Did you know?

Did You Know?

That mortgage-related litigation hit a 3-year high during this year’s first quarter, according to a report in the New Jersey Law Journal last month. The increase was fueled partly by a jump in cases involving companies suing each other, as opposed to cases between lenders and homeowners. The first-quarter cases are believed to be the highest number of active lawsuits in any quarter since 2007.

According to the American Bankruptcy Institute, U.S. consumer bankruptcy filings have increased 14% in the first six months of 2010 as compared to the same period last year. ABI Executive Director Samuel J. Gerdano notes that “Years of rising consumer debt and low savings rates, combined with the housing and employment crises, are causing bankruptcy levels not seen since the 2005 amendments to the Bankruptcy Code.” The ABI expects more than 1.6 million new bankruptcy filings nationwide by year end. Estimates for New Jersey are at 5,000 per month or 60,000 by year’s end.

Between September 2007 and September 2008, there was a 54% increase in foreclosure lawsuits filed in New Jersey over the previous 12 month period. It’s not getting better. At the end of last year The Wall Street Journal reported that 23% of the United States homeowners are “underwater” (owe more on their mortgages than the properties are worth).

In New Jersey, the average is 15%. Nearly 10.7 million household had negative equity in their homes in the 3rd quarter of last year, according to First American Core Logic, a real estate information company based in Santa Anna, CA. In June, the Mortgage Bankers Association reported that more than 10% of homeowners had missed at least one mortgage payment in the first quarter of 2010. That’s a record high, beating the record from the 4th quarter of 2009. The MBA’s top economists reports that around 4.3 million homeowners, or 8% of all Americans with a mortgage, are at the risk of losing their homes because they have either missed at least three months of payments or are in foreclosure.

Just last week, The Associated Press reported that more than 1 million American household are likely to lose their homes to foreclosure this year, as lenders work their way through a huge backlog of borrowers who have fallen behind in their loans. In all, about 1.7 million homeowners received a foreclosure-related warning between January and June. That translates into one in 78 homes. Although foreclosure notices have declined in April, May and June, Rick Sharga, a senior vice president at Realty Trac, thinks one should not read too much into that. Sharga says “the banks are really sort of controlling or managing the dial on how fast these things get processed so they can ultimately manage the inventory of distressed assets on the market”. He projects that it will take lenders through 2013 to resolve the backlog of distressed properties that lenders have on their books now.

In some circles, the Obama Administration’s $75 Billion program to protect homeowners from foreclosure has been widely pronounced as a disappointment. More than a third of the 1.2 million borrowers who have enrolled in the mortgage modification program have dropped out. That compares with about 27% who have received permanent loan modification and are making payments on time. Critics of the Obama program, Making Home Affordable, assert that the temporary relief offered to a small percentage of homeowners has raised false hopes among people who simply can not afford their homes. As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. In addition, some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some commentators cite a “secret test” that, they say, insures lenders will win when it comes to loan modifications. The Net Present Value test is a complex computer model used by loan services to determine whether a homeowner qualifies for the Federal Loan Modification Program. The test compares two scenarios – modification and foreclosure – and determines which would be more profitable for the lender. If its foreclosure, the lender has no obligation to modify the loan, and a lawsuit is soon to follow. The model is a black box. In other words, what goes in isn’t entirely clear, and what comes out isn’t always reliable. The Treasury Department has refused to release the exact formula for the NPV model, bringing criticism from homeowner advocates and industry experts.

According to Richard Kahn, the author of Winning Against Foreclosure, a Strategic Guide, one of the problems is a lack of specific knowledge about the necessary and available tools to fight foreclosure lawsuits. This is exacerbated by borrowers who lack trust in those who seek a fee to assist them. “This is understandable given their recent experiences with mortgage brokers who sold them a toxic mortgage while getting paid handsomely for it.”, explains Mr. Kahn. His book is designed to enlighten borrowers about the process required to win against foreclosure and provide a benchmark for them to access the skills of their attorney or loan modification professional. Kahn suggests that “any borrower, who thinks they have the ability to go pro se (to defend themselves) against the non-regulated mortgage lender law firms is most likely committing legal suicide.”

To combat the unfair advantage created by these difficult economic times, Barron & Posternock, LLP has chosen to devote its energy and money to help people save in their homes. If you or someone you know needs help, call us at 856-642-6445 or email danp@barpostlaw.com.

-Dan Posternock

***The information included in this newsletter is not, nor is it intended to be, legal advice. You should consult an attorney for advice regarding your individual situation. We invite you to contact us and welcome your calls, letters and electronic mail. Contacting us does not create an attorney-client relationship. Please do not send any confidential information to us until such time as an attorney-client relationship has been established.