Mortgage Fraud

By Andrew J Thompson

Because of the nature of mortgage transactions, it can be difficult to determine a case where a homeowner has been defrauded by a lender, broker or title agent in  a mortgage transaction.  But it does happen, and it happens far more often than homeowner’s realize or know.

What is a Case for Fraud?

First, to prove fraud there must be some material misrepresentation or omission of fact.  Actual representations of fact demonstrate the potential of actual fraud, and when the representation is visible, a case becomes easy to prove.

But in most cases, there is limited or no contact between the lender and borrower, and very little contact between the borrower and title agent, in fact it is common that the borrower only meets or talks to the title agent at the closing – and for a very brief period of time.

But omissions of fact, that can be determined from examination of all the evidence surrounding the mortgage transaction itself, if the situation meets other requirements, also can constitute fraud – or perhaps something treated in the law as “constructive fraud”.

Either way, the representation or omission must have occurred either intentionally or knowingly on the part of the party to be held liable for their actions.  If the party did not know and was not accountable for knowing that the misrepresentation or omission occurred, it cannot be guilty of fraud. But if it knew or should have known that important facts relating to the transaction were not disclosed, or were misrepresented to the borrower, fraudulent behavior was in play.

Fraud, however, must also cause the borrower to suffer harm.  This can come in many forms.  For example, it the borrower was eligible for a significantly lower payment at better rates on the loan, if the borrower accepted money based on an appraisal that was inappropriate given the market conditions at the time of a loan – and borrowed more than they should have and lost equity in the house because the appraisal was wrong, even if the borrower’s finances did not justify the loan and they could never get to a position they could repay the loan, these are examples of how fraudulent conduct could case harm to a borrower.

But the homeowner must actually suffer a loss at the hands of the borrower or other party to recover for fraud.  If the above scenarios present only hypothetical losses, the homeowner is not entitled to recovery.  But if they can prove at last $1 of actual loss because of the fraudulent conduct, the defrauded party is entitled to recovery.  At that point, a major case is opened up – for the recovery of actual losses and potentially punitive damages as well.

In other articles, we will discuss how fraud is proven, other claims that may be available to a homeowner, and what to do when you suspect fraud has occurred with respect to your own mortgage.

If you would like assistance with an investigation or assessment of potential fraud relating to your own mortgage, please contact the Thompson Law Office at (317) 564-4976, or email the author at: andrew@thompsonlawindiana.com

Can You Keep Your Home after a Short Sale?

By Andrew J Thompson

One of the requirements for any short sale is that the property must be owner occupied.   Obviously, this is a requirement imposed upon the seller.  Another requirement is that the buyer must not be a “related party”.  This means a spouse, ex-spouse, parent, child, sibling, or possibly a partner, employer, landlord, or even a friend. The lender has great latitude in determining who fits the definition of a related party.

OK, so let’s say you’re living in a home you bought for $250,000 several years ago.  The market has reduced the value of the home to around $175,000 today, you’ve fallen behind on your mortgage, and the bank says you now owe them around $325,000.  Regardless of income, a loan modification probably doesn’t make sense at this point.

But you could reasonably make payments on what the house is worth today, and have faithfully tried to work with the bank ever since you fell behind.   The house is very attractive at the price to a third party buyer-investor.  You don’t know who this is, but chances are good your realtor will know what the buyer is looking as much as he/she knows your situation, and they may well be looking for a good renter – and the best renter might just happen to be you.

Is this plausible?  Basically it depends on the underwriting requirements of the lender.  If they will allow it, or have no means of prohibiting it, then yes, it could be plausible.  The problem is they have to approve the short sale, and if they feel like they will get a little less than they could through another form of sale, they are not likely to approve it – or it could take a very long time to get approval.

But if it takes a long time – so what?  What do you lose when this happens?  Probably not very much, if anything.  It just means additional months you are living in your own home and that you cannot make payments while you do.

The scenario is definitely one worth exploring if your hope for a loan modification is minimal, and if it seems your potential for recourse against the lender – as in most cases – is minimal.

Our firm has helped dozens of homeowners in foreclosure situations figure out ways to save heir homes.  If you think there may be a way we can help you, please call us at (317) 564-4976 for a free consultation.

Foreclosure Prevention Agreements & Settlement Conferences

By Andrew J Thompson

Indiana law offers a rare advantage to homeowners in foreclosure through its requirements for a Settlement Conference between the bank and the borrower.   The purpose of the Settlement Conference is for the parties to try to come to terms on a foreclosure prevention agreement, so that the homeowner is not forced to leave his or her home, without having a good way to get into other suitable housing.

