We have all heard horror stories of homeowners in foreclosure and at the same time in negotiations with their lender under the auspices of an informal “stay” only to learn that the Lender has proceeded with the sale process. The homeowner only learns at the very last-minute that a pending Trustee Sale auction will proceed upon the termination of the HAMP process. Sometimes these poor souls have only days to scramble to seek alternative solutions. There are even the ultimate horror stories about homeowners who learn that their home has been sold at a Trustee Sale auction while they thought they were engaged in continuing negotiations with their lender under the HAMP program. In the words of many a litigator – they were “sandbagged”.
At this point in time the lenders are permitted to pursue a “double barrel” procedure – maintain the foreclosure sale process while at the same time considering a HAMP application from the borrower. This leaves the homeowner in a precarious position should the HAMP negotiations end without an agreement – most of these applications end in this manner. The “set in stone” Trustee Sale date is stated in all of the legal documentation that the borrower receives. Yet, the borrower is told by the lender throughout the HAMP process not to worry as the sale will be held in abeyance while the application is considered. The borrower relies upon these verbal assurances as the Trustee Sale approaches – nerves begin to fray; then, finally (usually within days of the scheduled sale) the borrower gets word that the Trustee Sale has been re-scheduled to a new date; typically 30 days hence. This routine continues for several months as the application is considered by the lender – each time the borrowers’ nerves get more frayed & each time the final execution date is commuted on the eve of sale. The borrower would be remiss to overly rely on these verbal assurances and repeated delays because at some point in time, without the benefit of an agreement, there will be a Trustee Sale. If the borrowers gets lulled into a false sense of security they may discover, to their chagrin, that either (a) they may be forced into a panic bankruptcy filing to secure the benefit of an automatic stay of the foreclosure proceedings or (b) they may get a knock on the door from the person that bought their house at the Trustee Sale asking when they plan to vacate the premises.
A better solution for the borrower is to insist on a written document from the lender specifically confirming the re-scheduling of the Trustee Sale to a date specific. An even better solution would be for the borrower to insist that the lender provide a letter to the effect that the Trustee Sale has been cancelled. Under the latter circumstance the Trustee Sale must be re-commenced by the filing and recording of a fresh Notice of Trustee Sale together with the notice requirements inherent therein. That would mean that any sale would be approximately 30 days down the road and the borrower will have been formally notified.
While the “better solution” for the homeowner/borrower would be as described above there is no motivation for a lender to provide such written notice with the proposed terms. The current state of the law surrounding the HAMP program permits lenders to use the “double-barrel” method and, by so doing, they maintain all of their available options.
Nevertheless we have found circumstances where the lenders have “waived” this “double-barrel” option. This “waiver” can be found in the analysis of the contents of the lender’s HAMP Application Acknowledgment letter. A typical letter from a major lender contains the following verbiage: “While we are working to determine your eligibility, we will not refer your loan to foreclosure, or, schedule or conduct a scheduled foreclosure sale if your loan is already in foreclosure.” We have asserted on behalf of our clients that this wording is a positive assertion by the lender that the borrower is entitled to rely upon as a waiver of the ability of the lender to continue in a “double-barrel” manner. In effect the parties have come to an agreement that they will engage in the negotiations for a modification of the existing loan upon certain terms and conditions – one of which is that the lender will not proceed in any manner with the foreclosure process beyond the status at the time of the receipt of the HAMP Application and the acceptance by the lender to engage in that process.
As you can imagine the lender representatives at the intake & review stages of the process are very resistant to such an interpretation. They provide very kind-hearted and faux sincere verbal assurance that the foreclosure process will not be completed while the application is being considered. They state that they can’t provide any written confirmation but that such a document isn’t really necessary. When pushed (and sometimes only when threatened with legal action) they eventually refer the matter “up the ladder” where it will eventually end up on the desk of someone with a legal background. This is sometimes called a “HAMP Escalations Department” & these people are quick to point out that they are an oversight department and independent from the HAMP Application review process. It is at this stage that our arguments receive a fair hearing and the wisdom of providing a written acknowledgment of a cancellation of any pending Trustee Sale process is recognized.
Unfortunately all of this effort is typically for naught. The percentage of HAMP Applications that are approved and successfully completed is miniscule. This is an entirely voluntary process for the lender and there is little motivation for them to reach agreements with borrowers. Of course lender do “go through the process” in order to provide the semblance of complying with the high ideals behind the creation of the HAMP program. However, the statistics do not lie – very few of these applications are actually completed with any meaningful modification to the original loan agreement. Inevitably the borrower will be faced with the difficult decision of fighting for their home while under the auspices of a stay through the bankruptcy process or surrendering by selling into a terrible market or, even worse, abandoning the property.
At least the above procedure can buy time. With additional time the homeowner/borrower can maintain some control of his destiny and be able to move to the next stage of life under calmer circumstances. Also, there is always the possibility that with the passage of time a real, practical solution to this mortgage mess will be found; one that has enough teeth to bring the lenders to the table recognizing their role in the creation of the housing catastrophe. Is there the political will in the halls of State Legislatures or the US Congress to properly redress the wrongs afflicted upon the unsuspecting general public by the financial barons of Wall Street? There are many that say: “Don’t hold your breath”.
To quote Shakespeare “All the Devils are Here” and by here I mean Wall Street. I highly recommend that everyone read the fine book of the same name written by Bethany McLean that chronicles the greed and opportunism of Wall Street bankers as they took advantage of the people of America for their own enormous financial benefit.