June 2012 Newsletter

Short Sales

Making Home Affordable (MHA) Program was introduced by the Obama Administration in 2009 – to stabilize the housing market and help struggling homeowners obtain relief and avoid Foreclosure. The program consist of several smaller programs including the Home Affordable Modification Program (HAMP), the Affordable Refinance Program (HARP and HARP 2.0) and the Home Affordable Foreclosure Alternatives Program (HAFA).

Created in 2009, HAFA is a government-sponsored initiative assisting all Home Affordable Modification Program eligible homeowners in avoiding foreclosure through short sales and deed-in-lieus.

The HAFA updates will go into effect on June 1, 2012, and will allow more distressed homeowners to seek assistance. Most importantly, the deadline for submitting for HAFA eligibility will be extended a full year, from December 31, 2012 to December 31, 2013.

Other major changes from March’s updates to the HAFA program include:

The removal of occupancy requirements. Previously, HAFA required homeowners to have lived in the property within the last 12 months.
$3,000 relocation incentives will be limited to properties occupied by an owner or tenant at the time of the short sale.
Mortgage payments will be allowed to exceed 31% of the homeowner’s gross monthly income. This update will allow a homeowner to stay current on her mortgage and still qualify, minimizing the overall impact to her credit.
Secondary lienholders may receive up to a maximum of $8,500, up from $6,000 previously.
And one of the most dramatic changes: The Credit Bureau Reporting will be Account Status Code 13 (paid or closed account/zero balance) or 65 (account paid in full / a foreclosure was started), as applicable.

With these updates, a homeowner can be current on their mortgage, qualify for HAFA, continue to make their payments, and execute a short sale with minimum impact on their credit.

onlineprnews.com – May 2012

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Bankruptcy Law

Thousands of transactions for clients are handled through trust accounts in the ordinary course of business every day and would not present any issues. However, given the stand taken by the 11th Circuit, firms should be cautious in allowing any deviation from normal payment practices concerning clients in imminent jeopardy.

Lawyers who facilitate their client’s efforts to defraud creditors cross the line from counsel to participant. A careful lawyer will avoid complicity in his client’s questionable practices and limit himself to zealous representation within the bounds of the law.

The 11th Circuit held that, while an initial transferee may equitably escape liability by demonstrating that it had no ownership interest or control over the funds, and thus it was a mere conduit, the conduit test has another element to it – that of good faith:

“[I]nitial recipients of the debtor’s fraudulently transferred funds who seek to take advantage of equitable exceptions to section 550(a)(1) statutory language must establish (1.) that they did not have control over the assets received, i.e., that they merely served as a conduit for the assets that were under the actual control of the debtor transferor and (2.) that they acted in good faith and is an innocent participant in the fraudulent transfer.”

The case was remanded for a factual determination of whether the debtor’s counsel had acted in good faith.

On remand, the bankruptcy court concluded the debtor’s counsel’s firm was the initial transferee – not the attorney, individually. Although counsel certainly viewed his actions that he took to represent his client as appropriate, he did not need to make his trust account available to the debtor so that he could effect transfers intended to hinder, delay, or defraud a creditor. He could have directed the settlement counterparts to make payment directly to the debtor.

The 11th Circuit explained that a law firm cannot turn a blind eye to the surrounding circumstance, when a client asks the firm to deposit money in its trust account, and then distribute it in an unusual fashion with an eye towards avoiding judgment creditors. This is especially so where the firm is already on notice that the client’s judgment creditor is seeking collection.

dailybusinessreview.com – March, 2012
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Mortgage Modification

Freddie Mac announced Friday that starting July 1, the GSE’s Standard Modification interest rate will come down from 5 percent to 4.625 percent.

The Standard Modification is for borrowers who do not qualify for the government’s Home Affordable Modification Program (HAMP). The modification makes payments more affordable by lowering a borrower’s principal and interest payments by at least 10 percent. The modification includes a trial period as does HAMP to ensure borrowers can maintain modified mortgage payments.

When evaluating a borrower for a Standard Modification in Workout Prospector®, users will be prompted to apply the 4.625 percent interest rate if the “Workout Decision Date” is on or after June 1.

Servicers may implement the new interest rate sooner. However, new borrower evaluations done before July do not require the new rate.

Freddie Mac may adjust the interest rate used for Standard Modifications based on market conditions.

The Freddie Mac Standard Modification is part of the Servicing Alignment Initiative, which is an effort to create consistency in how delinquent GSE loans are serviced.

dsnews.com – June 2012
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Foreclosure Defense

Florida circuit courts are in line for a special appropriation of $4 million to deal with a foreclosure backlog in the new state budget, $1.7 million short of what was requested.

The one-time fund will be used to bring in additional senior judges and hire case managers to prepare cases for hearings. The funds are intended to accelerate the disposition of mortgage foreclosures.

This repeats a process in place a year ago but not in the current fiscal year. “The last time we requested extra funds, we didn’t get the full funding, and we didn’t get through the full backlog. But we got as far through it as we could,” Office of the State Courts Administrator Lisa Goodner said.

In most counties, the back-log became manageable in 2011 mainly because mortgage lenders and servicers instituted a moratorium on new filings in late 2010 due to the robo-signing scandal, which prompted investigations by attorneys general in all 50 states.

A $25 billion national settlement announced Feb. 9 is expected to break the gridlock on foreclosure filings, which have started climbing in some areas.

There has not yet been a statewide surge in foreclosure filings, but the Legislature is projecting a significant increase in the fiscal year beginning July 1, Goodner said.

Palm Beach County already is seeing a significant spike. In February, there were 1,198 filings, up from 756 filings a year before.

The Legislature also allocated $2 million to court clerks and has specifically earmarked to assist with foreclosures.

Unfortunately, Goodner noted the money for clerks would not offset a legislative cut of $31 million for clerks’ court support services.

It is unclear how useful the new money will be for clerks’ offices, which projected a loss of 900 jobs with the 7 percent budget cut in play.

dailybusinessreview.com – March 2012
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Local and International News

Floridians may see longer delays in getting credit for paying traffic fines and child support as court clerks cope with a 7 percent budget cut passed by the Legislature.

That is a sample of the effects discussed by the state’s clerks at an emergency conference held in Tampa.

Clerks representing the state’s 67 counties considered the impact on their operations and tried to reach a consensus on administering a fourth consecutive annual reduction.

About 900 employees statewide are projected to lose their jobs, including 295 in Miami-Dade, Broward and Palm Beach counties.

dailybusinessreview.com – March, 2012
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Judicial Activism

Freeman v. Quicken Loans Inc.

On May 24, 2012, the Supreme Court announced its decision in Freeman v. Quicken Loans, Inc. This case involves a section of the Real Estate Settlement Procedures Act stating that “[n]o person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a real estate settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed.” The question was whether this prohibition extends to “unearned, undivided” fees that lenders sometimes charge to borrowers at the closing of mortgage transactions.

In an opinion delivered by Justice Scalia, the Court held unanimously that, for a plaintiff to establish a violation of the prohibition in question, he or she must demonstrate that the charges for settlement services were divided between two or more persons.

The Federalist Society