The Indiana legislature has recognized that it is in the public interest for the state to modify the foreclosure to encourage mortgage modification alternatives.  The purpose of the changes in the law is to avoid unnecessary foreclosures of residential properties and provide greater stability to Indiana’s statewide and local economies by

(1) requiring early contact and communications among creditors, their agents, and debtors in order to engage in negotiations that could avoid foreclosure; and

(2) facilitating the modification of residential mortgages in appropriate circumstances.

A primary tool in accomplishing this purpose is the Foreclosure Prevention Agreement.  A Foreclosure Prevention Agreement is defined under Indiana law as a written agreement that:

(1) is executed by both the creditor and the debtor; and

(2) offers the debtor an individualized plan that may include:

(A) a temporary forbearance with respect to the mortgage;

(B) a reduction of any arrearage owed by the debtor;

(C) a reduction of the interest rate that applies to the mortgage;

(D) a repayment plan;

(E) a deed in lieu of foreclosure;

(F) reinstatement of the mortgage upon the debtor’s payment of any arrearage;

(G) a sale of the property; or

(H) any loss mitigation arrangement or debtor relief plan established by federal law, rule, regulation, or guideline.

The homeowner is required to prepare a “Loss Mitigation Package” that includes financial information about income, assets and debts that is sufficient for a creditor to make underwriting decisions about the debtor and any modification to the mortgage and to bring documents in support of this information to the Settlement Conference.

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Under Indiana Code 32-30-10.5-10 (4), in any foreclosure proceeding of which the homeowner has properly requested a settlement conference, the creditor is required to:

(A) In a foreclosure action filed after June 30, 2011, send the debtor, by certified mail a the following transaction history for the mortgage:

(i) A payment record substantiating the default, such as a payment history.

(ii) An itemization of all amounts claimed by the creditor as being owed on the mortgage, such as an account payoff statement.

(B) Bring the following to the settlement conference:

(i) A copy of the original note and mortgage.

(ii) A payment record substantiating the default, such as a payment history.

(iii) An itemization of all amounts claimed by the creditor as being owed on the mortgage, such as an account payoff statement.

(iv) Any other documentation that the court determines is needed.

For a free consultation concerning Settlement Conferences and Foreclosure Prevention Agreements under Indiana law, call the Thompson Law Office at (317) 564-4976 today.

Why Loan Modifications Don’t (Usually) Work

By Andrew J Thompson

The only thing that can help most homeowners who are behind on mortgage payments, is a reduction in their monthly payment.   Loan modifications don’t often work out because the programs created by banks and HAMP – the federal government’s “Home Affordable Mortgage Program” –  do not allow enough flexibility for homeowners to actually reduce their loan payments.  

This is true because the real purpose behind most of what is in the modification programs is to try to enable the banks to collect the full amount due on the loan as quickly as they can.   The banks want to do this, of course, but they want it in spite of the reality that the homeowner is only behind because he or she (or they) can’t make their current payment.  What ends up happening is that a sort of, modification “shell game” is created that the homeowner can’t win.

The lenders put the homeowner though a long process of essentially re-qualifying for a loan, at the end of which, the homeowner typically qualifies for a reduced payment of principal and interest – only to learn when the full terms are disclosed – that there is a kicker: the arrearage alleged by the lender must be repaid on a schedule that actually increases the total payment the homeowner must make.  Of course, the borrower only learns of these terms after a long, drawn out process, which has lead them to go further into default on the loan (on the expectation that they will qualify for more favorable payment terms), and leaves them in a worse position than they were before the process started.

So what is a homeowner to do?  For the most part, I believe the defaulted homeowner is better off to skip the whole loan modification process.  First of all, there may be very serious problems with the mortgage and promissory note, and it may not be necessary.  You may have more rights than you know.  In a few instances, a loan modification may work, but only when there a a few pre-conditions: 1) the creditor agrees to an arrangement during the approval process that allows you temporarily to reduce your payment, without going further into default.  Most lenders won’t do this, but if they won’t, you are not going to come out ahead in the end, and it is not a worthwhile process; 2)  any catch up arrangement for an arrearage will necessarily be structured so that the overall payment – principal , interest and the catch up – will be less than the original payment.  Otherwise, the loan modification CANNOT work.

But it is very rare to find a lender who will agree to such provisions.   yet if they don’t, the whole process is a sham – designed for failure from the outset.  If that turns out to be the case, it’s probably time to seek counsel to assist you in deciding how best to proceed.  Your rights need to be protected.  Protect them in the best way you can.

If you’d like to discuss your options with our staff, please contact our office at (877) 365-1776 toll free or (317) 564-4976, or contact the author vial email: ajt@thompsonlaw-in.com.