, 2009 Mo. App. Lexis 219 (E.D. Mo.Ct. App. March 3, 2009) (Order); Aurora Loan Services v. Grant, 17 Misc. 3d 1102A (N.Y. Sup. Ct. Kings County 2007)(plaintiff that received an assignment of the promissory note and accompanying mortgage only after commencing theforeclosure proceedings failed to show standing).



have standing to bring foreclosure ac-tions in their own name.'

However, many other courts have givenforeclosure plaintiffs the benefit of thedoubt, accepting often dubious affidavitsof lost notes, endorsements dated af-ter the cases were filed, or even "blank"endorsements as sufficient evidence ofnote-holder status. In one recent case anOhio court granted a bank summary judg-ment based solely on a copy of a "blank"endorsement that the bank claimedshowed that the promissory note had beenconverted to bearer paper (i. e., an instru-ment owned by the holder), apparentlywithout requiring the bank to producethe original note. The pro se homeowner-defendant lost on appeal. 24

Moreover, even when a foreclosure ac-tion is delayed, dismissed, or withdrawnbecause of questions about the plaintiff' sstatus as true holder of the note, that isnot necessarily the end of the story. Ifthe party claiming note-holder status cancome up with the required paperwork, itcan maintain a pending action or refilelater. In other cases the correct party maybe substituted. And even when the paper-work cannot be found or corrected to thecourt's satisfaction, the lender may stillhave a claim for an equitable mortgage.

Advocates also must understand the limi-tations of this strategy in nonjudicial fore -closure states such as California, whereforeclosures are generally conducted bytrustee 's sale without any judicial in-volvement. In judicial-foreclosure states,the homeowner, as the defendant in theforeclosure action filed by the lender,has an opportunity to litigate the stand-ing issue. But, in nonjudicial-foreclosurestates, a homeowner facing foreclosurewould have to initiate an affirmative law-

suit to challenge the foreclosing entity ' snote-holder status.

Suspicion that the lender 's paperworkmay not be in order, without more, isin our view insufficient by itself to sup-port an affirmative lawsuit. Only in caseswith other strong legal claims therefore-claims based, for example, on Truth inLending Act violations or fraud—willthere be an opportunity to test the lend-er's note-holder status. 5s By contrast, ahomeowner sued in a judicial foreclosureaction may raise this issue as a defenseeven if no other defenses are available.

The need to file an action to raisethis standing issue also means that ahomeowner needs to find (and possiblypay) an attorney willing to prepare andfile a case. Given the complexities, at-tempting to litigate this type of issue pro

se would be unwise particularly when at-torney fees may be assessed against thehomeowner if the lender prevails. As apractical matter, then, challenges basedon lack of note-holder status are muchrarer in nonjudicial- than in judicial-foreclosure states.

III. Raising Lack of Standingto Foreclose in aPostforeclosure Eviction

A homeowner facing eviction after anonjudicial foreclosure may be able toraise questions about note-holder statusin conjunction with other challenges tothe foreclosure. If these issues had notbeen litigated, the appropriate proce-dure would be to file an affirmative actionchallenging the foreclosure and ask thecourt hearing the eviction case either tostay that proceeding pending resolutionof the affirmative case or to consolidatethe two actions. With an action pending,

"See, e.g., Mortgage Electronic Systems v Albertson, No. 04781 (Iowa Dist. Ct. Pottawattamie County March 16, 2009)(Order) (Mortgage Electronic Registration Services (MERS) not a real party in interest); Saxon Mortgage Services v. Hillery,2008 U.S. Dist. LEXIS 100056 (N.D. Cal. Dec. 9, 2008) (granting motion to dismiss claim brought by an assignee ofMERS).

''U.S. Bank National Association v. Marcino, 2009-Ohio-1178. The case underscores the complexity of the legal issuesinvolved in this kind of challenge. Successfully challenging the standing of the foreclosing entity due to lack of proof ofnote-holder status demands a sophisticated understanding of both the practicalities of securitization and the requirementsof assigning negotiable instruments. Homeowners representing themselves in court are likely to have a very difficult timeprevailing on this ground.

"For more on foreclosure defenses under the Truth in Lending Act, see Mark Ireland, Foreclosure Defense: UnderstandingTILA Basics Is Essential, 43 CLEARINGHOUSE REVIEW 20 (May—June 2009).

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the homeowner is in a position to dis-cover whether the foreclosing party canactually establish that it had the right toforeclose. If that party cannot do so, boththe foreclosure and the resulting evictionwould be in jeopardy.

In judicial-foreclosure states, these is-sues are likely barred by res judicata or is-sue preclusion. However, in nonjudicial-foreclosure states, a homeowner who didnot previously file an action to stop thetrustee's sale may challenge both the fore-closure and the resulting eviction.

When the defendant in a postforeclosureeviction is a tenant, the options are nar-rower. A tenant is unlikely to have muchof the information necessary to challengethe foreclosure procedurally (e.g., forfailure to put down the correct reinstate-ment amount in a notice of default) orsubstantively (e.g., for failure to state therequired disclosures when the loan wastaken out). Moreover, the narrow scope

of most eviction proceedings may pres-ent obstacles to challenging the underly-ing foreclosure directly. But if a tenant ison good terms with the landlord, and thelandlord is already challenging the fore-closure, incorporating the issues raisedin the landlord 's separate action to de-fend against the postforeclosure evic-tion makes sense for the tenant. As witha homeowner facing eviction after a fore-closure, the tenant may request a stay orconsolidation based on the pendency ofthe landlord's related action.

n n n

Because our office does not directly rep-resent clients in eviction cases, we havenot had an opportunity to test all of thestrategies described above. We welcomeyour comments and feedback regardingyour experiences in using defenses thatwe describe here as well as any defensesthat you are using in the postforeclosurecontext.

We invite you to fill outthe comment form athttp://tinyurl.com/JulyAugustSurvey.Thank you.

—The Editors

Clearinghouse REVIEW Journal of Poverty Law and Policy n July-August 2009

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